Doing business in Venezuela 2011. Lex Mundi

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A Guide to Doing Business in Venezuela

GUIDE TO DOING BUSINESS IN VENEZUELA

By: HOET PELAEZ CASTILLO & DUQUE Caracas, Venezuela © 2011 Hoet Peláez Castillo & Duque. All Rights Reserved

The “Guide to Doing Business in Venezuela” presents an overview of some basic aspects of Venezuelan Law. It does not constitute a legal advice. The guide does not intend to be a complete report. The contents herein are for reference only. Prior to taking any action based on the information provided herein, it is necessary to request more detailed information and the assistance of a local attorney.

TABLE OF CONTENTS I.

THE COUNTRY AT A GLANCE A. General Information B. Diplomatic Relations C. Government D. Economy and Financial Facilities E. Infrastructure F. Judicial System G. Legislative system.

II. GENERAL BUSINESS CONSIDERATIONS A. Environmental Considerations B. Intellectual Property C. Licenses D. Exchange Controls III. FOREIGN INVESTMENTS A. Investment policies B. Export incentives or guarantees C. Grants, subsidies and funds D. National tax incentives for foreign investors E. Regional tax incentives open to foreign investors IV. IMPORT/EXPORT REGULATIONS A. Customs Regulations B. Foreign Trade Regulations C. Exports D. Imports E. Other Requirements V. STRUCTURES FOR DOING BUSINESS A. Governmental Participation B. Joint Ventures C. Limited Liability Companies D. Liability Companies, Unlimited E. Partnerships F. Sole Proprietorships G. Subsidiaries/Branches/Representati ve Offices H. Trusts and other Fiduciary Entities VI. REQUIREMENTS FOR THE ESTABLISHMENT OF A BUSINESS A. Alien Business Law B. Antitrust Laws C. Environmental Regulations D. Government Approvals E. Insurance

F. Licenses/Permits VII. OPERATION OF THE BUSINESS A. Advertising B. Attorneys C. Bookkeeping Requirements D. Business Ethics/Codes E. Consumer Protection Laws F. Construction G. Contracts H. Product Registration I. Reductions or Return on Capital J. Sale of Goods K. Trade Associations VIII. CESSATION OR TERMINATION OF BUSINESS A. Termination B. Insolvency/Bankruptcy IX. LABOR LEGISLATION, RELATION, AND SUPPLY A. Employer/Employee Relations B. Employment Regulations C. Hiring and Firing Requirements D. Labor Availability E. Labor Permits F. Safety Standards G. Unions X. TAXES A. GENERAL TAX CONSIDERATIONS B. TAX ON CORPORATIONS C. TAX ON INDIVIDUALS XI. IMMIGRATION REQUIREMENTS A. General Immigration Controls B. Visas XII. USEFUL INFORMATION FOR EXPATRIATE EMPLOYEES A. Cost of Living and Immigration B. Education, Housing and Medical Care C. Moving Costs and Importing Personal Possessions D. Tax Liability E. Work Contracts and Permits

I.

THE COUNTRY AT A GLANCE

A. General Information Venezuela is located in the northern part of South America. The country borders to the north with the Caribbean Sea; to the south with Brazil; to the east with the Atlantic Ocean and Guyana; and to the west with Colombia.

The total area of the country is 917.450 square km (354,227.44 square miles). In relation to the climate, Venezuela is close to the equatorial line, and there are diverse climates in different regions of the country ranging from tropical to temperate. Venezuela is in the -4 Time Zone (GMT). The average temperature in the country is warm all year round. Caracas is around 82º F (28º C).

The language spoken in Venezuela is Spanish; although English is widely spoken in the tourism industry and the business environment.

The Venezuelan currency is the "Bolivar". The exchange rate is fixed by the government who controls currency exchange. The only institution authorized to perform currency exchange activities is the Venezuelan Central Bank through the authorized Banks and other financial institutions. The Law on Foreign Exchange Crimes prohibits and sanctions currency exchange activities outside the authorized financial system. Since January 11th 2011, the official exchange rate is 1 US Dollar = 4.30 VEF. The Venezuelan culture is a mixture of European, African and local indigenous roots with great influence from Spain. Venezuelans are well known for their easy-going nature and fun-loving spirit, therefore no cultural influence or prohibitions affect the way business is conducted.

Roman Catholicism is the overwhelmingly dominant religion and such religion does not affect the way business is conducted.

B. Diplomatic Relations Traditionally, Venezuela maintains broad diplomatic relationsi and the country has been always characterized to be part of the international entities and organizations.

However, the President Chavez’s leftist administration intends to move the country towards what he calls the XXI Century Socialism, which implies the rejection of the politiceconomic imperialism and especially the government of the United States of America, with whom he maintains a stressed relation. At the same time, the relations with countries like Russia, China and Vietnam, or like Cuba, Iran, Byelorussia and Syria have been strengthened.

There are no restrictions to business dealings with other countries. Neither has Venezuela been object of such restrictions or embargos from others. All standard international restrictions such as anti-drug, anti-fraud or anti-counterfeit are considered as government policies in the country.

C. Government According to the current Constitution of 1999, the Bolivarian Republic of Venezuela is a nation governed by Laws with a democratic and participative Government.

According to the Constitution, the positions in the public administration available are: i. President of the Republic: elected by majority of valid votes in universal, direct and secret suffrage, for a 6 year period, the next elections will be in 2012. ii. Latin-American and Andean Parliament Deputies and National Assembly Deputies: elected by universal, direct and secret suffrage for a period of 5 years. Next elections will take place in 2015. iii. States Governors, State Legislative Bodies, Mayors and Municipal Legislative Bodies: elected by universal, direct and secret suffrage for a period of 4 years The current President is Mr. Hugo Chavez, who has maintained his position since 1999, although he faced a coup d’état in 2002 which sent him to prison for 3 days.

In Mr. Chavez administration, several elections took place and important constitution and legislative reforms were made. The president, through its political parties has the administrative control of almost all regions of the country. The so-called “chavistas” have also dominated the National Assembly for a whole period of 5 years.

In the last couple of years, the opposition to his government is getting importance, and in the last elections opposition candidates recovered an important percentage of the National Assembly.

The next presidential elections in 2012 will be very important as Mr. Chavez is making his best efforts to be reelected as President of Venezuela for at least another 6 year period.

D. Economy, Financial Facilities and Capital Markets The Constitution guarantees the right to engage in 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.

Although oil related activities have been the major activity in the country for the last few decades, representing around 25% of the total Gross Internal Product (GIP), there are other sectors of the economy to be considered, for instance industry (around 15%), construction (6%) and agriculture (5%).

Economic activities are developed by both private and public owned companies, the government having a rising participation in all sectors of economy. The country is currently in a period of general economic decline, with signs of recession and on of the highest rate of inflation in the world, which for the year 2010 was 27.2 per cent.

The Venezuelan financial system is under the oversight, supervision and regulation of the Superintendence of Banks and Other Financial Institutions. The General Banking Law enacted in 2001 is the main legal body under which universal banks, commercial banks, mortgage banks, investment banks, development banks, second floor banks, financial lenders, and savings and loan institutions, are regulated. There are private and public owned financial institutions.

The Capital Markets Law enacted in 1998 regulates the safety of stock market transactions under the supervision of the National Commission of Securities. At the beginning of 2010 the President announced that Venezuela was in transition towards a new securities system.

He declared that he would create a new Public Securities System. On January 24, 2011, it was published in the Official Gazette, the Regulation regarding the Inscription, Negotiation and Liquidation of Securities in the Bicentenary Public Stock Market. These changes will bring profound changes in the securities systems in the country, the consequences of which are still difficult to predict. It is certain though that it goes along with the current policy of socialization of the Venezuelan economy and its institutions.

It is necessary to maintain bank accounts in the country whenever the investor’s activities in the country justify it.

Requirements to open an account may be different from institution to institution. Here below is a list of the usual documents requested for opening an account: i. Application letter to open an account: it must indicate the office where the account is to be opened, authorized signatures (full name, identity card and type of signature), conditions of the signature for managing the account. The letter must be signed by the persons who are authorized to open the account. ii. Original and copy of the Articles of Incorporations and all their amendments. iii. Copy of the appointment of the Directive Board currently in force, duly legalized. iv. Original and copy of the Tax Information Registry (RIF, after its Spanish acronym). v.

Bank and/or commercial references of the company. vi. Copy of a public utility’s receipt signaling the fiscal address of the company. vii. Identity Card of the Shareholders. viii. Last Income Tax Declaration.

There are no specific restrictions to use the account, as long as the law and the institution’s particular rules are followed. The investor can use all products offered by the bank institutions, i.e. bank loans, as long as the conditions imposed by the banks are fulfilled.

E. Infrastructure The capital of Venezuela is Caracas, which is located in the central-north part of the country. Caracas has approximately 5 million inhabitants. Other major cities in Venezuela are Maracaibo, Valencia, Maracay, Barquisimeto, Puerto la Cruz, Maturin and Puerto Ordaz.

The country is well served by several highways, and regarding air transportation, all major cities have airports.

The country is well served by all the major American and European airlines. Several airlines offer direct flights to the main airports in the United States, including: Miami, Houston, Dallas, Atlanta and New York. Additionally, Venezuela is linked to all important cities of Latin America. Direct flights are available to Bogota, San Jose, Panama, Lima, Rio de Janeiro, San Juan, Mexico, Santiago and others. For traveling within the country, there is an important network of local airlines serving almost every important city in Venezuela.

Since a couple of years, key airports and sea ports are administrated by Venezuela's military. The situation of ports is rather difficult as they are facing congestion due to increase of traffic and lack of infrastructure.

Telecommunication services such as phone, fax and high speed internet connection are widely spread throughout the country. In addition, every major international courier companies serve Venezuela, including, Fedex, UPS and DHL. Local private courier services are also available.

Public services like water, electricity and gas supply are publicly owned. Infrastructure related to these services is outdated and, in some parts of the country, water, gas or electricity supply is often disrupted.

F. Judicial System The Venezuelan judicial system has always been perceived as impartial. Nevertheless, in the last few years, the situation has changed drastically. With the growing interference of the president over the judiciary in the last years, the decisions in which the government (or one of its entities or companies) is a party are never unfavorable for the latter.

In general terms, disputes must not be resolved in the country, but sometimes it is a condition imposed by the government in the negotiation of contracts involving sensitive sectors of the economy.

There is no political method of resolving disputes; however, it is possible to resolve some kind of disputes, e.g. disputes over contracts, by negotiation between the parties.

Regarding alternative dispute resolution, Venezuela has one of the most modern Commercial Arbitration laws in Latin America. The Law on Commercial Arbitration (LCA) was enacted in 1998, and it substitutes the old rules contained in the Civil Procedure Code and represents and important improvement in Venezuelan arbitration.

Today, in Venezuela, there are two main centers that offer their mediation and dispute resolution services at a commercial and institutional level: (i) the Arbitration Center of the Chamber of Caracas (CACC, after its initials in Spanish), and (ii) the Business Center of Conciliation and Arbitration (CEDCA, after its initials in Spanish), sponsored by the Venezuelan-American Chamber of Commerce. Both private institutions offer their services to important national and international companies involved in commercial disputes.

There are several judicial procedures in Venezuela, and all of them take different time periods in accordance with the matter handled. Currently, the Venezuelan judicial system has accumulated work, which hinders effective and prompt justice, and, in particular, this is the case of the Civil Courts of the Metropolitan Area of Caracas. The Venezuelan Judicial Power is establishing a new judicial system in order to accelerate processes and implement oral procedures in order to speed up such processes. This project has taken more than three years; however, we cannot state that there has been substantial progress in the judicial area.

