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José Antonio Velázquez
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Saul Medina
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Puerto la Cruz GMT -4
EY
Av. Principal de Lechería
Centro Empresarial Lechería
5th Floor – 506
Puerto La Cruz, Edo Anzoátegui
Venezuela
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José Antonio Velázquez
+58 (281) 287-4109
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Business Tax Advisory
Ivette Jimenez
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Valencia GMT -4
EY
Urb. Valles de Camoruco
Las Cuatro Avenidas
Torre Ejecutiva, 2nd Floor
Valencia, Estado Carabobo
Venezuela
Business Tax Services
José Antonio Velázquez
+58 (241) 823-5807,
+58 (241) 823-4397
+58 (212) 905-6659 (resident in Caracas)
Yordalmir Sánchez
Business Tax Advisory
Ivette Jimenez
Mobile: +58 (424) 110-5113
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+58 (241) 823-4397, +58 (241) 823-5807
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A. At a glance
Net income arising from mining and related activities is taxed under Tariff No. 2. Petroleum companies and income from petroleumrelated activities, such as transportation and exploitation, are taxed at a rate of 50%. Mining royalties and transfers of such royalties are subject to tax at a rate of 60%.
For tax years beginning on or after 31 December 2015, taxpayers that perform banking, financial, insurance and reinsurance activities are taxed at a proportional rate of 40%.
Interest paid to foreign financial institutions that are not domiciled in Venezuela is subject to a 4.95% withholding tax.
Capital gains. Capital gains are not taxed separately, but are taxable as business profits. For the computation of gains from sales of shares, the tax basis is zero if such shares had been received as a result of a dividend paid with new shares of the payer of the dividend.
Administration. Companies must file an annual income tax return, self-assess and pay any resulting balance of tax due, within three months after the end of their fiscal year.
Companies must make estimated tax payments during their fiscal year.
Dividends. Dividends paid by Venezuelan companies and profits remitted by permanent establishments of foreign companies to the countries of their home offices are taxable to the extent that “net income” exceeds its “net taxable income.” For this purpose, “net income” is the financial income approved by the shareholders’ meeting based on the financial statements, and “net taxable income” is the resulting income subject to tax after the tax reconciliation. The tax reconciliation is the procedure for determining the income tax liability. 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.
The tax is withheld at source. The applicable rate depends on the business of the payer of the dividends. For dividends paid by hydrocarbon or mining companies subject to the 50% or 60% rates of corporate income tax (see Rates of corporate income tax), the dividend tax rate is the corporate tax rate applicable to the company. For dividends paid by other companies, the dividend tax rate is 34%.
Foreign tax relief. A credit is granted for income taxes paid on foreign-source income, up to the amount of Venezuelan tax payable on such income.
C. Determination of trading income
General. Corporate tax is based on the annual net taxable accounting profits calculated in accordance with generally accepted
accounting principles, subject to certain adjustments for nontaxable income and nondeductible expenses defined by law.
To determine the net taxable income, deductions are subtracted from gross income. In general, most expenses, including cost of production, are deductible, provided that they are normal and necessary for the earning of the income.
Under reconciliation rules, the determination of the Venezuelan and foreign-source income is made separately (two baskets). The reconciliation rules include detailed measures for the allocation of allowances and deductions to the two baskets.
Inventories. Inventories may be valued using any method in accordance with generally accepted accounting principles. The method chosen must be applied consistently. Because of tax indexation (see Tax indexation), inventory is effectively valued using the lastin, first-out (LIFO) method, adjusted for inflation.
Tax indexation. Companies must apply an annual inflation adjustment. A company carries out this adjustment by adjusting its non-monetary assets, some of its non-monetary liabilities and its equity to reflect the change in the consumer price index from the preceding year. These adjustments affect the calculation of depreciation and cost of goods sold. The net effect of these adjustments is recorded in an inflation adjustment account and is added to taxable income or allowed as a deduction.
Effective for tax years beginning after 22 October 1999, the tax indexation rules apply only to the reconciliation of Venezuelansource income. Therefore, foreign-source non-monetary assets and liabilities are not subject to tax indexation.
For tax years beginning on or after 18 November 2014, for purposes of determining the adjustment for inflation, the National Index of Consumer Prices must be used instead of the Index of Consumer Prices, which was applicable for previous tax years. In addition, taxpayers that engage in banking, financial, insurance and reinsurance activities are excluded from the tax indexation system set forth in the Income Tax Law.
In addition, for tax years beginning on or after 31 December 2015, taxpayers appointed as “Special Taxpayers” are also excluded from the tax indexation system set forth in the Income Tax Law.
Provisions. Provisions for inventory obsolescence and accounts receivable are not deductible; amounts are deductible only when inventories or accounts receivable are effectively written off.
Depreciation. In general, acceptable depreciation methods are the straight-line and the units-of-production methods. The decliningbalance method and accelerated depreciation are not accepted. Venezuelan law does not specify depreciation rates. If the estimated useful life of an asset is reasonable, the depreciation is accepted. Estimated useful lives ranging from 3 to 10 years are commonly used.
Relief for tax losses. Operating losses from Venezuelan sources may be carried forward for three tax years, but they may not offset more than 25% of the income obtained in such tax years. No carryback is permitted.
