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Income Tax Law

Decree No. 1,435 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 Law of Amendment to the Income Tax Law (the “Decree-Law”), which amended the Income Tax Law published in Official Gazette No. 38,628 of February 16, 2007.

 

Following are some of the most significant changes included in the Decree Law:

 

  1. The exemption allowed to institutions engaged solely in religious, artistic, scientific, environmental conservation, defense, and upgrading, technological, cultural, and sports activities, professional associations or unions, universities and educational institutions for the income obtained as a means to attain their purposes was removed, even if they have no profitable purposes.

  2. The exemption allowed to the cooperatives that operate under the general conditions fixed by the National Executive was removed.

  3. It was established that the following will be deductible from the gross income in order to obtain the global net income of the taxpayer: (i) wages, salaries, remuneration, allowances, pensions, perquisites, commissions, and other similar remuneration, for services provided to the taxpayer, as well as the expenditure on account of non-mercantile professional services received in the fiscal year, always provided that the taxpayer has performed all the obligations corresponding to him in his capacity as employer according to the Decree-Law; (ii) losses incurred in the property that constitutes the fixed asset intended for the generation of income due to acts of God or force majeure, not compensated by insurance or other indemnification, always provided that such losses are not attributable to the cost; and (iii) insurance premiums covering the risks to which the assets and persons - other than the taxpayer individually considered - used in the generation of income or intended for sale are subject, as well as the other risks of the business because of such assets or because of the actions or omissions of such persons, such as fire and connected risks, civil liability, risks relating to the personnel by reason of work and the premiums that cover such personnel under collective bargaining agreements.

  4. It was established that the deduction of losses for destruction of inventory goods, or of goods intended for sale, or of fixed assets intended for the generation of income will not be admitted if they do not meet the following requirements: (i) the losses must derive from an act of God or force majeure, (ii) they must not be compensated by insurance or other indemnification, and (iii) said losses must not be attributable to the cost.

  5. Any regular or occasional consideration or profit derived from the provision of personal services under a relationship of subordination, regardless of the salary-related nature of the same, other than subsistence allowances and meal bonuses, is considered net income.

  6. It was established that the Venezuelan-sourced net operating losses may be imputed to the income of equal source, provided that said income is obtained within the three (3) taxation periods following that in which the loss occurred and said imputation does not exceed in each period 25% of the income obtained.

  7. As to withholdings, it was established that the persons who, because of their public functions or their private activities, intervene in transactions taxed with Income Tax (“IT”) or make direct or indirect payments, as well as the debtors of net income, gross receipts, or gross income referred to in the Decree, may be designated, through a general ruling of the Tax Administration, as persons responsible for the payment of the tax, in the capacity as withholding or receiving agents. The Tax Administration may also fix withholding percentages or percentages for receipt.

  8. It was established that the taxpayers that perform banking, financial, insurance and reinsurance activities will be excluded from the inflation-for-adjustment system prescribed in the Decree.

  9. It was established that the Consumer Price Index will be fixed by the competent authority to be designated for purposes of this Decree-Law.

  10. It was established that the net losses for inflation not set off may not be carried forward to subsequent fiscal years.

  11. It was established that the Tax Administration, through a general Ruling, will issue the rules to regulate the accounting entries to be made by the taxpayers that perform banking, insurance, and reinsurance activities, by virtue of their exclusion from the adjustment-for-inflation system prescribed in the Decree-Law.

  12. It was established that the provisions of Decree 1,808 of April 23, 1997, published in Official Gazette No. 36,203, will continue to be applied that up to the time when the prescribed Rulings on withholdings are issued by the Tax Administration.

  13. It was established that the National Executive may modify or establish different rates for specific taxpayers or economic sectors, but they may not exceed the limits prescribed in the Decree-Law. 

 

The Decree-Law became effective on November 18, 2014 and will be applied to the fiscal years that begin during the period of effectiveness of the same.

 

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.