A Lawyer's Guide to Bolivia

InterAm Database

National Law Center for Inter-American Free Trade

LEX MUNDI

A LAWYER'S GUIDE TO BOLIVIA

Prepared by:

FERNANDO ROJAS

C.R.& F. ROJAS

La Paz, Bolivia

ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ

The information contained in this publication is given by way of general reference only and is not to be relied upon. No responsibility will be accepted by the authors or publishers for any inaccuracy or omission or statement which might prove to be misleading. You are advised to seek your own professional advice before proceeding to invest or do business in Bolivia.

ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ TABLE OF CONTENTS

I. THE COUNTRY AT A GLANCE

II. INVESTMENT PRINCIPLES AND GENERAL CONSIDERATIONS

A. Political System

B. Legal System

C. Economic System

D. Court System

E. Financial System

F. Culture

III. INVESTMENT FRAMEWORK

IV. SENSITIVE AREAS

V. DIRECT SALES

A. Import Restrictions and Requirements

B. General Import Regulations

C. Taxes on Direct Sales

D. International Conventions

E. Trade Disputes

VI. EXPORTS FROM BOLIVIA

A. General Policy on Exports

B. Taxes and Exchange Incentives

VII. REPRESENTATIVES - DISTRIBUTORS/ FRANCHISERS

VIII. INTELLECTUAL PROPERTY - LICENSING

IX. DIRECT INVESTMENT

X. PURCHASE BY FOREIGN CORPORATION OF BUSINESS IN BOLIVIA

XI. BRANCHES

XII. INCORPORATION

A. Company Formation Requirements

B. Closely Held and Publicly Held Corporations

C. Capitalization Requirements

D. Other Issues

E. Tax Incentives

XIII. EXCHANGE CONTROLS

XIV. TAX

A. General Tax System

B. Tax Treaties

C. Deductibility

D. Intercompany Transactions

XV. LABOR

A. General

B. Labor Regulations

C. Employment Contracts

XVI. DISSOLUTION

XVII. INTERNATIONAL RELATIONSHIPS

XVIII. DISPUTE RESOLUTION

APPENDIX - Government Offices & Financial/Commercial Institutions

I. THE COUNTRY AT A GLANCE

The Republic of Bolivia is a landlocked country located in the middle of South America. Its area is 1,098,581 square kilometers having its borders with Brazil, Paraguay, Argentina, Chile and Peru.

Bolivia can be divided in three regions: "altiplano" or the highlands, valleys and lowland tropic. The states of La Paz, Oruro and Potosi are located in the "altiplano", western part of the country, and have an average altitude of 3,500 meters above sea level. The states of Cochabamba, Chuquisaca and Tarija are located in the valleys and have an altitude between 1,000 meters to 3,000 meters above sea level. The states of Pando, Beni and Santa Cruz are located near 400 meters above sea level and have a tropical climate.

The population of Bolivia is approximately 7,400,000.

La Paz is where the Government is located, but Sucre is the official capital where the Supreme Court functions.

The major cities in Bolivia are La Paz, Santa Cruz, Cochabamba.

Spanish is the official language. However, a large sector of the population speak Quechua and Aymara, which are native languages.

Bolivia has only one time zone, which is 4 hours behind Greenwich Mean Time.

II. INVESTMENT PRINCIPLES AND GENERAL CONSIDERATIONS

A. Political System

Bolivia is a democratic republic divided in nine states which depend of the Central Government, located in the city of La Paz.

The republic, based on a Constitution, is governed by three independent branches. The executive branch, with a President elected every four years and a cabinet of sixteen ministers. Each State has a Prefect designated the Central Government, and each State is divided into provinces where the Municipalities are located. The legislative branch is composed of two chambers: the Senate with 27 members and the House of Representatives of 102 members who hold office for 4 years. The judicial branch is described under D below.

B. Legal System

The rights and obligations of the individual and the use of properties are mainly based in the French Civil Code with amendments made in 1973 from the Italian Civil Code.

The Agrarian Reform Law of 1953, which covers the country side, has divided rural areas in small, medium and large lands. The extension of these lands vary according to their locations in the highlands, valleys or tropical zones. The most extended lands which are for raising cattle are located in the orient and north orient part of Bolivia.

Mining activities are governed by the Mining Code under which mining concessions can be obtained by private companies for an unlimited time, provided, however, that a yearly tax is paid and certain mining works are performed.