According to Venezuelan laws, in general, a litigious matter should not take more than 6 to 12 months in first instance courts, which includes all procedures regarding summons, answer to the complaint, evidence and decision. However, because of the abovementioned accumulation of work, there are processes that have taken from 2 to 5 years, or even longer, due to complications or delays of the judicial institutions.

In Venezuela, foreign decisions are valid, provided that they comply with the requirements stipulated in the International Private Law regulation, namely: 1. decisions must be issued for civil or commercial matters or, in general, for matters of private juridical relations; 2. decisions must have res judicata effect pursuant to the laws of the State where they were issued; 3. decisions must not involve real rights regarding real state located in the Republic, and they must not take from Venezuela the exclusive jurisdiction that may correspond to the country to know of the matter; 4. the courts of the State that issued the decision must have jurisdiction to hear the case in accordance with the general principles of jurisdiction stipulated in Chapter IX of this Law; 5. the defendant must have been duly summoned, with enough time to appear, and the defendant must have been granted procedural guarantees that ensure a reasonable defense; and, 6. decisions must not conflict with a previous decision with res judicata effect, and no trial must be pending before Venezuelan courts involving the same subject and the same parties, and initiated before the issuance of the foreign decision.

In order to enforce a foreign decision, such decision must be final pursuant to the laws of the country where it was issued. This judicial procedure is known in Venezuela as exequatur. By means of the exequatur procedure, a final decision issued abroad, for private matters, can have res judicata effect or be enforced in another State.

In Venezuela, the exequatur procedure is handled by the Supreme Court of Justice, with the exception of non-litigious jurisdiction cases, which must be heard by the Superior Court for Civil Matters.

All decisions issued in Venezuela can be enforced in other countries, provided that they comply and do not conflict with the laws of the country where they are to be enforced and with international law regulations.

The structure and distribution of the judicial courts are established in the constitution. The head of the court system is the Supreme Court, body in charge of controlling the legality of the actions of the public power, based on their constitutionality. This Court is made up of 32 Magistrate Judges appointed by the National Assembly for a 12 year period. Other special or regular Courts are created by law. Decisions issued by the Supreme Court are not subject to any sort of appeal. The Supreme Court is empowered to repeal laws if deemed

unconstitutional, to decide over conflicts of jurisdiction of the Courts and act as a final appellate court.

The Judicial Power also comprises courts with ordinary jurisdiction: Superior Courts, First Instance Courts and Municipal Courts for Civil, Mercantile and Transit Matters.

The Special Jurisdiction works in parallel with the Ordinary Jurisdiction and is made up by courts that will hear about certain specific matters, such as: Courts for the Protection of Children and Adolescents, Labor Courts, Contentious-Administrative Courts, Courts for Contentious and Tax Matters, Measure Enforcement Courts and Maritime Courts, among others.

Venezuela belongs to the continental or civil law system, which is based on the supremacy of written law, as opposed to the common law system of the United States, Canada, the UK and the Commonwealth countries. There is only one legal system within its territory.

Finally, the investor cannot choose to be subject to the country's jurisdiction or not. Some laws are applicable only to nationals, but a great number of them are territorially applicable, and will be enforceable to all individuals in the Venezuelan territory.

G. Legislative system.

Venezuela belongs to the continental or civil law system, which is based on the supremacy of written law, as opposed to the common law system of the United States, Canada, the UK and the Commonwealth countries.

The National Assembly discusses and approves laws. Once laws are approved by the National Assembly, they are sent to the President for their enactment into law and publication in the Official Gazette of the Bolivarian Republic of Venezuela, along with the corresponding order of due compliance.

II. GENERAL BUSINESS CONSIDERATIONS A. Environmental Issues Environmental regulation is not considered one of the most important issues in the current administration. This government has not made any important changes in the existing regulation and it is certainly not one of its priorities.

Environment in Venezuela is regulated by the Organic Law of Environment. Citizens and companies, privately or publicly owned, shall execute their activities according to the plans established and the provisions of the Law and any other legal instrument applicable to this matter. In addition, they are responsible for the formulation and execution of projects involving the use of natural resources and biological diversity and shall create a permanent process of environmental education in order to promote the conservation of the ecosystem and a sustainable development.

Finally, every activity carried out by companies or individuals must be accomplished according to the provisions of the law, in order to safeguard the environmental stability and a peaceful place of living. If any citizen or company breaches the provisions of the Law and causes damage to the environment, they will be sanctioned with the payment of a fine and up to ten years of prison.

B. Intellectual Property The legislation regarding copyright is enforced by the Ministry of the Popular Power for Trade and the Autonomous Service for Intellectual Property (SAPI, from its Spanish Acronym), which is part of that ministry. There is also a centralized agency called the National Directorate on Copyright, which is part of the SAPI. The provisions of the Copyright Law shall protect all creative intellectual works, whether literary, scientific or artistic in character and whatever their nature, form of expression, merit or purpose, as well as neighboring rights.

After Venezuela’s withdrawal from the Andean Community on April 22, 2006, legislative matters related to intellectual property have changed in the country, although no major changes have taken place regarding copyrights since the Copyright Law was implemented in 1993. Discussions have taken place regarding whether decisions issued by the Andean Community while Venezuela was a member country became part of our legislation or not.

A petition for interpretation was filed at the Constitutional Chamber of the Supreme Court of Justice; however, the Supreme Court has still not rendered a decision.

Regarding trademark legislation, we must take into consideration Venezuela’s withdrawal from the Andean Community and that, therefore, Intellectual Property Law of 1955 is back in force. According to this Law, distinctive words and signs and combinations thereof that can be graphically reproduced can be registered as trademarks, including numbers and numerals.

A project of reform of the current Industrial Property law is currently being drafted.

According to information received, this new legislation should comply with the World Trade Organization’s agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and other international agreements.

Regarding patents, to be patentable, the subject matter must be novel; however, there are some exceptions to this requirement such as: invention, improvement or industrial model or design which, being patented abroad, has not been disclosed, patented nor put into execution in Venezuela, which means it is not in the public domain.

Following Venezuela’s withdrawal from the Andean Community, the current situation in Venezuela relating to legislative issues has changed. We are still awaiting the decision from the Supreme Court of Justice on the interpretation appeal filed before the Constitutional Chamber about the legislation in force regarding this matter.

Venezuela has been a member of the World Intellectual Property Organization (WIPO) since 1984, and has ratified the following agreements administered by WIPO: i. The Bern Convention for the Protection of Literary and Artistic Works; ii. The International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (Rome Convention); iii. The Paris Convention for the Protection of Industrial Property; Additionally, Venezuela is a member of the Agreement on Trade-related Aspects of Intellectual Property Rights, commonly known as TRIPS. The most important provisions for the protection of intellectual property in Venezuela were the Decisions of the Andean Community, which are no longer in force since the withdrawal of the country from the Andean Community of Nations.

The approvals are granted by the Autonomous Service of Intellectual Property (SAPI, from its Spanish acronym).

There are no special notarization requirements. However, for each registration a few documents must be filed before SAPI.

C. Licenses The Law on Intellectual Property (LIP) establishes the regulatory guidelines for licenses.

The compulsory license system allows any interested party, particularly, local industrials and entrepreneurs, to obtain a license either for a local production or importation of the invention. The applicant does not have to show technological and economical capacity to exploit the invention; however, it is necessary to prove that the proposed user tried to obtain a contractual license from the patent holder on reasonable commercial terms and that such effort was not successful within a reasonable period of time. There might be additional requirements for certain products, depending on its characteristics (form, size, etc).

There is no limit established for royalties from licenses. When both parties are related companies, transfer pricing rules are applicable and the royalties must be in accordance with international market standards.

Local antitrust and competition laws apply to licenses and license agreements are considered vertical agreements and they are subject to the Rule of Reason. Instead of establishing a general rule, the anticompetitive consequences are weighed against the particular agreement or business justifications.

The typical agreements foreign corporations enter into with their wholly owned subsidiaries are, among others, Technical Assistance Agreements, Software License Agreements and Mark License Agreements.

D. Exchange Controls

Currency exchange is controlled by the Government. According to the limitations set forth in this matter, the Venezuelan Central Bank has the exclusive right to perform currency exchange activities through its authorized dealers (Banks and other financial institutions).

The Exchange rate is fixed by the government. The Currency Administration Commission (CADIVI) is the governmental office in charge of administering the exchange control regime.

Currency exchange activities performed outside the authorized financial institutions are strictly forbidden and penalized. The Law on Foreign Exchange Crimes establishes several requirements for business transactions in foreign currency and penalizes foreign exchange transactions that violate the exchange control regime, the purchase of foreign currency under false pretences and the use of foreign currency purchased from the Central Bank for purposes different from those that induced the acquisition request and authorization. This Law also imposes criminal sanctions on those who publicly or privately offer goods and services nominated in foreign currency, in contravention to the applicable laws, and exporters who do not reintegrate or sell to the Central Bank the export proceeds.

All foreign currency that enters the country must be sold to the Central Bank at the official exchange rate. In the same way, all transfers out of the country must be intermediated by the Central Bank. In both cases, there is a strict control of the legality of those transactions, which must be within the scope of the authorized transactions regarding the Exchange Control Law. Foreign investors can acquire foreign currency from the Central Bank for dividend remittances abroad and for the recovery and remittance of divestments. Foreign investors must have previously registered their investment with the SIEX (see Question 2).

There are several reporting requirements for every transfer of money in or out of the country. These requirements will vary depending on the reason of the transfer.

Finally, it is important to note that according to the reform of the Law on Foreign Exchange Crimes (from May 17th, 2010) hard currency can be taken out of the country, by individuals or companies, only up to the limit of USD 9,999, or the equivalent in another currency, without any need to declare the nature of the action.

III. FOREIGN INVESTMENTS A. Foreign Investment Policies The Constitution guarantees the right to engage in 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.

Besides, the State may reserve for itself the right to exploit certain industries or public services, such as, the Oil and Gas industry.

In order to classify the company as foreign, mixed or national, the appropriate agency considers both the percentage of equity held by the foreign investor and the degree of

control that the foreign investor is entitled to exercise over the technical, financial, administrative and commercial management of the company: (i) Foreign (more than 49% foreign equity); (ii) Mixed (49% or less but more than 19.9% foreign equity); and (iii) National (less than 20% foreign equity).

Shares owned by foreign investors with no decision power 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.

The allowed proportion of foreign investment depends on the sector in which the company is planning to develop its activities. There are some reserved sectors in the economy, which require local participation. These sectors are the following: a. Sectors reserved to national enterprises (that is, companies which have a maximum of 19.9% of foreign capital) by Foreign Investment Regulations: i. Television and radio broadcasting and Spanish language newspapers. ii. Services in areas requiring the participation of professionals whose practice is governed by national laws. b. Areas reserved by special laws to national companies, i.e. Oil & Gas (reserved to the State, with few exceptions) Companies operating in all other sectors other than the ones mentioned may be formed with up to 100% of foreign ownership and may remain as foreign-owned companies indefinitely.

Traditionally, the most attractive areas for foreign investment have been the ones related to natural resources, especially, hydrocarbons. Foreign investments have also been made in manufacturing activities, telecommunication and banking, in which the main investor countries are: United States of America, Japan, Spain, Netherlands, France, Italy, Colombia and Brazil.

Foreign investors usually participate in the oil sector through joint venture agreements with the State-owned oil company and through profit sharing association agreements. Similar regulations apply to activities of exploration, exploitation and basic industrialization of iron, aluminum and other mineral resources.

Foreign investors may acquire equity participation in local companies with no other limitations than those established for the particular economic activity in the applicable legislation.

