Direct taxation of businessesi Tax on profitsDetermination of taxable profit
Venezuelan-resident entities are generally subject to Venezuelan tax on their worldwide income at rates of up to 34 per cent set out in the progressive schedule provided in the Venezuelan Income Tax Law.
In general, the income tax is levied on net taxable income, which is calculated by subtracting from the annual gross revenue costs and allowable deductions (e.g., salaries, interest, amortisation, depreciation, technical assistance, and any expense that is 'normal and necessary' to generate income).
Expenses that are 'normal and necessary' to produce income may be deducted. Expenses are 'normal' if the amount of the disbursement made is in accordance with amount of income produced and the amount of disbursements customarily made by other taxpayers in the same line of business for similar expenses. Expenses are 'necessary' if there is a reasonable relationship with the business of the taxpayer.
In general, any reasonable depreciation or amortisation charge for fixed assets located in Venezuela assigned to income-producing activities is admissible. In general, the units of production depreciation method and straight-line depreciation method are admissible, among others. The 'exhaustion' amortisation method of depletion is allowed.
Taxable income must be reported on an accrual basis, except for income from wages and salaries, which is taxed on a cash receipt basis.
Calculation of taxable income tax liability also entails 'inflation adjustment', which is calculated as follows. The nominal value of a corporation's shareholders' equity at the closing of its fiscal year is multiplied by the Caracas consumer price index (the CPI), as published by the Central Bank of Venezuela. This adjustment is deductible as a loss in the calculation of the corporation's final tax liability. For example, if a company's shareholders' equity is 100 per cent and the CPI was 25 per cent, the company will be allowed to deduct 25 per cent in the calculation of its final income tax liability.
The nominal value of a corporation's 'non-monetary assets' (e.g., buildings, machinery, equipment and foreign currency amounts) is also multiplied by the Caracas CPI. The adjustment becomes a taxable gain that must be included in the calculation of its final income tax liability.
Taxpayers designated as special taxpayers by the tax authorities. as well as banks, insurance and financial companies, may not apply the adjustment for inflation for income tax calculation purposes.Capital and income
There is no distinction between capital gains and ordinary income.Losses
Foreign and domestic losses may be carried forward for three years and offset up to 25 per cent of the taxpayer's yearly taxable income. Losses may not be carried back. The losses can survive a change of ownership.Rates
The schedule of income tax rates for corporate residents contains three rate-brackets:
- 15 per cent on taxable income up to 2,000 tax units;
- 22 per cent on additional taxable income up to 3,000 tax units; and
- 34 per cent on taxable income above 3,000 tax units.
The tax unit is a value for measurement set by the tax administration (SENIAT) before 15 February every year, and published in the Official Gazette. The adjustments to the tax units are made upon the variations of the CPI, as published by the Central Bank of Venezuela. Each tax unit is currently equivalent to 300 bolivares.Administration
Income tax returns must be filed within three months of the end of the tax year of the taxpayer. SENIAT administers income tax and other national taxes such as value added tax (VAT), and municipal tax agencies administer municipal taxes such as the business activities tax, real property tax and vehicles tax. There are no regular routine audit cycles. Rulings may be requested on uncertain tax issues. Tax assessments may be appealed before the tax administration or challenged before tax courts.Tax grouping
There are no rules on consolidated tax grouping.ii Other relevant taxesVAT
VAT applies to sales of all goods and services throughout the chain of distribution, except certain exempted items such as food, medicine, telephones, domestic electricity and domestic natural gas. VAT is levied at a rate of 16 per cent. VAT taxpayers are charged VAT on all their purchases of goods and services (input credits). In turn, they have to charge and collect VAT in their sales of goods and services (output debits), effectively passing down the VAT to the end consumers. VAT liability (excess of output debits over input credits) is paid each week by VAT taxpayers to the Venezuela national tax administration.
Certain designated VAT taxpayers must (1) pay VAT advance payments on a weekly basis, based on the VAT payable the previous week, and (2) withhold 75 per cent of the VAT charged on all their purchases of goods and services, and pay the withheld amounts to the Venezuelan treasury on a weekly basis. Likewise, such designated VAT taxpayers are also subject to said VAT withholding on every sale of goods or services they make to other designated VAT taxpayers. This regime puts enormous pressure on such designated VAT taxpayers' cash flows.