The General Law of Hydrocarbons governs oil activities. All hydrocarbons belong to the Government, and the state-owned company "Yacimientos Petrolíferos Fiscales Bolivianos" is empowered to enter into associations (joint ventures), operations or service contracts with private entities.

The commercial activity is regulated by the Commerce Code which includes banking and insurance activities, which are also governed by a special General Banking Law and Insurance Law.

There is a Law for Contraband and Controlled Substances and Narcotics and a Penal Code.

Labor relations and social security are governed by the General Labor Law and the Social Security Code.

C. Economic System

Part of the mining sector is owned by the Government. Oil activities are also owned by the Government but, as indicated above, contracts can be entered into with the state-owned company "Yacimientos Petrolíferos Fiscales Bolivianos".

In other sectors of the economy, complete liberty and ample protection exists for local as well as foreign capital.

Back in 1952, many state-owned companies were established by Government. At present, many of such companies are in the process of becoming private.

Public services, such as railroad, air transportation and telecommunications, belong to the Government, but private, local or foreign concessions are permissible based on contracts with the Government.

D. Court System

The judicial branch includes the Supreme Court located in the city of Sucre. In the capital of each State, there is a District Court.

Judges of "Partido" and of "Instrucción" hear civil, criminal and family cases.

Appeals from the decisions of such judges can be made to the District Court and to the Supreme Court. Recourses of "amparo" (action or proceeding for relief; a constitutional provision which resembles U.S writs of prohibition) and habeas corpus can also be filed.

E. Financial System

The Central Bank of Bolivia is the supreme authority in matters of currency. It controls the entry and discharge of foreign currency through the private banks which can freely operate in foreign exchange. Foreign currency can be purchased freely at any private bank or the Central Bank and can also be remitted abroad with no restrictions. Thus, there is no foreign exchange control in Bolivia.

The official currency is the "boliviano" (Bs.) which is divided into 100 cents.

The exchange rate of the Bs. against the US dollar for May 1989 was Bs. 2.61; for May 1990, Bs. 3.14; for May 1991, Bs. 3.55; and May 1992, Bs. 3.85.

F. Culture

The original culture "aymara" was absorbed by the "quechua" culture which was imposed by the Inca Empire and thereafter since the colonial times has mixed with the Spaniards. Thus, at present the middle and high class have an occidental European culture, maintaining a large part of the population of the aboriginal culture of the "aymaras" and "quechuas".

The "aymara" and "quechua" population is slowly being integrated into the occidental culture through public and private schools and the state-owned universities without any restrictions. At present, private universities are being established.

III. INVESTMENT FRAMEWORK

In September 1992, Congress has passed an Investment Law with 8 chapters and 23 articles. Under such law, local as well as foreign investment is stimulated and guaranteed.

Local and foreign investors have the same rights, duties and guarantees, and no authorization or prior registration is required for any investment.

Right to ownership is guaranteed to local and foreign investors as well as free foreign currency exchange.

Investors can freely contract investment's insurance in Bolivia or abroad.

Local and foreign investors can agree to submit their discrepancies to arbitration according to the Constitution and international laws.

Local and foreign investors can enter into joint ventures.

Investors, local or foreign, have equal treatment as to purchase and selling of foreign currency, taxes, right to export capital and profits and be able to invest in any commercial or industrial activity, except those activities which belong to the public sector such as public services.

There is no price control since Bolivia has a "laissez-faire" economy based on supply and demand.

Free zones have been created recently for industrial investments in the States of Potosi and Oruro to enable the establishment of industries which can import raw materials and machinery without paying import or export duties.

All investments, whether local or foreign, are subject to the same taxes and rights to import or export and to the same regulations to incorporate legal entities.

IV. SENSITIVE AREAS

There are no sensitive or uncertain areas of investment policy.

V. DIRECT SALES

A. Import Restrictions and Requirements

There are no restriction on imports of goods, with the only exception of sugar and flour to protect the national industry. Imports of chemical products to be used in the elaboration of narcotics and weapons require special permits.

There are no special regulations for imports except for those products which can be harmful to the public health or narcotics. For the importation of pharmaceutical products, a special registration is required granted by the Ministry of Public Health. Imports of animals or plants require a health certificate from the country of origin.

