KNOWLEDGE BASE

INTERNATIONAL INVESTMENT

Investing in South America: Venezuela

Overview Tax Treaties Salient Features Case Studies

OVERVIEW

Dividends paid by Venezuelan companies and branch remittances are taxable at the extent that income before taxes exceeds net taxable income at a rate of 34%. The rate may be reduced by the relevant treaty. If the amount paid is reinvested in Venezuela for a period of at least 5 years, no tax is levied on the payment.

Interest and royalties subject to withholding tax at a rate of 34%. The rate may be reduced through the treaty. Dividends paid to non resident individuals are subject to withholding tax on 90% of the gross amount (95% for corporations).

No debt-to-equity ratio is applied in Venezuela. Loans granted by related parties are deductible without limitation.

Venezuela has concluded double tax treaties with the following countries:

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TAX TREATIES

Uruguay has concluded double tax treaties with Hungary and Germany. Consequently, it is possible to use only these two jurisdictions for international tax planning purposes.

Dividends % Interest (b)% Royalties %
Barbados 5/10 (v) 5/15 10
Belgium 5/15 (j) 10 5
Czech Republic 5/10 (k) 10 12 (g)
Denmark 5/15 (j) 0 5/10 (x)
France 0/5/15 (p) 5 5
Germany 5/15 (k) 5 5
Indonesia 10/15 (w) 10 20 (g)
Italy 10 10 10 (a)
Mexico 5 4.95/10/15 (y) 10
Netherlands 0/10 (u) 5 5/7/10 (d)
Norway 5/10 5/15 (z) 9/12 (e)
Portugal 10 10 10/13 (e)
Sweden 5/10 10 7/10 (o)
Switzerland 0/10 (m) 5 5
Trinidad & Tobago 5/10 (q) 15 10
UK 0/10 (n) 5 5/7 (c)
US 5/15 (r) 4,95/10 (s) 5/10 (t)
Non Treaty Countries 34/50/60 (i) 34 (f) 34 (f)

(a) The rate is 7% for royalties relating to literary, artistic or scientific works, or to films.

(b) Under Venezulan domestic law, a reduced withholding tax rate of 4.95% applies to interest paid to financial institutions not domiciled in Venezuela.

(c) The rate 5% applies to royalties for patents, trademarks and know-how; the 7% rate applies to royalties for copyrights and for artistic and scientific works.

(d) The 5% rate applies to payments for technical assistance. The 7% rate applies to payments for brand names or commercial names. The 10% rate applies to royalties for copyrights of literary, artistic or scientific works.

(e) The lower rate applies to payments for technical assistance. The 12% rate applies to royalties.

(f) Paid to Corporations

(g) The rate is 10% for royalties relating to copyrights of literary, artistic or scientic works

(h) This is the general rate. Certain special rules apply.

(i) Dividends paid by Venezuelan companies and profits remitted by permanent establishments of foreign companies to their home countries are taxable to the extent that “income before taxes” exceeds “net taxable income.” For this purpose, “income before taxes” is financial income before the tax reconciliation and “net taxable income” is the resulting income subject to tax after the tax reconciliation. However, the tax does not apply to remittances paid by permanent establishments of foreign companies if the permanent establishment can prove that the excess amount is reinvested in Venezuela for at least five years.

(j) The 5% rate applies if the beneficial owner of the dividends is a company that Owns at least 25% of the capital of the payer of the dividends. The 15% rate applies to other dividends.

(k) The 5% rate applies if the beneficial owner of the dividends is a company that owns at least 15% of the capital of the payer of the dividends. The higher rate applies to other dividends.

(l) The 5% rate applies if the beneficial owner of the dividends is a company that owns at least 10% of the capital of the payer of the dividends. The 10% rate applies to other dividends.

(m) The 0% rate applies if the beneficial owner of the dividends is a company that directly controls at least 25% of the capital of the payer of the dividends. The 10% rate applies to other dividends.

(n) The 0% rate applies if the beneficial owner of the dividends is a company that directly or indirectly controls at least 10% of the voting rights of the payer of the dividends. The 10% rate applies to other dividends.

(o) The 10% rate applies to royalties related to literary, artistic or scientific works, or films. The 7% rate applies to other royalties

(p) The 5% rate applies if the beneficial owner of the dividends is an individual or company that owns at least 10% of the capital of the payer of the dividends. The 15% rate applies to other dividends.

(q) The 5% rate applies if the benefical owner of the dividends is a company that owns at least 25% of the capital of the payer of the dividends. The 10% rate applies to other dividends.

(r) These rates apply to dividends paid from Venezuela. The 5% rate applies if the beneficial owner of the dividends is a company that owns at least 10% of the voting stock of the payer of the dividends. The 15% rate applies to other dividends.

(s) The 0% rate applies to interest paid to the Eximbank, Federal Reserve Bank, Private Investment Corporation, Foreign Trade Bank, Central Bank of Venezuela and Venezuelan Investment Fund. The 4.95% rate applies to interest paid to financial institutions or insurance companies. The 10% rate applies to other interest payments.

(t) The 0% rate applies to royalties paid for technical services, scientific, geological or technical studies, engineering works, consulting or supervision services, if the recipient does not have a permanent establishment. The 5% rate applies to royalties paid for industrial, commercial or scientific equipment. The 10% rate applies to royalties paid for the following: patents, designs or models; plans or secret formulas or processes; industrial, commercial or scientific know-how; trademarks and copyrights with respect to literature, art or science; and motion pictures, and movies and tapes for radio or television broadcast.

(u) The 0% rate applies if the recipient of the dividends owns at least 25% of the shares of the payer. The 10% rate applies to other dividends.

(v) The 5% rate applies if the beneficial owner of the dividends is an individual or company that owns at least 5% of the capital of the payer of the dividends. The 10% rate applies to other dividends.

(w) The 10% rate applies if the beneficial owner of the dividends is a company that owns at least 10% of the capital of the payer of the dividends. The 15% rate applies to other dividends.

(x) The 5% rate applies to technical assistance fees. The 10% rate applies to royalties paid for literary, artistic or scientific works or films.

(y) The 4.95% rate applies to interest paid to banks or insurance companies. The 10% rate applies if the beneficial owner of the interest is not one of the entities mentioned in the preceding sentence and if ether of the following additional conditions is satisfied: the interest is paid by banks; or the interest is paid on bonds or other credit securities that are traded regularly and substantially on a recognised securities market. The 15% rate applies to other interest payments.

(z) The 5% rate applies to interest paid to banks. The 15% rate applies to other interest payments.

Venezuela’s other tax treaties cover only air and maritime transportation.

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SALIENT FEATURES

Corporate Income Tax Under Venezuelan domestic law, profits are taxable at a maximum 34% progressive rate which applies to the income exceeding BS 24,700.
Dividends Dividends received from Venezuela by non resident shareholders are exempt from income tax withholding under domestic law to the extent the relevant dividends are distributed out of earning which have been previously taxed at the corporate level. Any excess distributions which relate to earning that have not been taxed at the corporate level are subject to a 34% withholding tax.
Interest Under Venezuelan tax law, interest that is computed on an arm’s-length basis is generally deductible without limitation, and is subject to a 32,3% withholding tax (for corporations; 30,6% for individuals).
Royalties Withholding tax rate is 34%.
Loss Relief Losses may be only carried forward for up to three years.

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CASE STUDIES

Offshore Investing Into Venezuela
EU Company Investing Into Venezuela
Venezuelan Individual Investing Into Venezuela
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