A Lawyer's Guide to Venezuela
InterAm Database
National Law Center for Inter-American Free Trade
LEX MUNDI
A LAWYER'S GUIDE TO VENEZUELA
Prepared by:
BENTATA, HOET & ASOCIADOS
Caracas, Venezuela
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 you own professional advice before proceeding to invest or do business in Venezuela.
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TABLE OF CONTENTS
I. THE COUNTRY AT A GLANCE 1
A. Geography
B. Population
C. Climate
II. VISITING 2
A. Travel
B. Communications
C. Currency
D. Languages
E. Business Hours
F. Holidays
III. POLITICAL AND COMMERCIAL STRUCTURE 4
A. Political System
B. Economic System
C. Financial System
D. Legal System
E. Court System
F. Culture
IV. INTERNATIONAL LEGAL RELATIONSHIP 6
A. International Conventions
B. Bilateral/ Multilateral Agreements
C. International Disputes
D. Bilateral Trade Disputes
V. EXPORTING TO VENEZUELA 10
A. General Statistics
B. U.S. Export Statistics
C. Venzuelan Tariffs
D. Special Duties
E. Venezuelan Customs Procedures
F. Import Licensing, Import Restrictions
VI. IMPORTING FROM VENEZUELA 12
A. Export Rules
B. Export Taxes
C. U.S. Tariff Treatment
D. U.S. Anti-dumping or CVD Duties
VII. ESTABLISHING A BRANCH OFFICE 14
VIII. INVESTING IN VENEZUELA 15
A. Local Company Law and Formation Requirements
B. Capitalization Requirements
C. Creation of a Subsidiary
D. Joint-Venture Company
E. Local Participation Laws
F. Purchase of Business in Venezuela by a Foreign Company
G. Tax or Other Incentives
H. Other Issues
IX. SPECIAL ISSUES IN DOING BUSINESS IN VENEZUELA 21
A. Local Agents, Distributors and Franchises
B. Intellectual Property Protection
C. General Taxation System
D. Exchange Controls
E. Labor
F. Bankruptcy
G. Sensitive Areas
X. DISPUTE RESOLUTIONS 29
A. International Trade Disputes
B. Court System
APPENDIX - Government Offices & Financial/Commercial Institutions
I. THE COUNTRY AT A GLANCE
Zone I: Apure, Aragua , Carabobo, Guárico
Zone II: Zulia, Falcon
Zone III: Merida, Táchira, Trujillo
Zone IV: Barinas, Cojedes, Lara, Portuguesa, Yaracuy
Zone V: Anzoategui, Bolivar, Nueva Esparta, Sucre, Amazonas and Delta Amacuro Territories
A. Geography
Located in the northern part of South America, Venezuela's continental territory limits with the Caribbean Sea to the North; the Atlantic Ocean and the Republic of Guyana to the East; with the Republic of Brazil to the South and with the Republic of Colombia to the West. Its total area of 917.450 square kms (354.227,44 square miles) is approximately 2½ times the State of California.
B. Population
Venezuela has an estimated population of 21 million, which may be amended after the official figures of the 1990 census are known. Caracas, the capital city, has a population of 2,784,042 inhabitants. Other major cities are Maracaibo (1,363,863 inhabitants), Valencia (1,031,941 inhabitants), Maracay (799,884 inhabitants) and Barquisimeto (754,444 inhabitants).
C. Climate
Venezuela is in the -4 Zone (GMT). The country has a variety of climates ranging from tropical to temperate. The only seasons are winter and summer. The rainy season runs normally from May to mid-November. The average temperature in Caracas is 72°F (22°C) and in Maracaibo 68°F - 91°F (20°C - 40°C) year round.
II. VISITING
A. Travel
1. Visa Requirements
Tourist Card: Should be applied for only by individuals wishing to visit Venezuela with tourism as their sole objective. It is normally issued by certain airlines and passenger-carrying shipping companies upon purchase of ticket and is valid for up to 60 days, nonrenewable. Tourist cards with a 90-day maximum validity may only be issued at a Venezuelan Consulate abroad and may be extended for further 90 days after tourist arrives in Venezuela.
Tourist Visa: Issued at a Venezuelan Consulate and valid for 30/60 days, but renewable for up to a total of 160 days, as of the date of arrival in the country.
Persons entering Venezuela on a Tourist Card or a Tourist Visa are visiting Venezuelan with tourism as their sole objective and are strictly forbidden by law from engaging in any business activity, such as the signing of any contract of a legal or commercial nature. For this reason, no Venezuela tax clearance (solvencia) is required of them when leaving Venezuela.
2. Airlines Serving Venezuela
Venezuela is served by virtually all the major European airlines such as: AIR FRANCE, BRITISH AIRWAYS, KLM, LUFTHANSA, SWISSAIR, ALITALIA, IBERIA, TAP.
VIASA, AVENSA and PAN AM offer direct flights to Miami and New York and AMERICAN AIRLINES provides service to major U.S. cities via San Juan, Puerto Rico. AEROPOSTAL has a new direct flight from Caracas to Atlanta in addition to its service to Orlando, Florida. AVENSA and AEROPOSTAL provide a network of commercial transportation serving approximately 40 cities in Venezuela.
Venezuela is linked to all important cities of Latin America by both VIASA and the principal Central and South American airlines. In addition, Varig, the international airline of Brazil, offers one Caracas-Miami flight per week.
3. Customs Procedures
Personal effects brought into the country as travelers luggage is permitted. Unused personal effects may be imported up to $2,000.00 without paying any duties.
Anyone interested in shipping personal and household effects or vehicles to Venezuela should consult beforehand with a reputable international moving company, a Venezuelan customs brokerage firm, or its correspondents abroad. By doing so, he will be fully informed about the respective Venezuelan import regulations and tariffs.
B. Communications
For direct dial telephone calls originating abroad, Venezuela's international code number is 58. Caracas city code is 2, Maracaibo 61, Puerto Ordaz 86, Valencia 41.
Fax and telex service is available at most major hotels.
Most international courier services are serving Venezuela such as DHL, Federal Express, Jet International, P.O. Box Air International, Domesa.
C. Currency
The "bolívar" is the legal tender with notes denominations of Bs. 500, 100, 50, 20, 10, 5, 2 and 1 and coins of Bs. 5, 2 and 1, and the 50, 25 and 5 céntimos of bolívar.
Exchange Rates for US $1 as of three recent dates:
June 1989 Bs. 43.05
June 1990 Bs.
April 1991 Bs.
D. Languages
The official language of Venezuela is Spanish. In the Venezuelan public school system, English is taught as a mandatory second language.
E. Business Hours
Normal business hours are from 8 a.m. to 12 noon and from 2 p.m. to 6 p.m. Stores are usually open from 9 a.m. to 1 p.m. and from 3 p.m. to 7 p.m. Banks are open to the public from 8:30 a.m. to 11:30 a.m. and from 2:30 p.m. to 4:30 p.m.
F. Holidays
The following holidays are observed:
III. POLITICAL AND COMMERCIAL STRUCTURE
A. Political System
The Republic of Venezuela is a representative democracy with division of powers as follows: Executive Branch (referred to as the "National Executive") headed by the President and 26 Cabinet Ministers; Legislative Branch, comprised of two Chambers, Senate and Deputies elected every five years; and a Judicial Branch, formed by several branches under a Supreme Court of Justice. The National Territory is divided into 20 states, 2 Federal Territories, 1 Federal District and 72 islands. Caracas, the capital of the Republic and the Federal District, is the permanent site of the supreme organs of the National Executive.
B. Economic System
The economic rights contained in the Venezuelan Constitution include the right to exercise any lucrative or commercial activity. This right, however, is subject to the limitations stipulated in the Constitution and to those established by law with respect to security, health or other matters of national interest.
The Venezuelan State may reserve to itself, the exploitation of certain industries or public services, e.g., the Organic Law which reserves the industry and commerce of hydrocarbons to the State.
Monopolies are not permitted in Venezuela, although certain exclusive concessions may be granted for a limited period of time for the establishment and exploitation of works and services of public interest.
Although the principles of free enterprise were guaranteed in the Venezuelan Constitution and the law, until 1988 the Venezuelan economy was characterized by government intervention, which included centralized planning and controls over practically all economic activities. Import substitution and protectionism were the main policies.