When the foreign investor creates a new company or other business organization, this new company will be registered before a Mercantile Registry Office. One of the information that must be disclosed is the nature of the economic activities that will be developed by the company. However, it is also possible for foreign investors to acquire equity participation in local companies. In both cases, it is important and prudent to register the foreign investment before the Superintendence of Foreign Investments (SIEX, for its acronym in Spanish). In order to request this registration, the investor shall make declarations regarding the nature of its investment.

There are some private and government agencies promoting investment in the country: the National Council for the Promotion of Investments (CONAPRI, from its Spanish acronym), the Social and Economic Development Bank of Venezuela (BANDES, from its Spanish acronym), some trade and industry associations, Venezuelan Embassies and Consulates around the world.

Usually, all foreign investments are deemed approved and they are only subject to registration with the appropriate agency, provided that they do not contravene any provision of general applicability under Venezuelan legislation.

However, foreign investors should register their investment with the Foreign Investment Superintendence (SIEX, from its Spanish acronym). This register is a compulsory requirement for eventual repatriation of capital and dividend remittance abroad possible.

When the investor is directly dealing with the government, it is important to have in mind that negotiations can be difficult. Sometimes, the government representatives are not sufficiently prepared for the technical level of negotiations. In other cases, the government representatives in charge of a certain negotiation might be substituted by others, which might slow down the whole process.

It is also important to notice that execution of agreements by the government and even payments can take more time than the international standards.

B. Export incentives or guarantees Exporters have the right to recover value added tax supported from the acquisition and reception of services or goods, in the scope of their export activities. This tax credit recovery is subject to the Value Added Tax (VAT) law and its regulations, in which the proceeding and requirements for this recovery are established.

Entities that are developing industrial projects have the right to defer the use of its value added tax credits, until the starting of the operations. Exporters in the same situation will have the right to recover the value added tax.

Some of the available forms of financing are: Business loans, loan and commercial guaranties, lines of credit, financing. Export financing is available both from government as from private sources and international organizations such as: i. Banco de Comercio Exterior - BANCOEX ii. Banco de Desarrollo Econ贸mico y Social de Venezuela - BANDES iii. Banco Bicentenario iv. Banco Industrial de Venezuela - BIV v.

Ministerio del Poder Popular para el Comercio vi. Corporaci贸n Andina de Fomento - CAF vii. Bilateral Cooperation Agreements, which establish special financing mechanisms for exports. For example: Financing offered by Brazil through its development bank

(BNDES) because of the numerous agreements executed between Brazil and Venezuela.

The government’s policy towards exports intends to facilitate the access to exports insurance for business transactions involving Venezuela and other countries of the region.

For this reason, in August 2009, the president decided to create an insurance company in the form of a Corporation with the purpose of accomplishing this goal. This company, called Bolivariana de Seguros y Reaseguros, S.A., however, is not yet in activity.

Whether the mentioned benefits are exclusive to nationals or not will depend on the rules regarding each particular benefit.

C. Grants, subsidies and funds Special grants and subsides offered to foreign investors are in general under the scope of a Bilateral Agreement between Venezuela and another country. These grants are usually restricted to certain activities.

The process and time estimate for approval will depend on the rules established in each Bilateral Agreement or Treaty.

The investor could also receive loans from government agencies, depending on the grant or subside and on he agency or entity granting it and as long as the conditions imposed by the agency are fulfilled.

D. National tax incentives for foreign investors The government offers incentives on a sector-by-sector basis through Presidential decrees, available to both foreign and domestic companies, including: i. Tax exemptions for establishing manufacturing facilities in certain under-developed regions. ii. Preferential treatment in the grant of government contracts for small and mediumsized enterprises.

An example of these incentives is the income tax reduction. The applicable law establishes a reduction of the income tax due to investments in new assets (excluding land) made by companies developing industrial, agro-industrial, construction, telecommunications activities and those related to science, technology and in general any industrial activity that represent and investment in advance or cutting edge technology. This reduction will be of the order of 10% of the amount of the new investments the company engages to develop in those areas.

Another example is the suspension of the use of the tax credit generated in the preoperative period of their investments as long as the project executed is in the industry sector and the period of the development of the project is of at least 6 fiscal years. This suspension will last until the company starts to generate tax debit.

The process of application will depend on the kind of tax incentive and on certain particular circumstances (i.e. emergency situations, special rules regarding some activities considered of major importance).

E. Regional tax incentives open to foreign investors Local authorities can grant certain tax incentives, as long as the tax is under their jurisdiction. Those grants might be limited to certain activities that are considered necessary in the region or that the authority wishes to develop.

These incentives might also be granted for a determined period of time, as an incentive for the business to choose the region to develop their economic activities. The process of application will depend on the region, on the kind of tax incentive and on certain particular circumstances (i.e. emergency situations).

IV. IMPORT/EXPORT REGULATIONS A. Customs Regulations The Venezuelan Customs Department (SENIAT) is in charge of the valuation of goods according to the Customs Valuation Agreement (GATT). The object of this agreement is to establish an equitable, harmonized and neutral customs valuation system.

Goods entering or exiting the country must be cleared through customs. Goods must be declared and authorized by customs authorities. For imports and exports, the documents required to this declaration are the following: i. Declaration of customs, ii. Commercial invoice, iii. Original bill of lading, iv. Payment of taxes (when applicable) Two business days after declaration of goods, a physical recognition act is conducted by the customs authorities. Once the authorities confirm the goods existence and integrity, the liquidation services prepare the necessary forms (when applicable).

According to Presidential Decree Nº 3.769 (May 30, 2005), which contains Venezuela’s custom Tariffs, there are four levels of tariffs applicable for imported goods. The highest range is up to 20%, the middle 15% and 10%, and the lowest is 5%. Vehicles are an exceptional case with tariffs up to 35%. Venezuela adopted the Harmonized Code on Nomenclature of Merchandise, which was incorporated into the customs tariff list. The Venezuelan Tariff contains all specific legal data applied to every item imported into the country, including non-tariff barriers.

Customs services tariffs are due when the documentation corresponding to the entry or exit of the product is registered by the Customs Office. This tariff must be paid together with the Customs Tariffs. The Customs Service Tariffs are the following: i. Five percent (5%) ad-valorem, for goods entering by sea, air or land.

ii.

Two percent (2%) ad-valorem, when goods enter the territory by mail services.

All goods destined to duty-free zones, free ports, customs warehouses or other similar destinations will only pay for the customs services tariffs.

B. Foreign Trade Regulations Venezuela is founding member of the World Trade Organization (WTO), as of January 1st 1995. The Agreements signed within the framework of this organization are the most important international treaties related to foreign trade. Its rules represent the basic regulations for Venezuela's international commercial relations. With the access of Venezuela to the WTO, the country applies the provisions of several agreements reached in the WTO. Such agreements include: i. The General Agreement on Tariffs and Trade of 1994 (known as the GATT of 1994), including its provisions on investment measures. ii. The General Agreement on Trade in Services (GATS) iii. The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) iv. The Understanding on Rules and Procedures Governing the Settlement of Disputes, v.

The Trade Policy Review Mechanisms and others.

As a member of the WTO, the provisions of several agreements reached in the WTO rounds represent the basic regulations for Venezuela's international commercial relations.

Such agreements include among others: i. The General Agreement on Tariffs and Trade of 1994 (known as the GATT of 1994), including its provisions on investment measures. ii. The General Agreement on Trade in Services (GATS) iii. The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) iv. The Understanding on Rules and Procedures Governing the Settlement of Disputes, and v.

The Trade Policy Review Mechanisms.

Regarding Free Trade Agreements, the country is no longer a party to any since the withdrawal from the Group of Three (G3), which aimed at setting up a free trade zone among the three member countries, Venezuela, Colombia y Mexico).

C. Exports Venezuela has developed a policy of expansion and incentive for the exportation of nontraditional products, (i.e. products other than oil, gas, iron and aluminum). Nevertheless, some products might be subject to an export restriction. These restrictions can be total or limit the exports to a determined amount (i.e. exports of gold).

Depending on the destination or the nature of the product, an exporter may be requested to fulfill specific prerequisites such as export licenses, sanitary certificates, or certificates of origin. Usually there are no export duties.

D. Imports No license or governmental permit is required for importing goods. However, there are goods subject to restrictions and previous licenses.

Venezuelan tariffs are usually set on an ad-valorem basis. However, sometimes, import duties are calculated on a specific or mixed basis. According to Rule 989, which contains Venezuela’s custom Tariffs, there are four levels of tariffs applicable for imported goods.

The highest range is up to 20%, the middle 15% and 10%, and the lowest is 5%. Vehicles are an exceptional case with tariffs up to 35%. Customs services tax is 1% of the value of the merchandise imported into the country.

Some products might be subject to import quotas in determined periods of time. Quotas were imposed a few years ago on the import of cars from Colombia.

There are Non-tariff barriers ("NTB") properly listed and differing depending on the nature of the restriction imposed. Basically, restrictions are imposed based on public health and security reasons.

E. Other Requirements Venezuela has a policy of expansion and incentive for the exportation and special funds were created to finance non-traditional exports by granting loans with preferential conditions to Venezuelan exporters (i.e. Bank of Foreign Trade BANCOEX). Depending either on the destination or the nature of the product, an exporter may be requested to fulfill specific prerequisites such as manufacturing requirements, export licenses, sanitary certificates, or certificates of origin.

Regarding the importation of certain component parts being permitted only if they are to be ultimately incorporated in a final product, the imposition of such requirements will depend on special policies and will be limited to certain products of industry.

Finally, there are several requirements regarding product labeling or packaging requirements applicable in Venezuela. The most important are: i. General Food Regulation and General Resolutions (1959) ii. Resolution N° 629 (Ministry of Production and Commerce) on the minimal information required for products labels and packaging (2000) iii. Covenin General Rule on Food Labeling (2952:2001).

In addition to these general rules, there are specific rules for different kinds of products and industry.

V. STRUCTURES FOR DOING BUSINESS A. Governmental Participation

There is a policy towards fostering a greater governmental role in all sectors of the economy, not just as a regulator, but also as an active participant. So, it is possible that the government will seek to participate in the ownership or operation of certain companies if there is an interest in the activity involved.

Sometimes, when the companies need an authorization from the government or its entities to develop certain economic activities, the government will impose certain conditions, one of which could be the participation in the ownership of the company and the incorporation of a mixed-capital company.

In some cases, the government seeks only a minority ownership of the stockholding, but in other cases the conditions imposed on the investor can be harder and the government might not accept less than the majority. Also, sometimes the control of the company’s operation is an issue, in those cases, the investor might have his investment limited to a partial ownership without important decision rights.

In the last few years, the policy towards fostering a greater governmental role in all sectors of the economy has been materialized into several expropriations and taking over the activities of significant private players in different sectors of the economy such as banking, insurance, agro industry, manufacturing and retail.

The investor liability will depend in great part on the rules established in the agreements signed with other partners or investors, as well as in the articles of incorporation and ByLaws.

Restrictions on capitalizations will depend on the type of corporation incorporated. In general, there is no minimum or maximum share capital required for stock corporations.

The shareholders must subscribe the total capital stock and pay at least 20% of the stock subscribed by the time of incorporation. Although no minimum amount of capital stock is required, particular requirements may be applicable on certain business areas (such as banking).

With regard to capital contributions, limited liability companies are required to have a minimum capital of Bs. 20 and a maximum capital of Bs. 2,000 (which can be considered below the minimum amount for most business areas). Investments may be made in cash or by capitalization of goods.

All profits derived from stock sales of companies incorporated in Venezuela are subject to taxation. Transfers of stocks made through the stock exchange are subject to a proportional tax of 1% of the price withheld by the stock exchange.

