15 January 2015 Global Tax Alert News from Americas Tax Center EY Americas Tax Center The EY Americas Tax Center brings together the experience and perspectives of over 10,000 tax professionals across the region to help clients address administrative, legislative and regulatory opportunities and challenges in the 33 countries that comprise the Americas region of the global EY organization. Copy into your web browser: http://www.ey.com/us/en/ Services/Tax/Americas-Tax- Center---borderless-clientservice Venezuela amends additional laws through Enabling Act 1 Venezuela has published several amended and new laws in the Official Gazette. Below is a brief summary of the amendments issued regarding the Law on Exchange Regime and Illegal Acts and the Law on Foreign Investments. Law on Exchange Regime and Illegal Acts Decree 1,403 with Rank Value and Force of Law on Exchange Regime and Illegal Acts, was published in the Special Official Gazette No. 6,150, dated 18 November 2014. The Decree creates a new illegal act under Article 16 (Submission of Documents or Information False or Forged) for balance sheets, financial statements and other false or forged documents or those that do not reflect the true financial or commercial situation. Taxpayers that forge documents may be imprisoned for one to three years and may be subject to a fine of 0.5 taxable units (TU) per dollar or equivalent currency. It also establishes a new criminal act under Article 19 (Promotion of Illegal Exchange), for those who directly or indirectly promote or encourage the commission of illegal acts. Criminal acts under Article 19 are punishable with imprisonment for two to six years and a fine of 0.5 TU per dollar or equivalent currency. Failure to comply with the obligation under Article 13 (Origin of currency) constitutes an administrative offense (Article 27). It was formerly an illegal act under Article 18. The Decree amends the fine established in Article 17 (formerly 16) for Acquisition of foreign currency through deception, and Article 18 (formerly 17) for Using currency for other purposes. The fine is now 0.5 TU per dollar or equivalent currency. The diversion or use of foreign currency by people other than those authorized is incorporated into the scope of Article 18. The Decree expands the scope of Article 21 to service providers and public authorities. Additionally, the Decree removes the currency lawfully obtained requirement from Article 27 (formerly 23), Criminal character of the breach of
reinstatement. Article 27 will apply when the amount exceeds US$50,000 or equivalent in other currency. The penalties are imprisonment of two to six years and a fine of 0.5 TU per dollar or equivalent currency. If the amount is less than or equal to US$50,000, the breach will be considered an administrative violation under Article 28. The Decree eliminates Article 22, which established the general rule on the reinstatement obligation; this obligation, however, remains in some illegal acts. The Decree also: Establishes in Article 23 suspension from the Registry of Users of the Foreign Currency Administration System (RUSAD) for those convicted for any illegal act set forth in the Decree, RUSAD and in Article 32 for administrative infraction penalties Eliminates former Article 26 (Collaboration of the public and private bodies) Establishes a new administrative offense provided in Article 30, Failure to provide information, with a fine of 0.1 TU per dollar or equivalent Eliminates the imprisonment penalty established in former Article 29 (Punishment on legal entities for offenses of their representatives) for managers, administrators, directors or dependents and makes offenses under former Article 29 an administrative offense Modifies the notifications requirement (formerly Article 34, now 37) for punitive administrative proceedings by making the notifications by electronic means, personal or signboard (notice) Amends the statute of limitations from 5 to 10 years for administrative offenses and penalties The Decree entered into force on 1 December 2014. Publication of Decree with Rank, Value and Force of Foreign Investments Law The Decree 1,438 with Rank Value and Force of Law on Foreign Investments was published in the Special Official Gazette No. 6,152, dated 18 November 2014. The Decree repeals all laws or sublegal dispositions that violate its regulations, such as Decrees 1,013 and 2,095 containing the Partial Regulation of the Common System for the Treatment of Foreign Capital and Trademarks, Patents, Licenses and Royalties. The Decree establishes which individuals or entities are considered investors and creates the principles, policies and procedures governing the investor and productive investment in goods and services in any category. In addition, the Decree provides that productive foreign