Restrictions on foreign investments and remittance of dividends introduced in the Andean Pact of 1973 were abolished in 1989 as part of the government's economic reforms (by Decree 727/1990 and Decree 2095/1992). Most economic sectors are now open to foreign investors, with the exception of areas such as Spanish-language newspapers, radio broadcasting, television and shipping.
Within 60 days of the formation of a new company or registration of a branch of a foreign company in Venezuela, foreign investors must register their investments either with the Ministry of Foreign Investments or the Ministry of Energy & Mines. The entities responsible for registering foreign investments in banks and insurance companies are the Superintendency of Banks and other Credit Institutions and the Superintendency of Insurance respectively.
Evidence must be provided that the amount of capital assigned to Venezuela actually entered the country (in the form of cash or goods). Also, a company must obtain a certification of qualification from the Superintendency of Foreign Investments.
There are no limits on profit remittances. Capital can be freely repatriated, unless resulting from preferential debt-equity swaps involving public sector foreign debt bonds - in which case repatriation and dividends is limited during the early years of the venture.
Requirements for technology and technical assistance transfer agreements to have governmental approval prior to execution have now been abandoned, as have ceilings on permitted payments. Such agreements must still be registered with the Superintendency of Foreign Investments, the Ministry of Energy & Mines, the Superintendency of Banks and other Credit Institutions or the Superintendency of Insurance as appropriate, although such registrations are primarily for statistical purposes.
Foreign loans no longer require either prior approval or registration.
In April 1996 foreign exchange controls were eliminated and free exchange of the bolivar into foreign currency was authorized. The Central Bank now maintains the exchange rate for the bolivar within a predetermined range.
Price controls exist for certain basic foods and pharmaceutical products, and gasoline prices are subsidized.
As is the case with other Latin American countries, Venezuelan labour law is generous to employees, making labour-intensive industries costly. A recent Supreme Court ruling may affect the commercialization structures used by most multinational manufacturing and industrial companies; it establishes that shareholders of small distributing companies, with which the manufacturers make agreements for the distribution of their products, are deemed to be employees of the company, rather than owners of independent businesses.
The government has successfully privatized the state owned telephone company, various hotels and sugar mills, and the state owned airline VIASA. Nationalization of further state owned enterprises is also taking place. The country's ports are now run by the states in which they are located (except for the Port of La Guaira), and port services have been privatized. The petrochemical industry has effectively been partially privatized for years with the state owned Pequiven taking a minority equity position in recently-formed companies. In addition, Pequiven hopes to sell many of its current holdings soon. Plans to privatize government-owned electricity companies are progressing well, with a new law recently passed revising the industry.
Shareholder agreements are valid in Venezuela, although they can be difficult to enforce. Remedy is usually in the form of damages decided by a court.
The following describes options available for doing business in Venezuela.
Corporation or sociedad anónima
The sociedad anónima (SA) is the most frequently used form of conducting business in Venezuela. The SA is a legal entity that is separate from its shareholders. The responsibility of the shareholders is limited to their equity in the company. Shareholders are not liable to third parties contracting with the SA. Although two shareholders are necessary when incorporating the company, after incorporation all the shares may be owned by a single shareholder.
The distribution of profits to shareholders must be in the form of dividends, which may be paid from liquid and collected profits. The incorporation of the SA and any subsequent capital increase is subject to a 1% stamp tax.
The founding shareholders of a company must grant a power of attorney to several persons. The power of attorney must first be acknowledged before a notary public and subsequently apostilled in order to be effective (pursuant to the Hague Convention).
The name of the company must be chosen and checked with the mercantile registrar to verify its availability. If available, the name can be reserved for 30 days. Remittance of funds is not recommended until the company name has been reserved, to avoid a bank having to re-issue new documentation.