The purchase of an ongoing business or some of it assets is subject to a tax withholding of five percent (5%) of the gross sales price. The Tax should be withheld by the purchaser and paid to the national treasury.

B. Joint Ventures

Foreign investors can enter into joint-ventures. It is advisable to provide in detail all the rights corresponding to minority shareholders as there are very few minority protection provisions in the Commercial Code.

Whenever the joint venture of the investor and the other party efforts results in the incorporation of a company, its registration will follow the regular procedure of incorporation of a new company.

When the investor has already a company incorporated in the country, it is necessary to file before the relevant Mercantile Registry Office a Shareholders’ Meeting Minute where the joint venture is approved and its terms are established.

The incorporation of a new company can take up to one month. The registry of a Shareholders’ Meeting Minute usually takes 10 business days. There is a registration fee for incorporation of the company equivalent to one percent (1%) of the capital stock or the capital allocated to the branch, plus administrative fees payable to the Registry Office.

In general, there are no restrictions on foreign shareholders to be a participant, manager or director, except in certain sensitive industries including: i. Sectors reserved to national enterprises by Foreign Investment Regulations: Television and radio broadcasting and Spanish language newspapers.

Services in areas that require the participation of professionals whose practice is governed by national laws. ii. Areas reserved by special laws to national companies. i.e. Oil & Gas (reserved to the State, with few exceptions) 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.

Nevertheless, it is important to point out that the Mercantile Registry Offices may request a copy of the passport and visa (Labor or Business) of the shareholders and often request the same documents for at least one of the foreigners appointed as manager or directors.

In stock corporations, shareholders are only liable for the company acts only up to the subscribed capital. However, shareholders can be held liable in environmental matters. In addition, recent precedent-setting decisions from the Supreme Court have pierced the corporate veil in employment matters and other public-interest issues, and established that group member companies are joint and severally liable in these situations.

In general, there is no minimum or maximum share capital required for stock corporations.

The shareholders must subscribe the total capital stock and pay at least 20% of the stock subscribed by the time of incorporation. Although no minimum amount of capital stock is required, particular requirements may be applicable on certain business areas (such as banking).

With regard to capital contributions, limited liability companies are required to have a minimum capital of Bs. 20 and a maximum capital of Bs. 2,000 (which can be considered

below the minimum amount for most business areas). Investments may be made in cash or by capitalization of goods.

Certain tax advantages apply to joint ventures as well as tax payers whose income derives from the manufacture of industrial products and agro- industries, tourism, agriculture, and fishing.

C. Limited Liability Companies The Venezuelan Commercial Code provides four different types of corporations, one of them is the limited liability company.

In order to legally incorporate a corporation in Venezuela, the law requires registration of the articles of incorporation and By-Laws before the Mercantile Registry Office and its subsequent publication in a local newspaper. Additionally, shareholders must file the evidence of payment of the capital contribution.

Failure to fulfill all legal requirements results in the company not being considered legally incorporated and, therefore, the shareholders, the administrators and any other person who has acted on behalf of the company, will be deemed personally liable for all ventures the company enters into.

The incorporation of a limited liability company takes approximately one month, counting from the moment all documents are delivered and the capital is transferred to a Venezuelan bank account There is a registration fee for incorporation of the company equivalent to one percent (1%) of the capital stock or the capital allocated to the branch, plus administrative fees payable to the Registry Office.

In general, there are no restrictions on foreign shareholders except in certain sensitive industries including: i. Sectors reserved to national enterprises by Foreign Investment Regulations: ƒ Television and radio broadcasting and Spanish language newspapers. ƒ Services in areas which require the participation of professionals whose practice is governed by national laws. ii. Areas reserved by special laws to national companies. i.e. Oil & Gas (reserved to the State, with few exceptions) 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.

Nevertheless, it is important to point out that Mercantile Registry Offices may request a copy of the passport and visa (Labor or Business) of the shareholders and often request the same documents for at least one of the foreigners appointed as manager or directors.

With regard to capital contributions, limited liability companies are required to have a minimum capital of Bs. 20 and a maximum capital of Bs. 2,000 (which can be considered below the minimum amount for most business areas). Investments may be made in cash or by capitalization of goods.

All profits derived from stock sales of companies incorporated in Venezuela are subject to taxation. The purchase of an ongoing business or some of it assets is subject to a tax withholding of five percent (5%) of the gross sales price. The Tax should be withheld by the purchaser and paid to the national treasury.

D. Partnerships Partnership and Limited Partnership exist in Venezuela’s Commercial Law. In general, there are no restrictions on foreign shareholders to be a partner, except in certain sensitive industries. The extent of the capital owned by the national partner will be established in the regulation regarding the particular industry.

There is a registration fee for the incorporation of the company equivalent to one percent (1%) of the capital stock or the capital allocated to the branch, plus administrative fees payable to the Registry Office.

In General Partnerships, the Partners liability is joint and unlimited before third parties.

However, creditors can only pursuit partners after having pursuit the society.

In Limited Partnerships, there are two kinds of partners, the first are jointly and limited liable for social obligations and the second have their liability limited to a certain amount of capital.

All profits derived from stock sales of companies incorporated in Venezuela are subject to taxation.

E. Sole Proprietorships The Venezuelan Commercial Code establishes the figure of the sole proprietorship (Firmas Personales). The sole proprietorship is not considered a company, but it allows a person to develop a certain activity without the need to incorporate a company.

The sole proprietorship is registered before a Mercantile Registry Office. The registration of a sole proprietorship takes approximately one month. There is a registration fee for incorporation of the sole proprietorship in the order of approximately USD 500.

The investor as a sole proprietorship is personally liable, his personal assets can be seized for the payment of debts. There is no assigned capital as the sole partnership assets are the ones of the sole partner.

The investor and the sole proprietorship are the same person before the fiscal authorities, in consequence the personal and commercial tax obligations must be fulfilled by the investor.

The investor must keep its personal and commercial accounts separated.

F. Subsidiaries/Branches/Representative Offices Subsidiaries, branches and representation offices can be established by the investor. The Representative Offices are only treated and permitted in the scope of the General Law of Banks and Other Financial Entities, serving as an intermediate between their constituents and natural or legal persons who received credits granted by them.

The registration of subsidiaries and branches takes approximately one month, counting from the moment all documents are delivered and the capital is transferred to a Venezuelan bank account.

Representative Offices need an authorization issued by the Superintendence of Banks and Other Financial Entities, and has to fulfill every requirement and formality established by such Superintendence through general rules. The issuance of this authorization can take a few months.

The cost of the registration of a subsidiary or a branch office depends on the amount of its registered capital. There is a registration fee for incorporation of the company equivalent to one percent (1%) of the capital stock or the capital allocated to the branch, plus administrative fees payable to the Registry Office in the order of approximately USD 500.

The Representative Offices shall constitute and maintain a pledge with a financial institute or insurance company domiciled in Venezuela, in order to guarantee the fulfillment of the obligations acquired during its activities.

Branches are treated by the Venezuelan Commercial law as local corporations; therefore, branches are authorized to carry out business without other limitations than the legal provisions applicable to companies organized in Venezuela. Branches are not regarded as different or autonomous entities, so parent companies retain full liability for the branch’s operations. In terms of limits of liability, even though an amount of capital must be allocated to the branch by the parent company, branches’ liability is determined by the parent company’s capital.

On the other hand, parent companies are only liable for the acts of their stock corporation subsidiaries as shareholders and only up to the subscribed capital. However, parent companies can be held liable in environmental matters. In addition, recent precedent-setting decisions from the Supreme Court have pierced the corporate veil in employment matters and other public-interest issues, and established that group member companies are joint and severally liable in these situations.

In general, there are no restrictions on foreign shareholders to be a participant, manager or director, except in certain sensitive industries including: iii. Sectors reserved to national enterprises by Foreign Investment Regulations:

ƒ Television and radio broadcasting and Spanish language newspapers. ƒ Services in areas which require the participation of professionals whose practice is governed by national laws. iv. Areas reserved by special laws to national companies. i.e. Oil & Gas (reserved to the State, with few exceptions) 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.

Nevertheless, it is important to point out that Mercantile Registry Offices may request a copy of the passport and visa (Labor or Business) of the shareholders and often request the same documents for at least one of the foreigners appointed as manager or directors.

In general, there is no minimum or maximum share capital required for stock corporations.

The shareholders must subscribe the total capital stock and pay at least 20% of the stock subscribed by the time of incorporation. Although no minimum amount of capital stock is required, particular requirements may be applicable on certain business areas (such as banking).

With regard to capital contributions, limited liability companies are required to have a minimum capital of Bs. 20 and a maximum capital of Bs. 2,000 (which can be considered below the minimum amount for most business areas). Investments may be made in cash or by capitalization of goods.

Regarding branches and representative offices, the tax obligations are responsibility of the parent company. In what sands for subsidiaries, the tax obligations are responsibility of the local company. All profits derived from stock sales of companies incorporated in Venezuela are subject to taxation. Transfers of stocks made through the stock exchange are subject to a proportional tax of 1% of the price withheld by the stock exchange.

The purchase of an ongoing business or some of it assets is subject to a tax withholding of five percent (5%) of the gross sales price. The Tax should be withheld by the purchaser and paid to the national treasury. The tax consequences of a foreign investor are not different from those of a local company.

G. Trusts and other Fiduciary Entities There is a fiduciary entity recognized in Venezuela, the Fideicomiso or trust, which is a juridical relationship, where the grantor transfers one or more assets to a trustee, who is obliged to use such assets in favor of a third party called beneficiary.

Transferred assets and the ones that substitute them do not belong to the common pledge of the trustee’s creditors. Unless otherwise provided in the law, the trustee will only be subject to comply, with said assets, the obligations derived from the trust or its execution; in addition, the trustee could oppose any precautionary or enforcement measures requested by the creditors on the occasion of debts that are not related to the trust or its execution.

The investor can be a grantor or a beneficiary, but not a trustee. Only banks and insurance companies incorporated in the country can be grantors, and they must be authorized by the president through a resolution of the Treasury or the Ministry of Public Works, respectively.

VI. REQUIREMENTS FOR THE ESTABLISHMENT OF A BUSINESS A. Alien Business Law The company incorporated in Venezuela is subject only to Venezuelan Law. The incorporation, administration and operation of businesses in the country must follow its rules and cannot be subject to alien business laws.

B. Antitrust Laws The competition issues are treated in the Venezuelan Constitution of 1999 and the antitrust is regulated under the provisions of the Promotion and Protection of Free Competition Act of 1992, known as Procompetencia Act, both established the general framework for each matter and both are the current applicable laws. Procompetencia Act is applicable to public or private corporations engaged in economic activities. There is no filing requirement.

C. Environmental Regulations All economic activities are subject to environmental regulation. There might be some added costs involved for companies developing certain activities. See “Environmental Issues” in Section “GENERAL BUSINESS CONSIDERATIONS”.

D. Government Approvals There are no governmental approvals required for the incorporation of companies in Venezuela.

E. Insurance Except for companies developing activities in certain economic sectors, there is no need for companies to carry insurance.

F. Licenses/Permits There are several permits, licenses and authorization required, depending on the business activities conducted.

The applications for licenses and permits will depend on the rules established by the relevant authorities regarding every particular activity, i.e. licenses and permits required for pharmaceutical laboratories by the Ministry of the Popular Power for Health. The time estimation will depend on every kind of license or permit.

VII.