Capital goods are subject to an import duty of 5% on CIF value plus 10% of the Value Added Tax ("VAT"), 2% transactions tax, 0.5% warehouse fee and 1.5% customhouse agent's fee. Imports of non-capital goods are subject to a 10% import duty, plus the mentioned VAT, transactions tax and the other charges. The importation of vehicles, radios, jewelry and other electro equipment for domestic use is subject to a 10% tax (Special Consumer Tax).

B. General Import Regulations

Import regulations include presentation of the invoice of the goods imported which do not require any consular visa. All imports must be verified as to their quantity, quality and price by foreign companies contracted by the Government, such as the Swiss companies SGS and Inspectorate which charge a 1.9% fee on CIF value.

At the customhouse, the bill of lading must be presented and a certificate from such companies. Insurance is optional and imports based on letters of credit is also optional.

Importers must be individuals or companies established in Bolivia and duly registered before the Tax Office.

C. Taxes on Direct Sales

Direct sales from abroad to Bolivia are subject to the same import and tax regulations for agents or distributors of foreign companies in Bolivia. Thus, there is no difference on sales made directly or through sales representatives established in Bolivia.

D. International Conventions

In 1990 (Law 1156), Bolivia has entered into the GATT. Bolivia is also a member of the ALADI group (Latin-american Association of Integration), the Convention of the Countries of the Southern Cone and the Andean Pact.

Regarding the regulations of the Andean Pact, they have not been implemented due to the free market that exists in Bolivia and the free exchange for foreign currencies.

Law 1053 dated February 15, 1989 has approved the General System on Preferences (GSP).

Since 1949, Bolivia is a member of the International Monetary Fund (IMF) and also is a member of the Interamerican Development Bank (1959) and of the Corporación Andina de Fomento.

Since 1935, Bolivia is a member of the International Court of Justice (ICJ).

Bolivia is a party to the Agreement of incorporation of the Interamerican Investment Corporation.

Bolivia is also a member of the International Committees on Tin, Coffee and Sugar located in London.

To protect foreign investments, Bolivia has signed Agreements with Belgium, Luxembourg, Italy and Spain.

Law 1126 of January 19, 1990 ratified the Agreement whereby the Multilateral Investment Guarantee Association is created (MIGA), which was executed in Washington, DC on May 6, 1986.

E. Trade Disputes

In a general manner, Bolivia has had no trade disputes with other countries or the United States. International trade disputes can be submitted to arbitration and, in the respective contracts, can be provided the applicable law and place where arbitration shall take place and the designation of the arbitrators. In some cases, the International Chamber of Commerce of Paris has been used or the American Association of Arbitration in New York.

VI. EXPORTS FROM BOLIVIA

A. General Policy on Exports

There are no export restrictions, except for the basic paste of cocaine or raw material for its production. There are certain restrictions for the exportation of animals which can be extinguished, such as the amazonic fauna or "alpacas" and "vicuñas".

Exports of oil and gas are made after the local consumption has been covered and they are under control of the state-owned company, Yacimientos Petrolíferos Fiscales Bolivianos.

All kinds of minerals, including gold and silver, can be exported freely.

At present, as compensation to eradicate coca plantations, agreements are being negotiated for the exportation of certain products from Bolivia to the United States.

In general, Bolivia has no restrictions for its exports except as indicated above. However, coffee and sugar are subject to quotas and, as compensation for the eradication of coca plants, studies are being made to enable Bolivia to have similar treatment as other Latin American countries that are exporting to the United States and the European Common Market.

B. Taxes and Exchange Incentives

Exports do not pay taxes except a warehouse fee of 2% on the value of the exportation.

Exporters must sell the proceeds of their exports to the Central Bank of Bolivia within 180 days from the date of the exportation. However, the Bolivian currency obtained from such sell can be converted into any foreign currency through the Central Bank or any private bank, losing in the rate of exchange about 0.75%.

Exporters have the right to negotiable Credit Notes (CENOCREN) up to 6% of the export value, prior compensation of the IVA debits and credits. The CENOCREN can be used to pay import duties and taxes and can be negotiated in the stock market.

VII. REPRESENTATIVES - DISTRIBUTORS/ FRANCHISERS

Under Bolivian law, there is no distinction between agents and distributors. Both are independent persons or entities that promote or exploit businesses as intermediaries of another entity, local or foreign.