A municipal tax on business activities is levied by the local municipalities on gross revenue (i.e., no deductions are allowed). The applicable rates vary from municipality to municipality and according to the business activity in which the taxpayer is engaged. The rates range from 0.5 per cent, and may reach as high as 2 per cent (or more).Financial Transactions Tax (FTT)
The FTT applies to legal persons (not individuals) appointed as special taxpayers who are: (1) making payment transactions through Venezuelan banks or financial accounts, and (2) paying debts outside the financial system by means of payments, novation, offsetting and forgiveness of debts.
The FTT also applies to legal persons legally related to special taxpayers and to legal persons or individuals making payments on behalf of special taxpayers. The FTT rate is 2 per cent, and its tax base is the amount of the transaction.Contribution to the National Organisation against Drugs
Commercial or industrial businesses that employ 50 or more workers must pay a special contribution to the National Organisation Against Drugs equal to 1 per cent of their 'business profits', which are defined as net profits obtained from business transactions. This tax is calculated and paid annually.Contribution to the National Fund of Science, Technology and Innovation
Both companies domiciled in Venezuela and non-domiciled companies that carry out activities in Venezuela generating gross revenues in excess of 100,000 tax units must pay a special contribution to the National Fund of Science, Technology and Innovation. This contribution ranges between 0.5 per cent and 2 per cent of their gross revenues, depending on the type of business activity carried out. This tax is calculated and paid annually.Contribution to the National Sports Fund
Both companies domiciled in Venezuela and non-domiciled companies that carry out activities in Venezuela obtaining net profits of at least 20,000 tax units must pay a special contribution to the National Sports Fund equal to 1 per cent of their net profits. This tax is calculated and paid annually.Contribution to the Venezuelan Institute of Social Security
Employees must pay a contribution to the Venezuelan Institute of Social Security (IVSS), equal to 9 per cent, 10 per cent or 11 per cent of the lower of each employee's salary or five times the minimum monthly urban salary, for each employee (the IVSS salary base). The applicable percentage (9, 10 or 11 per cent) depends on the level of risk of the business activities (the higher the risk, the higher the percentage). Employees must also pay a contribution to IVSS equal to 4 per cent of the IVSS salary base, such contribution being withheld by the employer and paid by the employer to IVSS. These contributions must be paid on a weekly basis.Contribution to the National Institute of Educational Cooperation
Employers with five or more employees must pay a contribution to the National Institute of Educational Cooperation (INCES) equal to 2 per cent of total wages, salaries, daily payments and remuneration of any kind, but excluding occasional payments such as extraordinary bonuses (normal salary). Employees must also pay a contribution to INCES equal to 0.5 per cent of any profit-sharing, such contribution being withheld by the employer and paid to INCES. These contributions must be paid by the employer within the first five days of each quarter.Contribution to the Housing Saving Fund
Employers must pay a contribution to the Housing Saving Fund (FAOV) equal to 2 per cent of the monthly integral salary of each employee. Employees must also pay a contribution to FAOV equal to 1 per cent of their monthly integral salary, such contribution to be withheld or deducted by the employer and paid to the national housing bank, Banavih. These contributions must be paid on a monthly basis.
In a recent decision, the Constitutional Chamber of the Supreme Court of Justice stated that the mandatory contribution to FAOV shall not be considered a tax and shall not be subject to Venezuelan tax laws.Unemployment or lay-off contingency
Employers must pay a contribution to IVSS for an unemployment or lay-off contingency equal to 1.7 per cent of the IVSS base salary, and employees must pay a similar contribution equal to 0.5 per cent of the IVSS base salary, such contribution being withheld or deducted by the employer and paid to IVSS. These contributions must be paid on a weekly basis.Gifts tax
Donations or gifts of assets located in Venezuela are generally subject to the Venezuelan gift tax levied at the rates of up to 55 per cent set out in the progressive schedule applicable depending on the relationship between the beneficiaries of the gift and the donor.