InterAm Database
National Law Center for Inter-American Free Trade
Copyright 1996 VISO * RODRIGUEZ * COTTIN * MEDINA *GARRIDO &ASOCIADOS
ABOGADOS
LEGAL GUIDE FOR INVESTORS IN VENEZUELA
This paper, prepared by Viso, Rodriguez, Cottin, Medina, Garrido & Asociados is meant to give a general idea on several legal issues related to the performance of business or industrial activities in Venezuela.
I.- BUSINESS AREA
1) Kinds of business associations:
There are four kinds of business associations, to wit:
A) Full partnership [sociedad en nombre colectivo], where partners are individually liable for the debts of the partnership; partners are jointly and severally liable for the company's obligations.
B) Limited partnership [compañía en comandita] where the company's obligations are guaranteed under unlimited and joint and several liability of one or more partners, who are called general partners [socios comanditantes] and where there is also a limited liability, up to a specific amount, of one or more partners known as limited partners [comanditarios]. This kind of companies may take the form of two specific companies: simple limited partnerships and share limited partnerships. In this last type of partnership the limited partners' capital consists of shares.
C) The limited liability company [sociedad de responsabilidad limitada-SRL], where the association's obligations are guaranteed by a determined capital stock, which is not divided into shares, as it is the case with the anonymous companies, but rather into participation quotas.
D) The corporation [compañía anónima-CA,SA], where the company's obligations are guaranteed by a specific capital stock and where partners are bound only by the number of the shares they hold.
The most generalized form is the corporation and that is why we shall now refer to some legal and management aspects of this kind of business association.
2) Requirements for the creation of an anonymous company:
A) An application must be filed with the Commercial Registry to reserve the company's name.
For practical purposes, it is advisable to reserve more than one name, in order to have a better chance of getting a favorable response.
B) A draft must be made of the company's Articles of Incorporation; usually, the draft is wide enough as to consider these articles as the by-laws too.
C) Two (2) shareholders, at least, are required to execute the company's Articles of Incorporation and by-laws. However, once the company has been chartered, all shares may be assigned--by means of an entry in the book of shareholders--to a single shareholder.
D) In order to create an anonymous company, its capital stock may be provided in cash or in kind and it must have been paid-up in at least twenty percent (20%). In case of provisions in kind, the Articles of Incorporation must be joined by an inventory of the property being brought. If it is cash, a checking account must be opened with a Venezuelan Bank, in the name of the company being created. In this case, a deposit slip is essential with a letter issued by the bank to the proposed company, for the purpose of its chartering.
3) Registration of the company's Articles of Incorporation and By-laws:
In order to register the company's Articles of Incorporation and by-laws at the Registry Office where the company is to have its main place of business, the corresponding documents must be filed with a statement, signed by one of the company's administrators. Subsequently, the Registry Office will set a date for the filing Administrator to sign the corresponding book entries on behalf of the company.
At the time of the above said application, registration fees must be paid.
Also, in the event of urgent requirement, that is to say when signature is requested at a date prior to the regular one set by the Registry Office, additional fees must be paid.
4) Formal duties for a company's operation:
A) After the certificate of incorporation is issued by the Commercial Registry, the Articles of Incorporation and the by-laws must be published in a local newspaper.
B) Anonymous companies are bound to use the following accounting books: diary book, ledger, book of inventories. Both the diary book and the book of inventories, must be previously filed with the Commercial Registry where the company is registered. Other books are also compulsory:
Book of Minutes of Stockholders' Meetings, Stockholders' Book, and Book of Minutes of Board Meetings.
C) For the purpose of complying with the Income Tax Law, the company is required to register with the Fiscal Information Registry (RIF). Also, in accordance with the Sumptuary Consumption and Wholesale Sales Tax Act, such taxpayers must file with its Registry of Taxpayers.
D) A certificate of business qualification (domestic, foreign or mixed) must be obtained from the Superintendence of Foreign Investments.
E) In case where there is foreign investment, as we shall see hereafter, such investment must be registered with the Superintendence of Foreign Investments.
F) Each year, the Regular Shareholders Meeting must be held, on the date set by the by-laws, to discuss and approve or amend the balance sheet, after due consideration of the report by the stockholders' delegates; to appoint the administrators, if so required under the by-laws; to appoint the stockholders' delegates and to set the fees payable to the administrators and to the stockholders' delegate if not provided under the by-laws.
G) The by-laws may be amended. An amendment requires the presence of at least half the issued and outstanding shares and the favorable vote of a simple majority of the members present at said meeting, save for a different provision of the by-laws.
However, if the by-laws do not provide anything else, a presence is required at the Stockholders' Meeting of stockholders representing at least 3/4 of the capital stock; favorable vote is also required, then, of those representing at least half of said capital stock, for the following purposes:
a) The corporation anticipated dissolution.
b) An extension of the company's life term.
c) Mergers with another association.
d) Sale of the social assets.
e) Capital stock reimbursement or increase.
f) Capital stock reduction.
g) Change of the association's object.
h) By-laws' amendments in above referred matters.
II.- THE FOREIGN INVESTMENT SYSTEM IN VENEZUELA
1) General Principles on Foreign Investment in Venezuela:
A) Foreign investors, in principle, shall have the same rights and obligations as national investors.
B) Foreign investors may invest in all kinds of economic activities, wilth the limitation provided by special statutes, and with the exception of activities being expressly reserved to national investors, such as:
a) Television and radio broadcasting.
b) Spanish language newspapers.
c) Professional services for professions being regulated by national laws.
C) Dividends or benefits earned by foreign investors in each economic year may be fully remitted abroad, exempted from income tax.
D) Holders of direct foreign investment shall be entitled to remit abroad the product of the sale of their stock, participations and rights, as well as the right to remit abroad the earnings obtained in the country at the closing of the corresponding economic year.
2) Formalities to be accomplished with regard to the foreign investment (general rules):
A) Foreign investments do not require previous authorization, but they must be registered with the Superintendence of Foreign Investments -or other competent agency-within the sixty (60) consecutive days following the date of registration with the respective Commercial Registry of the Articles of Incorporation originating the foreign investment.
B) Foreign investors and businesses receiving foreign investment, within the one hundred twenty (120) consecutive days following the respective economic year's closing date, shall update their direct foreign investment registration.
C) On said occasion, payments made by foreign investors on their unpaid capital stock shall be recorded.
D) When establishing branches in the country, foreign companies shall so notify it to the Superintendence of Foreign Investments or to any other equivalent agency.
E) The acquisition of shares, participations or rights owned by national, subregional or foreign investors, made by foreign investors applying to to national, mixed or foreign businesses shall be registered with the Superintendence of Foreign Investments or other competent agency, within the sixty (60) consecutive days following the corresponding operation's execution.
F) Foreign investments made at the stock exchange shall be registered at the end of the calendar year, with annual updates of the registrations,
G) Profits may be reinvested, in which case there is a registration requirement with the Superintendence of Foreign Investments, to be made within the sixty (60) days following the making of the operation.
3) Kinds of foreign direct investments
They may be realized as follows:
A) By means of contributions from abroad owned by foreign individuals, entities or corporations in freely convertible currency destined for a company's equity.
B) Physical or tangible property.
C) Investments or reinvestments in domestic currency, owned by foreign nationals or companies resulting from profits, capital gains, interest, loan amortization, participations or other rights.
D) Capitalization of credits.
E) Intangible technological contributions, such as trademarks, industrial models, technical assistance and technical know-how, patented or not.
F) Conversion of public foreign debt into investment.
4.- Type of companies.-
Companies may be qualified as follows:
A) National company: any created in Venezuela with its equity being held in excessof eighty percent (80%) by national investors.
B) Mixed company: any created in Venezuela with its equity being held by national investors at a proportion fluctuating between fifty one percent (51%) and eighty percent (80%).
C) Foreign company: any created or established in Venezuela whose equity being held by national investors is lower than fifty one percent (51%).
Although the equity participation percentage is fundamental m order to determine if a company is national, mixed or foreign, account is taken also of the nationality of those performing the company's technical, financial, administrative and commercial direction.
