Venezuela is constitutionally organized under a federal government. The Venezuelan Bolivarian National Constitution (VBNC) establishes a taxation system in which the power to tax is shared between national, state, and municipal governments. 

Therefore, each level of government has a constitutional right to regulate and collect taxes as set out in the VBNC.

The Republic has the broadest taxing power since it is responsible for the creation, organization, collection, administration, and control of taxes on income, inheritance, donations and other related matters, capital, production, added value, hydrocarbons and mines, import and export of goods and services, taxes on liquors, alcohols and other alcoholic species, cigarettes, and other tobacco products. It also has a residual taxing power regarding all other taxes, rates, and incomes not expressly attributed to States or Municipalities.

The States have mainly the following taxing powers, among others: the creation, organization, collection, control, and administration of stamp taxes; and the extraction, exploitation, commercialization and use of non-metallic minerals not reserved to the Republic. As for the Municipalities, their taxing powers relate to economic activities, real estate, properties such as vehicles, events, and commercial advertising, among others.

In addition, different laws have created several additional taxes, some of which are only applicable to specific industries like banking, telecommunications, hydrocarbon exploitation, etc.

It is also worth noting that Venezuela has a network of thirty-four (34) double taxation treaties in force with different countries, including those signed with the United States, China, Russia, and Turkey.

In this chapter 

• Legal system
• Taxation authorities
• Business vehicles
• Financing a corporate subsidiary 
• Income tax
• Cross-border payments
• Payroll taxes
• Other taxes
• Other contributions

Legal system

Venezuela has a civil law legal system applicable throughout its whole territory.

Taxation authorities

The body in charge of collecting national taxes is the National Integrated Customs and Tax Administration Service (SENIAT, by its acronym in Spanish).

Each one of the States and Municipalities is responsible for the collection of their taxes, through the entity duly designated for such purpose.

Contributions are collected by a specific authority determined by the law in which they were created.

Business vehicles

Business activities in Venezuela are carried out through stock corporations, limited liability companies, general partnerships, limited partnerships, joint ventures, or directly by foreign companies, with or without a branch.

General Partnerships

The General Partnership is a type of entity in which the liabilities are guaranteed by the partners, as they are jointly and severally liable.

Limited Partnership

The Limited Partnership is an entity in which there are two kinds of partners: (i) the general or active partners, which have unlimited liability in respect of any company liability, and (ii) the limited or silent partners which have limited liability.

Joint Stock Company

The Joint Stock Company is very similar to the Limited Partnership, but the stakes held in the company are represented by shares instead of interest.

Corporation

Corporations are the most common business entities used in Venezuela. Corporations are separate and independent entities from their shareholders. The liability of the corporation is limited to the face value of its equity.

Limited Liability Companies

In these entities, the liability of its members is limited to the amount of their contributions to the capital. The member holds interests called “quotas” instead of shares.

Joint Venture – Consortium

Association in Participation (Joint Venture)

An association in participation is an agreement wherein the members, called silent partners, are entitled to participate in the profits or losses of either part or the entire business of the managing partner. This agreement does not create an entity separate from its members.

Consortium

A consortium is also an agreement by two or more corporations to jointly carry out a business. Like the association in participation, the consortium would not create a legal entity separate from its members.

Consortiums, like partnerships, are treated as semi-fiscally transparent entities for Venezuelan income tax purposes, which means that they are not subject to payment of tax on their net income since the tax is levied on the partners. However, they are subject to the determination of such net income, as well as to the obligations of control and supervision established by the law, and are jointly and severally liable for the payment of the tax that, on account of their shares or participation quotas, must be paid by its partners.

Branches and Permanent Establishment

A non-resident foreign company may also carry on business in Venezuela directly or through a branch.  In both cases, it may create a permanent establishment in Venezuela under the Income Tax Law (ITL).  The ITL provides the scope of what would be deemed a permanent establishment.