OPERATION OF THE BUSINESS

A. Advertising In Venezuela, consumer protection is regulated by the Constitution of the Bolivarian Republic of Venezuela and the Law for the People’s Right to Access Goods and Services (LEDEPABIS, from its Spanish acronym). The imposition of abusive conditions or false advertising to consumers and selling goods at higher prices than those established by the corresponding authority are prohibited. For this reason, the Institute for the Defense of People in the Access to Goods and Services (INDEPABIS, from its Spanish acronym) controls advertisings, which are subject to a prior approval.

B. Attorneys It is advisable to have experienced local legal assistance to avoid unnecessary risks.

Besides, all documents presented before Mercantile Registry Offices and Public Notaries must be signed by a local lawyer.

There are several important and well-known local counsel firms. Their contacts can be found both through international legal associations and publications as through local chambers of commerce, embassies and related entities.

Attorneys’ fees are usually below international standards and may vary a lot from one law firm to the other.

C. Bookkeeping Requirements All companies must keep books of accounts. Accounts must follow Generally Accepted Accounting Principles, and books must be kept in physical form, in the country and must be written in Spanish.

D. Business Ethics/Codes Some practices and economic activities are subject to certain business ethics or codes, i.e. pharmaceutical laboratories, accountants, hospitals and clinics.

E. Consumer Protection Laws In Venezuela, consumer protection is regulated by the Constitution of the Bolivarian Republic of Venezuela and the Law for the People’s Right to Access Goods and Services (LEDEPABIS, from its Spanish acronym). Besides, in the Venezuelan Constitution, consumer protection is contemplated as a constitutional right to freedom of commerce and as the right of every man to access quality goods and services. This law regulates all legal acts executed between suppliers and consumers, which are also understood as corporations.

Under the Consumer Protection Act, among other matters, the following matters are regulated:

i. ii. iii. iv. v. vi. vii. viii. ix. x.

Consumers obtain a wide protection of their rights, including the protection of their health and the right to obtain proper information on products specifications.

Providers must withdraw from the market, products found to be hazardous if the danger was not notified in advance to consumers.

Manufacturers, importers, distributors and sellers can be jointly and severally liable for damage caused by products.

Government licenses, authorizations and permits cannot relieve providers from product-related liability.

The quality, specifications, packaging and presentation of those products which must comply with the requirements of the Act. The parameters of advertising, particularly regarding sales or special offers.

The terms and conditions of the warranties.

Liability of suppliers and sellers.

Administrative and judicial proceedings.

Illicit conducts and applicable sanctions.

There are price controls in Venezuela regarding some pharmaceutical and food products.

F. Construction Costs of construction depend on the size and kind of construction, its location, number of workers and companies involved, permits needed, and etc.

Several permits are required for construction in the country. These permits are granted by municipal authorities following their own rules regarding requirements and procedures. The time estimation to receive authorization will depend on every municipal authority procedure. Fee estimation will also vary from one municipality to another.

G. Contracts In general terms, investors are free to enter into local contracts, unless the contract is in the context of a regulated activity or the other contract party is the government or a governmental entity.

Whenever the contract is between two private parties and not subject to special legislation or regarding regulated activity, another law can govern contracts.

H. Product Registration Some products must be registered, i.e. sanitary, food, pharmaceuticals. Registration is obtained before the relevant authority, i.e. Ministry of the Popular Power for Health, Ministry of the Popular Power for Agriculture.

The time estimation will depend on every authority procedure. Fee estimation will also vary from one authority to another.

I. Reductions or Return on Capital

Repatriation of dividends and other proceeds of investments are possible, but they are subject to government approvals because of the presence of a strict exchange control regime.

J. Sale of Goods There are some restrictions regarding the manner, time and place of sale of goods. Those restrictions might be imposed by local or national authorities (i.e. sale of alcohol in certain time or places).

K. Trade Associations Investors are free to join the existing trade associations. There are usually fees involved for joining such associations.

Regarding mandatory trade practices, businesses are subject to antitrust and competition law, consumer protection regulations and other laws potentially affecting the trade practices.

VIII. CESSATION OR TERMINATION OF BUSINESS A. Termination Costs involved in termination will vary according to fees corresponding to local legal counsel, registration of corporate documents before the Mercantile Registry Office, Statutory Auditor, and Liquidator.

Before the initiation of the termination proceedings before the Mercantile Registry Office, the corporate documents and filings must be updated. Depending on the situation of the company, and considering that the filing and registration of each Shareholder’s Meeting Minute can take from 10 to 20 business days, this updating can take time.

The proceeding before the Mercantile Registry of termination of a company already updated involves the registry of two Shareholder’s Meetings Minutes. In the first meeting, the shareholders will decide upon the dissolution of the company and appoint a liquidator who will take the charge of the administration of the company during the process of dissolution and liquidation. In the second meeting, the shareholders will accept the liquidation report presented by the Liquidator and decide on the liquidation. After the registry of the first Minute, the second Minute can only be filed after the period of one month.

Thus, the termination of a duly updated company will take at least a couple of months.

The termination of all companies incorporated in Venezuela follows the same proceedings and rules. The termination of a branch is much easier, as a simple decision from the parent company upon the termination of the branch (as long as duly registered)will be considered by authorities as a termination.

In general terms, companies are terminated without a government approval or intervention.

However, termination of companies subject to regulation from Ministries or other governmental entities must be approved by the authorities.

All creditors, employees and taxes due must be paid before the final termination of the company. The Liquidator is the person in charge of those payments.

All taxes due by the company must be paid and the fiscal authorities must be notified of the termination.

B. Insolvency/Bankruptcy Bankruptcy proceedings apply only to business people or business companies (as defined above). If any of these have been the subject of a benefit of moratorium relief and have consequently stopped making payments, then bankruptcy proceedings cannot be commenced.

Individuals are excluded from bankruptcy and benefit of moratorium relief proceedings.

This is because the Civil Code and the Civil Procedure Code establish two special proceedings designed for individuals, namely the ‘assignment for the benefit of creditors’, and ‘the meeting of the general board of creditors to approve an insolvent’s reorganization plan’.

In the case of corporate groups, as each subsidiary has its own corporate body under Venezuelan law, the parent company is not included in the insolvency proceedings. Each entity will be subject to an individualized insolvency proceeding and creditors can only pursue their claims against the assets of the subsidiary, not the assets of the parent.

Reorganization, as understood in common law jurisdictions, is not available in Venezuela.

A similar proceeding for insolvency cases is available, known as benefit of moratorium relief. This benefit allows any business person whose assets surpass his or her liabilities, which cannot discharge his or her obligations on time, and therefore is in default regarding payment of debts, to apply before a commercial court for an authorization to proceed to an amicable liquidation of his or her business within 12 months. This benefit is also governed by the Commercial Code, the Civil Code and the Civil Procedure Code.

IX. LABOR LEGISLATION, RELATION, AND SUPPLY A. Employer/Employee Relations Employment issues are public policy under Venezuelan law and are regulated under the: i. Organic Labor Law (19 June 1997) and its Regulation (25 January 1999). ii. Work Safety, Hygiene and Conditions Law (26 July 2005). iii. Social Security System Law (30 December 2002).

The provisions of the Organic Labor Law, (LOT) are of territorial application and represent public policy, which means they cannot be contractually modified. Labor Law applies to

Venezuelans and foreigners on any part of their labor relations rendered or contracted in the country. The law also applies to employees of foreign enterprises for the services provided in Venezuela, even on temporary basis. The Labor Inspector's Office and labor courts have jurisdiction over employment issues.

B. Employment Regulations Regarding the employment of foreigners, the applicable Law provides that foreign employees shall not exceed 10% of the total work force in any business. The labor administration may approve exceptions in particular cases. Additionally, the heads of industrial relations departments, human resources departments, captains of vessels or aircraft, shall be Venezuelan.

The law establishes is a minimum wage, which since March 1st 2010 is VEF 1.223,89. A maximum of 44 working hours a week for day work is also established, being reduced to 35 hours a week for night work and 42 hours a week for mixed shifts. The daily shift may not exceed 8 hours, and the night shift may not exceed 7 hours.

A maximum shift of 11 hours a day may be required to employees in management or "reliable employees", as well as those that perform surveillance or discontinuous or intermittent work. It may also be applied to work which requires the presence of a single employee or of such nature that precludes it from being subject to the normal working day.

The law also establishes a 50% surcharge on the basic daily wage in payment for work performed on holidays and days off.

C. Hiring and Firing Requirements There is no minimum number of people the investor must hire, except for the employment of foreigners described above.

Regarding firing requirements, employees are always entitled to a severance payment if they are dismissed. However, in cases of a dismissal without cause, employees are also entitled to receive an indemnification plus advance notice compensation, when applicable.

The law establishes justified causes for dismissal, which include: i. Misconduct. ii. Unjustified absences. iii. Other substantial reasons. Redundancy is not a justified cause for dismissal.

It is very important to highlight that employees earning a basic monthly salary per month cannot be dismissed without cause.

D. Labor Availability In general, adequate labor available in the country.

E. Labor Permits Foreign employees must have a work permit and a work visa. Labor permits are granted by the Ministry of the Popular Power for Labor and Social Security.

The process for obtaining a labor permit can take between 3 to 4 months. There are no fees involved in the process before the competent authority.

F. Safety Standards All companies must follow the Organic Law for the Prevention, Conditions and Labor Environment (known as LOPCYMAT, from its Spanish acronym). This law establishes mandatory safety codes and obliges Employers to train employees with respect to occupational safety and health.

G. Unions Unions are recognized in Venezuela. Depending on the business, there may be unions.

Industries such as Oil, Construction, Pharmaceutical, Manufacturing, among others, have established unions; however, there is no obligation on the part of the employer to organize unions.

Most unions have political affiliations. Some may be affiliated to the current administration while others to the opposition, while some do not have a political affiliation.

Depending on the industry, there may be mandatory collective bargaining agreements. Industries that have mandatory collective bargaining agreements are Pharmaceutical, Oil, Construction, among others.

X. TAXES • •

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A. General Tax Considerations In general all corporate forms are subject to the same taxation system.

In Venezuela there is no “tax ruling” procedure. Only a “consultation procedure” in order to determine if the interpretation and application of some tax rule applied or to be applied by the tax payer is correct, exists. In case the Tax administration does not answer the “consultation”, the tax payer cannot be sanctioned, in case they would apply the interpretation exposed in the consultation. This does not imply the faculty of tax administration to request the tax difference, in case it will not agree with the taxpayer’s position, in any times, until the statute of limitations of the tax obligation will expire.

Regarding general anti-tax avoidance system, there is only a prevision in Article 16 of the Organic Tax Code and article 95 of Venezuelan Income Tax law that contains a general anti elusive tax rule which recognizes the faculty of the Venezuelan Authorities to disregard any forms or structures, contracts and any other juridical procedures or acts, in case they considered that this negotiations or structures have been made for the

•

• • • •

purposes to avoid or reduce the tax effects of the business. The decisions of tax authorities based on this faculty will only affect the tax implications.

Venezuelan income tax system is based on a world wide basis. at a progressive rate from 15% to 34%. Oil companies are taxed at 50%. Withholding income tax applicable to some taxed activities. Presumed income rules applicable to technical assistance, technological services and licenses agreements, if a DTT is not available. The distribution of dividends is not taxed, unless the amount paid as dividends exceeds the taxed net income of the company distributing dividends. Thin Capitalization rules are applicable.

Transfer price regime based on the parameters of the OCDE guidelines.

DTT’s tax rate average from 0% to 10% for technical assistance services; 5% to 12% for technological services and royalties; 0% to 10% on dividends; 4,95% to 34% to interest; normally, no tax on capital gains.

Value Added tax applicable to import activities and sell of goods and services within the country at a 12% rate. 75% withholdings VAT applicable for provisions of goods or services to public entities or “special taxpayers”.