5.- Sub-regional investment.-
A) Investments in Venezuela, owned by national investors of any country being amember of the Cartagena Agreement, duly registered, shall be deemed as national investments for all legal effects. Consequently, a Company created in Venezuela with its capital stock being owned at one hundred percent (100%) by sub-regional investors shall be qualified as national.
B) Sub-regional investments made in national, mixed or foreign companies shall be registered with the Superintendence of Foreign Investments within the sixty (60) consecutive days following the date when the transaction having created the sub-regional investment was registered with the Commercial Registry.
III.- FISCAL AREA.-
1) Income Tax Law:
Individuals and bodies corporate must file, annually, within the three months following the closing of their economic year, the income tax return.
In order to determine the income tax, the basis for taxation are the individual's or corporate's net available profits, resulting from economic activities realized in Venezuela or from property located within the country, with the following rate being applicable to them:
A) Individuals:
a) For the portion of up to 1,000 taxing units (l): 6%.
b) For the portion exceeding 1,000 and up to 1,500 taxing units: 9%.
c) For the portion exceeding 1,500 and up to 2,000 taxing units: 12%.
d) For the portion exceeding 2,000 and up to 2,500 taxing units: 16%.
e) For the portion exceeding 2,500 and up to 3,000 taxing units: 20%.
f) For the portion exceeding 3,000 and up to 4,000 taxing units: 24%.
g) For the portion exceeding 4,000 and up to 6,000 taxing units: 29%.
h) For the portion exceeding 6,000 taxing units: 34%.
In the case of non resident individuals, the tax shall be 34%. Non residents are those individual whose stay in the country does not go beyond one hundred and eighty (180) days within the corresponding fiscal year and during the former.
B) The companies and the taxpayers assimilated to them pay as follows:
a) For the portion of up to 2,000 taxing units: 15%.
b) For the portion exceeding 2,000 and up to 3,000 taxing units: 22%.
c) For the portion exceeding 3,000 taxing units: 34%.
Net income from loans and other credits granted by financial institutions incorporated abroad and not domiciled in Venezuela is taxed at a rate of 4,95%.
(l)As of today, one simple taxing unit is equivalent to Bs. 2.700,oo. The taxing unit is updated each year, in accordance to the inflation.
As a general matter, There is income tax on dividens.
C) The law contemplates some activities of which a percentage of the gross income is deemed net for the purpose of the tax. within the following proportions:
a) Producers and distributors of films and similar abroad: 25%.
b) International news agencies: 15%.
c) International transportation agencies or companies created and domiciled abroad or created abroad and domiciled in Venezuela: 10%.
d) Taxpayers sending merchandise on consignment from abroad: 25%.
e) Gains by non domiciled insurance or reinsurance companies: 30%.
f) Professional non commercial activities: 90%.
g) Transportation of persons between Venezuela and abroad and viceversa: 10%.
h) Technical assistance provided from abroad: 30%.
i) Technological services provided from abroad: 50%.
j) Royalties earned by beneficiaries not domiciled in the country: 90%
D) Inflation adjustment:
In view of the high inflation levels being experienced by the Venezuelan economy for the recent years, the Law has provided a mechanism whereby certain taxpayers must adjust the value of their non monetary assets and liabilities, by applying to them the Consumer Price Index (CPI). The CPI is a statistical indicator, determined by the Central Bank of Venezuela, of the recorded average change during a period of time, in the retail prices of a list of goods and services representing family consumption by the reviewed population. As a result of this updating the fiscal results are increased or reduced by means of a conciliation item.
Taxpayers subject to inflation adjustment are those who perform business, industrial, banking, financial, insurance and reinsurance, mines and hydrocarbons and connected exploitation activities being bound to maintain accounting books.
The above referred adjustment is made on non monetary assets and liabilities, those that by their nature or features are prone to be protected from inflation, among them: land, constructions, investments and readjustable or foreign currency denominated credits and debts.
E) Income Tax Withholding at the Source:
Withholding is a kind of anticipated payment of the tax whereby the debtors of specific revenues taxable under the Income Tax Law, are bound to withhold a percentage, as provided by the National Executive under regulations, and to pay it at a National Funds' Receiving Office. The withholding's purpose is to control the sources of income of some persons being bound to file a return for the taxable income received and the withholding agents are most interested in withholding, since, in principle, they would not be able to deduct the expenses being subject to withholding if these have not been withheld and paid at the national funds' receiving offices. Among the main cases of tax withholding at the source, we find the following:
a) Wages, salaries and other similar remuneration (except traveling expenses) paid to resident and non resident persons.
b) Fees from free practice of non business professions, paid to bodies corporate or communities and individuals, domiciled in the country or being its residents, respectively.
c) Construction of works and rendering of other services not expressly indicated in the regulations adopted to this effect by the National Executive.
d) Business commissions.
e) Lease payments on real property located in the country, etc...
F) Fiscal Incentives
The Income Tax Law provides the following tax rebates:
a) Taxpayers dealing with the exploitation of hydrocarbons and connected activities shall benefit from a tax rebate, equivalent to 8% of the amount of new investments made in Venezuela, within the economic year, to be represented by fixed assets meant to produce income.
An additional rebate shall be granted, equivalent to 4% on the total cost of the new investments made for exploration, drilling and connected production, transportation and storage facilities, up to the loading port or refining location in the country, inclusive; secondary recovery of hydrocarbons; advantageous use, conservation and storage of gas; and valorization of hydrocarbons and research disbursements.
b) A tax rebate equal to twenty percent (20%) of the amount of new investments made during the five (5) years following the coming in force of the Income Tax Law, in industrial and agricultural-industrial activities different from those related to hydrocarbons and connected activities. The same incentive is granted to those making profits from tourist, agricultural, cattle raising, fishing or fish farming activities.
2) Industry and Trade License:
Individuals or bodies corporate dedicated to trade or industrial activities are required to get previously from the municipality where they perform such activity, a license or Trade and Industry Patent in order to be able to perform their activity, after due payment of a fee.
Under this Industrial and Trade Patent license, the Municipality will collect annually a tribute equal to a percentage on the gross income and/or gross sales earned during the year having immediately preceded the return statement. which percentage will vary in accordance with the type of activity and the involved Municipality.
Payment and calculation conditions for the Industry and, Trade Patent will vary in accordance with each Municipality. Currently there are several Municipalities that, seeking to bring incentives to the zone's economic development, contemplate a series of fiscal benefits making it more attractive to establish the business in such Municipality. Other Municipalities, on the contrary, being in need of income, have established extremely high assessments.
3) Tax on Business Assets.
The Business Assets Tax Act's fundamental objective is the taxing of assets utilized to produce the income, that is to say on the proper tangible and intangible assets located within the country and incorporated to the production of the taxable income, resulting from commercial, industrial or mines' and hydrocarbons' exploitation activities. This tax must be paid by all individuals or bodies corporate deemed to act as a merchant being subject to the income tax law. The tax rate being applicable on the taxable basis is 1% p.a. and the tax to be paid, under this Act, shall be the amount exceeding the whole of the income tax having being caused during the taxable year. This excess will be used as a credit against income tax caused during the three subsequent fiscal years, only. However, said tax may not be deducted for the purpose of determining the net taxable income under the Income Tax Law.
4) Luxury Consumption and Wholesale Sales Tax
It is a tax showing a plurality of phases and providing a debits and credits system. It is indirect and transferable throughout the entire chain of commercialization and wholesale selling.
This tax is assessed on:
A) The sale of corporal personal property.
B) Definitive import of personal property.
C) Import of services.
D) Rendering of payable independent services within the country.
Currently, this tax's rate is 16.5% of the amount of the sale or of the service rendered.
5) Tax on Urban real Propertv:
This is a municipal tax being calculated on the basis of the real property's value, be it a lot of land or a building. As a municipal tax, it may vary from one municipality to another. There are, however, some common rules in the matter:
A) The persons bound to pay the tax are: persons having a real right on the real property, the holder of usufruct, etc.; the creditor in rent assignment agreements; the tenant or occupant under any title of national, municipal or any public entity's lands.
B) The tax is established on an annual basis and normally is payable quarterly.