Using wording similar to that contained in double taxation treaties, the ITL provides that a taxpayer carries out operations in Venezuela through a permanent establishment when, directly or through an agent, employee or representative, it owns in the Venezuelan territory any premises or fixed place of business, or any center of activity where it carries out, totally or partially, its activity or when it owns in Venezuela management headquarters, a branch, offices, factories, workshops, facilities, warehouses, stores or other establishments; construction, installation or assembly works, when their duration exceeds six (6) months, agencies or representatives authorized to contract in the name or on behalf of the taxpayer, or when it carries out in the country activities relating to mines or hydrocarbons, agricultural, forestry or livestock operations or any other place of extraction of natural resources or professional or artistic activities or has other workplaces where it carries out all or part of their activity, either by itself or through its employees, attorneys-in-fact, representatives or other personnel hired for that purpose.

An agent who acts independently is excluded from this definition unless the agent has the power to conclude contracts on behalf of the principal.  Facilities operated permanently by a business owner or professional, centers for the purchase of goods or services, and real estate operated under a lease or by any other means are also considered permanent establishments.

Finally, a foreign non-resident company can also carry on business in Venezuela directly, with or without the incorporation of a branch.  In the latter case, the branch must be duly registered before the Mercantile Register in Venezuela.

Financing a corporate subsidiary

Equity Financing

In Venezuela, the shareholders can make contributions to increase the amount of the share capital either through the issuance of new shares or the increase of the nominal value of shares already issued. From a tax perspective, there is no difference between choosing one way or the other.

Shareholders can also make contributions to increase the company's equity that do not increase the amount of share capital. This is the case, for example, when a contribution is made to a “future capitalizations" equity account; when a legal or statutory reserve is increased; or when shares are subscribed with a premium (the amount paid for the premium increases the equity, but not the share capital).

Commercial Registries Fee and Stamp Tax

The national regulatory entity in charge of Commercial Registries (SAREN, for its acronym in Spanish) imposes a fee on the registration and capital increases of corporations equivalent to two percent (2%) of the entity's share capital. 

In this regard is important to note that, though there is no legal basis, in practice, the SAREN has established minimum share capital amounts for the incorporation of business vehicles based on the economic activity they will perform. The minimum amount for incorporation, at the current exchange rate, is equivalent to US$500.

In addition to this, some States impose a stamp tax on the registration and capital increases of corporations which typically ranges from 1% to 2.50% of the entity's share capital.

Debt Financing

Withholding tax implications

Venezuelan entities are permitted to borrow funds from financial institutions incorporated abroad and not domiciled in the country at a more favorable rate (4.95%) from a withholding tax perspective than would be obtained from other types of legal entities (15-34%).

Thin capitalization

The ITL provides, as a special anti-avoidance method, thin capitalization rules that would apply in the event of a loan between related parties. 

By the application of these rules, interest paid, directly or indirectly, to related parties is deductible only to the extent that the amount of the debts with related parties, added to the amount of the debts contracted with independent parties, does not exceed the net patrimony of the taxpayer.

Transfer Pricing

According to transfer pricing rules, all transactions entered into by two related parties must comply with the arm's length principle or market value principle.

Thus, taxpayers are obliged to use the methodology established for transfer pricing contained in the ITL to confirm that their income, expenses, and deductions comply with such principles.  Therefore, in the event of a loan between related parties, interest paid would be subject to transfer pricing rules (arm's length principle).

Income tax

Venezuela imposes corporate and personal income tax on its residents in respect of income and capital gains earned anywhere in the world.

Income tax is collected by the National Tax Administration (SENIAT). Venezuelan income tax is a mixed system. It is fundamentally a global tax, which means that — in principle — it considers the generality of income without splitting it into different categories. However, it is also partially a scheduler tax that differentiates some types of income to tax them separately.

The ITL embraces the notion of the worldwide income system. Consequently, those who are considered tax residents in Venezuela are subject to the income tax for both their Venezuelan source income and their foreign source income.

This worldwide income system regime is also applicable to permanent establishments in Venezuela, but only to the extent of the income that is directly attributable to the permanent establishment.

Finally, any income deemed of Venezuelan source by the ITL will also be subject to taxation in Venezuela, even if obtained by a non-domiciled foreign entity or non-residence individuals without a permanent establishment in Venezuela.

Income Tax Rate

The ITL provides three (3) tax rates that could apply to the net income obtained by a company, depending on the economic activity carried out by the taxpayer, as shown below:

Capital gains

Capital gains are not subject to a special tax regime or rate. Therefore, the tax rate applicable to capital gains would be the same rate applicable to the taxpayer’s general income depending on its economic activity.