Other local or municipal taxes apply.

B. Tax on Corporations 1. Allowances: Regarding allowances, generally, the straight-line and the unit-of-production depreciation methods are acceptable for tax purposes. However, the SENIAT may authorize any generally accepted method of depreciation; Likewise, a change in method requires prior authorization. No official depreciation matrix has been established.

The depreciation of capital assets located in Venezuela, used in the production of income is allowed.

The depreciation of revalued fixed assets and leased real estate, except when leased to employees, is not permitted. Notwithstanding, the increase in value resulting from the initial inflation adjustment and the annual inflation adjustment provided in the ITL, applicable to tax years starting after January 1, 1993, can be depreciated over the estimated useful life of the assets. Depreciation of ships and aircraft are only fifty percent (50%) deductible when their use does not constitute the company’s main line of business.

The deductible items are established in the Venezuelan Income Tax Law Article 27. (Cost of production and sales, depreciation and amortization, salaries and wages, loans interests, labor severance payments, rentals, royalties, technical assistance, advertising and marketing costs, insurance costs, among others).

As for the costs and incomes, the following requirements are deemed necessary for their assignment: they must be territorial and be duly originated. The following, among others, are considered imputable to the cost:

i.

ii. iii.

Cost of acquisition of assets to be sold or transformed in the country, materials and other assets aimed to produce profit (raw materials); determined according to the Regulations, in the following way: the cost of movable assets will be equal to the price of their acquisition plus expenses for transportation and insurance, other necessary expenses, consular rights, importation taxes and further expenses; the cost of immovable assets will be equal to the value of their acquisition plus improvements and registry rights; the cost of the assets produced will be equal to the sum of the price of materials, manual labor and indirect production expenses; the cost of assets exchanged or given as payment will be equal to the price of the market.

Usual commissions calculated on the price of the merchandise.

Costs of transportation and insurance.

Expenses excluded from deductibility are those expenses that are not fulfilled in the territory of the Republic of Venezuela, expenses that are not closely linked to income generating activities, or those that are not considered necessary and normal expenses.

2. Calculation of taxes For the calculation of taxes, the taxable base depends on the income obtained in the country, which is taxed, as well as the income obtained abroad for those considered as residents or other parties domiciled in Venezuela.

Non-domiciled entities with a permanent establishment in Venezuela must pay taxes based on the profits from territorial or extraterritorial sources from such permanent establishments. The net income is the basis for the calculation of taxes. The net taxable profit is represented by any increase of patrimony derived from subtracting from gross income all costs and deductions established by the Law. The gross income of foreign source is determined by subtracting from the gross income of foreign source and the costs attributable to such income.

The taxable net income is represented by the sum of any net profit obtained within the Venezuelan territory plus the net profit obtained abroad. However, it is not admissible to impute losses of foreign source to the profit or loss of territorial source 3. Capital Gains: Capital gains are subject to income tax in Venezuela as part of the taxable net income, unless a DTT apply. Capital gains obtained by tax resident corporations are taxed as ordinary income. However, capital gains produced by the sale of shares registered in the CNV, with have been traded in the VSE are subject to a flat tax equivalent to 1% of the sale price.

In Venezuela they are not municipal or local taxes on capital gains. There is a municipal tax on economic activities that it’s calculated over gross incomes.

4. Filing and Payment Requirements

While value added tax returns must be filed monthly, income tax is paid annually and taxpayers have a term of three months from the end of their fiscal year to file income tax returns and to pay income taxes.

Within the second half of the ninth month following the end of its fiscal year, an estimated tax return must be filed. The amount of the net income reflected in the estimated tax return may not be less than 80% of the total net income of the preceding fiscal year. The amount of the Tax Paid with the estimated return is an advance payment of the tax payable for the correspondent fiscal year.

When filing an estimated tax return, the income tax determined is paid monthly, as an advance payment of the tax payable for the correspondent fiscal year.

i. ii.

iii. iv. v.

vi.

vii.

5. Miscellaneous Taxes Due There are not taxes on capital. there is a municipal business license tax, which is a tax applied by local governments to commercial or industrial activities carried out within their jurisdiction.

An apprenticeship tax exists as a contribution. (see below INCES contribution).

A training tax also exists as a contribution. (See below INCES contribution).

There are several contributions as social security contributions, registration taxes, stamp tax and, in particular, the Municipal Taxes such as Commercial Patent Tax, which is a tax applied by local governments to commercial or industrial activities carried out within their jurisdiction.

A contribution for technology and science applies on entities with gross income from 100.000 UT, at a tax rate of 0.5%, 1% or 2% depending on the activity carried out by the taxpayer. there is not an applicable wealth tax

6. Registration Duties There is a registration duty due upon the incorporation of a company. A stamp duty of 1% is imposed when subscribing the capital of a new corporation or entity, as well as when registering a branch.

Increases of capital are also subject to 1% stamp duties. Foreign investors may subscribe capital increases in any Venezuelan corporation, providing prior notice of the transaction to the appropriate agency. The foreign investment after the capital increase may not exceed the maximum proportion allowed by law in the particular economic sector.

There are no registration duties due upon the transfer of the company's shares, unless after the transfer of the company’s shares, an increase of capital would be decided.

The transfer of stock is not subject to taxation unless a capital gain is verified as a consequence of the transaction. A recent decree established a withholding tax (which in fact is an advance payment of the final income tax determined when the yearly income tax return is filed) for all sales of stock not made through the stock exchange.

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. Transfer of stock made through the stock exchange is subject to a withholding tax of 1% of the selling price, independently of any capital gain.

The Shareholder’s Meeting Minute where the transfer of shares is decided or informed have to be registered before the competent Mercantile Registry Office.

The transfer of shares must also be registered in the company Shareholders’ Book and finally, the fiscal authority (SENIAT) shall be notified.

In the case of the purchase of an ongoing business or all or substantially all of its assets; five percent (5%) of the gross sales price must be withheld by the purchaser and paid to the treasury. In order to avoid the transfer of liability of 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.

The Shareholder’s Meeting Minute where the transfer of corporate assets is decided or informed has to be registered before the relevant Mercantile Registry Office.

After the incorporation of a business organization, several requisites must be fulfilled, such as: registration with the Venezuelan Internal Revenue Service in order to obtain a tax ID number (RIF); classification of the company by the appropriate agency; and registration of the foreign investment with the appropriate agency, when applicable.

All foreign investments shall be registered before the Superintendence of Foreign Investments (SIEX, for its acronym in Spanish) within the first sixty (60) days following the registration of the Company before the Commercial Registry Office or other act by which the investment is concluded. The Company is allowed to start operations during the registration procedure before SIEX. 7. Sales Tax or other Turnover Tax Value added tax (VAT) is based on the price for the sales of import of goods and services.

The rate is set out in each year's Budget Law, which is approved before December 15th of each year based on the situation of public finances, and ranges from 8% to 16.5% of the sales price, currently the rate is 12%.

The sales and imports of essential goods for human consumption, determined by the national executive by decree, are exempt (food, vehicles destined for public transportation, medicines, health services, educational services).

VAT is determined in a monthly basis; tax return will include taxed and exempted activities. Export activities are taxed at 0%.

The input tax is creditable against the output tax. “Tax debit” (output VAT)) invoiced by the taxpayer within the tax period will be reduced by subtracting “Tax credits” (input VAT). When the taxpayer carries out exempted and taxed activities, “Tax credits” will be proportionally creditable in order to obtain the amount payable.

The filing and payment of VAT must be done in the formats duly authorized by Tax Administrations Authorities, through the mechanisms and systems created by tax authorities. On line procedure to filling and pay VAT and to file and paid withheld VAT is available to some categories of tax payers.

8. Social Security and Welfare System Contributions Employees must pay the following contributions: i. INCE: 0.5% of annual profit sharing bonus. ii. Social security: 4% of monthly salary. iii. Unemployment: 0.5% of monthly salary. iv. Housing Policy Law from May 2005. 1% of monthly salary.

Employers must pay the following: i. INCE: 2% of the payroll every three months. ii. Social security: between 11% and 13% of each employee's monthly salary. iii. Unemployment: 2% of each employee's monthly salary. iv. Housing Policy Law: 2% of each employee's monthly salary.

Venezuelan Law do not establish retirement or pension contributions, there is only the social security contribution.

9. Special Tax Schemes Activities of non-tax resident business entities are taxed depending on the sector, but the maximum income tax rate is: i. 34% for general industrial and commercial activities. ii. 50% for oil-related income. iii. 60% for mining-related income.

The rates of tax are applied to the net Venezuelan and extraterritorial sourced income Dividends are subject a proportional tax applied on the surplus derived from deducting from the net income of the payer distributed as dividends, the amount of its taxed net income. The net income is the one resulting from the Financial Statements made in accordance with the Accounting Principles Generally Accepted, which are approved at the shareholders meeting. The taxed net income is the one subject to taxes. The proportional tax applied on dividends is 34% and it is subject to an anticipated withholding of 1% of the value of the dividend distributed in shares.

In the case of branch offices, the tax of 34% does not apply if the branch office were to prove that it did not carry out the whole reimbursement of the difference between the net income and the fiscal net income taxed in the country.

This rate is increased to 50% for dividends from oil activities and 60% for dividends from mining activities.

Interest paid. If there is no applicable double tax treaty, the local company must withhold tax on the interest to be paid.

IP royalties paid. If there is no applicable double tax treaty, the local company must withhold tax on 90% of the royalties to be paid.

Technical Assistance services and technological services: If a DTT does not apply, the 30% of amount received as consideration for technical assistance services provided from abroad is considered as net taxable income and subject to withholding tax (up to 34%) resulting in an effective tax rate of approximately 10,2%. , are taxed with an effective tax rate of approximately 10,2%, resulting from the taxpayers. 50% of the considerations paid for technologic services is considered as taxable net income and subject to withholding tax (up to 34%) 10. Tax on Profits Net income is determined by subtracting to gross income, all costs and expenses permitted by law.

If the company's net income is: i. Less than 2,000 tax units (TUs), the rate is 15%. ii. Between 2,000 TUs and 3000 TUs, the rate is 22%. iii. Greater than 3,000 TUs, the rate is 34%.

One tax unit is equal to VEF 65.00, which is approximately USD 15.00 at the official exchange rate, Income tax applicable on oil and hydrocarbons is 50% and income tax applicable on mines activities is 60%.

There are no regional or municipal tax rates on profits. Profit taxes are reserved to federal or national power.

11. Tax Treaties A limited number of comprehensive treaties to avoid double taxation DTA’s have been entered into. Currently Venezuela has entered into comprehensive tax treaties with Barbados, Belgium, Belorus, Czech Republic, Canada, France, Germany, Indonesia, Italy, Korea, Kuwait, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Trinidad and Tobago, the United Kingdom, the United States, Denmark, Austria, Iran, Qatar and Russia. Additionally, Venezuela has subscribed income tax treaties, which will enter into force with the exchange of the corresponding diplomatic notes, with Brazil and Mexico.

When there are no Treaties subscribed by Venezuela with a given country, the Income Tax Law provides all the mechanisms to be applied.

Article 16 of the Organic Tax Code and article 95 of Venezuelan Income Tax law contains a general anti elusive tax rule which recognizes the faculty of the Venezuelan Authorities to disregard any forms or structures, contracts and any other juridical procedures or acts, in case they considered that this negotiations or structures have been made for the purposes to avoid or reduce the tax effects of the business. The decisions of tax authorities based on this faculty will only affect the tax implications.