The funds representing the corporate capital of the company must be sent by wire transfer to a Venezuelan bank account opened in the company's name. The account will remain blocked until the company is officially inscribed in the Mercantile Registry and operating instructions are issued to the bank. It is important that the name of the shareholder be clearly mentioned on the bank transfer slips of the foreign remitting bank as the party remitting the funds; otherwise the funds may be withheld and there may be difficulties registering the foreign investment with the Superintendency of Foreign Investments.
Evidence must be presented to the Mercantile Registry that at least 20% of the amount of capital subscribed has been actually paid. Evidence includes the bank deposit slip issued in the name of the company being formed, accompanied by a letter from a local bank.
The articles and bylaws of the company must be presented to the Mercantile Registry (signed by the incorporators), with documentary evidence showing payment of part of the capital. Upon presentation of the corporate documents to the Mercantile Registrar, 1% of the corporate capital must be paid.
Once the company is formed, the next step is to obtain its fiscal registry number from the tax authorities. No additional documentation is required.
Compañía en comandita por acciones
The compañía en comandita por acciones (Comandita) is a partnership in which there are two types of partners, (i) the general partners who run the company and are jointly and severally liable for all obligations assumed and (ii) the limited partners whose liability is limited to the amount of capital contributed by them. The capital of the limited partners is divided into shares. The Comandita is an entity separate from its partners. The Comandita is seldom used in Venezuela.
The legal and tax intricacies are similar to that of an SA. As well as the steps outlined above for the incorporation of the SA, two separate entities must be the partners of the Comandita, even after incorporation (a general partner and a limited partner) and two separate powers of attorney will need to be issued. Also, the Comandita's corporate name must include the name of at least one of the general partners.
Sociedad de responsabilidad limitada
The sociedad de responsabilidad limitada (SRL) is similar to an SA in that it is a separate entity and liability of the partners is limited to their equity participation. However, capital is divided into participation rights (quotas) instead of shares. The main differences from the SA are as follows:
- Ownership rights cannot be represented in negotiable instruments (as shares);
- There must be a maximum capital of Bs2 million;
- The partners may commit to accessory or additional payments that are not reflected in the entity's capital but in its patrimony, and are not subject to the stamp duty applicable to capital increases; and
- Transfer of ownership of quotas must be notarized, registered with the Mercantile Registry and recorded by the SRL.
The tax regime applicable to the SA is also applicable to the SRL, except that the SRL qualifies as a flow-through entity for US tax purposes
In addition to the conditions outlined for incorporation with the SA, at least 50% of the amount of capital subscribed must be paid if in cash, and 100% must be paid if in kind.
In order for a foreign corporation to be domiciled in Venezuela or qualify to do business in the country, it must first register a branch in the Mercantile Registry of the locality where its office or place of business is to be established. Then it must publish the documents essential to the organization of the company in a periodical of that locality. The documents required for this purpose are as follows:
- a copy of the certificate of incorporation (as amended), certified by the appropriate foreign authority;
- a certified copy of the pertinent provisions of the country's corporation law governing the formation of the company, its corporate powers and its general management;
- a copy of the bylaws of the corporation as amended, certified by the secretary of the corporation; and
- the board resolution as to the capital allocated to and corporate object of the branch.
The Code of Commerce requires that all foreign companies that domicile a branch to do business in Venezuela shall elect someone to represent the company.
The capital allocated to a branch domiciled in Venezuela is subject to a 1% stamp tax. Evidence that the amount of capital actually entered the country in the form of cash or goods must be provided.
All of the above documents must be certified by a government office or signed before a notary public, and apostilled. With the publication of the recording entry of the corporate documents, the qualification of the company is complete.
A Venezuelan branch will have the same juridical form as the foreign parent company, but it must keep separate accounts.
For further information on this topic please contact Olga de Massiani or Isabel Márquez at Travieso Evans Arria Rengel & Paz by telephone (+58 212 277 3333) or by fax (+58 212 277 3334) or by e-mail ([email protected] or [email protected])
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