Taxation on dividends

The dividends paid by local companies to their shareholders are subject to a proportional tax rate of 34%, under an imputation system, subject to total withholding at the source at the time of payment.

When the dividends come from companies engaged in the exploitation of hydrocarbons and associated activities, they shall be taxed at the tax rate of 50%, subject to total withholding at the source at the time of payment.

When the dividends come from companies that receive net income derived from the operation of mines and the income resulting from the assignment of such royalties and interests, they shall be taxed at the tax rate of 60%, subject to total withholding at source at the time of payment.

Dividends received from companies incorporated and domiciled abroad or companies incorporated abroad and domiciled in Venezuela are excluded from the imputation system explained above and instead are subject to a proportional tax rate of 34%. The ITL allows for the tax paid for this concept outside Venezuelan territory to be attributed to said result.

Taxation on deemed dividends

The corporations or partnerships incorporated abroad and domiciled in Venezuela or incorporated and domiciled abroad that have a branch in the country are subject to the payment of a tax of 34% on the financial income not exempted or exonerated exceeding the branch’s net income in the fiscal year.

This tax on deemed dividends will not be applicable in those cases where the taxpayer proves to the Tax Administration, that the difference between the net taxed income and the financial income has been reinvested in the country. This reinvestment must be kept in the country for a minimum period of five (5) years.

Computation of taxable income

Taxable base

The ITL establishes that annual, net, and available income obtained in cash or in-kind shall be subject to taxation in Venezuela.

Net income is defined as the increase in patrimony resulting after subtracting from gross income, costs, and deductions allowed by the law.

The income will be considered available as a general rule from the moment the operations that produce it are carried out. Exceptionally, some types of income are considered available only when they are paid or when they are legally enforceable.

Deductions

As a general rule, the taxpayer is allowed to make the deductions from their gross income, which, unless otherwise stated, must correspond to (i) normal and necessary expenses, (ii) not attributed to the cost (iii) incurred in the country and (iv) incurred with the purpose of producing the income.

There are some limitations established by the ITL regulations to the deduction of payments made by a permanent establishment to the head office of the company or any of its other branches, affiliates, subsidiaries, parent company, or related companies (e.g., for the payment of royalties or technical assistance).

Income tax reporting

Venezuelan resident corporations and non-resident corporations that carry on business in Venezuela through a permanent establishment are required to file an annual corporate income tax return, regardless of the amount of their income or loss.

Final income tax returns must be filed within three (3) months after the end of the taxpayer's fiscal year, to avoid late filing penalties.

There are exceptional cases in which it is necessary to file an advanced final income tax return. One of such cases is that of corporations or partnerships that are liquidated or dissolved.

Additionally, depending on the income obtained in the previous fiscal year, corporations and partnerships may be required to determine and pay the advance tax due for the current taxation year based on 80% of the net overall income for the immediately preceding year. Some exceptions apply to this rule.

Finally, the transfer pricing regime of the ITL requires that transactions between related parties carried out in the tax year be reported to the tax authorities using an informative tax return, which must be submitted within six (6) months after the end of the taxpayer's fiscal year

Cross-border payments

Transfer pricing

The ITL allows the SENIAT to impose a transfer pricing adjustment to transactions that do not comply with arm’s length principles.

Therefore, taxpayers who enter into transactions with related parties are required, for tax purposes, to determine their income, costs, and deductions by considering for those transactions the prices and amounts of consideration that they would have used with or between independent parties in comparable transactions (the arm’s length principle).

Withholding tax

The Regulation N° 1808 of the ITL establishes a withholding tax on different types of income. By way of example, the table below refers to the rates of withholding tax on interest, royalties, and services rendered:

Multilateral Instrument

Venezuela is not a signatory to the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Therefore, Venezuela relies on the rules provided in its existing income tax treaties and its domestic law.

International tax reform

Venezuela is not a member of the Organization for Economic Co-operation and Development (OECD) nor part of the OECD/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS).

As of May 2024, there is no official information issued by the Venezuelan government or the National Tax Administration (SENIAT) regarding Venezuela’s stance on the implementation of OECD Pillars One and Two in the country.