Since 1989, the government has made a drastic change in economic policies in order to stimulate private sector activity by returning to the principles of a free market economy, reducing governmental intervention through excessive regulations and re-orienting the public sector to only basic productive sectors and furnishing of public services in the basic social needs of the country. Venezuela's successful entry into the General Agreement on Tariffs and Trade (GATT) and a lowering of custom barriers is a big step towards the liberalization of Venezuelan foreign commerce.
C. Financial System
A fundamental law in the financial area is the General Law governing Banks and other Credit Institutions, which was amended on February 1988.
D. Legal System
Venezuela's legal system has a legislative origin, founded on "written law" (civil law), as opposed to the "common" or "judicial" law which is the basis for American, English and Canadian legal systems. The laws are acts which have been approved by Congress as the legislative body. When these laws systematically comprehend several rules pertaining to a specific matter, they are called Codes, as in the case of the Civil Code, the Commercial Code and the Organic Tax Code. The term "organic" refers to laws pertaining to matters governed by organic laws, and any laws approved on the same matter are subject to the rules of the organic laws.
Once a law has been approved by Congress, it is sent to the President of the Republic for its promulgation, i.e., its publication in the Official Gazette of the Republic of Venezuela, together with the corresponding order of compliance issued by the National Executive. The laws become mandatory as of the date of their publication in the Official Gazette or at a date indicated in the respective text.
Of particular importance to business is the Commercial Code. For all matters not resolved by the Commercial Code, the provisions of the Civil Code shall be applied.
E. Court System
(See infra Section X.)
F. Culture
The Constitution contemplates the right to education as a social right and, therefore, the Government is obliged to build and maintain schools and institutions in order to make access to education and culture possible. Education in public schools and institutions is free. The law may, however, establish certain exceptions with respect to superior and special education (universities and technical institutes).
There are several laws in existence in Venezuela which contain provisions concerning education, e.g., the Organic Law on Education and the University Law. The Organic Law of the Central Administration grants the Ministry of Education power to plan and carry out the activities of the National Executive regarding educational matters and, in particular, the stimulation of the arts, theater, music, dance, cinema and other cultural activities, and the conservation of the folklore, language and literature. Venezuela has thirteen national universities and six academies. It is very important to mention the cultural activities carried out by the National Library in various regions of the country in conjunction with the public libraries. The National Council for Culture is in charge of supporting Venezuela's most important cultural activities in various fields.
IV. INTERNATIONAL LEGAL RELATIONSHIP
A. International Conventions
1. General Agreement on Tariffs and Trade (GATT)
Venezuela has recently become a member of GATT (as of September 1, 1990). In this sense, a list of compromises negotiated by Venezuela, apart from those already in force in its internal law concerning commercial matters, include:
a) Overall reduction of tariffs and concession of the Most Favored Nation ("MFN") treatment to Contracting Parties.
b) Reduction of customs taxes from 5% to a reasonable amount, probably 1%.
c) Amendment of the "Buy Venezuelan Act" in order to comply with GATT's regulations on Government Procurement.
d) Elimination of non-tariff barriers ("NTB's").
e) Elimination of fiscal export incentives.
f) Accession to Gold's Custom Valuation Code within one year from accession.
Additionally, Venezuela's recent entry to GATT makes it possible to participate in the Uruguay Round of trade talks held since 1986. Topics under discussion will include agriculture, foreign investment, trade in services and intellectual property, some of which are critical to Venezuela.
2. Latin American Integration Association (ALADI)
Venezuela has been an active member of the ALADI (formerly known as Latin American Free Trade Association, LAFTA) of which Venezuela is a member since 1966. Within the framework of this Agreement, Venezuela has concluded six (6) bilateral commercial treaties with several member countries aiming to promote tariff reductions and five (5) treaties in specific sectors (chemical, petrochemical, phonographic, photographic and glass industries) in which tariff preferences are given to specific items.
3. Andean Pact (ANCOM)
Venezuela became a member of the ANCOM since 1973. This agreement proposes an Andean customs union and, thereafter, a common market. Liberalization of tariffs among scheme under ANCOM include the substantial portion of commercial flows among member countries. Additionally, an External Common Tariff is to be reached before 1995 in order to provide a tariff protection against products imported from third countries. Recently, the ANCOM has enacted several "Decisions" which constitute a breakthrough regarding matters such as competition rules, antitrust and related matters, purporting to the development of an integrated region.
B. Bilateral/ Multilateral Agreements with U.S. and Other Countries
1. Bilateral Agreements
a) Venezuela has executed several treaties with the United States such as:
- 1922 Extradition Treaty.
- 1952 Commercial Reciprocity Treaty.
- 1953 Aerial Transportation Agreement.
- 1987 Treaty to avoid Double Taxation in Naval and Aerial Transportation.
- 1990 agreement regarding the protection and promotion of bilateral investment through Overseas Private Investment Corporation ("OPIC").
- 1991 agreement setting a bilateral council on trade and investment purporting to deal commercial disputes between both countries, such as intellectual property rights, commercial embargoes, cooperation in the Gold's Uruguay Round, obstacles to investment, GSP and similar matters (Framework Agreement).
b) Treaties to avoid double taxation in transportation matters were signed by Venezuela with Argentina (air only), Brazil (air only), Colombia, France, German Federal Republic, Italy (air only), Netherlands, Portugal (air only), Spain, Switzerland (air only), Trinidad & Tobago and the United Kingdom.
c) Other bilateral treaties signed by Venezuela include:
- Agreement with Cuba of 1973, regarding kidnapping of aerial and maritime ships and other criminal actions.
- Treaty with Denmark of 1933 regarding arbitration, judicial solutions and conciliation.
- Agreement with France of 1989 on technical assistance concerning fiscal and customs matters.
- Agreement with Spain of 1979 regarding migration.
- Basic Agreement with Argentina of 1977 concerning economic, industrial, technological and commercial cooperation.
- Basic Agreement with Costa Rica of 1980 concerning economic and commercial cooperation.
- Treaty with Italy of 1930 concerning extradition and judicial assistance in criminal matters.
- Agreement with Italy for the promotion and protection of foreign investment.
d) Commercial bilateral agreements have been signed by Venezuela outside Latin America and Caribbean countries. These agreements usually establish the MFN clause subject to qualified exceptions.
2. Multilateral Agreements
Venezuela is a party to many agreements and treaties. among which are:
- Agreement for the constitution of the Andean Development Corp. of 1969.
- Agreement for the constitution of the Inter-American Development Bank of 1960.
- Agreement on Diplomatic Protection of 1954.
- Agreement of Technical Assistance of 1954.
- Amazon Cooperation Treaty (1980).
- Constitution of the International Organization of Work (1962).
- Convention for the Protection of Phonographic Works against the non-authorized reproduction of their phonograms (1981).
- Convention of Vern for the Protection of Literary and Artistic Works (1982).
- Convention on High Seas (1961).
- Convention on the Continental Platform (1961).
- Convention on the Territorial Sea and the Contiguous Marine Area (1961).
- Inter-American Convention on Conflict of Laws relating the Checks, Montevideo (1979).
- Inter-American Convention on Conflict of Laws relating to Companies (1979).
- Inter-American Convention on Evidence and Information of Foreign Law, Montevideo (1979).
- Inter-American Convention on Extraterritorial Validity of Foreign Judgment and Arbitral Awards, Montevideo (1979).
- Inter-American Convention on International Commercial Arbitration (Panama Convention) of 1975.
- Inter-American Convention on Receipt of Evidence in a Foreign Country, Panama (1975).
- Inter-American Convention on Requisitorial and Rogatory Letters, Panama (1975).
- Inter-American Convention on the Legal Regime for Powers of Attorney to be utilized in a Foreign Country, Panama (1975).
- Inter-American Treaty of Reciprocal Assistance of 1949.
- International Agreement on Wheat (1966).
- International Convention for the Security of Human Life in the Sea (1968).
- International Monetary Fund (1944).
- Latin-American Economic System (1976).
- Latin-American Organization of Energy (1975).
- Letter of the Organization of American States of 1952.
- Letter of the United Nations (1945).
- Organization of Petroleum Exporting Countries (1961).
- Treaty for the constitution of the Andean Parliament of 1980.
- Treaty for the creation of the Judicial Court of the Cartagena Agreement of 1983.
- Treaty of Montevideo (1969).
- Cartagena Agreement of 1973.
- World Health Organization (1947).
3. Other Agreements
Venezuela is a founding member of OPEC, the Cocoa International and the Coffee International Agreement. Venezuela has also signed UNCTAD's treaties intending to foster commerce among LDC countries.