C) The rate applicable to the real property will depend on the use made of it, that is, in the case of a construction, there will be a rate, a different one is applicable to an office, industry or trade; or else, when dealing with a lot of land, there is a different treatment if it is within an urbanized or potentially developable zone.
D) Normally, a higher rate is applied to real property being used for an industry.
6) Tax Treaties:
Venezuela has signed a number of tax treaties in order to avoid double taxation. The scope of these treaties is quite limited. The treaties already in effect with Italy and France address income tax fraud and evasion. Treaties with the Netherlands, Germany, Belgium, Great Britain, Portugal and Czech Republic and Sweden have been signed but are not yet in force. Treaties with the United States, Poland, Barbados and Canada are under negotiation.
Andean Pact Decision Nø 40 of 1970, approved the Double-Taxation Agreement between member states of the Pact, and a standard double-taxation agreement for use between member states and states outside the subregion.
IV.- LABOR AREA
1) General Principles:
A) Legal relationships between employers and workers, are governed by the Organic Labor Law, and by individual or collective labor agreements.
Provisions of the Organic Labor Law are a matter of public order and may not be waived, without prejudice to duly homolagated settlements.
Ninety percent (90%) or workers rendering services to an employer must be Venezuelan citizens. Remuneration of foreign staff may not exceed 20% of the total paid to Venezuelan staff.
The labor agreement may be entered as follows: for non fixed term, for fixed term or for a specific work, and it may be terminated by dissmissal, retirement, the parties' mutual consent or by any cause not related to the parties' will.
Each company is bound to distribute among its workers at least 15% of the liquid profits earned by it at the end of its year, the filed Income Tax return shall be used as a basis for such distribution.
B) Legally, the working day's and week's duration for employees and workers may not exceed of eight hours a day and forty eight hours a week, if during day hours. If it is during night hours, it may not exceed seven hours a day nor forty hours a week.
C) Workers are entitled to social grants or benefits and to severance indemnities upon termination of the work relationship. The severance payment related to the lenght of the labor relation is equal to the salary, of ten (10) days after three (3) months of work, and of a month for each year or fraction of a year, longer than six (6) months month of employment with the same employer, in the case of a justified dismissal or of an unjustified retirement. If the dismissal was unjustified or if the retirement was justified, a double indemnity for time shall be granted.
It is also necessary that the employer gives notice to the worker with sufficient anticipation if he wishes to dismiss him without justification; the same obligation binds the worker wishing to resign. If this requirement were not met, and additional indemnity must be paid and it may vary from a one (1) day's salary to three (3) months' salary, depending on the time of the labor relationship existing between employer and worker. In the event of an unjustified dismissal, said indemnity is doubled, unless the worker is already entitled to the maximum indemnity which is three months, in which case it will remain at three (3) months.
Employers are bound also to pay interest to their employees on their social benefits, at a rate provided by the Central Bank of Venezuela (BCV).
2) Other applicable provisions:
A) The Law provides for a procedure to handle the qualification of dismissals as justified or not. In this latter case, the resumption of the job is ordered with the alternative of paying double indemnity instead.
Workers are entitled, for each year of service, to fifteen (15) working days' vacation, plus one (1) additional day per each year of work. A vacation bonus of seven (7) days' salary is paid for the first ( lst.) year and one (1) additional day per each year of work.
B) In the matter of social security, there is the Compulsory Social Security Act and its General Regulations covering illness, accident, maternity, survival and force labor stoppage contingencies.
C) The Social Security Regulations for Forced Work Stoppage Contingency, offers temporary protection to workers hired for undetermined time who, being insured by the Venezuelan Institute of Social Insurance, terminate their working relationship for any cause.
D) The Organic Law for Work Conditions and Environment, attempts to warrant security, health and well-being conditions to the workers, under an adequate environment leading to the proper use of their physical and mental abilities.
E) The special Act for compensatory payment of transportation expenses, which provides for a payment of Bs, 500 and Bs. 900 to workers with salaries under Bs. 9,000 and Bs.15,000 respectively.
F) The Decree providing a system for a compensatory bonus under a range between twenty percent (20%) and thirty percent (30%) for workers with salaries under Bs. 20,000.
G) The Dining Rooms for Workers Act, whereby an obligation is provided for the establishment by employers having more that ten (10) workers of dining rooms. It has not been abrogated, but decree 247 is being applied instead of it.
H) The Regulations for the care of the workers' children, which develop the set of norms of the Organic Labor Law providing for the employers' obligation to offer children care facilities.
I) The Housing Policy Act, whereby an obligation binds the employer to make contributions of two percent (2%) of the worker's salary for a savings fund to be used only and exclusively for the acquisition of housing for the worker.
J) The National Institute of Educational Cooperation (INCE) Act, whereby the obligation is established to carry apprenticeship programs for minors under 18 years of age, and a contribution of 2% of salary payments to the workers.
K) The Decree providing for the National Program of Scholarships and Salaries.
L) The Sports Act, as related to the remunerated leave for workers participating in sport competitions.
M) Decree 247, creating a subsidy of up to Bs. 6,000 applicable to transportation and food expenses. This subsidy is for the benefit of workers earning a pay under three minimum national salaries.
V.- PRIVATIZATION REGIME
Following the State restructuring policies made by the National Executive, the Venezuelan Government, through the Venezuelan Investments Fund, is developing the Government Corporations' Privatization Program. Said program's fundamental objective is to encourage the participation of private companies in a wide range of businesses, having been owned, until now, by Govemment, with ensuing inefficiency and bureaucratic expenditures.
Privatization is regulated by the Privatization Act, of which the last amendment was published in the Extraordinary Official Gazette of the Republic of Venezuela # 4927 of June 30, 1995, whereby, among other aspects, the basic and mandatory guidelines are provided, to be considered when carrying on with a privatization process. Among these one may mention: Government approvals, workers' minimum equity participation (20%) through a Labor Participation Plan, special tendering procedure, mixed companies' regime, use to be made of the Privatization's fund, controls on the privatization operations, etc.
The Venezuelan Investments Fund is the entity being in charge of retaining the private advisory and consultancy services needed in order to carry on with each of the processes; it is also the entity goveming the processes and in charge of them and, for this reason interaction by eventual interested investors with said entity in a specific process bears special importance.
The Venezuelan Investments Fund has a Record of Consultants, where national or foreign consulting firms (individuals or bodies corporate) are free to enroll, provided they meet the requirements of the law, based on the exhibits requested by said entity.
The hiring of consultants for a specific process is made by the Venezuelan Investments Fund, by means of a bid submission process--under sealed envelops--among members of its Record of Consultants deemed suitable by it, under the modality of a short list and long list, depending on the case.
VI.- INVESTMENT OPPORTUNITIES IN THE OIL. GAS AND PETROCHEMICAL INDUSTRY:
1) OIL AND GAS:
A) A GENERAL OUTVIEW OF THE OIL AND GAS INDUSTRY:
Venezuela today is one of the world's top four oil producing countries, with an average daily production (including condensate an NGLs) of 2,724,000 barrels in 1994.
On January, 1976, the petroleum industry was nationalized and private concessions were returned to the State in a negociated process. The national oil company, Petroleos de Venezuela, S.A. (PDVSA), was earlier formed under Decree Nø 1123 of August 30, 1975.
PDVSA is responsible for the administration of the Venezuelan oil, gas, petrochemical and partially coal industry and is responsible for the operation of its subsidiaries, in compliance with guidelines provided by the Ministry of Energy and Mines.
PDVSA is also the largest corporation in Venezuela, contributing approximately 76% of the country's exports, 61% of the government's revenues and 22% of gross domestic product (GDP) in 1993. PDVSA's total assets reached approximately $36 billion as of December 31, 1994, and its revenues for the year amounted to approximately $22.1 billion. Today it ranks as one of the world's largest oil company as well.
The operating subsidiaries of PDVSA (Corpoven, Lagoven and Maraven) are vertically integrated petroleum companies. The activities of these operating companies are complemented by PDVSA's refining and marketing interests and assets in the Caribbean, the U.S. and Europe. PDVSA's foreign shareholdings include a wholly-owned U.S. company (CITGO), which includes refining, marketing and transportation operations, interests in two other U.S. refineries, and 50% ownership interest in two European refining companies, Ruhr Oel GmbH and AB Nynas Petroleum.