Therefore, Venezuela will continue relying on the rules provided in its existing income tax treaties and its domestic law to address the tax challenges arising from the digitalization of the economy.

Payroll taxes

Social Security

Social Security is a national parafiscal contribution collected by the Venezuelan Institute of Social Security. The contribution to be made by the employer varies from 9% to 11% of the employee's salary depending on the "risk classification" of the employer.

Employment Benefit Regime

The Employment Benefit Regime is a national parafiscal contribution collected by the National Employment Institute. The contribution is equal to 2.50% of the normal salary accrued by the worker in the month immediately preceding that in which it was caused. The employer is responsible for the payment of 80% of the contribution and the worker is responsible for the payment of the remaining 20%.

Housing Policy Contribution

The Housing Policy Contribution is collected by the National Bank for Housing and Habitat. The monthly contribution in the account of each worker is equivalent to 3% of his integral salary, indicating separately; that the obligatory savings of the worker are equivalent to one-third (1/3) of the monthly contribution and the obligatory contributions of the employers to the account of each worker are equivalent to two thirds (2/3) of the monthly contribution.

National Socialist Training Institute Contribution

The National Socialist Training Institute's contribution is collected by the National Socialist Training Institute. It comprises a contribution from (i) the equivalent of 2% of the employer's normal salary and (ii)  0.5% of the workers' annual income and bonuses at the end of the year.

Special Contribution for Pension Protection

Recently, on May 5, 2024, Venezuelan National Assembly created a new contribution for the protection of Venezuelans’ social security pensions. This contribution is applicable to private legal entities and partnerships, even if they are irregular or de facto, whether domiciled in Venezuela or not, which carry out economic activities in Venezuela.

The tax base of this contribution is the total amount of payments made by the taxpayer to its employees for salaries and non-salary bonuses, which cannot be less than the minimum integral indexed income (currently around US$130).

The law provides that the maximum tax rate may be up to 15%, which will be established by the President of Venezuela every year, according to the type of economic activity. It is important to highlight that the President has not yet established the tax rate.

Other taxes

Value-Added Tax:

Value-added tax (“VAT”) is a national tax collected by the SENIAT. The VAT Law provides that the sale of movable property, the provision of services, and the import of goods, as defined by the law, are subject to VAT. The current rate is set at 16%.

Importers of goods, industrialists, traders, providers of services, and, in general, any natural or legal person who, as part of their occupation habitually carries out the activities which constitute taxable events of VAT, are taxpayers of VAT.

In addition, the latest amendment of the VAT law (2020) created an additional rate that may be modified by the National Executive and that will be between a minimum limit of 5% and a maximum of 25% and that would apply to goods and services paid in foreign currency, cryptocurrency or crypto assets different from those issued by Venezuela.  As of May 2024, this additional VAT rate has not yet been set by the National Executive and, therefore, is not yet applicable.

Tax on Large Financial Transactions

On February 25, 2022, the Tax on Large Financial Transactions Law was partially amended to incorporate new taxpayers (described in points v. and vi. below) and new tax rates.

As of the amendment, the following persons are subject to this tax:

1. Corporations and economic entities without legal personality, qualified as special taxpayers, for the payments made from their accounts in banks or financial institutions
2. Corporations and economic entities without legal personality, qualified as special taxpayers, for the payments made without the intermediation of financial institutions
3. Corporations and economic entities without legal personality, legally linked to a corporation or economic entity without legal personality qualified as a special taxpayer, for the payments made from their accounts in banks or financial institutions, or without the intermediation of financial institutions
4. Individuals, corporations, and economic entities not linked to a corporation or economic entity without legal personality qualified as a special taxpayer, but that make payments on behalf of such individuals or entities from their accounts in banks or financial institutions, or without the intermediation of financial institutions
5. Individuals, corporations, and economic entities without legal personality, for payments made in a currency other than that of legal tender in the country, or in cryptocurrencies or crypto-assets other than those issued by the National Executive, within the national banking system, without the intermediation of a foreign banking correspondent, following the policies, exceptional authorizations, and parameters established by the Central Bank of Venezuela (BCV, by its acronym in Spanish)
6. Individuals, corporations, and economic entities without legal personality for payments made to subjects qualified as special taxpayers, in a currency other than that of legal tender in the country, or cryptocurrencies or crypto-assets other than those issued by the National Executive, without the intermediation of financial institutions.