C. International Disputes
As a matter of public policy, Venezuela's policy has traditionally favored bilateral settlement of disputes, rather than submitting controversies either to arbitration (although this criteria has relaxed nowadays) or judicial procedures before international courts. Also, as far as possible, exhaustion of local remedies has been preferred.
D. Bilateral Trade Disputes
Venezuela has been subject to certain procedures regarding anti-dumping and countervailing duties. The most recent is that involving an administrative review on certain electrical conductor aluminum redraw rod exported from this country. In this connection, the U.S. Department of Commerce waived the imposal of CVD. On the other hand, Venezuela has adhered to voluntary export agreements involving steel exports negotiated with the U.S. on an annual basis. However, the Government has emphasized its unwillingness to subject Venezuelan exports to any restraint, other than those arising from unfair commerce rules.
V. EXPORTING TO VENEZUELA
Until 1989, Venezuelan imports were subject to a complex legal scheme, aiming to protect local industry regardless of the costs involved. In 1990, the introduction of a new commercial policy shifted the traditional Venezuelan policy to another based on free commerce.
A. General Statistics
Traditionally, the bulk of Venezuelan exports has relied on the so-called "traditional exports" (basically, oil and oil-produced products, iron, coffee, cocoa). Particularly in recent years, the increase in exports of oil and oil sub-products has been quite remarkable; thus, between 1983-88, exports of said products amounted to a 87.7% average of total exports. However, a trend has developed since the beginning of the 80's fostering the nontraditional exports which have increased steadily from 2.4% of total exports by 1976 to approximately 20% in 1989 (nearing US $2.5 billion). Total exports amounted to US $12.9 billion in 1989; on the other hand, total imports amounted to US $7.0 billion the same year.
Additionally, around 77% of Venezuelan exports are located within the American Continent; 50% of which in the U.S. market, 15.2% in Europe, 5% in Asia and 3.2% in other markets.
B. U.S. Export Statistics
In 1988, the Venezuelan foreign commerce with the U.S. amounted to 41.7% and 43.8% of total imports and exports, respectively. Additionally, around 22.1% of nontraditional exports were located in the U.S. market the same year.
C. Venezuelan Tariffs
Mostly, Venezuelan tariffs are set on an ad-valorem basis. Sometimes, however, import duties are calculated on a specific or mixed basis.
According to Decree 239, a progressive and automatic 10% reduction in the maximum tariff level applied to all manufactured imports is envisaged, aiming to set a maximum tariff level at a consolidated ceiling of 20% in 1993. At present, the maximum tariff level applied is 40% for manufactured goods, 30% for intermediate goods and 10-20% for raw materials.
Additionally, according to Decree 239, the agricultural sector is subject to a special liberalization scheme.
Finally, in 1990 Venezuela adopted the Brussels Harmonized Code on Nomenclature of Merchandise, which was incorporated into the customs tariff list, containing all specific legal data applied to every item imported into the country, including non-tariff barriers. The custom tariff list also indicates the commitments to which products from ANCOM countries are subject to when imported into Venezuela.
D. Special Duties
According to a recent decree, customs services tax has been reduced to 1% of the value of the merchandise imported into the country.
E. Venezuelan Customs Procedures
There are several schemes which may be joined by businessmen: Re-importation or re-exportation of products, transit of goods, drawback, "maquilla", and others, which will allow interested persons to benefit while promoting commerce with Venezuela.
F. Venezuelan Import Licensing, Import Restrictions
In 1989, around 40% of imported items were currently subject to prohibitions and previous licenses (non-tariff barriers, "NTB"). Such NTB's are listed in the so-called "notas" which differ among them depending on the nature of the restriction imposed upon the importation of a product. Accordingly, some of them are based on public health and security reasons, and the importation of some of these products are reserved to the National Government and its Ministries. There are ten different types of NTB's according to said legislation.
Also, it is envisaged the gradual elimination of certain NTB's until a 5% ceiling protection is reached.
Finally, regarding unfair commercial practices, Venezuela will shortly enact legislation dealing with both anti-dumping and subsidies.
VI. IMPORTING FROM VENEZUELA
A. Exporting Rules
In an attempt to boost the economy, the Venezuelan government has developed a policy of expansion and incentive for the export of nontraditional products, i.e., those products not derived from petroleum, iron or aluminum (as well as coffee and cocoa) which to date have represented a small volume of exports. In this regard, export procedures which are presently governed by custom house officers have been simplified. Nevertheless, it is important to state that prior government authorization is required for the exportation of certain products deemed as essential, which comprise a restricted number of items.
In 1973, a fund to finance nontraditional exports was created, whose main function is to grant loans with preferential conditions to Venezuelan exporters (FINEXPO from its Spanish initials). On the other hand, the Venezuelan Export Incentive Law lays down a scheme whereby it grants all exporters of articles produced in this country are entitled to a fiscal credit which is calculated on the basis of a percentage of the National Added Value (VAN) of the exported goods. The government agency in charge of administering such scheme is the Foreign Commerce Institute (ICE). In this sense, nontraditional exports with a minimum of 30% local value added are entitled to export bonds ranging from 1% of FOB value for manufactured goods to 10% of FOB value applied to agricultural products. These export bonds are freely negotiable bearer securities, unconditionally accepted by the National Treasury for the payment of taxes. The export bonds are valid for two (2) years from the date of issue and become null and void upon the expiration date.
However, during 1991, the Government is planning to eliminate the fiscal credit incentive and substitute it with a new export incentive which will be different from the one referred to herein, probably in the form of a tax "draw-back." Therefore, an amendment to the present Export Incentive Law is anticipated, as well as the enactment of new export legislation.
B. Export Taxes
On the other hand, depending either on the destination country of an exported product or on the nature of such product, an exporter may be requested to fulfill specific requisites. These may adopt the form of export licenses (products composing the "basic basket"), sanitary certificates, or certificates of origin (particularly for products benefiting from GSP schemes abroad).
C. U.S. Tariff Treatment
As a member of GATT, Venezuela enjoys in principle a most-favored-nation treatment for its export products. However, some Venezuelan export products enjoy a preferential treatment under the U.S. GSP scheme. Said scheme applies on a discretionary basis, and the list of products comprised therein is subject to annual revision by the U.S. authorities.
For products listed under GSP scheme, a certificate of origin issued by AVEX (Venezuelan Association of Exporters) is required.
D. U.S. Anti-dumping or CVD Duties
Venezuela has been subject to certain procedures regarding anti-dumping and countervailing duties, mainly with the U.S., EEC and Canada. The most recent is that involving an administrative review on certain electrical conductor aluminum redraw rod exported from this country. In this connection, the U.S. Department of Commerce reduced the amount of CVD's formerly set. On the other hand, Venezuela has reluctantly adhered to voluntary export agreements ("VER's") involving steel exports negotiated with the U.S. on an annual basis. However, the Government has emphasized its unwillingness to subject Venezuelan exports to any restraint, other than those arising from unfair commerce rules.
VII. ESTABLISHING A BRANCH OFFICE
As a general rule, foreign companies were not permitted to establish branches in Venezuela. However, one of the features contained in the recently enacted (Decree 727 of January 18, 1990) amendment to the rules on foreign investments is to allow foreign investors to operate in Venezuela through a branch.
Branches are treated by the Venezuelan law as any local corporation and are, therefore, authorized to carry out business without limitations other than the legal dispositions of general or particular applicability to stock corporations organized in Venezuela. Consequently, branches must comply with all the corresponding rules and laws which are binding to stock corporations, but as they are not regarded as a different or autonomous entity or corporation, the parent company will be fully liable. This aspect must be carefully taken into consideration because although an amount of capital must be allocated to the branch by the parent company at the moment of establishing same, liability will not be limited to the branches' capital.
The documents required for the establishment of a branch are as follows:
1. The Articles of Incorporation and Bylaws of the foreign parent company;
2. A power of attorney in favor of the local legal representative of the branch;
3. Extract of the applicable law in the country of origin governing stock corporations; and
4. The resolution of the corresponding corporate body which approved the establishment of the branch, expressing the amount of capital allocated to the branch and the person designated to act as legal representative. These documents must be legalized before a Venezuelan Consulate and translated into Spanish by a Venezuelan official translator if drafted in a language other than Spanish.
The above documents must be registered at the Commercial Registry and then published in a local newspaper.