12. Territoriality Rules Any resident entity is subject to taxes in a worldwide basis. Foreign entities performing business activities in Venezuela through a permanent establishment is considered a tax resident. Foreign entities not domiciled are subject to taxes on the territorial source income The corporation is subject to tax on its worldwide income. The income obtained in the country as well as the income obtained abroad is subject to taxation, if the corporation is incorporated or domiciled in Venezuela. Non-domiciled entities with a permanent establishment in Venezuela must pay taxes based on the profits from territorial or extraterritorial sources from such permanent establishments.

13. Treatment of Tax Losses Losses may be carried forward three years; losses due the inflation adjustment calculation can only be carried forward one year. There is no loss carry back. As of 2001, foreign source losses can only be carrying forward three years and shall only be used against foreign source income. Compensation of domestic carry forward tax losses against foreign source income is forbidden.

14. Withholding Taxes The proportional tax rate on dividends, when applicable, is 34% and it is subject to an anticipated withholding of 1% of the value of the dividend distributed in shares. The rates of withholding tax on royalties are 15% to 34% on the 90% of the amount received as royalties.

The rates of withholding tax on interest follow the following rules: i. OTHER INTEREST PAID Nonresident Individuals 95% 34% All Paid Nonresidents Corporations 95% T 2 All Paid ii.

INTEREST PAID TO FINANCIAL INSTITUTIONS Nonresidents Corporations 100% 4.95% All Paid

iii.

OTHER INTEREST PAID Resident Individuals 100% 3% - 162.50 (*) 5,416.67 Domiciled Corporations 100% 5% 25.00 Nonresident Individuals 100% 34% All Paid Nonresidents Corporations 100% T 2 All Paid

The rates of withholding tax on profits realized by a foreign corporation depend on if the entity is domiciled in the country. If the foreign entity is not domiciled, and unless a DTT

would apply, the withholding tax applicable to payments made to foreign entities is from 15% to 34%.

C. TAX ON INDIVIDUALS 1. Allowances Personal allowances for taxpayers, spouses, children, and other dependents are in the form of tax credits. Tax Credits are as follows: 10 T.U each for the tax payer, spouse and each direct ascendant or descendant that is resident in Venezuela. Children who are disabled are eligible for the tax credit above regardless of age. Children who are students between the age of 18 and 25 also eligible for the tax credit.

2. Calculation of Taxes Venezuelan resident individual are subject to taxes on all income received, whether in cash or in kind. , derived from an employment, Residents are subject to taxes on a worldwide basis. Foreign individuals are taxed on their territorial income.

Wages, salaries, emoluments, diets, pensions, perquisites, and other similar compensations, other than travel expenses, obtained for rendering personal services under a relation of dependence, are considered as net income.

Residents are also subject to a progressive tax rate that ranges from a minimum of 6%, for an annual taxable income of up to 1,000 fiscal units; to a maximum of 34%, for an annual taxable income of over 6,000 fiscal units.

The Tax Law defines non-residents as those individuals who have not stayed in the country for more than 183 days during the calendar year or in the year before. Non-residents are taxed with a proportional rate of 34% of their gross income.

Individuals, who are residents of the country, shall have the following reductions: 1) Amounts paid to educational institutes in the country, for the education of the taxpayer and the descendants of the taxpayer under twenty five (25) years of age. Such age limit shall not be applied to the cases of special education.

2) Amounts paid by the taxpayer to companies domiciled in the country for health and medical insurance premiums.

3) Amounts paid for medical, dental and hospitalization services, rendered in the country to the taxpayer and any persons under the care of the taxpayer, specified in Article 62.

4) Amounts paid for interest installments in the cases of loans obtained by the taxpayer for the acquisition of his main residence or any amount paid for the lease of the house that is his permanent place of residence. The authorized reduction may not be higher than one thousand Tax Units (1,000 T.U.)for each year in the case of interest installments for loans obtained by the taxpayer for the acquisition of his main residence or eight hundred Tax Units (800 T.U.) for each year for the case of amounts paid for the lease of the house that is his permanent place of residence.

3. Capital Gains Tax

Capital gains obtained by individuals are taxable. Gains from the sale of shares through the market stock system are taxed with at 1% proportional tax rate.

4. Filing and Payment Requirements Taxpayers have a term of three months from the end of the year to declare and pay income taxes. (until March, 31). Taxpayers have a term of three months from the end of the year to declare and pay income taxes.

5. Inheritance and Gift Tax The inter vivos transfer, inheritance, estates and trusts are taxed individually based on their relationship with the testator/decedent. Both personal and real property rights and actions located in Venezuela are subject to taxation. The same tax rates and tax treatment apply to both inheritance and/or gifts.

The gift tax is generated by the act of transferring assets and other rights free of charge to a beneficiary, which accepts such gift.

The following assets are deemed located in Venezuela - Shares, obligation and securities issued in Venezuela and abroad by companies incorporated or domiciled in Venezuela.

- Shares obligations and securities issued abroad by foreign companies when these are held by individuals domiciled in Venezuela.

- Rights or actions over assets or property in Venezuela.

- Personal rights or obligations where the legal bases arose in Venezuela.

The tax rates on both inheritance and gifts range from 1 to 55 %of the wealth to be transferred in the inheritance or the amount of the inter vivos gift. The taxable basis is the fair market or economical value of the assets transferred.

Inherited wealth corresponding to ascendants, spouse, adoptive parents and adopted children under 75 UT are exempt from tax.

A tax credit is available in the case of inheritance tax, which varies from 5 to 40 percent of the tax due on each distributed share where the total tax does nit exceed 250 TU depending upon the relationship of the beneficiary or legatee with the decedent.

The following assets do not form part of an inheritance for the purpose of taxes and the sum of their corresponding value shall be excluded from the computation of the taxable base: 1. Housing that has served as the permanent dwelling for the predecessor's family and is transmitted for the same purpose to ascendants, descendants, spouse, and adoptive parents or children.

2. The amounts received from labor benefits or indemnities, insurance contracts and those paid by mutual assistance or widow/orphan pension funds provided they are paid as a result of the predecessor's death.

3. The predecessor's books, clothing and personal utensils, and the furnishings of the predecessor's home; not included in this exemption are jewelry and art constituting valuable collections, nor the files that, in the judgment of the National Executive, are of historic value.

In the case of inheritance taxes, the tax return must be filed within 180 days after the death and the payment of tax must be done at that moment. Tax return must be filed with a description of all personal assets of the deceased. The value of the assets will be considered at the time of death.

In the case of gifts, fiscal authorities must be informed of the intention to gift and the related taxes must be paid before the formalization of the act before the competent authorities.

6. Real Estate/Habitation Tax The individual is subject to real estate or habitation tax.

7. Sales Tax Individuals pay sales tax since is the final taxpayer of the value added tax.

8. Social Security and Welfare System Contributions Employees must pay the following contributions: v.

INCE: 0.5% of annual profit sharing bonus. vi. Social security: 4% of monthly salary. vii. Unemployment: 0.5% of monthly salary. viii. Housing Policy Law from May 2005. 1% of monthly salary. ix. Contributions to the welfare system: 4% of monthly salary 9. Stock Option, Profit Sharing and Savings Plans Interest earned in the country (not included in tax-exempt categories), royalties (including technological services, technical assistance, and professional fees), and rental income is normally taxable at progressive rates. On the other hand, retirement and disability pensions are tax exempt (not taxable).

10. Taxation of Benefits in Kind Benefits in kind are included on the gross income subject to taxation of individuals.

11. Taxes on Dividends No, dividends are not taxable, unless the amount received as dividends is higher than the taxed net income of the entity paying dividends. The proportional tax rate on dividends, when applicable, is 34% and it is subject to an anticipated withholding of 1% of the value of the dividend distributed in shares.

12. Tax on Income Residents are subject to a progressive income tax rate that ranges from a minimum of 6%, for an annual taxable income of up to 1,000 fiscal units; to a maximum of 34%, for an

annual taxable income of over 6,000 fiscal units. Non-residents are taxed with a proportional rate of 34% of their gross income.

They are not municipal or regional or state tax rates on income for residents or non residents.

13. Tax Treaties A limited number of comprehensive treaties to avoid double taxation DTA’s have been entered into. Currently Venezuela has entered into comprehensive tax treaties with Barbados, Belgium, Belarus, Czech Republic, Canada, France, Germany, Indonesia, Italy, Korea, Kuwait, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Trinidad and Tobago, the United Kingdom, the United States, Denmark, Austria, Iran, Qatar and Russia. Additionally, Venezuela has subscribed income tax treaties, which will enter into force with the exchange of the corresponding diplomatic notes, with Brazil and Mexico.

When there are no Treaties subscribed by Venezuela with a given country, the Income Tax Law provides all the mechanisms to be applied.

Article 16 of the Organic Tax Code and article 95 of Venezuelan Income Tax law contains a general anti elusive tax rule which recognizes the faculty of the Venezuelan Authorities to disregard any forms or structures, contracts and any other juridical procedures or acts, in case they considered that this negotiations or structures have been made for the purposes to avoid or reduce the tax effects of the business. The decisions of tax authorities based on this faculty will only affect the tax implications.

14. Territoriality Rules The Tax Law defines non-residents as those individuals who have not stayed in the country for more than 183 days during the calendar year or in the year before.

The individual resident in Venezuela is subject to tax on his/her worldwide income. Non residents are subject to taxes for their territorial source profits.

In Venezuela there is no wealth tax, in opposition of an income tax, which corresponds to the net income and not the total net worth. In what regards real state property, the product of its sale is taxed, unless the property was used for housing purposes.

15. Withholding Tax Residents are taxed on a worldwide basis. Non residents are taxed only on their territorial source incomes.

Withholding taxes applicable on income paid to non resident individuals are at 34%.

Salary subject to withholding tax to resident is subject to a special procedure to determine the tax rate applicable.

XI. IMMIGRATION REQUIREMENTS

i. ii. iii. iv. v.

A. General Immigration Controls There are no immigration quotas.

In some cases vaccinations are required; it depends on the country of origin.

Medical certificates are required.

Entry or re-entry permits are in general not required. However, a first entry permit is needed for bearers of a labor visa. Exit permits are in general not required.

A residence permit is not required, a visa is enough for entering and staying in the country for the period granted.

B. Visas Immigration and visa requirements in Venezuela are subject to Migration and Immigration Law and to regulations from the Administrative Service for Identification, Migration and Immigration (SAIME, from its Spanish acronym).

Venezuelan authorities are allowed to issue several kinds of visa, but only two are relevant to business: Labor Visa (visa de transeunte laboral) and Business Visa (visa de transeunte de negocios). In addition, citizens from certain countries may not require a Visa for visiting Venezuela as tourists.

The Business Visa is granted to merchants, executive employees, industry or corporate representatives and micro-entrepreneurs, no-migrants, who wish to enter the country in order to carry out activities and/or commercial transactions, mercantile, financial or other lucrative activity related with his or her business. It is obtained directly by the person before the Venezuelan Consulate in his or her country of origin or residence. It is granted for one year for multiple entries. The holder of this visa is not entitled to work for any local company.

The Labor Visa is the visa with which anyone can work in Venezuela and be hired by a company registered in Venezuela. It is advisable to obtain the visa before the employee enters Venezuela. If the employee needs to come to Venezuela before obtaining the visa, the employee shall enter in Venezuela with the Business Visa (visa de transeunte de negocios). Once the Labor Visa is authorized, the employee shall get it at the Venezuelan Consulate in his country of origin or residence.

The Business Visa is obtained directly by the person before the Venezuelan Consulate in his or her country of origin or residence. It is granted for one year for multiple entries. The holder of this visa is not entitled to work for any local company.

