Simple Tax Guide for Americans in Venezuela

US Expat Taxes - Venezuela

At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Venezuela for over 4 years. Our clients hail from all parts of the country - Caracas and Maracaibo, Maracay and Valencia, Barquisimeto and Ciudad Guayana.

As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.

We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.

The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.

We have many clients living in Venezuela and know how to integrate your U.S. taxes into the local income taxes you pay. Any Venezuelan income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.

As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Venezuela for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.

There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.

We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.

Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.

Below we include information on the Venezuelan Tax System for the American Expatriates.


Venezuela personal income tax rates are progressive to 34%.
 

TU (Unitaria Tributaria)

Unitaria Tributaria (Tributary Unit) is the tax unit of Venezuela, which is expressed as 'TU'. In 2019, 1 TU equals 17 VES (Venezuelan Bolívar Soberano), the new currency of Venezuela.


Venezuelan residents are taxed on a worldwide basis. Resident expatriates are subject to tax on all income from Venezuelan and foreign sources at the same rates applicable to Venezuelans. A tax credit is available for tax paid on foreign-source income up to the amount of Venezuelan tax payable on such income.

Residence – A resident is defined as an individual present in Venezuela for more than 183 days during the relevant calendar year or during the immediately preceding calendar year. An individual may be deemed to be tax resident in Venezuela if he/she has a habitual abode in the country, unless the individual, in the same calendar year, spends more than 183 days in another country and can prove that tax residence status has been obtained in that country.

Tax Filing status – Married couples must file a joint tax return.
Taxable income – Venezuelan residents are subject to income tax on income derived from all sources, whether in cash or in kind.

Taxation of Capital gains – As is the case with entities, capital gains are included in ordinary income and taxed at normal rates, except for capital gains derived from the sale of shares listed on the stock market, which are subject to a 1% transaction tax.

Tax Deductions and allowances– Individuals are entitled to take certain itemised deductions in computing taxable income, including school tuition and costs for dependants younger than age 25; health insurance premiums; medical, dental and hospitalisation costs; interest on loans for the purchase of a residence or for the expansion of a residence up to 1,000 Tax Units; and payments for housing/mortgage costs up to 800 Tax Units per year. Otherwise, a standard deduction of 774 Tax Units may be taken. A taxpayer may also deduct 10 Tax Units for each family member younger than age 25 and an additional 10 Tax Units overall.

Other taxes on individuals:

Capital duty – No

Stamp duty – No

Capital acquisitions tax – No

Inheritance/Estate tax – Inheritance tax is levied at progressive rates up to 55%.

Net wealth/Net worth tax – No

Real property tax – Real property tax is levied by the municipalities, with rates and bases of assessment varying by location and use of the property. Some municipalities attract companies to their areas by offering exemptions from real property taxes to manufacturing enterprises.

Social security – Social security contributions must be made by both the employer and the employee at amounts based on the employee's monthly salary. The employee's contribution is 4% of gross salary up to a maximum of 5 minimum wages per month. Contributions to the employment system also are required at a rate of 0.5% of gross salary up to a maximum of 10 minimum wages per month.
Tax Filing and payment of tax – A tax return must be filed if an individual's annual net income exceeds 1,000 Tax Units or gross receipts exceed 1,500 Tax Units. The return must be filed within the 3 months from the end of the tax year. Married couples are required to file a joint income tax return.

Venezuela Tax year – Venezuela tax year is the calendar year
Penalties – Penalties apply for late filing and failure to file.

Venezuela Corporate Tax Rates

Venezuela corporate income tax rates are progressive up to 34%. Other rates also apply:

• Corporate tax rate for petroleum companies and income from petroleum-related activities: 50%
• Companies engaged in oil refining, exploration, exploitation, processing, transport, distribution, marketing, storage and export of non-associated natural gas: 34%
• Oil companies are also charged a 30% tax or royalty on the amount of crude oil produced. The Ministry of Energy and Oil can reduce the royalty rate to 20% for heavy-oil projects or marginal fields in special circumstances, and is entitled to re-establish the 30% royalty.

