The general VAT rate in Venezuela is 12%. There is a reduced VAT rate of 8% for certain goods and services, and a VAT rate of 20% for luxury goods.

The Venezuelan President issued Decree No. 34 of the State of Emergency and Economic Emergency[1] ("Decree No. 34"), which reduced the VAT general rate to 10% for the sale of goods and provisions of services made by VAT regular taxpayers to individuals that are final consumers ("Beneficiaries"), only if (i) such Beneficiaries pay electronically, and (ii) the remuneration for such goods or services does not exceed Bs. 200,000.00. Decree No. 34 will enter into force on December 24, 2016 and will be valid until May 8, 2017. The reduced VAT rate of 10% will not apply in the following cases:

1. If the Beneficiaries do not pay electronically;

2. If the electronic payment coexists with other means of payment (e.g., cash);

3. For the sale of goods and services with collected VAT,[2] final import of goods, and the import or sale of metals and precious stones.

[3]Additionally, the National Integrated Service of Customs and Tax Administration ("Revenue Service") issued Administrative Order No. SNAT/2016/0122[4]("Administrative Order"), which established the regular VAT taxpayers' obligations related with the issuance of invoices, filing of the VAT returns and payment thereof when they sell goods or services subject to the VAT reduced rate of 10% ("Taxpayers").

Taxpayers, in addition to complying with the requirements established in the General Rules for the Issuance of Invoices and other Documents,[5] must indicate the 10% VAT rate when the Beneficiaries acquire goods and/or services.

Taxpayers may only use their means of issuing invoices if they can adjust such means to indicate the reduced VAT rate of 10%. Likewise, Taxpayers must request the adjustment of their invoice machines before December 26, 2016.[6]

Suppliers or manufacturers of invoice machines must adjust the models authorized by the Revenue Service before December 26, 2016.[7] If the suppliers or manufacturers do not have the technical capacity to make the adjustments, they must file a written notice to the Revenue Service before December 26, 2016.

The reduction of the general 12% VAT rate to 10% will create a distortion, because Taxpayers must apply the 10% VAT reduced rate (and, as a result, will generate output VAT on that reduced rate), while acquiring goods and services at a higher VAT rate (e.g., 12%) (and, as a consequence, will generate input VAT at the higher VAT rate). In principle, Taxpayers may not transfer the entire VAT to the Beneficiaries, thus distorting the debits and credits mechanism, which is the essence of VAT. As a result, unless the gains of the Taxpayers is high enough so that their output VAT calculated at a 10% rate exceed their input VAT calculated at a 12% rate, it is possible that the Taxpayers will accumulate VAT credits that they will not be able to transfer entirely to final consumers because of Decree No. 34, and must transfer them indefinitely to the following months. It is also possible that the excess of VAT withholding of those Taxpayers will increase. If it was not enough, the profit margin limits imposed by fair price rules should be added to the equation.