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Foreign Investment Law

Decree No. 1,438 of November 17, 2014 was published in Official Gazette Extraordinary No. 6,152 of November 18, 2014. Through said Decree, the President of the Republic issued the Decree with the Status, Value, and Force of Foreign Investment Law (the “Decree-Law”), the purpose of which is to establish the principles, policies, and procedures that rule the investors and the foreign investments that produce goods and services in any of their categories.

 

The Decree-Law declares the matter regulated by it to be of public interest. The persons/entities subject to the application of the Decree-Law are: (i) Foreign Companies and their affiliates, Subsidiaries or Related Companies; (ii) Empresas Gran Nacionales; (iii) National Private, Public, and Mixed Companies and (iv) National or Foreign Natural Persons, residents or non-residents of the country.  The Decree-Law establishes that foreign investments will be submitted to the jurisdiction of the courts of the Republic and that the Republic may participate and use the dispute resolution mechanisms constituted in the frame of the integration of Latin America and the Caribbean.

 

The Decree-Law defines foreign investment as the productive investment carried out through the contributions made by the foreign investors, formed by the tangible or intangible resources intended to be a part of the equity of the recipients of the investment in the national territory. These contributions may be (i) financial investment in foreign currency and/or any other means of exchange or compensation; (ii) physical or tangible capital goods; (iii) immaterial or intangible goods (which will be considered foreign investments when the assignment of ownership is made between companies that are not directly or indirectly related) and (iv) reinvestments of profits.

 

The Decree-Law defines technological transfer as the supply from abroad of technical knowledge, expressed or not in industrial property rights and necessary for productive transformation, provision of services and commercialization of goods, through approved and registered agreements that meet the requirements established in the Regulations.

 

The governing body in the area of foreign investments will be the Ministry of the Popular Power with competence over commerce matters and the implementing entity will be the National Center of Foreign Trade (Centro Nacional de Comercio Exterior - (“CENCOEX”).  The penalizing entity will be the Ministry of the Popular Power with competence over Finance matters (the “Ministry of Finance”).

 

At least 75% of the value of the foreign investment must be represented by assets located in the country and formed by equipment, consumable supplies or other goods or tangible assets required for the commencement of their productive operations.  In order to obtain the registration of the foreign investment, the contributions must be constituted, at the official rate of exchange in effect, by a minimum amount of US$. 1,000,000.00.  Considering sectorial interests, CENCOEX may establish a minimum amount for the constitution of the foreign investment, which may not be lower than 10% of the aforesaid amount.

 

For purposes of determining the value of the investment, the items that constitute the capital actually paid in the course of the relevant economic year of the foreign investors will be reckoned.  In the case of contributions in foreign currency, this value will be determined through the Foreign Investment Registry at the official rate of exchange in force at the time of the exchange transaction and they will only be recorded in the accounts upon the presentation of the vouchers issued by CENCOEX.  The foreign investment must remain in the territory of Venezuela for a minimum period of 5 years as from the date on which the relevant registration was made.  Once said period has elapsed and after payment of the relevant taxes, the investors may make remittances abroad on account of invested, registered, and restated capital.

 

With respect to the distribution of net profits, the Decree-Law prescribes that the receiving companies may distribute and pay to their foreign investors, in the national territory and in legal currency, all or part of the net profits obtained at the closing of each economic year and, if said net profits are not paid, they may be directed to an account designated for their reinvestment by the same company that generated them. Foreign investors will be entitled to remit abroad, on an annual basis and as from the close of the first economic year, up to 80% of the proven profits or dividends deriving from their registered and restated foreign investment.  In the event of partial remittance, the difference may be accumulated, for purposes of remittance abroad, with the profits obtained, only in the following fiscal year.

