Presidential Decree No. 2,169 (hereinafter "Decree No. 2,169") (Official Gazette No. 6,210. Extraordinary, of December 30, 2015) created a tax on large financial transactions of legal entities and unincorporated economic entities (hereinafter the "Tax"). The Tax is not a novelty because in the past 21 years the Executive established several bank debits or financial transactions taxes. In those cases, however, taxes were extraordinary taxes created on account of a fiscal emergency and with a limited duration.

Decree No. 2,169 will enter into force on February 1st, 2016. Different from the past, Decree No. 2,169 omitted any reference of the Tax's time limit. It looks like the Executive's intention is for  the Tax to apply indefinitely in the Venezuelan tax system. Despite the absence of any official statement, it is evident that the Tax's purpose is to reduce the fiscal deficit.

In general, except for the Tax rate, Decree No. 2,169 is almost an exact copy of Decree No. 5,620, which established the Decree with Rank, Value and Force of Law of Tax on Financial Transactions of Legal Entities and Unincorporated Economic Entities (Official Gazette No. 5,852, Extraordinary, of October 5, 2007), applicable until June, 2008.  In that case the tax rate was 1.5%.

    A.    Taxable events 
    I.    Material Aspect:
The transactions subject to this Tax are the following:

  1. Debits in bank accounts, correspondent accounts, escrow deposits or any other kind of sight deposit, liquid asset funds, trust funds or other funds on the financial market or any other financial instrument, made in banks and other financial institutions;
  2. The assignment of checks, securities, escrow deposits paid in cash or any other negotiable instrument, as of second endorsement;
  3. The acquisition of cashiers' checks;
  4. Lending transactions made by banks and other financial institution, with a tenor of more than two bank business days;
  5. The transfer of securities in custody of various holders, even if there is no disbursement through an account;
  6. Repayment of debts made without the mediation of the financial system, due to payment or other settlement method;
  7. Debits to accounts made up of private organized payment systems, not operated by the Central Bank of Venezuela and different from the National Payment System; and,
  8. Debits to accounts for trans-border payments.

    II.    Temporal Aspect

The taxable events described above are deemed to occur when the debit is made in the account or the debt is settled, as the case may be.

    III.    Territorial Aspect 
Decree No. 2,169 establishes that the debit in bank accounts or the repayment of debts shall be subject to Tax:

  1. When any of the causes that gives rise to the Tax occurs or is located in Venezuela, even regarding payments for services generated, contracted, perfected or paid abroad, and even if the provider of the services is not located in Venezuela;
  2. Regarding payments for the performance of activities abroad related to (i) the import of goods or services, (ii) those obtained for technical assistance or technological services used in Venezuela; and,
  3. When the services are performed in Venezuela, regardless of the place where it is used.

    B.    Taxpayers
    IV.    Taxpayers
The taxpayers of this Tax shall be:

  1. Legal entities and unincorporated economic entities that the National Integrated Service of Customs and Tax Administration (the “Service”) has designated as such,[1] for the payments they make, charging them against their accounts or financial institutions and (ii) the payments they make without the intervention of financial institutions;
  2. Legal entities and unincorporated economic entities legally related to a legal entity or an unincorporated economic entity, designated as a special taxpayer, for the payments that any of the first two entities make on behalf of any of the second two entities with or without the intervention of financial institutions.
  3. Individuals, legal entities and unincorporated economic entities that, without being legally related to a legal entity or an unincorporated economic entity without legal personality, designated as a special taxpayer, make payments on their behalf, charging their own bank accounts or financial institutions or without intervention of financial institutions.

Decree No. 2,169 does not define what "legally related" entities should mean. However, according to the legislative history of Decree No. 2,169, is may be submitted that legal entities and unincorporated economic entities will be "legally related" to taxpayers of this Tax when they are within the same business group. In this regard, the legislative history expressly provides that "among the most important innovations contemplated in this Decree with Rank, Value and Force of Law, is the encumbrance of the private organized payment systems, through which major transactions occur, mainly between entities of the same business group." (Emphasis added). This is not new because Decree No. 5,620 of 2007 established the same rule.

    V.    Withholding and collection agents
Decree No. 2,169 establishes that the Service may (i) designate as withholding and collection agents, liable for paying the Tax, those that intervene in transactions that have the conditions to make on its own or through another person, the withholding or collection of the Tax (e.g., banks and other financial institutions); (ii) establish the place, form and conditions for the tax return and payment through general guidelines; and (iii) determine rules for the Tax's collection.  

    C.    Tax basis, tax rate and determination of the Tax
The tax basis consists of the total amount of each debit to account or taxed transaction. Regarding cashiers' checks, the tax basis is the amount of the check.  The Tax rate is 0.75%. The amount of the payable Tax shall be the result of multiplying the rate (i.e., 0.75%) by the relevant tax basis. The Tax is not deductible as an expense for income tax purposes. It shall be determined by tax periods of one day.

    D.    Rules for the tax return and payment of the Tax:

  1. The taxpayers must file the tax return and pay the Tax on debits made from bank accounts and other financial institutions on a daily basis.
  2. The taxpayers must file the tax return and pay the Tax applicable to the payment of debts, also made through other means of extinguishment, without the intervention of banking or other financial institutions, according to the calendar for the payment VAT withholdings for special taxpayers.

    E.    Exemptions
The following persons and transactions are exempt from the Tax:

  1. The Republic and other political-territorial entities;
  2. Public entities with or without business purposes designated as special taxpayers.
  3. The Venezuelan Central Bank;
  4. The first endorsement in negotiable instruments, ;
  5. Debits that generate the purchase, sale and transfer of custody of securities issued or guaranteed by the Republic or the Venezuelan Central Bank, as well as the debits or withdrawals related to the payment of the principal or interest thereon;
  6. The transfer funds made by the holder between its own accounts in banks or financial institutions organized and domiciled in Venezuela. This exemption does not apply to accounts that have more than one holder;
  7. Debits to checking accounts of diplomatic or consular missions and of their foreign officers accredited in Venezuela;
  8. Debits to accounts due to transfers or issuance of personal cashiers' checks for the payment of taxes whose beneficiary is the National Treasury;
  9. Debits or withdrawals made in the Banking Clearing House accounts, credit card compensation accounts, national correspondent accounts, and banking compensation accounts; and,
  10. Purchase or sale of cash in the single account maintained in the Central Bank of Venezuela by banks and other financial institutions.

    F.    Prohibition of transfer to workers

In the case of bank accounts opened for the payment of salary, retirement, pensions and other similar remunerations arising from a current or former employment relationship, Decree No. 2,169 expressly forbids the debtors or payors from transferring the Tax borne when paying those considerations to the workers, retirees or pensioners.

    G.    Formal duties and infractions
Taxpayers must (i) keep and deliver to the Service, whenever required by the latter, detailed reports of the bank or accounts or accounting records, as the case may be, reflecting the Tax paid or withheld; (ii) file the return and pay the Tax as established in the corresponding administrative guidelines, as well as register the Tax as a debit in the respective bank account, or, if applicable, in the memorandum account.  Failure to comply with the formal duties will be sanctioned in accordance with the Organic Tax Code.