TU (Unitaria Tributaria)

Unitaria Tributaria (Tributary Unit) is the tax unit of Venezuela, which is expressed as 'TU'. In 2019, 1 TU equals 17 VES (Venezuelan Bolívar Soberano), the new currency of Venezuela.


Venezuelan resident or domiciled companies are subject to profit tax on their worldwide income. Non-resident or non-domiciled companies are subject to corporation tax only on Venezuelan-sourced income even when do not have permanent establishment or a fixed base in Venezuela. Foreign resident or domiciled companies who have a permanent establishment or fixed base in the country will exclusively pay taxes by the income of national or foreign source attributable to this permanent establishment or fixed base.

Tax is imposed on a current year basis. The tax year adopted is generally that specified in a company's statutory documents with the standard year being a calendar year. However, it should be noted that other periods are also allowed, including periods of 12 months or less. Final tax is payable when lodging the final corporation tax return, usually required within three months of the end of the accounting period.

Taxable income – Taxable income is defined as income from worldwide sources and is calculated by deducting from gross receipts all "normal and necessary" expenses incurred in earning income. Business profits and capital gains are included in taxable income.

Taxation of dividends – Dividends paid out of profits subject to tax are exempt from tax. Dividends paid in excess of taxable income are subject to final withholding tax at a rate of 34%.

Taxation of Capital gains – Capital gains generally are taxed as part of the taxpayer's ordinary income. However, capital gains derived from the sale of shares registered on the Venezuelan stock exchange are subject to a 1% tax on the gross amount. Losses on sales of shares registered on the Venezuelan stock exchange may not be deducted from other income.

Losses – Losses may be carried forward for up to 3 years, except for losses arising from inflation adjustments, which may only be carried forward for 1 year. Foreign-source losses may be offset only against foreign source profits earned abroad. Losses may not be carried back.

Surtax – No

Alternative minimum tax – No

Foreign tax credit – Venezuela grants a tax credit for foreign taxes paid up to the amount of Venezuelan tax payable on the income.

Participation exemption – No

Holding company regime – No

Tax Incentives – Foreign investors are entitled to a full range of investment incentives, including tax exemptions, special credit financing, export incentives and debt-toequity swaps. The government provides tax incentives for investment in "strategic" sectors. For regional incentives, there is an exemption from income tax for companies operating in certain areas in 5 undeveloped states and 36 industrial parks. Venezuela also has several industrial, commercial and services free zones.

Withholding tax:

Dividends – Dividends are generally exempt from income tax. However, if the net income exceeds the net taxed income, tax is levied at a rate of 34%.

Interest – Interest paid to a nonresident legal entity is taxed at the normal corporate income tax rates, i.e. 15% to 34%, applied to 95% of the gross payment, resulting in effective rates of 14.7%, 20.9% and 32.30%, provided certain requirements are met. Interest paid to nonresident banks or financial institutions is subject to a withholding tax of 4.95%. Interest paid to a nonresident individual is subject to a 34% withholding tax.

Royalties – Royalties paid to a nonresident company or a resident individual are subject to tax at a maximum rate of 34% applied to 90% of the gross payment, resulting in an effective maximum rate of 30.6%.

Other –Technical assistance fees paid to a nonresident company or a resident individual are subject to tax at a maximum rate of 34% applied to 30% of the gross payment, resulting in an effective maximum rate of 10.2%.

Branch remittance tax – A branch profits tax is levied on PEs of foreign enterprises at a rate of 34% on the excess of net taxed income. However, the tax will be deferred if amounts are reinvested in Venezuela for at least 5 years.

Other taxes on corporations:

Capital duty – A 1% capital duty is levied on the formation of a company and on additional contributions to capital.

Payroll tax – A company that has more than 5 employees must contribute to the National Institute of Educational Cooperation. The rate is 2% on payroll.

Real property tax – Real property tax is levied by the municipalities, with rates and bases of assessment varying by location and use of the property. Some municipalities attract companies to their areas by offering exemptions from real property taxes to manufacturing enterprises.