In addition, branches are subject to the payment of all taxes and contributions as stock corporations. However, apart from the payment of the corresponding income taxes due at the end of its fiscal year, there is a withholding dividend tax of 20% which must be paid within three months following the close of the fiscal year, regardless of whether said profits are transferred or not to its parent company.
VIII. INVESTING IN VENEZUELA
One of the main consequences of the new economic policies of the Venezuelan government is a consistent attitude to permit foreign investments within a framework of rules of relative simplicity and virtual nonexistence of bureaucratic restrictions in connection with the approval and registration of direct foreign investments.
Foreign investments related to contracts in the national interest referred to in Article 126 of the Venezuelan Constitution and in defense industries are exempt from all of the foreign investment rules.
Foreign Investment Regulations are contained in Decree 727 of January 18, 1990. All foreign investments are deemed approved and are only subject to registration with the appropriate agency if they do not contravene any provision of general applicability in the Venezuelan legislation and provided that the corresponding registration of the investment is duly effected before the appropriate agency. A foreign investment may be made to create a new company or stock corporation, but also foreign investors may acquire equity participation in local companies with no other limitations than those established with respect to the reserved business activities set forth in the applicable legislation.
Jurisdiction to regulate foreign investments, technology transfer agreements, and external credits is granted to the Superintendency of Foreign Investments (SIFI), except for some sectors in which it is granted to other agencies (referred to below as the "Appropriate Agency") as follows:
Foreign investments in banking which is granted to the Office of the Superintendent of Banks; foreign investments in insurance granted to the Office of the Superintendent of Insurance; foreign investments, technology transfers and external credits in petroleum, coal, petrochemical and mining to the Ministry of Energy & Mines; and, finally, external credits to public sector entities which is subject to the jurisdiction of the Office of Public Finances of the Ministry of Finance.
The degree to which a foreign investor may exercise control over a Venezuelan company is dependent upon the sector of the economy in which the local company operates and the foreign investment classification assigned to the company by the Appropriate Agency. There are three classifications: foreign (more than 40% foreign equity); mixed (49% or less but more than 19.9% foreign equity); and national (less than 20% foreign equity). In classifying the company as foreign, mixed or national, the Appropriate Agency examines both the percentage of equity held by the foreign investor and the degree of control which the foreign investor is entitled to exercise over the technical, financial, administrative and commercial management of the company. In addition, shares owned by foreign investors with no voting rights in the technical, commercial, administrative and financial management of the company are not computed for the purpose of classifying the company as foreign, mixed or national. In such cases, these shares may only grant voting rights to their corresponding holders for the specific purpose of deciding upon the approval the company's year end balance sheet.
The allowed proportion of foreign investment depends upon the sector in which the company is planning its activities, as there are some limited sectors reserved to national or mixed enterprises (see infra Section VIII. C.).
A. Local Company Law and Formation Requirements
The Commercial Code is the basic law applicable to corporations, partnerships and limited liability societies.
In general terms, companies or mercantile associations are those which have as their corporate purpose, one or more commercial activities. Nevertheless, corporations and limited partnerships are always attributed a mercantile nature by the law, whatever their purpose may be, except when they are engaged exclusively in agriculture or cattle raising. Corporations are governed by the bylaws or articles of association agreed between the parties, by the provisions of the Commercial Code, the Civil Code and the provisions of special laws which may be applicable to a particular business area.
The Venezuelan Commercial Code provides four different types of companies: The stock corporation, which is the most common form of corporation used in Venezuela to do business; the limited liability company, which in accordance with the former Income Tax Law had a tax advantage which is no longer applicable; the partnership; and the limited partnership.
The stock corporation does not require a minimum share capital, and the transfer of shares is not subject to the formalities which apply to the limited liability company. The company is managed by one or more administrators or a Board of Directors whose members may be foreigners.
B. Capitalization Requirements
The shareholders must subscribe the total capital stock and at least 20% thereof must be paid-in at the time of incorporation. Although, in general, no minimum amount of capital stock is required, certain particular requirements may be established by special laws regulating a certain business area. The Commercial Code requires at least two shareholders for the purpose of incorporation, although immediately thereafter all shares may be transferred to a single shareholder.
With regard to capital contributions, limited liability companies are required to have a minimum capital of Bs. 20,000.00 and a maximum capital of Bs. 2,000,000.00; whereas, the law does not require a minimum or maximum capital contribution for stock corporations.
Investments may be made in foreign currency or in kind by contributing capital goods, semi-finished products or raw materials. Intangible assets may also be capitalized but only when specific credits exist for technology already transferred. Other credits are also eligible for capitalization.
C. Creation of a Subsidiary
A wholly owned subsidiary of a foreign investor is allowed in Venezuela. As mentioned above, the Commercial Code requires at least two shareholders for the purpose of incorporation, although immediately thereafter all shares may be transferred to a single shareholder. The most frequently used corporation is the stock corporation.
D. Joint-Venture Company
Foreign investors may also enter into joint ventures. As there are very few minority protection provisions in the Commercial Code, it is advisable to rule in details in the articles of incorporation/bylaws all the rights corresponding to the minority shareholders.
To classify the company as a mixed company (i.e., maximum of 49% of foreign participation (see Section III.)), normally the Appropriate Agency will not permit the foreign investor to elect a disproportionate number of Directors, but it will allow a foreign minority shareholder to retain a veto over certain extraordinary matters such as mergers, dissolutions, liquidation, capital increases, amendments to the articles of incorporation/bylaws, the sale, pledge or mortgage of all or substantially all of the corporation's assets, borrowings, capital expenditures and the contracting of obligations exceeding certain amounts and the appointment and removal of the external auditors of the company. Nevertheless, the Appropriate Agency will permit the "national" investor to elect foreigners as Directors without affecting the classification of the company.
E. Local Participation Laws
Up to 1986, all foreign companies had to agree to gradually transform into a mixed company in the terms established by the Foreign Investment Regulations. Today, this is only a requirement for those foreign companies wishing to export its products to other Andean Pact countries under the Free Trade Program. In such case, the company must agree to gradually transform into a mixed company in a term of thirty (30) years.
Andean Pact Decision 291, approved in March, 1991, has eliminated this transformation requirement and now all foreign companies may enjoy the Free Trade Program provided its products obtain a certificate of origin. Decision 291 will be in force in Venezuela as soon as Congress approves it, which will probably be during 1991.
Nevertheless, there are some reserved sectors which require a local participation and which may be summarized as follows:
a) Sectors reserved to national enterprises by Foreign Investment Regulations (Decree 727) (i.e., maximum foreign participation of 19.99%):
i) Vigilance and security services of goods and persons.
ii) Television and radio broadcasting and Spanish language newspapers.
iii) Services in areas which require the participation of professionals whose practice is governed by law.
b) Sectors that may be reserved to mixed enterprises under the Foreign Investments Regulations (i.e., maximum foreign participation of 49%): The exploitation of basic industries determined by the President of the Republic of Venezuela in Council of Ministers. Nevertheless, up to now, no basic industries have been reserved by the President based on this provision.
In addition, there are some areas reserved by special laws, i.e., hydrocarbons (reserved to the State, excluding participation by foreign or national investors except certain services), banks and insurance companies, and coastal navigation, among others which are reserved to national companies.
Companies operating in all other sectors may be formed with up to 100% of foreign ownership. Such companies may remain as foreign owned companies indefinitely.
F. Purchase of Business in Venezuela by a Foreign Corporation
1. Purchase of Stock or Assets of an Existing Company
Subject to the duty to file notice of the transaction with the Appropriate Agency, a foreign investor may (i) purchase the shares of another foreign investor in any venezuelan company; (ii) purchase the shares of the national investor in any venezuelan company; or (iii) purchase the assets of any company in Venezuela. Similarly, a foreign investor may purchase the shares of another foreign investor in any offshore company holding shares in any venezuelan company. In this latter case, however, it is not necessary to file notice of the transaction with the Appropriate Agency.
Except for the reserved sectors to national or mixed companies (see Section VIII. E.) owned by foreign or national investors, foreign investors may freely purchase stock of listed companies in the stock exchange. In this case, the registration with the Appropriate Agency has to be done only for the stock that the investor holds by the end of the calendar year. As a result, foreign investors may participate in the stock exchange and buy and sell shares during one year and are only obliged to comply with the general regulations pertaining to the stock exchange applicable to both national and foreign investors.
