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Investment Vehicles Affected by Tax Law - International Law Office

International Law Office

Company & Commercial - Venezuela

Investment Vehicles Affected by Tax Law

July 24 2000



The most recent amendment of the Income Tax Law (ITL) has resulted in a restructuring of investment vehicles in Venezuela. This is due to the negative tax implications now applicable to branches of foreign companies, commonly used to carry out large infrastructure projects.

In order for a foreign company to do business in Venezuela (as an alternative to incorporating a Venezuelan entity), it must register with the Mercantile Registry information as to where its office, place of business or agency is to be established. It must also publish in a local periodical the articles of incorporation and any other documents essential to the organization of the company (pursuant to the laws of the jurisdiction under which it was created), including a certified copy of the pertinent provisions of the corporations law of the relevant jurisdiction.

Creating a branch of a foreign company was an attractive method, in that it constituted a flow-through entity, leading directly back to the home office. A Venezuelan branch is the same juridical entity as the foreign company but it carries separate accounting. One adantage was that financing could be done through intra-company accounts, instead of through equity or loans.


However, the new ITL contains certain provisions which seriously affect the use of the branch in Venezuela, and most companies are restructuring their operations and searching for new investment vehicles. The relevant provisions are (i) a limitation on deductable expenses (applicable as of January 1 2000), and (ii) a deemed dividend tax of 34% (applicable as of January 1 2001).

In view of the foregoing, certain alternative corporate structures (that until recently have been rarely used in Venezuela), are becoming popular. The 'comandita por acciones' is a partnership where there are two types of partner: (i) general partners, who are jointly, severally and unlimitedly liable for the obligations assumed by the company, and do not have their liability limited to the amount contributed to the capital, and (ii) limited partners, whose liability is limited to the amount of capital contributed by them. The capital of the limited partners is divided into shares. The comandita por acciones is an entity separate from its partners, managed by the general partner.

Another vehicle being used is the 'sociedad de responsabilidad limitada', a separate entity in which the responsibility of the partners is limited to their equity participation, but where the capital is divided into participation rights instead of shares. Features include:

  • the participation rights may not be represented in negotiable instruments (as shares);
  • there is a maximum corporate capital of Bs2,000,000 (approximately US$3,000); and
  • the partners may commit to additional payments, which are not reflected in the entity's capital but in its patrimony, with the advantage that they are not subject to the stamp duty (of 1%) applicable to the capital.


The use of the branch of a foreign company as the vehicle for operating in Venezuela will diminish. Foreign investors will have to find other corporate structures that will permit the economic feasibility of large capital-consuming infrastructure projects.

For further information on this topic please contact Olga Nass de Massiani or Vera de Gyarfas at Travieso Evans Arria Rengel & Paz by telephone (+58 212 277 3333) or by fax (+58 212 277 3334) or by e-mail (onm@infoline.wtfe.com or vbg@infoline.wtfe.com).

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.

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