Under the law, agents must comply with the following:

i) comply with the assignment entrusted in accordance with the instructions received;

ii) advise its principal on the market conditions to enable him to evaluate the business;

iii) collect debts, provided, however, that an authorization to do so exists; and

iv) render an account of all the business undertaken. The agent is prohibited from modifying the prices fixed by his principal and from giving credits, discounts, rebates, or extensions of terms without a prior authorization.

Unless the agency agreement provides otherwise, the principal cannot use other agents in the same geographical territory, nor can it sell directly. The principal must pay the agent the remuneration indicated in the agreement and reimburse expenses as provided in such agreement. If no term has been fixed for payment of such remuneration, it should be paid within thirty days of conclusion of the business.

Bolivian law is silent as to maintenance of inventory. This matter should be contemplated in the contract.

Under the law, if the agreement does not indicate that the agent is not exclusive, it is understood that the agency is exclusive. Agents do not acquire additional rights as an employee. As a result of an agency agreement or business representation, a merchant undertakes, in an independent and stable manner, the assignment of promoting or exploiting a business in a specific area within the country, as intermediary of another entrepreneur. An employee is not an agent or distributor, since his relation to the entrepreneur, local or foreigner, is of dependency subject to the social benefits mentioned above. In most cases, where the agent is on the payroll of the principal and receiving a fixed commission, he will be considered an employee.

Appointment of a local agent by a foreign principal does not subject the principal to payment of Bolivian income tax.

Agreements with local agents or distributors are subject to the jurisdiction of the ordinary courts of justice. Agency agreements must be registered before the Commerce Registry. If this registration is not made, the agreements are enforceable against the parties thereto, but not against third parties.

Agency agreements entered into abroad to be executed in Bolivia must be subject to Bolivian law. Any stipulation to the contrary shall have no effect. The forum must be the Bolivian courts.

There are no limitations on the amount that may be paid to agents.

It is permissible under Bolivian law for a principal to prohibit the agent from soliciting orders outside its assigned territory or from representing products that compete with those of the principal.

Under the Commerce Code, causes for terminating an agency agreement are the following:

i) Nonfulfillment of any of the contractual obligations by either party;

ii) Any act or omission gravely affecting the interest of the other party;

iii) The ostensible reduction of the volume of the business per the provisions of the agreement;

iv) Bankruptcy, death, insolvency, disability, or disqualification of either party; and

v) Expiration of its term, except upon renovation or extension.

It is permissible under Bolivian law for the contracting parties to agree to allow the principal to terminate the agreement without cause. In the absence of such a contractual right, the principal may not terminate the agreement without cause. Notice of termination under agency agreements depends on what the parties have agreed to in the agreement. If the agreement is not renewed and the parties stop operating under the agreement, it is considered terminated.

The law does not provide for indemnification as a result of termination of an agency agreement. However, if the agreement is terminated in violation of its clauses, the agent can claim payment of damages. A Bolivian court shall fix the amount of damages based on the circumstances. The parties are free in the agreement to limit the amount of damages payable to the agent upon termination.

There are no specific franchise laws. However franchise agreements to be valid must be registered at the Commerce Registry.

VIII. INTELLECTUAL PROPERTY - LICENSING

There is a law that protects intellectual property which includes trademarks, copyright and patents. There is no law for "know-how".

Bolivia has signed the Treaty on Patents and Trademarks of Montevideo dated January 16, 1889, and the Universal Agreement of Intellectual Property of Geneva dated September 6, 1952.

There are no prior approvals for local or foreign investments.

Any individual can register a trademark or patent through an attorney duly empowered by means of a notarized power of attorney.

The principal regulation is that the trademark must be published in an Official Gazette and if no objections are filed, the trademark can be registered.

Chemical and pharmaceutical products to be traded must be registered before the Ministry of Health.

Registration of trademarks is subject to a fee which includes all expenses and taxes of US $320 and such registration lasts for 10 years, renewable.

Antitrust or competition laws do not apply to licenses but to the trade of the products registered.

There are no typical agreements between a foreign corporation and its wholly-owned subsidiaries.

IX. DIRECT INVESTMENT

A foreign company can invest in Bolivia with no restrictions and there are no specific methods. Foreign companies can operate in Bolivia through branches or subsidiaries without any restriction as to minimum capital or remittance of capital or profits abroad. While specific incentives for foreign investment do not exist, foreign investors are permitted to take advantage of the incentives available to domestic investors. Joint ventures are legally recognized by the government and encouraged.