Social security contributions – Special contributions must be withheld by employers from employee salaries and remitted to the relevant authorities on a monthly basis. Contributions for employers are 10%, 11% and 12%; and the employee contribution is 4%.

Stamp duty – Stamp duty of 0.01 Tax Units per 1 VEB or fraction of 1 VEB is levied when the initial capital of a company is registered or increased. Stamp duty is also levied when a branch registers in Venezuela.

Other – The municipalities levy an annual tax on economic activities for the privilege of doing business in a district. The tax is usually based on gross receipts or sales and varies by district and the type of business. Companies earning gross income exceeding 100,000 Tax Units (VEB 5.5 million) must make an R&D contribution or an investment in R&D. The rate of the contribution is 0.5% if the enterprise engages in commercial
activities, 1% if it engages in mining activities and 2% for oil activities.

Anti-avoidance rules:

Transfer pricing – Venezuela's transfer pricing rules generally follow OECD guidelines, requiring income and expenses related to transactions between related parties to be on arm's length terms. The transfer pricing rules define related parties and set forth permitted methodologies. Taxpayers are required to verify the existence of arm's length pricing by conducting a transfer pricing study, and the tax authorities may adjust prices that do not reflect an arm's length amount.

Thin capitalisation – Venezuela has introduced thin capitalisation rules, which provide for a debt-to-equity ratio of 1:1.
Controlled foreign companies – Venezuela does not have CFC rules but the Income Tax Law contains fiscal transparency rules.

Other – Under the fiscal transparency rules, taxpayers that invest directly, indirectly or through another person (i.e. an agent or intermediary) in entities or funds located in a low-tax jurisdiction must report the income of the low-tax jurisdiction entity/fund, regardless of whether the income is distributed. Such income is considered foreign-source gross income for purposes of Venezuelan income tax.

To be subject to the fiscal transparency rules, however, the Venezuelan taxpayer must have power to influence the distribution of profits or dividends of the low-tax jurisdiction entity or control directly, indirectly or through a third person the administration of the entity.

A low-tax jurisdiction is one in which income is taxed at rates lower than 20%. The fiscal transparency rules do not apply if the Venezuelan taxpayer's income is derived from business activities and more than 50% of the total assets of the investment are used to carry on the business activities in the lowtax jurisdiction. Nevertheless, if more than 20% of the total income derived from the investment in the low-tax jurisdiction comes from dividends, interest, royalties or income from the sale of movable or immovable property, the exception will not apply.

The investment in the low-tax jurisdiction entity must be reported in an additional return filed with the final income tax return for the corresponding taxable year.

Disclosure requirements – No, except that required under the fiscal transparency rules.

Venezuela Tax year – Venezuela tax year is generally the calendar year, but taxpayers may choose their own fiscal year. Once approved, the fiscal year may not be changed without the approval of the tax authorities. Taxpayers considered "special taxpayers" are required to use a 12-month fiscal year starting on 1 January and ending on 31 December. A corporation's first fiscal year may contain fewer than 12 months.

Consolidated tax returns – Consolidated tax returns are not permitted; each company must file a separate return.

Tax Filing requirements – All companies (except mining and oil companies) that earned more than 1,500 Tax Units during the preceding fiscal year must file an estimated tax return by the end of the sixth month of the fiscal year. The amount declared in the return must be based on at least 80% of the preceding year's taxable income, unless the company can justify a smaller estimate. The amount of estimated investments eligible for tax credits may not exceed 80% of the investments declared for the same purpose in the previous year's final tax declaration. All corporate taxpayers (except those involved in mining or oil activities) must make advance tax payments in 6 equal instalments at consecutive monthly intervals. For companies in the hydrocarbons industry, advance payments must be made in 12 equal monthly instalments.

Mining and hydrocarbons companies must file estimated returns within the first 45 days of each year, and advance payments of 96% of the tax resulting from the estimate must be paid at that time. Final income tax returns must be filed within 3 months of the close of the company's fiscal year and payment of tax liability made at that time.

Penalties – Penalties for late filing of returns are 10%-200% of the amount due, plus flat fines. The annual interest rate on outstanding payments is equal to the maximum commercial bank rate plus 20%.