In addition to the oil and gas industry, PDVSA is a significant participant in the country's petrochemical industry. It also has the right to explore and explore coal deposits in the Guasare region on behalf of the State.
A well-established infrastructure supports Venezuela,s petroleum industry, including 300 active oil fields, 27,465 miles of pipelines, 7 domestic refineries, ownership in 15 overseas refineries (6 in USA), and 1 leased refinery in Curacao N.A.
Petroleum resources in Venezuela are huge, with proved oil reserves of more than 64 billion barrels and the largest reserves of extra-heavy crude oil and bitumen in the world. The proven natural gas reserves are about of 138 Tcf which places Venezuela among the ten countries having the largest reserves in the world with strong possibilities of further additions in the future.
B) Private Sector participation in activities reserved to the State:
The Organic Law which Reserves the Industry and Trading of Hidrocarbons to the State, also referred to as the "Nationalization Law", reserves for reasons of national interest to the State all activities relating to the exploration, exploitation, manufacture, refining, storage, transportation by special means and domestic and foreign sales of hydrocarbons and their derivatives.
Article 5 of the law estipulates the conditions under which the national petroleum industry can participate with the private-sector:
a) Operating contracts between subsidiaries of PDVSA for speciiic work or services, or to market a subsidiary's products.
Under this scheme, an agreement is executed with a service company to carry out a specific activity on behalf of a PDVSA's subsidiary. This scheme does not involve a partnership, but rather the performance by a contractor of certain operation activities, wich are legally outside of the scope of the activities reserved to the State, therefore approval by Congress is not required. This scheme have been used in the Marginal Fields Reactivating Program, wich started in 1992, until January 1996, 16 marginal fields agreements have been made by PDVSA subsidiaries with private companies, wich are meant to last for 20 years.
b) Contracts with PDVSA's subsidiaries as a service provider of for construction work.
c) As a partner with the State or its companies through association contracts to participate in activities reserved to the State, such as:
- Profit-sharing Agreements:
Under this scheme, a PDVSA subsidiary owns 35% of the shares of the joint venture formed with the private investor. Investors have direct control of all operation. The subsidiary receives a share of the profits resulting from production. These profits are calculated as gross income minus the operational costs allowed by the agreement, depreciation (a five-year period is allowed) and the corresponding production taxes.
- Strategic Associations:
PDVSA has already signed "strategic associations" with priva companies to develop the heavy-oil and gas resources, under provisions of the referred article 5 of the "Nationalizations Law". Governament has governement has made an exception for projects under this sche. These economic sector, that means that the income tax applied is according to the 199. Income Tax Law, and not 67.7%, whic is the rate for the oil sector.
To date, three "strategic associations" agreements have been approved: The Cristobal Colon Project and two projects for the development of heavy and extra-heavy crudes from the faja.
Associations are subject to the normal royalty rate (16.67% of the value of hydrocarbons produced). The ministry of Energy and Mines, is enabled to reduce this rate in order to increase attractivenes to develop a particular field.
The first two forms are ordinary agreements entered into the normal course of business, while the third category requires prior approval of both Chambers of Congress in a joint section. In this case, the National Executive, through the Ministry of Energy and Mines, must submit for the approval of Congress a framework of conditions that will govern the agreement. These associations, must meet three conditions: a) to be of public interest; b) to have a limited duration; and c) the State must maintain control of the association.
2) INVESTMENT OPPORTUNITIES IN THE PETROCHEMICAL INDUSTRY:
A) All areas of Venezuela's petrochemical industry are open to the private sector, with no legal restraints. Pequiven, a subsidiary of PDVSA, covers most of Venezuela's petrochemical development, whether through wholly-owned plant or joint ventures, i.e. partnerships with local and foreign private firms.
Pequiven produces 3 million MT/year (1994 figures) and has a workforce of around 4,000 people. It accounts for half of the sales of the chemical and petrochemical industry; 60% of its sales are local, the rest is exported.
Pequiven's focused development will concentrate on methane and ethane derivatives and will be undertaken with the participation of the private sector. Such focused petrochemical development will be primarily exportoriented, and therefore will require world-scale plants oriented to export markets in the U.S., Latin America and the Far East. Pequiven manages eleven wholly owned petrochemical plants and also participates in 19 joint ventures with private local and foreign investors. Eighteen of these joint ventures are presently operating and one is under development.
Pequiven is organized into business units covering three broad sectors: olefins and plastics, fertilizers and industrial products.
B) Operations take place at three petrochemical sites:
1.- The northeast coast of Lake Maracaibo, at El Tablazo, Zulia State, in western Venezuela. It principally produces olefins and thermoplastics resins.
2.- A second site is near Morón, Carabobo State, where fertilizers are produced. (Pequiven also has a facility to produce aromatics at Corpoven's El Palito refinery near the Morón complex).
3.- A third complex is located at Jose, Anzoategui State, in eastern Venezuela, which has two methanol plants and one MTBE plant
C) The future of Pequiven is based on raw materials potential. Venezuela has a fundamental competitive advantage in this area, particularly related to associated natural gas. The great abundance of gas in Venezuela (the country is between the 10 countries in the world with the largest proved natural gas reserves), along with the configuration of oil associated gas deposits, encourage the production of olefins, fertilizers such as ammonia and urea, and methanol, which are derived from ethane, methane and propane.
D) Other important advantages to be considered by investors are:
a) The possibility of an income tax reduction of 20% of the new investments in industries (The maximum income tax rate is 34%).
b) No restrictions with respect to the participation of private investments.
c) No exchange control regulations and freedom to repatriate capitals and dividends.
d) The petrochemical industry is not as developed as the oil industry.
e) Large reserves of oil-associated gas.
f) One of the best ports and road infrastructures in South America. The energy cost is among the lowest in the world due to its natural resources and hydroelectric power capacity.
g) Due to Venezuela 's favorable geographical location, the investors could have low-cost access to major export markets including the Cartagena Agreement (Bolivia, Colombia, Ecuador, Peru and Venezuela) and the Group of Three (Colombia, Mexico and Venezuela).
Besides, PEQUIVEN, has a policy of opening its industry to the private investment.
3) LABOR ASPECTS OF THE OIL INDUSTRY
Foreigners who wish to carry out business activities or obtain employment must enter the country with a transient (transeunte) visa, valid for from 45 days to a year. Such visa, can be obtained at a consulate office in the respective country of origin. Resident visas normally can be obtained after a period of two years.
Labor contracts within the petroleum and petrochemical industries are regulated by labor laws and collective bargaining agreements entered into with the industry's workers. Currently, the petroleum industry has signed different work agreements which cover its onshore, maintenance, offshore, medical and coal mining personnel.
Staff employees and executives are not included in these labor agreements, but are entiled to all ther labor benefits granted in the collective bargaining agreements. Both groups receive additional benefits granted by the petroleum industry.
A) Unions:
Workers in Venezuela's petroleum industry are members of some 53 labor unions, operating within two labor federations. Thirty-five of the unions are affiliates of Fedepetrol and 18 unions with Fetrahidrocarburos. There are no major ideological diferences between the two federations and it is expected that they will merge into one organization in the future.
B) Worker Benefits:
Workers involved in the petroleum industry are granted all the labor benefits provided in the labor laws, but their collective bargaining benefits exceed those provided in the law. Besides, the petroleum industry grants its workers other benefits such as special insurance plans for the worker and his family, special housing plans, financial aid for tuition payments, special promotion bonuses, etc.
Contractors involved in the hydrocarbons sector must grant their employees the same labor benefits provided to workers in the hydrocarbon industry.