In regard with the Labor Visa, it is advisable to obtain it before the employee enters Venezuela. Once the Labor Visa is authorized, the employee shall get it at the Venezuelan Consulate in his country of origin or residence. The procedure to obtain the authorization to enter the country and the labor permission of the employee may take from three (3) to four (4) months. It is granted for one year and the holder is can bring his family to Venezuela with a Family Visa (visa de transeunte familiar) The documents required for the Business visa are: • Description of the purpose of the trip, • Contact information of the persons and companies being visited in the country, • Registry documents of the company in Venezuela,

• •

Invitation letter from a company or a Business or Trade Association, Any other document that the consulate might consider necessary.

The documents required for the labor visa are the following (all documents must be certified with Apostille or legalized): • Passport • 2 identity sized photos • Medical certificate and criminal records • Copy of the labor permit granted by the Ministry of the Popular Power for Labor and Social Security • Request for entry permit • Required forms duly fulfilled • Proof of payment of taxes The procedures and granting of labor visa may be troublesome due to the number of documents to be filed and the need to obtain the work permit which is a previous procedure to be done before filing the application to obtain the labor visa.

The procedure to obtain the authorization to enter the country and the labor permission of the employee may take from three (3) to four (4) months. It is granted for one year and the holder can bring his family to Venezuela with a Family Visa.

The fees for obtaining visas are paid before the relevant Venezuelan Consulate. These fees are around USD 100.

XII.

USEFUL INFORMATION FOR EXPATRIATE EMPLOYEES

A. Cost of Living and Immigration The cost of living will depend on the quality of the housing and personal activities of the investor. The comparison with the investor’s home country will depend on the country being compared.

B. Education, Housing and Medical Care Both local schools and international schools are available. French, British, American and German schools are available to students. The choice between the Venezuelan program and the international program is often possible. Fees will depend on the chosen school.

International institutions have fees around USD 2,000/month. Documents proving the academic degree reached by the student and its grades, issued by the precedent schools attended.

Payments received by expatriate personnel as allowance for education is considered part of the salary subject to taxation. Nevertheless the payments made to educational institutions of the tax payers or his family is deductible, as far as the payments are made in favor to Venezuelan educational institutions.

All kinds of housing are available, from small apartments or hotel rooms to large apartments or houses located in luxury neighborhoods. The investor can own property or rent it a property.

It is not obligatory to have housing before entering the country but it is advisable to look for appropriate housing before moving to the country.

The housing cost could be a deductible expense. House rent deduction is limited to 800 UT. Regarding medical care, an excellent level of medical care is available in private clinics and hospitals. Even though there is national health care, it doesn’t fulfill international standards and it is far behind the quality of the private health care.

C. Moving Costs and Importing Personal Possessions Personal effects may be brought into the country as luggage up to a declared value of USD 3,000. Taxes apply for goods exceeding such declared value. The requirements are the same as the requirements for clearing imported goods, in what they are applicable. The property of the belongings must be proved.

Costs involved in moving will depend on certain circumstances: country of origin, size of luggage or moveable property being transported, kind of transportation, etc.

Personal allowances for taxpayers, spouses, children, and other dependents are in the form of tax credits. Tax Credits are as follows: 10 T.U each for the tax payer, spouse and each direct ascendant or descendant that is resident in Venezuela. Children who are disabled are eligible for the tax credit above regardless of age. Children who are students between the age of 18 and 25 also eligible for the tax credit

D. Tax Liability If the expatriate stayed in the country for a continuous or discontinuous period longer than 183 days in one calendar year, he/she will be considered a resident and will be subject to all obligations applicable to individuals residents, described in Section XIII .

If the stay does not exceed 183 days during the year, the employer and payer who is in Venezuela, if it is the case, will be in the obligation to withhold the total tax of 34% on the paid amount.

Only if the expatriate is considered resident in the country, may apply the allowances applicable to individual residents, described in section XIII. A limited number of comprehensive treaties to avoid double taxation DTA’s have been entered into. Currently Venezuela has entered into comprehensive tax treaties with Barbados, Belgium, Belorus, Czech Republic, Canada, France, Germany, Indonesia, Italy, Korea, Kuwait, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Trinidad and Tobago, the United Kingdom, the United States, Denmark, Austria, Iran, Qatar and

Russia. Additionally, Venezuela has subscribed income tax treaties, which will enter into force with the exchange of the corresponding diplomatic notes, with Brazil and Mexico.

The majority of treaties establishes the general principle that the income of the expatriate will be taxable in the country of resident, unless the job is being execute in the other country. However, in order to tax in the country of residence, it is necessary to met 3 conditions: a) the expatriate cannot stay more than 183 days in the other country, b) the company which supports the payment cannot be a resident in other country, and c) there cannot be a permanent establishment of the employer in such other country.

When there are no Treaties subscribed by Venezuela with a given country, the Income Tax Law provides all the mechanisms to be applied.

E. Work Contracts and Permits The law does not require any labor contract to be in writing, but it is advisable to do so as this serves as evidence of the terms of the engagement, its duration, pay, and all other circumstances which may later need proof. Besides, a work contract is needed in order to obtain the Labor Visa.

The contract must describe the position or the specific job that will be accomplished, the remuneration and the duration of the employment. The contract must be with a company properly incorporated in Venezuela or a branch duly registered in the country.

Foreign employees must have a work permit and a work visa. If the investor will only make business in the country, he will need a business visa, but no work permit will be necessary.

Labor permits are granted for one year by the Ministry of the Popular Power for Labor and Social Security.

The documents required for the permit are the following (all documents must be certified with Apostille or legalized): • Passport • Birth, and marriage certificate • 4 identity sized photos • Curriculum Vitae with education, labor experience and copy of titles • Medical certificate and criminal records • Copy of the labor permit granted by the Ministry of the Popular Power for Labor and Social Security • Registry documents of the company in Venezuela • Company’s fiscal identification number • Company’s registration and declaration of solvency issued by labor and other authorities • Request for entry permit • Company’s tax declarations • Employment offer • Required forms duly fulfilled • Last income tax declaration

• •

Payment of taxes and others

The procedures and granting of labor visas and permits may be troublesome due to the number of documents to be filed and the need to obtain the work permit which is a previous procedure to be done before filing the application to obtain the labor visa. There are no fees involved in the process and it can take from 3 to 4 months.

i

These are the contact information for the Embassies in Venezuela: 1. DELEGATION OF THE EUROPEAN UNION: Address: Calle Orinoco, Edif. Comision de las Comunidades Europeas, Las Mercedes, Caracas, Telephone Number: 58 (212) 991.5398 2. EMBASSY OF THE UNITED KINGDOM: Address: Av. Principal, piso 11, Torre La Castellana, La Castellana, Caracas, Telephone Number: 58 (212) 263.8411 3. EMBASSY OF AUSTRIA: Address: Av. La Estancia, Edificio Torre las Mercedes, piso 4, Chuao, Oficina 408 1060-A Caracas, Caracas, Telephone Number: 58 (212) 993.9844 4. EMBASSY OF BELGIUM: Address: 10ma. Transv. con 9na Transv, Altamira, Caracas, Telephone Number: 58 (212) 263.3334 5. EMBASSY OF CANADA: Address: Av. Francisco de Miranda con Av. Altamira Sur, Altamira, Caracas, Telephone Number: 58 (212) 600.3036 6. EMBASSY OF CHILE: Address: Paseo Enrique Eraso, Torre La Noria, Piso 10, Las Mercedes, Caracas, Telephone Number: 58 (212) 261.6277 7. EMBASSY OF COLOMBIA: Address: 2da. Av. de Campo Alegre con Av. Francisco de Miranda, Torre Credival, Piso 11, Caracas, Telephone Number: 58 (212) 285.3455 8. EMBASSY OF SPAIN: Address: Av. Mohedano, Quinta No. 53, La Castellana, Caracas, Telephone Number: 58 (212) 261.6277 9. EMBASSY OF FRANCE: Address: Av. Fco. de Miranda, Edif. Parque Cristal, Torre Oeste, Oficina 5-1 y 5-6, Caracas, Telephone Number: 58 (212) 909.6500 10. EMBASSY OF ITALY: Address: Calle Sorocaima, entre Av. Tamanaco y Venezuela, Edif. Atrium, Ph, El Rosal, Caracas, Telephone Number: 58 (212) 285.7887 11. EMBASSY OF THE RUSSIAN FEDERATION: Address: Calle Las Lomas, Qta. Soyuz, Las Mercedes, Caracas, Telephone Number: 58 (212) 993.4531 12. EMBASSY OF INDIA: Address: Av. Carlos, Quinta Tagore, N° 12, La Floresta, Caracas, Telephone Number: 58 (212) 285.7887 13. EMBASSY OF THE REPUBLIC OF ARGENTINA: Address: Av. El Empalme, Edf. Fedecamaras, Piso 3, Urb. El Bosque,Caracas, Telephone Number: 58 (212) 731.3311 14. EMBASSY OF THE REPUBLIC OF SOUTHAFRICA: Address: Calla La Guairita, Centro Profesional Eurobuilding, Piso 4, Oficina 4B y 4C,Caracas, Telephone Number: 58 (212) 9914622 15. EMBASSY OF THE FEDERAL REPUBLIC OF GERMANY, Address: Av. Eugenio Mendoza, Torre La Castellana, Piso 10, La Castellana,Caracas, Telephone Number: +58 (212) 2610181 16. EMBASSY OF THE PEOPLE’S REPUBLIC OF CHINA: Address: Calle San Pedro, Qta. La Orquídea, Prados del Este,Caracas, Telephone Number: +58 (212) 9078412 17. EMBASSY OF THE UNITED STATES OF AMERICA: Address: Calle F con Calle Suapure, Colinas de Valle Arriba Caracas Miranda,Caracas, Telephone Number: 0-800847.3388 18. EMBASSY OF THE NETHERLANDS: Address: Av. San Juan Bosco con 2da.

Transversal, Edif. San Juan Bosco, Piso 9 y 10, Altamira, Caracas, Telephone Number: 58 (212) 263.3622 19. EMBASSY OF MALAYSIA: Address: Calle La Guajirita D-E, Centro Profecional Eurobuilding, Piso 6 Oficina G Chuao,Caracas, Telephone Number: 58 (212) 992.1011

20. EMBASSY OF NORWAY: Address: Av. Francisco de Miranda Centro Lido, Torre A, Piso 9, ofic. 92-A, El Rosal, Caracas, Telephone Number: 58 (212) 953.0269 21. EMBASSY OF PANAMA: Address: Edif. Los Frailes, Calle La Guairita, Piso6, Ofiina 6A, Chuao, Caracas, Telephone Number: 58 (212) 992.7058 22. EMBASSY OF SWEDEN – General Consulate Office Of Sweden: Address: Plaza Venezuela, Torre Phelps, Piso 19, Ofic. A, Caracas.

23. EMBASSY OF BRAZIL: Address: Av. Mohedano con Calle Los Chaguaramos, Edif.

Centro Gerencial Mohedano, Piso 6, La Castellana, Caracas, Telephone Number: 58 (212) 284.9277 24. EMBASSY OF JAPAN: Address: Av. Principal con 2ª. Transversal Edificio Bancaracas, Piso 1, Plaza La Castellana, Caracas, Telephone Number: 58 (212) 952.8255 25. EMBASSY OF SPAIN: Address: Av. Fco. de Miranda, Edif. Parque de Cristal, Torre Este Piso 10, Oficina 10-10, Los Palos Grandes, Caracas, Telephone Number: 58 (212) 284.9277 26. EMBASSY OF DENMARK: Address: Av. Fco de Miranda, Centro Sud América, Piso 10, El Rosal, Caracas, Telephone Number: 58 (212) 952.8614