investment may consist of tangible and intangible resources, in any area, sector or economic activity permitted by Venezuelan law with the intent of increasing economic and productive capacities. The value of the foreign investment must be represented by at least 75% of assets located in the country and comprised by equipment, supplies or other property or tangible assets required to start production operations. To obtain the registration of foreign investment, contributions must amount to US$1 million to the current official exchange rate. The National Center for Foreign Trade (implementer body) may establish lower amounts, not less than 10% of the initial foreign investment (US$1 million), for promoting small and medium enterprises or other organizational forms of productive economic character, considering the social interest. Foreign investment must remain in the country for a minimum of five years from the granting of registration. Receiving foreign investment enterprises may distribute and pay their foreign investors in the territory of Venezuela and in legal tender, all or part of the net earnings distribution at the end of each financial year, in accordance with actions or participation fees that investors possess or as provided in treaties signed and ratified by the Bolivarian Republic of Venezuela. Foreign investors are entitled to annually remit abroad, from the end of the first fiscal year, up to 80% of earnings or dividends arising from their foreign investment, recorded and updated in freely convertible currencies, subject to compliance requirements. If only 2
part of the earnings is distributed, the remaining amount may be carried forward and combined with the following year s earnings for purposes of distribution abroad. Unpaid profits may be reinvested only in the same company that generated them. Likewise, registered foreign investors are entitled to remit to the country of origin, all or part of monetary income derived from the sale within Venezuela of its shares or investment, as well as the amounts resulting from capital reduction, upon: (1) payment of the corresponding taxes, (2) compliance with the minimum holding period of the investment, (3) compliance with the requirements established in labor, commercial, environmental and National Security regulations, as previously set out in Article 12. Registered foreign investors may remit up to 85% of foreign investment earnings, for liquidation (wind-up) of the company, provided the earnings result from the sale of the company directly to national investors, after checking the full operation of production and commercial activities of the receiving company with the permanence of goods and technological knowledge that involved the investment. For failure to comply with the regulations, the Decree establishes a penalty from 1,000 TU to 100,000 TU. The National Foreign Trade Center may develop preventive measures for those subject to inspection in order to ensure that obligations set forth in the Decree are fulfilled, which will be issued as regulations. The bodies and competent national authorities in the fields of oil and mining, banking, securities, and insurance will have concurrent jurisdiction with the National Center for Foreign Trade on the analysis, study and issue of the Registry of foreign investment and its updates, and will be responsible for the issuance of the Certificate of Qualification. The Decree creates, however, a Unique Registration of Foreign Investments by the National Foreign Trade Center. The National Foreign Trade Center shall, within six months, issue such orders governing transfers abroad in order to develop exchange regulations. During that period, the concurrent jurisdiction bodies must adapt their policies and procedures with the Decree. The Superintendence of Foreign Investments (SIEX) will perform temporarily the duties of the administrative unit responsible for the treatment of productive foreign investments. The Decree will enter into force from its publication in the Official Gazette (18 November 2014). Endnote 1. See EY Global Tax Alert, Venezuela amends laws through Enabling Act, dated 9 December 2014. 3
For additional information with respect to this Alert, please contact the following: Ernst & Young (Venezuela), Mendoza, Delgado, Labrador & Asociados, Business Tax Advisory, Caracas Saul Medina +58 212 905 6716 saul.medina@ve.ey.com Juan Osorio +58 212 905 6626 juan.osorio@ve.ey.com Ernst & Young LLP, Latin American Business Center, New York Ana Mingramm +1 212 773 9190 ana.mingramm@ey.com Enrique Perez Grovas +1 212 773 1594 enrique.perezgrovas@ey.com Pablo Wejcman +1 212 773 5129 pablo.wejcman@ey.com Ernst & Young LLP, Latin American Business Center, London Jose Padilla +44 20 7760 9253 jpadilla@uk.ey.com 4
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