Under this labor aspects, we are going to refer exclusively to the additional worker benefits provided by the above mentioned collective bargainina aareements, such as:
a) Labor termination indemnities:
Workers are granted double labor termination indemnity payments.
b) Seniority indemnity:
Employers may periodically advance seniority benefits, provided this is called for in the collective labor contract. Employers must grant loans to employees or guarantee loans from third parties up to the amount of accrued benefits for such purposes as acquiring or improving a home, paying the mortgage on an employee's home and paying school fees.
c) Profit sharing bonuses:
Workers are entitled to receive profit sharing bonuses amounting to four month's salary.
d) Vacation bonus:
Workers are granted a 30days paid holiday period annually. The holiday bonus differs in each collective bargaining agreement, but it is higher than the one granted by law. Other labor benefits, such as overtime work payments and minimum wages, are also higher than those provided in the Labor Law.
e) Social security:
The petroleum industry is subject also to Venezuelan social security contributions. The percentages to be contributed by employers and employees are as follows:
Activitv Risk Emplover Emplovee
Minimum 9% 4%
Medium 10% 4%
Maximum 11 % 4%
Payments made to the Venezuelan Social Security Institute are deductible for income tax purposes, without limitation.
4) TAX ASPECTS OF OIL AND GAS ACTIVITIES:
The Hydrocarbons Law of August 7, 1967, regulates all taxes related to exploration, exploitation and production, manufacturing, refining, transportation and storage activities in Venezuela. This law establishes the tax regime and the royalties payable to the State.
A) Royalties:
The 16 2/3% rate is the maximum rate which can be assessed, it is payable monthly, and applicable to the following activities:.
a) 16 2/3% of the value of extracted oil measured at the production field. b) 16 2/3% of the value of natural asphalt produced.
c) 16 2/3% of the value of natural gas processed or consumed as fuel.
To encourage and prolong economic exploration of concessions, the Government is permitted to reduce exploitation tax in those cases which demonstrate that increasing production costs, including exploitation tax, have reached an economic limit which prevents continued commercial production. The State may also restore reduced production tax to its original rate when conditions or circunstances so merit.
This law also establishes various minimum taxes applicable to exploration and exploitation of concessions and for the granting of rights to concessionaires.
B) Tax on refining. manufacturing or consumption:
It is assessed on manufactured or refined goods sold or used for internal consumption. This tax is equivalent to 50% of the import duties that would have been paid if the manufactured or refined goods had been imported..
C) Tax on transportation:
The companies that transport oil for third parties shall pay a tax established by the governement which can not exceed 2.5% of the income they receive for such service.
D) Method of Depreciation:
There are special rules for depreciation with respect to the oil industry, which are different than the ones applicable to the rest of the tax players.
5) Control:
Foreign companies investing in Venezuela's petroleum or petrochemical sectors are requirred to register their investments with the Ministry of Energy and Mines (MEM).
Companies interested in contracting or supplying materials and services to the Venezuelan petroleum and petrochemical industries must first register with the National Auxiliary Contractors Registry (RAC). Companies may register at PDVSA or any PDVSA affiliate office near them.
6) Commmercial Relations with PDVSA:
Commercial and thechnical relationship with PDVSA must be established through its operating subsidiaries. Corpoven, S.A., Lagoven S.A. and Maraven, S.A. handle the purchase and sale of crude oil and derivatives. Pequiven handles buying and selling of petrochemical products and the marketing of fertilizers. Carbozulia markets coal; BITOR is responsible for marketing Orimulsion; Bariven oversees the purchase and sale of equipment and materials, while Intevep is the corporate center for research and development.
Commercial relations with PDVSA,s subsidiaries of joint-venture partners outside Venezuela should be established directly with their representatives in the respective countries. Companies interested in purchasing crude oil and refined products should apply for registration in PDVSA,s "Register of Qualified Clients for Export Sales". Upon approval, the company becomes a qualified vendor, with no obligation to enter into contractual agreements.
VII.- INVESTMENT OPPORTUNITIES IN MINING:
Nowadays, prospecting and exploitation of minerals, excluding iron ore, can be carried out by private firms, irrespective of their share of foreign capital. Iron ore processing is open to private investment.
Private companies in order to be able to explore and produce minerals require a concession by the Ministry of Energy and Mines (MEM). Howeyer, since some state-owned local development corporations have been authorized by the Ministry of Energy and Mines (MEM) to administrate these concessions, from the practical point of view, private corporations have a contractual commitment signed with such local development corporations to explore or develop a particular area. Minerals known as non-metallic minerals, are excluded from this system since they can be worked by the landowner.
1) Venezuelan Authorities:
The Ministry of Energy and Mines (MEM) is the national authority for all minerals in Venezuela. The Mining Law states that the MEM is the national entity responsible for: the geological cartograpy of Venezuela, research into national mineral paleographic geology, and overseeing the country's mining development.
Some regional corporations have received mandates on mining activities, such as:
A) Corporacion Venezolana del Suroeste (CORPORURESTE), located in San Cristobal, Estado Tachira (Western Venezuela). It is in charge of promoting and developing projects in Tachira State and part of Trujillo State.
B) Fosfasuroeste, located in San Crist6bal, Tachira State. It is in charge of promoting and developing projects on phosphates within Tachira State.
C) Carbosureste, located in San Cristobal, Tachira State. It is in charge of promoting and developing projects on coal within Tachira State.
D) Corpozulia, located in Maracaibo, Zulia State. It is in charge of promoting and developing projects on coal.
E) Corpofalcon, located in Coro, Falcon State. It is in charge of promoting investments projects and the development of Falcon State.
F) Corporiente, located in Cumana, Sucre State. It is in chrge of promoting investments projects and the development within Sucre, Monagas and Anzoategui States.
2) Legislation:
The legal framework for investments in the mining sector is governed by the Constitution, Decree Nø 2095, the Organic Law of the Environment, the Law for Transferring Powers to the States, the Mining Law, MEM Resolution Nø 115. The last two specifically regulate the mining sector.
A) Constitution of the Republic of Venezuela:
The Constitution provides that all underground mining or hydrocarbon resources are property of the nation, while prospecting and exploitation rights may be granted under a concession scheme.
B) Decree Nø 2095:
This Decree develops Decisions issued by the Andean Community. Among other aspects, it establishes: the principle of equal treatment for both local and foreign investors; investment is allowed without prior requirements or approval subject to registration with the Foreign Investment Superintendency (SIEX), and the areas that are reserved for local investment (prospecting and exploitation of mineral excluding iron ore).
C) Organic Law of the Environment:
This Law concerns environmental control and restoration of areas that have been environmentally degraded by mining development. All mining projects must have authorization from the regional office of the Ministry of the Evironment and Renewable Natural Resources. To obtain this autorization, the applicant submit a report on the environmental impact and future recovery to be carried out on the land. Permits are granted directly by the regional offices.
D) Law for Transferring Powers to the States:
This Law, transfers to the states the supervision, exploitation and administration of the materials used by the construction industry, i.e., rock, sand, gravel, clay and shale. Any other form of mining, be it industrial or metal, is controlled by the central government through the Mining Law.
Descentralized state governments can apply their own regulations to these non-metaIllc mining activities and may impose production and surface taxes.
E) Mining Law:
This Law regulates all aspects of mining in Venezuela. It establishes that the rights to explore and develop mineral deposits are granted as concessions byf the Ministry of Energy and Mines.
Article Nø 2 of the Law specifies that all raw materials which do not appear in Article Nø 7, belong to the Venezuelan State and so require a mining concession. Article Nø 7 of the Law specifies that all construction materials, such as all types of rock, sand, clay, gravel, shale, limestone, marble, granite, gypsum, kaolin and magnesite belong to the owner of the land where they are found and may be mined without any special formalities. When these materials are located on national land, a contract for mining is required from the Ministry of Energy and Mines.
Decree Nø 2039 abolished the legal form called "denuncio" (staking system), as a means of obtaining mining rights. This Decree reserved to the state the exploration and development of minerals not included in Article Nø 7 of the Mining Law.
Lately, a new project of a Mining Law has been presented to the National Congress.
Concessions granted in reserved areas are valid only for the minerals specifically mentioned. If concession holders wish to carry out prospecting and/or development activities for other minerals, they must make a separate application to the authorities. A legal distinction is also made between vein and alluvial minerals which are treated as coming from different concessions, even if both are found on the same area of the concession.