Under the Bolivian Commerce Code, the following entities can be incorporated:

a) General partnership;

b) "Comandita Simple", which is a type of partnership in which active members are liable for the obligations beyond their investment and may manage the partnership and in which passive members are liable only to the extent of their investment and may not manage the partnership;

c) Limited liability companies which do not issue shares of stock and the partners have an interest in the capital of the company called "cuotas de capital". These types of companies are similar to a close partnership;

d) Stock companies or corporations;

e) Joint-stock companies which are similar to (b) above, but the passive members are shareholders; and

f) Joint-venture companies.

There are no laws in Bolivia that shall limit equity ownership of a foreign investor or force a joint venture with a local company.

Registration fees, including notarial expenses, publications and others can reach US $1000. A company can be registered in less than 15 days. There are no other substantial administrative regulations.

All companies, whether local or foreign, to obtain the acknowledgement of their juridical status must be registered at the Commerce Registry. Foreign companies can undertake isolated legal acts in Bolivia, but cannot do business without being registered at such Commerce Registry. Thus, a foreign company cannot enter into government contracts, hire local labor, import or export or obtain work permits without such registration. For the opening of a bank account, such registration is not required.

A company which has failed to register is treated as a "de facto" company and is considered existent only for liability purposes toward third parties and to perform the rights emerging from contracts validly executed. In this type of company, the partners or shareholders, based on the articles of incorporation, cannot exercise rights or claim obligations; their reciprocal relations are governed by general law.

There are no financing restrictions imposed on foreign-owned companies.

Intercompany agreements are permitted.

X. PURCHASE BY FOREIGN CORPORATION OF BUSINESS IN BOLIVIA

There are no restrictions for a foreign corporation to acquire local companies, and foreign corporations can acquire all of the assets of local companies.

The Bolivian Constitution reserves the ownership of hydrocarbon assets for the State, but exploration, exploitation, sales and transportation of hydrocarbons can be carried out by private companies via operation contracts and joint ventures with the State-owned petroleum company.

The mines which belong to the State-owned mining company cannot be transferred to the private sector. However, such company is authorized to subcontract, lease and operate joint ventures with foreign companies.

The Bolivian Constitution prohibits any form of private monopoly.

Transfer of assets are subject to a 2% tax. However, if such assets are contributed to the capital of a company, taxes are exempted. Also, the transfer of shares of stock are tax exempt.

XI. BRANCHES

Branches of foreign companies are permitted with no limitations.

Branches are subject to the same taxes as any other subsidiary or local company. There are no additional withholding taxes on branches.

Branches are not subject to special exchange restrictions.

A branch must be registered at the Commerce Registry in order to do business in Bolivia, and no prior approvals are required. To register a branch in Bolivia, it is required from its parent company its articles of incorporation, bylaws, board resolution authorizing the establishment of the branch and assigning its capital (there is no minimum). Also, such resolution should include designation of the branch's domicile, any city in Bolivia, and respective authorization for the granting of powers of attorney to the legal representative or manager. All such documents must be legalized by the authorities of the country of origin and consularized by the Bolivian Consul. A branch, prior to doing business in Bolivia, must be registered at the Commerce Registry.

XII. INCORPORATION

A. Company Formation Requirements

Bolivian Commerce Code states that under the incorporation agreement of a commercial company, two or more persons agree to contribute for a common purpose and distribute among them the benefits or undertake the losses.

The articles of incorporation must indicate date and place of the act; name, age, civil status, nationality, profession, domicile and ID of individuals; and name, purpose, nationality and domicile of legal entities that shall participate in the incorporation of a company. Also, such articles of incorporation must include the name of the company and its domicile; purpose; amount of the capital; amount contributed by each partner or shareholder; in corporations must be indicated the authorized, subscribed and paid-in capital; type, number and nominal value and nature of the issuance and other characteristics of the shares of stock; the form and terms that the contributions should be paid (not more than two years); capital increases; duration of the company; designation of board members and managers; controllers and their powers; distribution of profits; reserves; rights and obligations of the partners or shareholders; dissolution of the company; arbitration and clauses related to annual and special meetings of shareholders and directors. Companies listed under IX. B above, except corporations, require articles of incorporation. Corporations besides such articles of incorporation require bylaws, share certificates and stock registry books.