 

According to the Decree-Law, in the event of liquidation of the company, an amount of up to 85% of the total amount of the investment may be remitted abroad. In the cases in which the liquidation occurs as a consequence of the sale of the company to national investors, the foreign investors will be entitled to remit to the country of origin the registered investment, provided that CENCOEX verifies the full functioning of the productive and commercial operations of the receiving companies with the permanency of the goods and technological knowledge involved in the investment.  In the event of extraordinary economic circumstances, the National Executive may apply special measures in relation to the investment and transfer of technology and it may also limit the remittances abroad on account of invested capital and dividends generated by the foreign investment.

 

The Decree-Law establishes that the criteria, procedures, requirements, period of validity, and conditions for updating the Registry of Foreign Investment and the Company Qualification will be established by the regulations.  CENCOEX may suspend or revoke the certificates granted when the persons/entities subject to the application of the rule fail to comply with the provisions established in the Decree-Law.  CENCOEX has broad auditing powers, as well as special powers to issue preventive measures to be applied to the audited persons/entities. The factual assumptions for issuing the preventive measures will be developed in the regulations to the Decree-Law.  The Ministry of Finance may establish penalties ranging from 1,000 to 100,000 Tax Units in cases of failure to comply with the Decree-Law, which are to be paid in a period of 15 business days as from the notification.  In the event of repetition of the failure, the fine will be increased by 100%.  No specific factual assumptions requiring the imposition of said fines are established.

 

The temporary Provisions of the Decree-Law establish as follows: (i) the concurrent governing bodies in the area of foreign investments must adapt their respective rules and procedures in a period of 6 months; (ii) CENCOEX must issue the necessary rulings on remittances abroad for foreign investors in a period of 6 months as from the publication of the Decree-Law in the Official Gazette; (iii) as from such publication, any investment framework agreement or international commercial agreement executed or renegotiated by the Republic will be based on the provisions of the Decree-Law; (iv) the suppression of the Superintendence of Foreign Investments (Superintendencia de Inversiones Extranjeras - “SIEX”) is ordered and SIEX is temporarily entrusted with the exercise of functions of administrative unit in charge of the treatment of productive foreign investments, under the direction and supervision of CENCOEX and (v) the National Executive is allowed a period of 1 year for the preparation of the regulations to the Decree-Law.

 

The Decree-Law repeals: (i) Decree 1,103 on the Partial Regulations to the Common Regime of Treatment to the Foreign Capitals and as to Trademarks, Patents, Licenses and Royalties, published in Official Gazette No. 34,548 of September 7, 1990; (ii) Decree 2,095 on Regulations to the Common Regime of Treatment to the Foreign Capitals and as to Trademarks, Patents, Licenses and Royalties, published in Official Gazette No. 34,930 of March 25, 1992; (iii) Resolution No. 2,912 of the Treasury (Ministerio de Hacienda), which contains the regime for the registration of investments made with the proceeds of the sale of securities denominated in foreign currency issued by the Republic, published in Official Gazette No. 35,807 of September 29, 1995; (iv) Decree No. 356 with the force of Law for Promotion and Protection of Investments, published in Official Gazette No. 5,390 of March 22, 1999; (v) Decree 1,867 that contains the Regulations to the Law for Promotion and Protection of Investments, published in Official Gazette No. 37,489 of July 22, 2002 and (vi) all provisions contravening its content.

 

The Decree-Law entered into force on November 18, 2014.

 

In order to access the Decree-Law, please click here.

 

 

“NOTE: THIS INFORMATION SHOULD NOT BE CONSTRUED AS LEGAL ADVICE ON ANY SPECIFIC MATTER AND ITS CONTENT ARE INTENDED AS A MANAGEMENT ALERT AS TO CURRENT DEVELOPMENTS IN VENEZUELA, ANY SPECIFIC LEGAL QUESTIONS REGARDING THE POSSIBLE APPLICATION OF NEW OR PROPOSED LEGISLATION TO PARTICULAR SITUATIONS SHOULD BE ADDRESSED TO TRAVIESO EVANS ARRIA RENGEL & PAZ.