With regard to the sale of shares, the Foreign Investment Regulations establish that the acquisition by foreign investors of shares owned by national investors is subject to the subsequent registration within thirty (30) continuous days from the execution of the commercial transaction.
In the event of acquisition of shares owned by nationals, the regulations establish that the value of the investment is the amount of foreign exchange brought by the foreign investor to pay for the acquired shares. When the investment is made in national currency (bolivars) which could be remitted abroad by the foreign investor, the registration will be calculated based on the exchange rate prevailing at the time the investment was made.
2. Capital Increases
A foreign investor may subscribe to a capital increase in any venezuelan company, provided notice of the transaction is filed with the Appropriate Agency. Of course, foreign investment after the capital increase, may not exceed the maximum proportion allowed in reserved sectors to national companies (see Section VIII. E.).
G. Tax or Other Incentives
The transfer of stock is not subject to taxation unless a capital gain is verified as a consequence of the transaction. Gain on the sale of shares of a company incorporated in Venezuela is taxable irrespective of the domicile of the seller and purchaser or the fact that the sales contract is executed outside Venezuela. Gain on the sale of shares of an offshore holding company is not subject to Venezuelan income tax, even if the only assets of the offshore holding company are the shares of the Venezuelan company.
In the case of purchase of an ongoing business or all or substantially all of its assets, 5% of the gross sales price must be withheld by the purchaser and paid over to the treasury. In order to avoid transferring liability for debts of the seller, notice of the bulk sale must be published three times at ten-day intervals both in a local newspaper of the place where the seller carries on business and in a national daily newspaper. The document evidencing the transaction must be filed at the Commercial Registry.
There are certain fiscal advantages which may be enjoyed by joint ventures with the participation of foreign capitals or even by foreign corporations, if all the requisites contained in the fiscal legislation and the foreign investment rules are complied with. Those incentives are:
Export Incentive: This type of fiscal benefit is granted by the Law on Export Incentives, to all taxpayers, individuals or corporations who export articles produced within Venezuela. Exporters are entitled to a tax credit which is calculated upon the percentage of national added value of each good exported.
Tax Rebate for New Investments: In accordance with the general guidelines established to that effect by the Venezuelan Income Tax Law, the National Executive issued a decree which grants a tax rebate to taxpayers, individuals or corporations, receiving income derived from the manufacture of industrial products, the generation and distribution of electric energy, agriculture, cattle breeding, fishing, transportation and the hotel industry.
Tax Exemption: The Venezuelan Income Tax law establishes that the National Executive, within the scope of its fiscal policy and according to the sectorial and regional situation of the economy of the country, may grant by decree, tax exemptions to a wide variety of income, including, inter alia: income derived from agriculture, stock raising, fishing, manufacture of new products or intermediate goods, industry deemed of special importance for the national economic development, the sale of new urban and rural constructions, etc.
H. Other Issues
1. Registration Requirements
To legally form a corporation, the Commercial Code requires registration with the Mercantile Registry of the Articles of Incorporation and Bylaws of the company and its subsequent publication in a local newspaper or legal gazette. The shareholders must file with the Mercantile Registry their income tax registration number, income tax clearance and the evidence of the payment of the capital contribution. If all the legal requirements are not fulfilled, the company is not considered as legally existing and, therefore, the shareholders, the administrators or any other person who has acted on behalf of the company will be personally liable for all businesses entered into. Registration of the corporation normally takes from one to two weeks before finishing all the procedures for incorporation.
2. Administration of the Company
For the purpose of incorporation, there are no restrictions regarding nationality or residence of directors or officers. Nevertheless, the labor relations manager must be a Venezuelan citizen. The direction and supervision of the corporation may be vested in a Board of Directors. By virtue of the law, a general shareholders meeting must be held at least once a year to approve the financial statements and the distribution of profits and to appoint the Board of Directors and Examiners of the company.
3. Place of Meeting of Board of Directors or Shareholders
The Commercial Code does not establish any limitation in this regard except that the call for a meeting must specify where it will be held. Therefore, the Articles of Incorporation must provide rules on the place of the meetings.
4. Registration Fees
There is a registration tax for incorporation of the company and registration of the branch equal to one per thousand of the capital stock or capital allocated to the branch.
5. Administrative Regulations
The administrative regulations of importance to comply with after incorporation and registration of companies in Venezuela are: obtention of the tax information registry for the new company, classification of the company by the Appropriate Agency, and the registration of the foreign investment with the Appropriate Agency.
IX. SPECIAL ISSUES IN DOING BUSINESS IN VENEZUELA
A. Local Agents, Distributors and Franchises
Although the concept of a business or commercial representative is not regulated in the law, it consists of a formula through which a foreign corporation can carry out a certain level of operations in Venezuela. The representative is not considered a duly authorized officer of the corporation and, therefore, may not assume any obligations on behalf of the company, except if a power of attorney has been granted in his favor. Normally, the representative or agent limits his activities to initiate negotiations, to act as an intermediary between the company and local purchasers or potential clients, and to carrying out marketing analyses.
The agent must pay the corresponding minimum municipal tax levied by the Municipality in which any commercial activities are performed. The agent will also be subject to the payment of his personal income taxes derived from the fees or compensations received for the exercise of his activities. Nevertheless, the principal will not be considered as doing business in Venezuela unless there are some other factors which make it possible to consider its operation as taxable in Venezuela.
According to the Venezuelan Code of Commerce, the agent or representative will be regarded as a "professional merchant" (a person who customarily performs commercial activities) and, therefore, would theoretically be obliged to keep all the legal accounting and commercial books. However, due to the fact that agents or representatives are not particularly regulated in the law, it is the consistent practice of the Office of the Commercial Registry not to authorize the issuance of such books for the use of agents or representatives.
The relationship between the parties must abide by the dispositions of general applicability contained in the law and the terms and conditions of the corresponding agreement.
With respect to distribution and franchising agreements of products identified under foreign-owned trademarks, additional formalities contained in the rules applicable on foreign investments and transfer of technology must be observed such as registration with the Appropriate Agency, normally the Superintendency of Foreign Investments (SIEX).
The Appropriate Agency, normally the Superintendency of Foreign Investments (SIEX), is the body in charge of registering licenses and in general transfer of technology contracts, which are deemed approved and subject only to registration. For the registration of the agreements, an original contract executed by the parties must be submitted to the Appropriate Agency within sixty (60) calendar days following the date of execution. Nevertheless, contracts between affiliated foreign companies or foreign subsidiaries and their mother companies that provide for royalties in excess of 5% of net technological sales, require a prior authorization by the Appropriate Agency. Net technological sales are considered to be the value of net sales less raw material and other inputs supplied by the licensor.
Income Tax Authorities could object excessive royalties if it is considered that payments agreed for the importation of technology are not necessary or are unusual or if the technology may be available in the country and need not to be imported.
There are certain clauses that must be inserted in licenses, which refer basically to the identification of the parties, nationality, currency and country for payments, among others. The restrictive clauses prohibited according to Decision 220 of the Andean Pact, now Decision 291, include those which could lead to a monopolistic situation. Otherwise, the parties may freely contract.
From a different viewpoint, in principle, agents, distributors or franchisers do not acquire additional rights as employees under the Venezuelan Labor Law, unless it is proven that there is a labor relationship between the parties which includes subordination instead of independent contracting.
B. Intellectual Property Protection
Intellectual property is protected by The Copyright Law dated January 3, 1967, and The Industrial Property Law enacted on October 14, 1955. On copyrights, Venezuela is a member of the Berne Convention since 1987 and the Universal Convention since 1966. It has no treaties on industrial property rights.
1. Copyright
As regards to the Copyright Law, protection is granted as from the date of creation of the work. It is not necessary to make any deposit, but a deposit is recommended because it may be of importance in the case of litigation to substantiate any claim. If the work was created outside Venezuela and has been the object of a deposit, a confirmation of such deposit is recommended. This law is at present under discussion before the National Congress for its revision, particularly for stiffening sanctions which at present are of low fines and to include imprisonment in the case of serious offenses. A specific chapter on the protection of software is contemplated, and generally speaking, the amendments would put the Venezuelan legislation in line with modern tendencies.
2. Industrial Property
The main characteristics of the Industrial Property Law are:
i) Rights are granted to the first-to-file both for trademarks and patents.
ii) No service marks are provided for, but trade names may be protected and are accepted to cover services.
iii) No provisions for denominations of origin, certification marks nor collective marks.
iv) Medicines, chemicals and foods are unpatentable.
v) No provisions for utility models.
vi) There is no provision against unfair competition nor for the protection of trade secrets. Nevertheless. the Criminal Code provides minimum protection of trade secrets.
vii) Penalties for offenses are mild.