Rulings – Taxpayers may request a ruling on the tax consequences of particular transactions.

LAW FOR PROVIDING HOUSING AND HABITAT

Companies must contribute to the obligatory savings fund with 2% monthly of workers payroll. Workers' contribution shall be 1% of their salary. The savings fund must finance housing programs for the workers.

NATIONAL INSTITUTE OF EDUCATIONAL COOPERATION (NIEC)

Employers must contribute to this Institute on a quarterly basis at the rate of 2% of the total wages and compensation paid to their workers. Workers must contribute 0.5% of the profits paid to them by the employer at the end of the corporate business year. These contributions are for the purpose of professional training of workers and young apprentices, and tackling national illiteracy.

TAX ON ESTATES AND GIFTS

This is assessed on gratuitous transfers of rights causa mortis or inter vivos.

ORGANIC LAW OF SCIENCE, TECHNOLOGY AND INNOVATION (LOCTI)

This Law establishes a number of contributions the companies must make according to the activities in which they indulge as follows:

• a) Hydrocarbon Companies, 2% of annual gross revenues
• b) companies in mining and electrical power activities, 1% of annual gross revenues
• c) large companies operating in other production sectors of goods and services, 0,5% of annual gross revenues, (it is understood by large companies those obtaining annual gross revenues over 100,000 UT (Tax Units). The Law establishes that such contributions may be made in research developed in the same companies or into Government dependent Funds.

ORGANIC LAW AGAINST THE ILLICIT TRAFFICKING OF NARCOTICS (LOCTISEP)

This Law establishes a contribution of 1% of annual net income of companies employing 50 or more workers. This contribution must be invested in programs for the prevention of drug trafficking and consumption within the same company for its workers and their family environment. Likewise, the Law establishes that 2% of their annual net income must be contributed by companies manufacturing or importing alcoholic beverages, tobacco and its mixtures, like chewing tobacco, to maintain and operate prevention and rehabilitation centres for consumers of these substances.

ORGANIC LAW OF TELECOMMUNICATIONS

In the Organic Law of Telecommunications, various taxes and duties are set forth on the companies operating in the business of telecommunications and making use of radio-electric spectrum, sound broadcasting and open television, among others. The various taxes and duties they must pay range between 0.05% and 2.3% of their annual gross revenues.

ORGANIC LAW OF TOURISM

The Organic Law of Tourism sets forth a contribution of 1% monthly on gross revenues to be paid by those rendering tourist services.
 

Venezuela Value Added Tax (VAT) Rates

The standard rate of VAT in Venezuela is 16%.

Several exemptions exist for exporters and importers and specific industries, certain staples and certain imports.

The VAT is applicable to the transfer of chattels, the rendering of services and the importation of goods, as specified in the law and is applicable throughout the entire Venezuelan territory (the Free Port of the State of Nueva Esparta, Paraguaná Peninsula in the State of Falcón and in the Cultural Scientific and Technological Tax- Free zone in the State of Mérida will be exempt from Value Added Tax). It will be paid by individuals and corporations, unincorporated or de facto companies, joint ventures and other public or private legal or economic entities in their capacity as importers of goods, habitual or not. It will also be paid by manufacturers, producers, assembly plants, independent merchants and service providers who engage in activities that are defined by the law as taxable acts.

Certain imports of goods and services are exempt from tax. Exporters who are regular taxpayers are entitled to recover the tax paid upon the purchase of tangible chattels or receipt of services related to their export activities. This also applies in the case of chattels imported for export. The VAT amount accruing is determined by taxation periods of one calendar month, subtracting the aggregate tax credit amounts from the respective aggregate tax debit amount. The result is the VAT to be paid.

The standard rate is charged on the net price of the transaction.

Registration – Taxpayers must obtain a tax number from the Tax Registry and update information every 3 years. Nonresident enterprises carrying out business or activities in Venezuela but without a PE must obtain a tax number.

Filing and payment – VAT tax returns must be filed (even if no tax is due for the period) and paid within 15 calendar days following the end of the tax period.