B. Closely Held and Publicly Held Corporations

Corporations can be formed as a sole act of its founders or through public subscription of shares. If the incorporation is a sole act, a minimum of three shareholders is required, and the capital which has been totally subscribed cannot be less than 50% of the authorized capital. Twenty-five percent (25%) of the value of each subscribed share must be paid upon signing the articles of incorporation, and the bylaws must be approved by the shareholders.

If the incorporation is through a public subscription, the promoters must prepare a foundation program which has to be signed by such promoters and be approved by the Commerce Registry. Upon obtainment of such approval, the foundation program must be published. The subscription agreement must be prepared by a Bank and the monies paid for such subscription of shares must be deposited in such Bank. Once the capital has been subscribed, the promoters must call a shareholders meeting with the participation of a representative from the Bank, Commerce Registry and the participation of the majority of the subscribed shares.

If the incorporation of the corporation is approved, it has to be registered at the Commerce Registry to begin operations.

C. Capitalization Requirements

Capitalizations of corporations are made through a special shareholders meeting and its approval requires the number of votes specified in the bylaws. If the capitalization has been approved, the respective document has to be published and registered at the Commerce Registry.

The same procedure has to be followed by other types of companies.

D. Other Issues

The articles of incorporation and bylaws must be notarized, and the partners or shareholders must sign the respective public deed.

A copy of the public deed after being published in a newspaper must be registered before the Tax Office, Municipality and Commerce Registry.

For the incorporation of a company, no local participation is required.

The administration of the company can be run by local or foreign persons. Board members can be foreigners. However, the controller of the corporation must live in its domicile.

Meetings of the board can take place abroad; however, shareholders must meet in the domicile of the corporation.

E. Tax Incentives

Foreign investors in mining or petroleum activities for the taxes paid in Bolivia have the right to a tax credit in the U.S.

XIII. EXCHANGE CONTROLS

There is no foreign exchange control in Bolivia. Foreign currency can be purchased or sold freely from any bank or individual.

Exporters must sell the proceeds in foreign currency of their exportation to the Central Bank, and the bolivianos obtained can be converted back into any foreign currency losing a small percentage due to the difference in the exchange rate.

There is no foreign exchange registration.

Convertibility is not restricted.

There are no capitalization requirements before a dividend can be paid. However, no dividends can be distributed if no accumulated reserves exist. Five percent (5%) of the profits must be placed in such reserve until it reaches 50% of the paid-in capital.

There are no limitations on the purchase of foreign exchange.

Dividends paid to foreign shareholders are subject to a 13% withholding tax. Branches are also subject to such tax.

There are no limitations on capital remittances when operations are wound down or dissolved.

Payments to employees or suppliers can be made in foreign currency.

XIV. TAX

A. General Tax System

Since 1987 the corporate profit tax has been abrogated. In lieu of such tax legal entities, local or foreign, are subject to a 3% tax on an presumed annual income. Presumed income is calculated on the equity value of the entity per its annual balance sheet, i.e. the difference between assets and liabilities.

Assets are subject to technical evaluations.

Further to such tax on presumed income there is a VAT tax of 3% on sales, services and importations. This tax should be included in the respective price or fee.

Debits as a result of such tax are compensated with credits resulting from purchases of goods, services and importations. This tax is paid monthly.

Interest are also subject to such VAT of 3%, except interest of financial entities.

The purchase of shares of stock, debentures, securities, or any credit document is exempted from such tax.

Salaries of employees are levied with a complementary 3% VAT with the right to compensate the debits of this tax with the credits resulting from the purchase of any goods, services or imports levied with the 13% VAT.

Real estate is levied with a tax from 0.35% to 3% according to a scale. This tax is deductible from the one that corresponds to the presumed income of legal entities to avoid any double taxation.

Vehicles, yachts and aircrafts, subject to an official evaluation, are levied with a tax according to a scale from 2% up to 6%. From this tax is deductible the mentioned goods which are part of the assets subject to the presumed income tax of legal entities.

There is another tax on transactions of 2% which is levied on the gross income of any industry, commerce, rent, service or any other activity.

There are specific taxes which range from 30% to 70% levied on the sale or importation of alcoholic beverages, cigarettes, perfumes, jewelry and other precious stones. Importation of vehicles is subject to this specific tax which is of 10%.

The municipalities collect other small taxes.

B. Tax Treaties

Bolivia has executed tax treaties with Argentina, Brazil, Paraguay, Uruguay, Colombia, Ecuador, Peru and Venezuela.