In addition to the normal corporate taxes levied in Venezuela, the Mining Law establishes the following taxes:
a) Surface Tax (Impuesto Superficial):
Annual percentage of the total area granted, with effect from the date of publication of the concession in the Official Bulletin. The tax on alluvial concessions is Bs.0.5/hectare annually. For vein concessions it is Bs. l/hectare annually.
b) Production Tax or Exploitation Tax (Impuesto de Explotación):
Gold, silver and platinum pay 1% of the commercial value of the mineral in Caracas at the time of mining. For diamond and other gems the rate is 3%, for other minerals 1%. For coal concessions. the amount of the production tax may be substracted from the amount of surface tax to be paid.
c) Prospecting (Impuesto de Exploración):
This is a one-time charge of Bs.0.25/hectare for the right to work the concession.
F) MEM Resolution Nø 115:
This regulation establishes special advantages in favor of the Nation, which can be:
a) Higher exploration and surface taxes.
b) Higher production tax: a minimum of 3% for gold, silver and platinum, 4% for diamonds and other gems, and 6% for other minerals.
c) Reduction of the concession period to 20 years, which can be extended by the MEM.
d) Contributions for improving physical, cultural, social, and economic conditions of localities near concessions.
3) CUMENT DEVELOPMENTS
Until now, the Venezuelan minerals that have attracted most interest from the international private sector have been: coal, gold, nickel and iron.
A) Coal:
The reserves of this mineral are estimated over 6 billion MT. Economically viable coal deposits have been detected in Zulia where the Guasare coal basin is located, Tachira, Merida, Apure, Falc6n, Aragua, Guarico and Anzoategui States.
Carbones del Zulia (CARBOZULIA), a subsidiary of Petr61eos de Venezuela (PDVSA), is developing the Guasare deposits. Except for CARBOZULIA, coal production is in private hands, even though coal concessions have been granted to State-owned regional agencies, such a Corpozulia, Corpofalc6n, Corporiente and Corposuroeste.
Several ambitious investment projects have been put in place because o~ the compet1hve advantages that the Venezuelan coal has, such as its low sulfur content; excellent quality and stability; relatively low investment cost; excellent geographical conditions; and outstanding average calorific value.
B) Gold:
The largest and most important deposits of primary gold are found in Bolívar state, South Venezuela, but also metal deposits with high gold content have been found in the states of Merida, Sucre, Aragua and at the headwaters of the Orinoco river.
Corporación Venezolana de Guayana (CVG) is currently evaluating the gold-bearing districts or Bolivar state. The CVG has estimated that the area contains huge reserves of gold, calculated at 5,000 MT in the oxidization zone, which can be worked on the surface, and 3,000 MT which can be extracted by underground mining.
There is also documented historical production which indicates that Guayana's region has the greenstone belts with a potential similar to those of Africa, Australia and Canada.
C) Nickel:
Reserves of the mineral are estimated at 32 million tons, with 1.48%. Nickel Forecast production is 16,000 tons of ferro-nickel (50% Fe and 50% Ni), representing annual sales of over US$150 million and 600 direct jobs. Currently all output will be exported as raw material for an Anglo American factory.
D) Iron:
Early This lear, CVG Ferrominera del Orinoco, an iron company of Corporación Venezolana de Guayana, announced several associations with foreign investors which are oriented to increase the current annual production from approximately 19 milion tons to 25 million tons. The maximun participation of the state-owned company in the projects will be 20%.
Source: An excellent reference to this matter can be found in "Investment Opportunities in Mining", CONAPRI, Caracas, June 1996, which we have partially transcribed.
VTTI.- THE TELECOMMUNICATIONS' LEGAL FRAME
Government's administrative organization for the management, inspection and control of telecomunication services, as well as of the individuals' performance related to these services have their legal basis on the Telecommunications Act of 1940. Said law, without prejudice to what is provided in its text or by special statutes, confers upon the National Government the establishment and exploitation of telecommunication services.
Said act expressly provides that permits and concessions may be granted to private persons for the establishment and exploitation of telecommunication services. Once the concession has been granted, the private person is entitled to provide the corresponding services.
Generally, the different services are the subject of a concession granted by the Ministry of Transport and Telecomrnunications, through CONATEL, whereby standards and fundamental clauses are established for the provision of the services involved.
Until 1991, the development of telecommunications was circumscribed to certain basic services, but on the occasion of the privatization of C.A. Nacional Telefonos de Venezuela (CANTV) and, generally, of the opening and privatization of telecommunication services, following the international trend, the National Government has been issuing a series of decrees and resolutions with the purpose of providing an adequate regulatory frame for the several services.
Among legal provisions complementing the Telecommunications Act, as adopted by the National Executive, one may mention:
Decree # 1826, of September 5, 1991 whereby the National Telecommunications Commission (CONATEL) is created, to be in charge, with some degree of autonomy, of the management, inspection and control of the services.
Decree # 1875, of October 3, 1991, whereby the Regulations on the Operation of Public Telecommunication Terminal Services were adopted.
Decree # 1876, of October 3, 1991, whereby the Regulations on the Operation of Private Telecommunication Networks were adopted.
Decree # 1877, of October 3, 1991, whereby the Regulations on the Telecommunications Basic Network were adopted.
Decree # 1921, of October 31, 1991, whereby the Regulations on Autonomous, non Legal Personality, Services, applicable to CONATEL, were adopted.
Decree # 1945, of November 12, 1991, whereby the Presidential Advisory Commission for the Granting of Permits for Sound Radio and Audiovisual Transmission was created;
Decree # 2037, of December 26, 1991, whereby the Regime for the Ownership and for the Control of AM and FM Sound Radio Transmissions Stations was established;
Resolution # 482, of November 25, 1991, whereby Internal Regulations for the National Telecommunication Commission Autonomous Service (CONATEL) were adopted.
Decree # 2,497, of August 20, 1992, whereby the television concessions' regime and control was adopted.
Decree # 2625, of November 5, 1992, whereby the Partial Regulations on television Transmissions were adopted.
Decree # 2771, of January 21, 1993, whereby the Regulations on the Operation of Sound Radio Transmission Stations were adopted.
Recently, in Official Gazette # 5083, Extraordinary, of August 6, 1996, the Bill Approving the Constitution and Agreement of the International Telecommunications International Unit (UIT), signed in Geneva, Switzerland, on December 22, 1992, was enacted.
Currently, CONATEL is also in the process of granting concessions for the exploitation of satellite communication services.
From the fiscal point of view, one should mention that the telecommunication companies are subject to a special tax calculated on their gross income and applicable in accordance with the assumptions provided by the Telecommunications Act. Concession agreements, also, normally provide for an additional amount to be paid additionally,by the telecommunication companies, of zero point five percent (0.5%) of the concession fees.
There have been talks on the convenience of passing a new telecommunications Act, seeking to modernize some aspects contained in the 1940 Act and to ensure, among other objectives, the stability and continuity in the service's provision, as well as flexibility in its regulation.
IX.- THE ELECTRIC POWER SECTOR'S LEGAL FRAME
1) The currently existing regulating frame for electric power is featured by a lack of legislative regulation, in other words by the absence of a national law and by direct regulation by the national Government, comprising aspects related to tariffs, the rendering of public electric power service and the administrative structure regulating said service through the Electric Power regulatory Commission (CREE).
2.) Decree # 368, dated July 27, 1989, published in Official gazette # 34.321 of October 6, 1989, provides the standards to deterrnine the electric power service's tariffs.
Public electric power service has been declared a matter of primary necessity by article 1 of said decree 368, it then been possible for the National Government to set the tariffs by way of application of the Consumer and User Protection Law (a national law), in concord with provisions of article 36, Sole Separate Paragraph of the Municipal System's Organic Law.
3.) The electric power's public distribution and sale service is formally under the competence of Municipalities, in accordance with provisions of article 36 of the above quoted Municipal System's Organic Law. Municipal Ordinances, however, may not contravene national laws nor the technical and administrative standards issued by the National ('Tovernment based on said laws. Municipalities are not authorized either to set service tariffs.
4.) The joint Resolution of the Ministries of Development and Energy and Mines, dated October 16, 1992, approved the currently prevailing electric power service tariffs. Said Resolution has also some standards with terms and conditions for the supply of the electric power service.
