Venezuela’s Tax Measures During the COVID-19 Crisis

To hear about tax in Venezuela during the ongoing pandemic, we caught up with Saul Medina, Partner at the Tax and Legal Department of EY Venezuela.

With a career as a tax adviser spanning over 23 years, Saul has extensive experience in assisting clients with the evaluation of different aspects relating to national and municipal tax application. He has supported clients in corporate restructuring processes (mergers and incorporation of new companies) from a corporate law perspective, including the evaluation of different schemes for the optimisation of the respective tax burden and the effects of such structures on foreign investments. He’s also worked on numerous tax litigations – both at the administrative and judicial level, including at the Venezuelan Supreme Court of Justice.

What have been the tax developments in Venezuela in response to COVID-19?

Since March 2020, a State of Alarm has been in place in Venezuela in order for the National Executive to dictate measures regarding the COVID-19 pandemic.

Under such rule, there were no general tax exemptions or tax benefits granted by the National Government due to the pandemic. Instead, there have only been specific measures regarding the reduction or elimination of import taxes on determined items associated with the health sector.

A series of additional tax measures have been put in place, including the exoneration from the payment of the Value Added Tax (VAT), Import Tax and Rate by determination of the customs regime:

  • Until 30th April 2021 for, among others, definitive imports of tangible movable property carried out by the agencies and entities of the National Public Administration aimed at preventing the COVID-19 pandemic.
  • Until 15th January 2021 for the imports of other hemodialyzers other than those established in code 84.21 of the Tariff Codes named “Centrifuges”, including “Centrifugal Dryers”.

In addition, other norms have been published regarding:

  • Labour immobility until December 2022 for all employees of the public and private sector.
  • Suspension of the payment of rental fees until February 2021 for all commercial and housing properties.
  • Exoneration from the payment of VAT and Import Tax and Rate by determination of the customs regime, as well as any other tax or rate applicable to the definitive imports and sales made of hydrocarbon-derived fuels and inputs and additives of gasoline in relation to the gasoline crisis in Venezuela.
  • Extension of the deadline for the liquidation, payment, and filing of the contribution to the National Science, Technology and Innovation Fund (FONACIT) corresponding to the FY 2019, until August 2020.
  • Implementation of a special regime for the payment of credits in force in the national public and private banks, including the prioritisation of credit allocation by banking institutions to sectors whose activities are essential to counter the COVID-19 pandemic.

How can Venezuelan businesses optimise their corporate tax position following the pandemic, while adapting their organisations for post-coronavirus trading?

Considering Venezuela’s five-year economic recession, the pandemic has put additional pressure on business management to optimise tax burden. For multinational business, we have seen more interest not only in validating the alternatives or measures that can be evaluated to achieve that goal but also a significant pressure to execute these alternatives in a short time, considering that as mentioned, the Government has not implemented any general tax benefit schemes for businesses as a consequence of the pandemic.

In recent years, due to the combination of hyperinflation and permanent devaluation of the local currency (VES), tax planning has been focused mainly on optimising the FX gains on assets denominated in foreign currency or the use of FX losses in an efficient manner.

The rapid increase of e-businesses during 2020, including in the deliveries sector, is also evidence of the changing environment generated by restrictions imposed under the pandemic. Many traditional Venezuelan businesses have reacted to this trend to maintain their market share. This has highlighted the need from clients to analyse the tax aspects related to these forms of businesses as well as the operational and security aspects derived from its implementation.

Aside from COVID-19, have there been any important corporate tax planning developments in Venezuela over the past two years?

In recent years, due to the combination of hyperinflation and permanent devaluation of the local currency (VES), tax planning has been focused mainly on optimising the FX gains on assets denominated in foreign currency or the use of FX losses in an efficient manner.

It’s worth noting that during the last two years, there has been additional pressure from the Tax Administration to increase tax collection, as explained below:

  • The creation of the Equity Tax for taxpayers whose equity has a value equal to or greater than 150,000,000 Tax Units. The taxable base is the total value of the assets and rights of the taxpayer, excluding liabilities, charges and encumbrances on the goods as well as exempt and exonerated goods and rights.
  • The VAT tax rate was increased to 16%.
  • The VAT Law, the Master Tax Code, and the Customs Law were reformed in January 2020.
  • The Tax Unit (TU) was significantly increased due to the hyperinflation.
  • The determination and payments in foreign currency of national tax obligations derived from operations in foreign currency and cryptocurrency (not yet implemented).
  • The publication of the Constitutional Law Anti-Blockade for National Development and the Guarantee of Human Rights, to give the Executive Branch the power to promote national development and production.

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