C. Deductibility

Since there is no profit tax in Bolivia, there are no deductions for expenses, fees of any nature or intercompany transactions. However, mining and petroleum activities are subject to a profit tax; mining activities pay a 30% profit tax and petroleum activities a 40% profit tax. The tax regulations for the petroleum activities have not been issued as of this date. In the mining sector, foreign expenses can be deducted if they are directly connected with the Bolivian operation.

In mining activities, fees paid abroad are deductible.

D. Intercompany Transactions

No restrictions exist on intercompany transactions. Other exports are tax exempted.

Exportations have an incentive given by way of custom duties refund certificates which go up to 6% on the exported value. These certificates are negotiable. In addition, there are tax refund certificates of 10% on the difference between the exported value and the 10% VAT of the raw materials imported or purchased locally and used in the exported products. These certificates are also negotiable.

XV. LABOR

A. General

Since 1985 there is complete liberty to hire and dismiss personnel.

Under the Bolivian Constitution, the establishment of unions is guaranteed, and workers have the right to establish such unions. State and national federations of unions exist in Bolivia. The maximum authority for the unions is the Central Workers of Bolivia.

Labor relations are governed by the General Labor Law. Legal actions related to labor matters are under the jurisdiction of the Labor Courts. Conflicts between workers and employers are resolved through arbitration.

The Labor Law states that more than 15% of the workers of a company cannot be foreigners, and their salaries cannot be over 15% of the total payroll. Such percentages are not applied to small companies which have less than 5 workers. Technicians and other professionals are not considered foreigners for the purpose of such limitation. If the foreigner has resided in Bolivia for more than 10 years or is married to a Bolivian or has Bolivian children, he is not considered as a foreigner for such limitation.

Bolivian immigration policy is liberal having preference those foreigners who establish a legal entity.

Any foreigner can obtain his Bolivian residence for two years renewable.

B. Labor Regulations

Wages are freely agreed upon between the worker and the employer.

Working hours under Bolivian law are 8 hours per day or 48 per week. Women under 18 years of age should not work more than 40 hours per week. Any work above the 48 hours per week for men or 42 hours per week for women is permissible paying double the hourly salary.

Besides a monthly salary, workers are entitled yearly to a one month salary called a Christmas bonus.

After one year of work, workers have right to an increase on their basic salary as a seniority bonus equivalent to 5% of the monthly salary. After the fifth year of work, such percentage goes up to 7% based on a progressive scale under which the bonus gets to 50% after 25 years or more of work.

Workers are entitled to an annual vacation of 15 working days if they have worked more than one year and less than five; 20 days from 5 years to 10 years, and 30 days after 10 years.

Social security is mandatory which covers short- and long-term risk and covers the worker and his family. For social security, the employer contributes with 16% of the total amount of the payroll and the worker with 6%.

Regarding social security, foreign employees are exempted to pay coverage of long-term risk such as death, age or total disablement. In this case, the employer pays 10% in lieu of such 16% and the foreign worker does not pay any contribution for social security.

Labor regulations are the same for local or foreign workers or employees.

C. Employment Contracts

A worker can be dismissed at any time with a prior notice of 90 days or payment of a salary equivalent to such 90 days.

Contracts with a fixed duration can be entered into in which case, upon termination of such duration, the worker is dismissed without payment of such dismissal compensation or 90 days notice. However, workers who are dismissed are entitled to an indemnity equivalent to a one month salary for each year of work. After five years of work, the worker has the right to such indemnity equivalent to five years of salaries which has to be paid even if he resigns voluntarily or is dismissed with justified cause.

XVI. DISSOLUTION

Any company that is unable to pay its debts is considered insolvent.

The Commerce Code has provisions related to bankruptcy and voluntary bankruptcy.

If a company's capital is reduced by more than 50%, the shareholders must reduce such capital to such 50% but, if this is not sufficient, to continue operations, the company must be liquidated.

A voluntary bankruptcy is when debtor suspends its payments and within 10 days of such suspension files a petition before a judge. At this stage, the company can request its creditors to refinance their debts under new terms or establish a company with such creditors or reorganize the company or the transfer of assets to the creditors or sale to third parties. All such proposals must be made in an agreement. If such agreement is not complied with, a bankruptcy proceeding begins upon request of the debtor or any creditor. Once the bankruptcy is declared by the Judge, a liquidator is designated and the detention of debtor can be ordered.