In order to adjust tariffs, the national Executive has established the so called Global Adjustment Factor (GAF), for the purpose of considering inflation and other impacts on costs, but at the time of authorizing the tariffs it has done so by means of an adhoc Resolution without applying said FAG standards.
5.) Decree # 2,383, dated June 18, 1992, has Standards for the development of the electric power service and creates the Electric Power Regulatory Commission (CREE). Also, Decree # 2,384, of June 18, 1992, authorized the creation of the Foundation for the Development of Electric Service (FUNDELEC) of which the purpose is to contribute with the most adequate development of the electric sector.
6.) The Venezuelan Chamber of Electric Industry (CAVEINEL) is an association grouping the private and public electric power companies and contributing also to the development of the electric sector.
7.) Resolution # 549, of April 30, 1983, adopted by the Ministry of Energy and Mines, has standards relating to the electric power purchase and sale relations between EDELCA (generating company) and distributing companies.
8.) Currently in force is the Interconnection Agreement signed on December 1, 1988, between the companies C.A. de Administracion y Fomento Electrico (CADAFE); CVG Electrificacion del Caroni C.A. (EDELCA); C.A. Energía Electrica de Venezuela (ENELVEN) and C.A. La Electricidad de Caracas.
9.) The electric power service is supplied both by public and private companies, it being worth mentioning the realizations of C.A. La Electricidad de Caracas, one of the country's lar~est private corporations supplying Service for more than 100 years.
10.) On another hand, the electric power generation activity has been, in general terms, related to the supply of public electric power service for residential, commercial and industrial consumers.
However, the electric power generation supplied, for instance, by GENEVAPCA--a C.A. La Electricidad de Caracas subsidiary--to MARAVEN at the Cardon Refinery, as the first independent power producer (IPP) in Venezuela, does not constitute a public service, it is a private, agreed, service within the civil and commercial frame, between companies seeking to satisfy commercial needs.
11.) In view of the institutional need for a legislative regulation of the electric power activity, and of the privatization of public companies intentions, as announced by the Government, it is expected that future regulations shall adequately provide for the rights and duties of concession holding companies, shall clearly define Government intervention and ensure the companies' tariff balance.
In this sense, there have been talks on the coming consideration by Congress of an Electric Power Bill. On its part, the National Government has expressed its intention to regulate, by way of Decree, the electric power activity in its diverse phases. On this last aspect, the draft of a Decree of which we have knowledge is controversial from the legal point of view since, in fundamental aspects, such as the vertical disintegration of companies, free access to distribution networks and the Organization of the Load Dispatch Center, one may say that the draft invades areas of mandatory legislative regulation.
X. INDUSTRIAL PROPERTY AREA:
1) General Svstem:
Matters related to Industrial Property in Venezuela are regulated by Decision 344 of the Board of the Agreement of Cartagena, which provides a common system for the Andean Pact member countries (Colombia, Ecuador, Peru, Bolivia and Venezuela); additionally, one finds regulations in the Industrial Property Act of 1955, partially derogated by the formerly mentioned decision of the Agreement of Cartagena's Board. These are, in some way, the main provisions regulating these matters; there are also other provisions covering specific aspects such as the GATT "TRIPS" Chapter, the Paris Agreement for the Protection of Industrial Property, as well as the G3 (Colombia, Mexico and Venezuela) trade treaty.
In Venezuela, the agency in charge of registering and controlling Industrial Property is the Autonomous System for the Registration of Industrial Property (S.A.R.P.I.) ascribed to the Ministry of Development. Procedures with S.A.R.P.I. may be forwarded by private individuals or by Industrial Property Agents.
2) Industrial Propertv Act of 1955:
This Act, having governed the matter for more than 35 years, has been displaced by the adoption of Decision 344 of the Agreement of Cartagena's Board, and, currently regulates only aspects not developed by the Decision, such as the current system for the Registration of Industrial Property Agents, as well as organizational matters for the Autonomous System for the Registration of Industrial Property.
3) Decision 344 of the Agreement of Cartagena's Board
Common Industrial Propertv Svstem:
Decision 344, which replaces decision 313, was adopted by the Agreement of Cartagena's Commission on October 22, 1993, and it came in force in our country on January 1, 1994. This decision comprises the fundamental provisions on the subject matter and it is undoubtedly the first transcending step within our normative actualization.
The most important aspects contemplated by the new decision are the following:
A) The patent covered field has been extended to all fields of technology, including Biotechnology, with the following exceptions:
a) Essentially biological processes for the production of animal races and specles.
b) Inventions related to human components or to their genetic identity.
B) The Patent's duration has been extended to 20 years, as from the date of the application.
C) The import of the product patented by any Andean country is deemed as a form of exploiting the patent.
D) A binding license may be granted three years after the patent has been granted, or four years as from the date of application, upon request made by any interested party not having been able to get a reasonable agreement, if the patent has not been exploited in accordance with the Law.
E) License agreements for the exploitation of patents must be registered with the registry office in order to be valid.
F) The granting of binding licenses, for reasons of Public Interest, are subject to strict conditions and their validity depends on the force of these conditions. The binding license for reasons of public interest does not prevent the exploitation of the patent by its original holder.
G) Express protection is granted to industrial secrets, and there are regulations on their duration and legal transfer.
H) The concept of a notorious mark is contemplated, based on the following elements:
a) Degree of knowledge among consumers.
b) Intensity, range of diffusion, publicity, promotion.
c) Date of first registration, and constant use.
d) Analysis of product's market and productivity.
I) The unjustified lack of use of a mark for a period of three years implies its cancellation upon request of interested party.
J) Bad faith is established as a condition to void the certificate of registration of a mark, based, among other, on the following cases:
a) Unauthorized registration of a foreign mark in the country, by its representative, distributor or user.
b) Application for registration of a mark obtained by a person dedicated to register marks to be traded.
K) Special protection is afforded to Original Denominations.
4) GATT and G-3:
The recent global incorporation of the Republic of Venezuela into GATT, and its underwriting of the specific Chapter related to this "TRIPS" matter, led to strengthened protection of Industrial Property in matters of International Trade.
The Venezuelan government is forwarding negotiations also in order to implement the provisions arising form the recently entered G-3 or Group of Three Treaty, between Venezuela, Mexico and Colombia, which seeks, among other things, to adapt the set of norms on this matter as required by its member countries' trade exchanges.
5) The Paris Agreement:
The Paris Agreement for the Protection of Industrial Property is considered the fundamental treaty in these matters and it was signed by the member countries on March 20, 1883, with its text having being reviewed seven times subsequently. This treaty was finally signed by our country in 1995.
The ratification of this treaty consecrated the most far reaching preference provisions on an international range in matters of registration of marks and patents, by the fact that it is the agreement having the highest number of countries as signatories.
6) Suppletory provisions:
All provisions in force in our legal system deemed by special legislation as being suppletory norms are applicable to the subject matter; among these: Code of Civil Procedure, Civil Code, Commercial Code, Organic Law of Administrative Procedures, Organic Labor Law, Customs Act, etc.
7) Considerations as to a Patent's Registration in Venezuela
Patents imply two kinds of rights, moral ones on one side, referring to the invention's paternity by the inventor(s); and patrimonial right on the other, referring to the title on the economic benefits resulting from the patent's exploitation.
A) When a body corporate carries on with the research and investments required in order to produce an invention and wishes to apply for a patent thereon in the name of the body corporate, the following shall be required:
a) The certificate of incorporation of the body corporate applying for the title on the patent's equity rights and the resolution appointing its incumbent directors or administrators.
b) A power of attorney granted by the body corporate.
c) A descriptive memorandum by the inventor pointing out the known elements on which the invention is based and its novel elements.
d) Special formulas and other production techniques.
e) A notarized deed whereby the inventor assigns the invention's moral and patrimonial rights.
B) In the above mentioned cases, it is recommended:
a) To refrain from commercial or informative advertising on the invention until the patent's application is materialized, to avoid losing the possibility of patenting the invention, independently from the fact that there are exceptions to the invention's advertising, consecrated by the very same Decision 344 of the Cartagena Agreement's Board.
b) To use the invention's generic name in the patent application.
c) To apply for the trade name distinguishing the product as a trademark, following an independent procedure.
d) If the bodies corporate are foundations, these may perfectly be the title's holders under article 28 of the Industrial Property Act.