A draft new law is, at present, under consideration and is being discussed in interested circles prior to its introduction before Congress.
3. Other Requirements
Foreign documents must be legalized before a Venezuelan Consulate. Notarization must be effected according to the laws of the country where notarization takes place, except for the countries' members of the Protocol of Washington (1940), and the Inter-American Convention on the legal Regime for Powers of Attorney to be utilized in a Foreign Country (Panama 1975) which provide for notarization rules.
C. General Taxation System
The Venezuelan taxation system is based on constitutional rules which contain the fundamental principles governing this subject.
Equality Principle: This principle states that the income tax system should foresee a just distribution of the taxes in accordance with the economic capacity of each person.
Legality Principle: This is one of the country's fundamental principles and states that every tax must be governed by a law, i.e., must be created by law. Also, all tax exemptions must be previously established by law. The law may also empower the National Executive to grant tax exonerations, provided same are granted on a general basis and for a term of five (5) years, renewable for the same period.
Generality Principle: The taxation system should be applied on a general basis, that is, it should encompass the different categories, matters or acts which are taxable by law so that given a particular situation, the respective tax will be applied without distinguishing between persons or goods. This principle is a complement to the Equality Principle.
Territoriality Principle: Of utmost importance is the principle of territoriality in which only income derived from acts carried out within the national territory are taxable. In 1986, an amendment to the Income Tax Law made exceptions to the principle of territoriality and certain sources of extraterritorial income were made. Nevertheless, the present amendment to the Income Tax Law which is under study by Congress, contemplates a return to the principle of territoriality due to the fact that Venezuela is primarily an importer of capitals. Among others, these are the most important constitutional and legal principles in our taxation system.
Exporting goods to Venezuela is not subject to income tax as it is considered extraterritorial income for the foreign supplier since the basis for the enrichment was not made in the national territory. The importation of goods is subject to a customs tax to be paid by the local importer.
Nevertheless, if the imported merchandise is sent in consignment to a local representative, the exporter shall be considered as doing business in Venezuela and, therefore, the final sales shall be taxable. In such cases, the income tax is imposed on 25% of final sales, which represents a presumed income.
There are other taxes to be taken into account as well, such as social security contributions, registration taxes, stamp tax and, in particular, the Industrial and Commercial Patent Tax, which is a local tax applied by the different municipal governments on commercial or industrial activities carried out within a specific area.
In view of the territoriality principle, the Income Tax Law contemplates that only those payments made within the country are deductible; however, there are exceptions to this rule such as payments abroad for technical assistance, technological services, royalties and professional fees, provided that the corresponding income tax has been withheld. In the case of expositions and fairs carried out abroad for the purpose of promoting goods manufactured in Venezuela, deductions corresponding to travel, advertising, office, transportation of goods, etc. are allowed.
The Income Tax Law states that debit notes issued by branch companies do not constitute sufficient proof of the value of the merchandise, unless they are accompanied by the original documents issued by the vendor.
D. Exchange Controls
Authorized banking institutions fix the bolivar rate of exchange for the purchase and sale of foreign currencies. During 1983, a preferential exchange regime was established in order to bring a halt to capital flight which was draining the country's international reserves. However, since March 1989 said regime has been replaced by the present single exchange rate system which fluctuates in accordance with the offer and demand. The Central Bank of Venezuela, a 100% State-owned institution, is also invested with the power to establish a daily rate of exchange for the sale of currency for payment of public external debt and other payments; it is also authorized to acquire currency brought to the country by certain official entities.
Therefore, at present, there are no exchange controls in effect in Venezuela and all transactions relating to foreign investments, dividends, repatriation of capitals, transfer of technology and royalty payments, as well as all interest and principal reimbursements relating to external credits, are to be effected at the free floating rate of exchange determined on a daily basis by the Venezuelan Central Bank, whereas no legal or mandatory convertibility restrictions are applicable.
The Foreign Investment Regulations establish that all foreign investments must be registered before SIEX in order to evidence the value of the foreign investment which is constituted and represented by the assets located in Venezuela, but may also include offshore assets which are required for exports. However, the dollar registration of the investment does not guarantee that capital may be repatriated at the same rate at which it was registered.
As a general rule, foreign investors are entitled to receive profit remittances on an annual basis up to 100% of the total net earnings which correspond to the foreign investor at the end of the fiscal year. No prior approval is required, but notice of the dividend remittance must be filed with SIEX along with the year-end information required. Dividends paid to non-domiciled individuals or corporations are subject to a withholding tax of 20% of the amounts paid or credited to the account of the shareholder.
Foreign currency for dividend remittances are purchased at the free floating rate of exchange quoted on the date of remittance.
Foreign investments may be freely repatriated, except in the case of certain investments made under the special program on conversion of the public sector debt into equity (debt-equity swaps), pursuant to Decrees 1259 and 1260 which establish certain limitations on capital repatriation (no repatriation for the first five years after the debt-equity swap was made and a maximum repatriation of 12.5% on a cumulative basis for the next eight years). Nevertheless, the restriction on repatriation of the capital investment made by swapping public sector debt into equity is inapplicable in the case of sale of the equity by one foreign investor to another foreign investor.
Any investment may be reconverted into foreign currency prior to repatriation by purchasing said currency at the floating rate then in effect.
E. Labor
Labor relations in Venezuela are governed by laws and regulations considered to be of public order, i.e., the rules are mandatory and the parties in a labor relationship may not change them or agree otherwise, unless such changes grant a more favorable treatment to the employees. A new Organic Labor Law entered into force on May 1, 1991. These rules govern the rights and obligations of employers and workers/employees with regard to labor. The Organic Labor Law and its Regulations include, among others, provisions applicable to the employer, worker, employee and intermediary, as well as the individual work contracts and the collective work contracts, union matters, collective labor conflicts, administrative procedures for classifying dismissals and rehiring of immovable workers.
The Organic Labor Law establishes the maximum duration for a normal working day, which shall not exceed eight (8) hours per day or forty-four (44) hours per week, for day work; for night work, the duration shall not exceed seven (7) hours per day or forty (40) hours per week.
In general, workers benefit from acquired rights or indemnities consisting of the equivalent of four (4) weeks salary per year of service, as severance payment. If a worker is to be laid-off, he must be given pre-notice of same or paid the salary for the pre-notice period indicated by the Organic Labor Law. If the dismissal is unjustified, the employer must pay the worker twice the amount of said benefits.
If a worker is dismissed, he may appeal to the Labor Courts for a classification of the dismissal and in case it is found justified, his re-incorporation to his job with payment of the salaries which he did not receive during the process and up to the time of his rehiring. Nevertheless, the employer may avoid this problem by paying double indemnities as if it were an unjustified dismissal.
The National Constitution and the Organic Labor Law and its Regulations grant freedom to unionize and regulate union memberships and its functioning, as well as the rights and obligations of the organization and of its members. The unions may be of employers; of employees or workers or both; and of professionals or free-lance workers. Unions may form federations and confederations. These organizations may legally exist with a spirit of competition in a determined company or in companies in the same industrial area at a regional or national level.
With regard to collective labor conflicts, the workers have a constitutional right to make use of a legal procedure to settle controversies with the employer and, if an agreement is not reached, to stop labor activities by means of a strike.
Notwithstanding the freedom existing with regard to hiring practices, the Law requires that in all companies, operations, establishments or jobs, that at least 90% of the workers, both employees and workers, must be Venezuelan. Nevertheless, in case there are specific technical reasons, such as lack of qualified workers, a temporal reduction of such percentage may be allowed by the Labor Inspector's Office. On the other hand, compensation paid to foreign personnel may not exceed 20% of the total payroll. Industrial relations managers, personnel managers, ship or airline captains, foremen or those persons exercising similar functions of supervising personnel, should be Venezuelans.
There exists the legal possibility to reduce personnel in companies due to technical or economical reasons by means of administrative procedures to that effect. In such case, dismissals would be authorized by labor authorities and, therefore, payment of single indemnities will be applicable.
Wages and salaries are regulated only with respect to the minimum national salary established for workers by the National Executive. Above the minimum, the salary is established by agreement with the worker in individual work contracts or by means of a collective work contract.