Foreign companies do not require to guarantee their debts in the original registration.

There are no special provisions for reorganization of a business under dissolution. The provisions that apply in this circumstance are the ones of voluntary bankruptcy.

XVII. INTERNATIONAL RELATIONSHIPS

Bolivia is a member of the Andean Pact and ALADI.

In 1988, Bolivia has approved the Interamerican Convention of January 1975 on powers of attorney to be used abroad.

Law 1166 of May 21, 1990 has approved the GATT.

Bolivia has executed agreements to promote and protect investments with Italy, Spain, Belgium, Luxembourg, Switzerland and Great Britain.

Law 1126 dated January 19, 1990 has ratified the Agreement related to the Multilateral Organism to Guarantee Investments dated May 1986 of the International Bank for Reconstruction.

XVIII. DISPUTE RESOLUTION

Arbitration is mandatory in all corporate disputes. In agreements, it is optional. Arbitration in companies established in Bolivia is governed by Bolivian law.

Recently in contracts with the state oil company, Yacimientos Petrolíferos Fiscales Bolivianos, it has been agreed to submit to foreign arbitration as defined in the UNCITRAL Model Law disputes of technical nature.

Under Bolivian law, arbitration proceedings are started by filing before a Judge the matters under dispute, and the arbitrators must swear before such Judge. The arbitrators can be two and one deciding arbitrator or only one.

The maximum tribunal in Bolivia is the Supreme Court which tries cases of unconstitutionality, direct recourses of nullity and recourses of habeas corpus and "amparo". The Supreme Court is also empowered to try cases from the courts of appeal (District Courts).

Legal action is filed before lower judges ("instrucción y partido") which exist in each province or municipality which try the cases according to the amount under dispute. These judges can act in civil or penal matters, and there are other judges for family matters and for labor matters with the right to appeal before the National Labor Court with a recourse before the Supreme Court.

Tax matters are subject to a special procedure and they are tried before the Fiscal Court of the Nation with a recourse before the Supreme Court.

Supreme Decree 23005 dated December 6, 1991 refers to the adherence of Bolivia to the Convention on the Acknowledgement and Execution of Arbitration Awards signed at the United Nations on June 10, 1958.

APPENDIX

GOVERNMENT AGENCIES

Ministerio de Relaciones Exteriores y Culto

Ingavi esquina Junín

Tel: 371150 - 371151

Ministerio de Industria, Comercio y Turismo

Camacho esquina Bueno

Tel: 372041 - 372542

Ministerio de Finanzas

Calle Bolivar 688 esquina Indaburo

Tel: 379240 - 379241

BOLIVIAN EMBASSY IN THE UNITED STATES

Embajada de Bolivia

3014 Massachusetts Ave. N.W.

Washington, DC 20008, USA

Tel: (202) 483-4410

Tlx: 440049 EMBO-UI

COMMERCIAL INSTITUTIONS

National Chamber of Industry

Av. Mcal. Santa Cruz

Edif. Cámara Comercio

Tel: 322665 - 374476

National Chamber of Commerce

Av. Mcal. Santa Cruz

Edif. Cámara Comercio

Tel: 324340 - 350042

American Chamber of Commerce

Av. 6 de Agosto 2570

Tel: 356843 - 371503

Exporters National Chamber

Av. 20 de Octubre 2427

Tel: 341220

FINANCIAL INSTITUTIONS

Stock Exchange

Mercado esquina Ayacucho

Tel: 322422

Banco Central de Bolivia

Ayacucho esquina Mercado

Tel: Central Piloto 374151

Interno Presidencia 467

Interno Gerencia General 446

Banco Boliviano Americano S.A.

Loayza esquina Camacho

Tel: 361101 - 350861

Banco Hipotecario Nacional

Av. 16 de Julio 1630

Tel: 378423 - 353416

Banco de Santa Cruz de la Sierra S.A.

Calle Mercado 1070

Tel: 351213 - 351150

Banco Real S.A.

Av. Camacho 1345

Tel: 366603 - 366604

Banco de la Nación Argentina

Av 16 de Julio, 1486

Tel: 359211 - 359212

Citibank, N.A.

Plaza Venezuela 1434

Edif. Herrmann

Tel: 321742 - 342088

Lex Mundi - Legal Guide Series

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