8) Consideration on the Registration of Marks in Venezuela:
It is advisable to first go through a data base search of the mark being applied for, at S.A.R.P.I.S.'s computer center, in order to find out if there are previous applications or registrations with similar or identical features in the respective international class.
If the mark is being applied for in the name of a body corporate, the following shall be required:
A) The certificate of incorporation of the body corporate applying for the title on the patent's equity rights and the resolution appointing its incumbent directors or administrators.
B) A special power of attorney granted by the body corporate.
C) If the mark includes a logo, a final art of the label-design encompassing the mark with the logo.
XI.- JUDICIAL AREA:
In Venezuela, jurisdictional function pertains to National Power, and is performed throu~h the Supreme Court of Justice and the other regular and special courts.
There are approximately l,110 courts in Venezuela, spread throughout the national territory and with their sphere of competence being limited by subject matter, amount, territory, connection and parties involved.
1) Supreme Court of Justice:
It is the top of the judiciary system and consists of 15 magistrates, all lawyers and born Venezuelan citizens more than 30 years of age. The Supreme Court of Justice is divided into three Chambers: The Political and Administrative Chamber, the Civil Cassation Chamber and the Criminal Cassation Chamber. Each Chamber is formed by 5 judges.
2) Courts with national competence:
Some courts are competent through the entire national territory at large, for example, the First Administrative Contentious Court, the Superior Tax Contentious Courts, the Administrative Career Tribunal, the Superior Treasury Courts, the Superior Tribunal for the Safeguard of Public Property, the Criminal Sentencing Courts [Courts rendering sentence after Cassation has been granted by the Supreme Court] and Banking Courts with Civil and Commercial Competence and Banking Courts with Criminal Competence.
3) Tribunals with competence over a specific territory:
Most courts have competent jurisdiction in a specific judicial circuit, that is a zone of territory assigned to each group of courts, superior or lower, linked between them, of which the function is to provide citizens with administration of justice, in all branches of Law, in accordance with the limitations of their competence. It is then observed that the judicial organization is determined horizontally by territory and vertically by the existing hierarchy among courts. In each judicial circuit there are one or several kinds of courts, in a way that there may be several courts with equal competence or only one of them.
Each judicial circuit corresponds, as a general rule, to a State of the Republic, with the metropolitan area of Caracas making up for an autonomous judicial circuit. Within the same circuit there are also territorial divisions, thus, while superior and first instance courts encompass the entire territorial jurisdiction. Municipal and [territorial] District Courts, on their part, provide only justice services within the respective Municipality's or District's political territorial area, with these being the courts with the lowest hierarchy in Venezuela.
The most abundant courts are the Municipal Court, the District Courts, the First Instance and Superior Courts. There are courts such as the Superior Agrarian Courts and the Administrative Contentious Superior Courts, of which the territorial jurisdiction is not national but encompasses several judicial circuits.
4. Procedure:
Although there are several procedures, it is important to observe that all of them (with the exception of cases dealing with the safeguard of public property) are written, and are conformed by a series of preclusive stages, within which the parties must file complaints or motions, answer them, prove their pretensions, file conclusions and with a term for sentencing. Precautionary measures may be ordered affecting the parties' property for the duration of the trial, these are generally suspended when sufficient real or personal guaranty is presented.
A double instance system is established also in Venezuela; according to it almost all decisions, both interlocutory and definitive, made by the first courts hearing a cause in first instance, are subject to revision by the respective Superior [Appellate] Court. Sentences meeting the requirements of the Civil Procedure Code and Criminal Procedure Code are subject to a most special revision: the Cassation recourse before the Supreme Court of Justice.
Aiming to protect the rights and guarantees arising directly from the National Constitution, as well as those being inherent to the human being, the Constitutional Protection Action has been provided; this is a brief procedure and must be decided with preference over any other pending procedure. The Constitutional Protection Action may be filed with First Instance Courts with material competence related to the violated constitutional right. This procedure is subject to appeal and to mandatory revision by the Superior Court, but no special Cassation recourse is afforded.
Last, and of most recent creation, we have the Financial Emergency Act, applicable whenever the President of the Republic may decree a financial emergency; it creates brief procedures for the forwarding of the trial and occupation measures on the property of the
debtors of banking institutions having been intervened or having become Government property, without need of a previous procedure.
5) Recognition and execution of foreign judgments (Exequatur):
Judgments passed by foreign courts may be recognized and executed m Venezuela by means of a brief procedure and without previous revision of the substance, provided the following requirements are met:
A) Reciprocity.
B) That jurisdiction should not have been taken away from Venezuela when corresponding to it to know of the litigation.
C) That the foreign judgment should be definitely firm in accordance with the law of the State where it was passed.
D) That the foreign judgment should have been passed in a matter of Private Law.
E) That the defendant should have been adequately served with summons and he should have been afforded a reasonable opportunity to defend himself.
F) That the foreign judgment does not collide with a firm judgment passed by Venezuelan courts.
G) That the foreign judgment should not be contrary to Venezuela's domestic public order nor to its public law.
XII. MARITIME LAW LEGISLATION:
Basically, the existing legislation in Venezuela regarding Maritime Law is the following:
1) Commercial Code:
Book II (articles 612 through 897) regulates maritime legislation, especially on issues such as chartering; bills of lading; passengers; averages; jettison; general average; collision; maritime risk loan; and maritime insurance.
Some of the Commercial Code's provisions are not applicable due to the fact that special acts have been passed for specific matters, such as the Navigation Act, the Pilotage Act, the Naval Liens and Mortgage Act.
2) Navigation Act August 9, 1944. as amended on January 16, 1959:
This act compiles all the administrative standards in the area of navigation and creates the port captainships as the maritime authorities in charge of the watch and control over waters, both territorial and inland, with the shores, ports and services.
Moreover, this act regulates the means to obtain certain mandatory navigational documents, such as the registration certificate which is the document evidencing the Venezuelan nationality; the navigation licence; the special permit for smaller vessels; tonnage certificates; navigableness certificate; crew roll.
3) Law on Territorial Sea. Continental Shelf, Protection of Fishing and Air Space:
Dated July 23, 1956, as published in Of ficial Gazette of the Republic of Venezuela # 496, Extraordinary, dated August 17,1956.
4) Pilotage Act:
Published in Official Gazette of the Republic of Venezuela # 29577, dated August 17, 1971. It regulates the advisory services and the assistance to the ship captains, rendered by official pilots in maritime, river and lake zones where the National Executive may have established or gets to establish, under special regulations, a pilotage zone.
5) National Merchant Marine Protection Act:
Published in Official Gazette # 30161 dated July 21, 1973, this act has an evident protectionist nature and it provides for a preferential right to Venezuelan flag meeting certain requirements, in matter of freight transportation.
6) Naval Liens and Mortgages Act:
This act regulates a series of liens benefitting certain creditors to collect ahead of other non privileged creditors. In the same manner, this act contemplates the constitution of mortgages on a ship, although it is personal property.
Finally, one must point out that any investment projects for the development of aquatic sports are subject to the provisions of the Tourism Act of May 23, 1973.
7) International Treaties:
Venezuela has signed several international treaties in this area. We may cite the following:
A) Special Act approving the "INTERNATIONAL AGREEMENT FOR FREIGHT LIMITSOF 1930",dated July30, 1954, ratifiedon November 29, 1954.
B) Special Act approving the "CONVENTION ON THE HIGH SEAS" signed in Geneva on April 29, 1958 and ratified by Venezuela on October 30, 1958.
C) "CONVENTION ON THE CONTINENTAL SHELF" agreed in Geneva on April 29, 1958, and signed by the Venezuelan government in New York on October 30, 1958.
D) The "INTERNATIONAL REGULATIONS FOR THE AVOIDANCE OF COLLISIONS AT SEA", approved by Venezuela on August 19, 1970.
NOTE:This paper's purpose is to give a general idea on the Venezuelan legal system. However, any one wishing to decide on investing in Venezuela must consult accordingly with a qualified lawyer. This paper was drafted on
October 10, 1996.