The workers benefit from the legal right to take annual vacations of fifteen (15) working days plus an additional day per year worked up to a maximum of fifteen (15) additional days. Employers must also pay a vacation bonus of a minimum of seven (7) days plus an additional day per year worked, up to a maximum of 21 days.
Workers are also entitled to a payment based on their participation in the profits of the company. Companies have to distribute among its workers 15% of the net income. Nevertheless, this participation for each worker is limited to a minimum of fifteen (15) days salary and up to a maximum of four (4) months salary.
With regard to Social Security, affiliation in the Venezuelan Institute of Social Security is mandatory for all workers. Social Security covers payment of benefits established by law due for marriage, old age pensions, indemnization for partial or total incapacity of the worker, rendering of medical assistance and the furnishing of medicines to the worker or authorized relatives. While a worker is unable to work due to illness, the labor contract is suspended and the employer is under no obligation to pay the salary which will be covered by Social Security.
Inasmuch as the labor laws are mandatory, both for employers and employees due to its public order character, both the national and foreign employees are subject to its application for all effects of the labor relation and for the social security program, without discrimination of sex, age, race or creed.
F. Bankruptcy
According to the Venezuelan Commercial Code, in case a company has lost more than a third of its capital stock, the administrators must call for a Shareholders meeting to decide whether they will reimburse the capital or reduce it to the amount existing or liquidate the company. The shareholders may decide to continue the operations of the company and not take any decision at this moment.
Nevertheless, when the loss has reached more than two thirds of the capital stock, the company will enter necessarily into liquidation, if the shareholders do not reimburse the capital or limit it to the existing equity. Also, if the shareholders do not take any decision, the company will enter necessarily liquidation. In such case, the administrators may not engage in new operations and, if they do, they will be personally liable. In case of bankruptcy, the administrators who have not called for a Shareholders meeting when a company has incurred in losses which exceed two thirds of the capital stock may be liable to criminal sanctions.
Moratorium and bankruptcies are ruled by the Commercial Code. Moratorium is possible when the assets exceed the liabilities of the company. Normally moratorium is granted for one (1) year to allow for a friendly liquidation but, nevertheless, it is also possible to allow a company to recover and the Court may grant an extension for another year. All proceedings are conducted under the Court's supervision. In the moratorium, a trustee and a creditor's committee will be designated to review all documentation, the credits and measures to be taken.
As for bankruptcy, the Commercial Code distinguishes three kinds: fortuitous, guilty and fraudulent bankruptcy. Fortuitous bankruptcy occurs due to fortuitous events or force majeure that leads to a cessation of payments and impossibility to continue in business; a guilty bankruptcy occurs when there is a negligent conduct and the fraudulent when there are acts that may be considered as wilful misconduct. Bankruptcy may only occur when there is a cessation or suspension of payments and the Court must determine when this occurred. This determination is important as the effects of the bankruptcy will be considered since the date the cessation of payments occurred. The date of cessation of payments may not be more than two (2) years before the Court's decision. Gratuitous acts during the term of two (2) years and ten (10) days prior to the declaration of bankruptcy are considered null and void. Onerous acts may also be considered null and void if the persons who contracted with the bankrupt could have had knowledge of the insolvency when entering into the agreements.
G. Sensitive Areas
Governmental controls and intervention was a major concern for businessmen in Venezuela for half a century. Constitutional economical rights are still partly suspended by a Presidential Decree of 1962, when the country experienced a political and economic crisis. As mentioned above (see Section III. B.), since 1989, the government started new economic policies returning to the principles of a free market economy, outwardly oriented, reducing governmental intervention and public sector participation in economic activities to only basic productive sectors and furnishing of public services in the basic social needs of the country. The main concern now is not whether these new policies will work, but rather if they can be maintained until their benefits start top be felt and the reforms become institutionalized and permanent.
Industrial property remains as a very sensitive area under the present law, particularly due to the extent of piracy. Rights are granted on a first-to-file basis. Even though a prior user in Venezuela may oppose or request the nullification of a granted trademark, there are statutes of limitation (2 years after registration) and the process is long, complicated and expensive. Notoriety outside Venezuela is not considered a basis to oppose, and registrations in foreign countries may not be considered sufficient.
Prior to considering doing business in Venezuela, the potential exporter or investor should apply for registration of his trademarks. In fact, he should do so even if Venezuela is only a potential market. In doing so, he should also consider registering his trade name.
Notwithstanding the former, a new legislation on industrial property is envisaged, aiming to strengthen the enforcement of the industrial property rights.
Venezuela's recent entry to GATT makes it possible to participate in the Uruguay Round of trade talks which commenced in 1986. Topics under discussion will include agriculture, foreign investment, trade in services and intellectual property - all of which are critical to Venezuela.
X. DISPUTE RESOLUTIONS
A. International Trade Disputes
At the present time, Venezuela does not have any international disputes pending before the International Court of Justice, although it is a member of the United Nations. The parties to an agreement may submit their disputes to arbitration and freely choose the rules for arbitration which may take place either in Venezuela or abroad, except in the case of certain matters considered as public policy or if the controversy refers to real estate located in Venezuela. Certain matters concerning the status of the person, divorce, or separation of spouses may not be submitted to arbitration, as well as other matters which may not be the object of a settlement.
The Civil Procedure Code also contains arbitration rules which the parties may freely choose to rule the arbitration. The arbitration is foreseen within the special contentious procedures established in the Civil Procedural Code. The controversy is compromised in one or more arbitrators, in odd number chosen with the agreement of the parties or, by each party and the third one, by the arbitrators elected themselves. If there is any problem in the designation of the third one, the designation shall be made by the court. The arbitrators may be lawyers who are bound by legal principles (árbitros de derecho) and are obliged to apply in their sentence the provisions of the law or may act with complete liberty (arbitradores), considering mostly the principles of equity and justice.
The decision of the arbitrators is passed to the judge who elected them, and on the following day when the term for the presentation of the pertinent recourses commences, the judge shall publish sentence including the nullity of the sentence in the cases foreseen by the law.
The arbitration expenses are paid by the party requesting the arbitration without prejudice of reimbursement by the looser who may be condemned to pay same. If there is any dispute or disagreement concerning the arbitrator's professional fees, same will be fixed by the competent judge.
B. Court System
The judicial power of the Supreme Court of Justice and the other ordinary or special courts of law are determined by the respective laws. No recourse or appeal is heard against the decisions of the Supreme Court. The Supreme Court is empowered to: declare null laws which violate the Constitution; decide and resolve upon legal conflicts; decide on conflicts of competence among the courts; and, to resolve upon cassation resources. First Instance Courts (lower courts) decisions may be appealed before Superior Courts. Superior Courts decisions may only be revised by the Supreme Court of Justice in the cases provided by law.
In Venezuela, the Public Ministry is endowed the task of overseeing the due compliance of the Constitution and its laws. This is the job of the Attorney General of the Republic, who is elected by the legislative chamber in joint session within thirty (30) days following the beginning of each constitutional period.
APPENDIX
KEY GOVERNMENT AGENCIES
Superintendency of Foreign Investments ("SIEX"): Edificio La Perla, Bolsa a Mercaderes, 3rd Floor, Caracas (P.O. Box 213, Caracas 1010) Tel: 483-6666, Telex: 26133, Fax: 414368.
Ministry of National Affairs (Ministerio de Relaciones Interiores): Esquina de Carmelitas, Avenida Urdaneta, Caracas 1010, Tel: 818853 to 58, Telex: 29702-29697-29698, Fax: 813284.
Ministry of Foreign Affairs (Ministerio de Relaciones Exteriores): Esquina de Principal, frente a la Plaza Bolivar, Caracas 1010, Tel: 818521 to 25.
Ministry of Finance (Ministerio de Hacienda): Centro Simón Bolívar, Edificio Note, 3rd Floor, Office 312, Caracas 1010, Tel: 419811 to 24, Telex: 415771.
Ministry of Defense (Ministerio de Defensa): Fuente Tiuna (Conejo Blanco), El Valle, Caracas, Tel: 662-3777, 662-2880, 662-3550 and 607-1111.
Ministry of Development (Ministerio de Fomento): Centro Simón Bolivar, Torre Sur, 4th Floor, Office 514, Caracas 1010, Tel: 419341 to 49.
Ministry of Education (Ministerio de Educación): Esquina de Salas a Caja de Agua, Caracas 1010, Tel: 562-5444 and 562-6555, Telex: 21943.