Until the National Executive establishes a different rate, the tax rate is set at 2% for transactions carried out by taxpayers described in points i, to iv. above, and 3% for transactions carried out by taxpayers described in points v, and vi.

Special taxpayers have been designated by the SENIAT as collecting agents for transactions described in point vi.

Tax on Large Patrimonies

The tax on large patrimonies is a national tax collected by the SENIAT and it is aimed exclusively at special taxpayers whose net patrimonies are equal to or greater than 150 million National Tax Units (approximately US$36 millions) by September 30 of each year.

The National Executive is authorized to modify the tax rate applicable to the net patrimony value determined.  The rate is limited to a minimum of 0.25% and a maximum of 1.50%.  The current rate is set at 0.25%.

Tax on Economic Activities

The tax on economic activities is a municipal tax collected by the Municipal Tax Administrations.

It is regulated in its design and limitations by the Constitution, the Organic Law of Municipal Public Power, and the Organic Law of Coordination and Harmonization of the Tax Powers of States and Municipalities, and it must be created by each municipality through a municipal ordinance with strict adherence to the provisions of the aforementioned rules.

The taxable event of the tax on economic activities is the habitual exercise of any lucrative activity of an independent nature in the jurisdiction of the Municipality. The taxable base is the gross income obtained by the taxpayer.

The applicable rates are contained in the "Activity Classifiers" that form part of the municipal ordinances enacted by the Municipalities, which contemplate different rates depending on the economic activity. The rates cannot exceed those established by the Ministry of the People´s Power for Economy and Finance in the Resolution N° 011-2023, which provides the maximum tax rate for each activity, ranging from 1% to 6%.

Regarding reporting obligations, many municipal ordinances provide for the filing of an estimated tax return within the first quarter of the year, followed by monthly advance payments, which are deductible when the final income tax return is filed, and also within the first quarter of each year.

Other contributions

Special contribution under the Organic Law on Sports, Physical Activity, and Physical Education

This is a national contribution collected by the National Sports Institute.  The taxable event is the performance of activities in the country by for-profit public and private entities or other organizations which exceed 20,000 National Tax Units (approximately US$5,000) per year.  The rate is set at 1% of the net profit or financial profit of the fiscal year.

Special contribution under the Organic Law on Drugs

This is a national contribution collected by the National Anti-Drug Fund. Private entities, consortiums, and public entities with business purposes will be taxed with this contribution if they employ 50 or more workers in any given year. 

Its taxable base is the profit or operating profit obtained by the contributor during the fiscal year. The rate is set at 1%. 

Entities which are engaged in the activities of manufacturer or importation of alcohol, tobacco, and mixtures, would be subject to a special rate of 2%.

Special contribution under the Organic Law on Science, Technology, and Innovation

This is a national contribution collected by the National Fund for Science Technology and Innovation.

Legal entities, private or public entities, domiciled or not in Venezuela that carry out economic activities in the national territory would be subject to this contribution if they obtain an annual gross income greater than one hundred fifty thousand (150,000) times the official exchange rate of the highest value currency established by the Central Bank of Venezuela (BCV) in the immediately preceding fiscal year.

The contribution would be paid monthly and the taxable income would be the gross income obtained by the contributor in the immediately preceding month.

This contribution’s rate would be as follows:

1. 2% when the economic activity is one of those contemplated in the Casino Law and those related to ethyl alcohol and tobacco
2. When the economic activity is one of those regulated by the Organic Law of Hydrocarbons, the Organic Law of Gaseous Hydrocarbons, and the Organic Law that reserves to the State the activities of Exploration and Exploitation of Gold and other strategic materials:
   1. 1% for private entities
   2. 0.5% for public entities
3. 0.5% in the case of entities engaged in any other economic activity.

The meaning of “gross income” would be any income, proceeds, and flows, which in a habitual, accidental, or extraordinary way, are earned by the contributors for any activity they carry out, including exchange rate variation, income obtained from interest, dividends, from the trading of bonds, whatever their denomination and operating income, among others, provided that they are not obliged to return them for any reason, without admitting costs or deductions of any kind.