F. Treaty withholding tax rates
Austria 5/15 (c) 4.95/10 (m) 5
Barbados 5/10 (e) 5/15 (o) 10 (s)
Belarus 5/15 (b) 4.95/5 (ll) 5/10 (mm)
Belgium 5/15 (b) 10 5
Brazil (kk) 10/15 (j) 15 15 (t)
Canada 10/15 (h) 10 5/10 (u)
China Mainland 5/10 (d) 5/10 (o) 10
Cuba 10/15 (h) 10 5
Czech Republic 5/10 (c) 10 12 (v)
Denmark 5/15 (b) 5 5/10 (w)
France 0/5/15 (k) 5 5
Germany 5/15 (c) 5 5
Indonesia 10/15 (l) 10 10/20 (x)
Iran 5/10 (c) 0/5 (r) 5 (y)
Italy 10 10 7/10 (z)
Korea (South) 5/10 (d) 5/10 (o) 5/10 (aa)
Kuwait 5/10 (d) 5 20
Malaysia 5/10 (d) 4.95/15 (nn) 10 (oo)
Mexico (kk) 5 4.95/10/15 (q) 10 (s)
Netherlands 0/10 (f) 5 5/7/10 (cc)
Norway 5/10 (d) 5/15 (o) 9/12 (dd)
Portugal 10 10 10/12 (dd)
Qatar 5/10 (d) 4.95/5 (pp) 5
Russian Federation 10/15 (i) 5/10 (o) 10/15 (ee)
Spain 0/10 (f) 4.95/10 (n) 5
Sweden 5/10 (b) 10 7/10 (ff)
Switzerland 0/10 (f) 5 (gg) 5
Trinidad and Tobago 5/10 (b) 15 10
United Arab Emirates 5/10 (d) 10 10
United Kingdom 0/10 (g) 5 5/7 (hh)
United States 5/15 (d) 0/4.95/10 (p) 0/5/10 (bb)
Vietnam 5/10 (d) 4.95/10 (n) 10
Non-treaty jurisdictions 34/50/60 (ii) 4.95/34 (jj) 34 (jj)
(a) Under Venezuelan domestic law, a reduced withholding tax rate of 4.95% applies to interest paid to financial institutions not domiciled in Venezuela.
(b) The 5% rate applies to dividends paid to a parent company that owns at least 25% of the capital of the payer of the dividends. Under the Denmark and Sweden treaties, to benefit from the 5% rate, the recipient of the dividends must have direct control of at least 25% of the voting shares of the payer of the dividends. The higher rate applies to other dividends (portfolio dividends).
(c) 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. Under the treaties with Austria, Czech Republic and Iran, to benefit from the 5% rate, the beneficial owner of the dividends must have direct control of at least 15% of the capital of the payer of the dividends. The higher rate applies to other dividends (portfolio dividends).
(d) 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. Under the treaties with China Mainland, Korea (South) and Norway, to benefit from the 5% rate, the beneficial owner of the dividends must have direct control of at least 10% of the capital of the payer of the dividends. The higher rate applies to other dividends.
(e) The 5% rate applies if the beneficial owner of the dividends is a company that owns directly at least 5% of the capital of the payer of the dividends. The higher rate applies to other dividends.
(f) The 0% rate applies to dividends paid to certain recipients who own at least 25% of the voting shares of the payer of the dividends. Under the treaty with Switzerland, to benefit from the 0% rate, the recipient of the dividends must have direct control of at least 25% of the voting shares of the payer of the dividends. The higher rate applies to other dividends.
(g) The 0% rate applies if the beneficial owner of the dividends is a company that directly controls at least 10% of the capital of the payer of the dividends. The 10% applies to other dividends.
(h) The 10% 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. Under the treaty with Cuba, to benefit from the 10% rate, the beneficial owner of the dividends must have direct control of at least 25% of the capital of the payer of the dividends. The 15% rate applies to other dividends.
(i) The 10% rate applies if the beneficiary of the dividends is a company that owns at least 10% of the capital of the payer of the dividends and if it has an investment in the payer of at least USD100,000. The 15% rate applies to other dividends.
(j) The 10% rate applies if the beneficiary of the dividends is a company that controls at least 20% of the capital of the payer of the dividends. The 15% rate applies to other dividends.
(k) The 0% rate applies if the beneficial owner of the dividends is a company that holds directly or indirectly at least 10% of the payer of the dividends. The 15% rate applies if the beneficiary of the dividends is a resident of Venezuela that receives from a company resident in France dividends that would give rise to a tax credit (avoir fiscal). For dividends received by a resident of France, the recipient has a right to a payment from the French Treasury in an amount equal to the avoir fiscal. The 5% rate applies in all other cases.
(l) The 10% rate applies if the beneficiary of the dividends is a company that controls directly at least 10% of the voting power of the distributing company. The 15% rate applies to other dividends.
(m) The 4.95% rate applies to interest paid to banks. The 10% rate applies to other interest payments.
(n) The 4.95% rate applies to interest paid to financial institutions. The 10% rate applies to other interest payments.
(o) The 5% rate applies to interest paid to banks. The higher rate applies to other interest payments.
(p) 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.
(q) 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 either of the following additional conditions is satisfied:
• The interest is paid by banks.
• The interest is paid on bonds or other credit securities that are traded regularly and substantially on a recognized securities market.
The 15% rate applies to other interest payments.
(r) The following interest payments are exempt:
• Interest paid to the government of the other contracting state, or a local authority or central bank of such state
• Interest paid for the sale on credit of industrial, commercial or scientific equipment
• Interest on bank loans
The 5% rate applies to other interest payments.
(s) The 10% rate also applies to technical assistance fees.
(t) The 15% rate applies to royalties related to copyrights, trademarks, knowhow, literary, artistic or scientific works, or films. A protocol to the treaty provides that payments for technical assistance services are treated as royalties and are therefore also subject to the 15% rate.
(u) The 5% rate applies to the following:
• Copyright royalties and similar payments with respect to the production or reproduction of literary, dramatic, musical or other artistic works (but not including royalties for motion picture films or works on film or videotape or other means of reproduction for use in connection with television broadcasting)