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Tax residence and fiscal domicile

i Corporate residence

An entity is considered a Venezuelan resident if it is organised in accordance with Venezuelan laws or domiciled in Venezuela.

A non-locally incorporated entity may not become resident in Venezuela because it has a local seat of management or due to other factors, but it may have a permanent establishment in Venezuela if its place of effective management is in Venezuela.

ii Branch or permanent establishment

Foreign entities may operate in Venezuela through a permanent establishment. A branch, a fixed place of business, place of effective management and an agent with authority to enter into contracts will be considered a permanent establishment. The threshold for a foreign entity to have a permanent establishment in Venezuela is lower under the income tax law in comparison with the tax treaties in effect in Venezuela. Therefore, foreign entities entitled to the benefits of a tax treaty may be protected in certain situations from having a permanent establishment in Venezuela.

The permanent establishment is taxed on income attributable to the permanent establishment's activities. Income that the permanent establishment might be expected to make if it will be a separate and distinct entity will be attributable to the permanent establishment. Deductions of expenses incurred for the purpose of the permanent establishment are allowed, including executive and general administrative expenses. Interest, technical assistance fees or royalties payments made to the head office and its affiliates are not deductible, but interest, fees and royalties paid to other entities are deductible.

The Venezuelan branches of foreign legal entities are subject to a deemed dividend tax on their earnings. The deemed dividends tax is levied at a flat rate of 34 per cent on the excess amount of the branch's 'financial earnings' over the branch's 'net taxable income'. The deemed dividends tax is exempted if the branch reinvests in Venezuela the amount subject to the deemed dividends tax and the investment is maintained in Venezuela for five years.