Ministry of Health and Social Assistance (Ministerio de Sanidad y Asistencia Social (SAS)): Centro Simón Bolivar, Edificio Sur, Caracas 1010, Tel: 483-3533 and 483-4720, Telex: 21654.
Ministry of Agriculture and Cattle (Ministerio de Agriculture y Cría): Torre Este, Parque Central, Caracas, Tel: 509-0111, Telex: 24866 MINAC.
Ministry of Labor (Ministerio del Trabajo): Centro Simón Bolivar, Edificio Sur, 5th Floor, Caracas 1010, Tel: 483-2933 and 483-4211.
Ministry of Transport and Communications (Ministerio de Transporte y Communicaciones): Parque Central, Torre Este, 50th Floor, Avenida Lecuna, Caracas, Tel: 509-2750 and 509-2145.
Ministry of Justice (Ministerio de Justicia): Centro Simón Bolívar, Torre Norte, 25th Floor, El Silencio, Caracas, Tel: 483-1857 and 483-1960, Telex: 21935.
Ministry of Energy and Mines (Ministerio de Energia y Mínas "MEM"): Parque Central, Torre Oéste, 16th Floor, Avenida Lecuna, Caracas, Tel: 507-6080 and 507-7080.
Ministry of the Environment and Natural Resources (Ministerio del Ambiente y de los Recursos Naturales Renovables "MARNA"): Centro Simón Bolivar, Torre Sur, 18th Floor, Caracas 1010, Tel: 408-1111, Telex: 22747 and 22627.
Ministry of Urban Development (Ministerio de Desarrollo Urbano): Parque Central, Torre Oéste, 47-51 Floors, Caracas, Tel: 571-1222 and 575-2011.
Ministry of the Family (Ministerio de la Familia): Parque Central, Torre Oéste, Floors 39-41, Caracas, Tel: 574-7111 and 574-8111, Telex: 24402 MINFA, Fax: 515-2523.
Ministry of the Secretary to the President of the Republic (Ministerio de la Secretaría de la Presidencia de La República): Palacio de Miraflores, Avenida Urdaneta, Caracas, Tel: 810811 to 20, Telex: 21161 and 21162 MIRAF
Ministry of State for the Central Office of Coordination and Planning (Ministerio de Estado para la Jefatura de la Oficina Central de Coordinación y Planificación de la Presidencia de la República): Parque Central, Torre Oéste, 26th Floor, Avenida Lecuna, Caracas, Tel: 507-7611.
Ministry of State for the Presidency of the Venezuelan Investment Fund (Ministerio de Estado para la Presidencia del Fondo de Inversiones de Venezuela "FIV"): Torre Financiera, Banco Central de Venezuela, 13th and 20th Floors, Esq. de Carmelitas, Caracas, Tel: 832044 and 832005, Telex: 26529 FIVEN, Fax: 834689.
Ministry of State for the National Council on Culture (Ministerio de Estado para El Consejo Nacional de la Culture "CONAC"): Torre Norte, Centro Simón Bolívar, Floors 13-16, Caracas, Tel: 411227-412306, Telex: 26323.
Ministry of State for Science and Technology (Ministerio de Estado para La Clencia y La Tecnología): Final Av. Principal de los Cortijos de Lourdes, Edificio Maploca 1, P.B., Caracas, Tel: 239-0255 and 239-0433.
Ministry of State for the Promotion of Women (Ministerio de Estado para la Promoción de la Mujar): Centro Comercial Libertador, Avenida Libertador, Penthouse, Caracas, Tel: 746811.
Ministry of State for the Guayana Region (Ministerio de Estado para la Región de Guayana "CVG"): Avenida La Estancia, Edificio General de Seguros, 2nd FLoor, Chuao, Caracas, Tel: 913444, Telex: 25383.
Venezuelan Embassy in the United States: William Larralde, Minister Counselor, 2445 Massachusetts Avenue, N.W., Washington, DC 20008, Tel: (202) 797-3872, Telex: 440071, Cable Address: EMBAVENEZ.
FINANCIAL INSTITUTIONS
Venezuelan Banks and Foreign Banks with Operational Branches:
Banco Caracas S.A.C.A. (Tel: 816231)
Banco Consolidado (Tel: 206-3421)
Banco de Maracaibo (Tel: (061) 916055)
Banco de Venezuela S.A.I.C.A. (Tel: 501-3333 (Master))
Banco del Caroní (Tel: (086) 227278)
Banco de Brasil (Tel: 715143)
Banco Exterio de los Andes y de España, S.A.-EXTEBANDES (Tel: 751-7822)
Banco Exterior (Tel: 572-4211 (Master))
Banco Industrial de Venezuela (Tel: 545-9222)
Banco Internacional (Tel: 408-7111)
Banco Latino (Tel: 562-7555 (Serial))
Banco Mercantil (Tel: 507-1111 (Master))
Banco Occidental de Descuento (Tel: 929408)
Banco Provincial S.A.I.C.A. (Tel: 574-0911 (Master))
Banco República (Tel: 563-1418)
Banco Venezolano de Crédito (Tel: 801-1111)
Bancor (Tel: 506-9011)
CITIBANK (Tel: 819501 to 19)
Foreign Bank Representatives:
American Express Bank Ltd. (Tel: 915122)
Atlantic Security Bank (Tel: 284-6312)
Bank of America NT & SA (Tel: 285-2211)
Bank of Credit and Commerce International, S.A. (Tel: 284-8124)
Bank of Montreal (Tel: 921611)
Bank of New York, The (Tel: 574-0811)
Bank of Nova Scotia, The (Tel: 574-0811)
Bank of Tokyo Ltd., The (Tel: 283-3254)
Bankers Trust Company (Tel: 573-8211)
Barclays Bank, Plc (Tel: 284-5565)
Chase Manhatten Bank (Tel: 951-2011)
Chemical Bank (Tel: 923042)
Continental Bank (Tel:928222)
Credit Lyonnaise (Tel: 782-8553)
First National Bank of Boston, The (Tel: 781-3199)
First National Bank of Chicago, The (Tel: 923042)
Lloyds Bank, Plc (Tel: 285-5080)
Manufacturers Hanover Trust Company (Tel: 261-6416)
Marine Midland Bank, N.A. (Tel: 781-1644)
Midland Bank, Plc (Tel: 285-0222)
Morgan Guaranty Trust Company of New York (Tel: 261-1894)
Royal Bank of Canada, The (Tel: 261-8425)
Sumitomo Bank Limited, The (Tel: 910112)
Swiss Bank Corporation (Tel: 951-0911)
Union Bank of Switzerland (Tel: 781-2454)
Union Chelsea National Bank (Tel: 545-4584)
Wells Fargo Bank, N.A. (Tel: 951-0314)
Investment Brokers:
Brisbane, Mendez de Leon & Associates (Tel: 323870)
Caracas Stock Exchange (Tel: 861-1969)
Carlsen & Co. Sucrs., C.A. (Tel: 562-3666)
Delven Interamericana, C.A. (Tel: 781-6522)
Duarte Vivas & Associates, C.A. (Tel: 573-0311)
Marino Recio Associates, C.A. (Tel: 835555)
Merrill, Lynch, Pierce, Fenner & Smith Venezolana SRL (Tel: 283-8222)
von Specht & Associates (Mergers & Acquisitions) (Tel: 261-5205, Fax: 262-0344)
COMMERCIAL INSTITUTIONS
Caracas Chamber of Commerce (Fax: 5710050)
Chamber of Venezuelan Automotive Manufacturers (FAVENPA) (Fax: 753-4221)
Chamber of Venezuelan Shoe Manufacturers (575-4587)
Venezuelan Automotive Industry Chamber (CIVA) (9593187)
Venezuelan Petroleum Chamber (9799202)
Venezuelan Pharmaceutical Industry Chamber (Fax: 725376)
Venezuelan-American Chamber of Commerce & Industry (320764)
Venezuelan-Argentine Chamber of Commerce (Fax: 316447)
Venezuelan-British Chamber of Commerce & Industry (261-4038)
Venezuelan-Canadian Chamber of Commerce (Tel: 238-0527, 238-0213)
Venezuelan-French Chamber of Commerce & Industry (Fax: 752-2598)
Venezuelan-German Chamber of Commerce & Industry (Fax: 241-4962)
Venezuelan-Swiss Chamber of Commerce & Industry (CVSCI) (951-6201)
Lex Mundi - Legal Guide Series
