Non-residents are subject to withholding on a wide range of payments specifically covered by the Income Tax Law or its Withholding Regulations. Withholding must be applied by the payer at source at the time of effective payment in cash or credit to account.
The withholding tax is due on the gross amount of the payments without taking into account deductions for costs and expenses. With respect to specified income streams such as dividends, interest and royalties, however, the withholding tax is due on a specified percentage of the payment which is hence treated as a notional net amount.
The law expressly stipulates that the withholding tax on dividends is a final tax in full satisfaction of the recipient’s tax liability in Venezuela. It is, however, less clear with respect to other income streams such as interest, royalties and technical assistance fees. Indeed, whilst the withholding tax in those cases is also due on a specified percentage of the payment, the law does not expressly qualify the taxable percentage as a notional net amount, thus leaving room for considering the withholding tax as a mere prepayment towards the recipient’s final tax liability in Venezuela on net amounts. In practice, however, the withholding tax is quasi-universally treated as a final tax by both the taxpayers and the tax authorities.
Dividends distributed by Venezuelan companies are taxable to the extent the dividend consists of previously untaxed corporate profits (excess of book over taxable profits). Therefore, the taxable portion of the dividend is subject to withholding tax at the rate of 34% on the gross amount thereof. The applicable rate is 50% for dividends paid by companies engaged in upstream oil activities and 40% for dividends paid by banks, financial institutions, and insurance and reinsurance companies. The dividend withholding tax operates as an equalization tax since it applies only to dividends paid from income which was not subject to upstream corporate tax. Nevertheless, the tax is classified as a dividend withholding tax for treaty purposes and is therefore subject to any reduction or other relief under the relevant treaty The dividend withholding tax is a final tax in full satisfaction of the recipient’s Venezuelan tax liability.
Non-resident lenders are subject to withholding tax on 95% of the gross amount of interest and financial charges paid by a Venezuelan debtor pursuant to foreign debt agreements. The withholding tax is due at the reduced rate of 4.95% if the recipient of the interest is a Qualified Foreign Financial (as so designated by the country of residence). Otherwise, the interest payment is subject to withholding at progressive rate of up to 32.3% or up to 34% depending on the specific features of the loan and the type of recipient, unless otherwise reduced under a tax treaty.
The domestic income tax definition of royalties is neither directly tied to the nature of the goods transferred (e.g., intellectual property, such as copyright rights, patented rights or trademarks) nor to the rights afforded with the transfer, but rather to the form of payment. Royalties are defined under the Venezuelan income tax law as the amount paid for the use or enjoyment of patents, trademarks, copyright rights and other procedures, fixed in relation to a unit of production or sale, whatever the denomination of the transfer under the relevant contract.
Payments qualifying as royalties and technological services under the restrictive definitions established in the Income Tax Law are subject to an effective withholding tax on the invoiced amount at the rate of 30.6% (with a commonly applicable top marginal rate of 34% on a presumed notional net income of 90%) in the case of royalties and at the rate of 17% (34% on a presumed net income of 50%) in the case of technological services.
As it should be clear, the term royalties used in domestic tax laws is not consistent with its use in tax treaties.
Technical assistance is defined under the Venezuelan domestic income tax law as the supply of instructions, writings, recordings, movies and other similar technical instruments, destined to the elaboration of a work or product to be sold or the rendering of a specific service for the same sale purposes.
Furthermore, when referring to technical assistance the law provides that it may include the transfer of technical knowledge, engineering services (including execution and supervision of the assembly, installation and startup of machinery, equipment and production plants; the calibration, inspection, repair and maintenance of machinery and equipment; and to carry out tests and trial, including quality control), project R&D (including elaboration and performance of pilot programs; laboratory research and experiments; exploitation services and technical planning or programming of production units), advisory and consultation services (on overseas procurement, representation; advisory and instructions supplied by technicians, and the supply of technical services for the administration and management of corporations in any of the activities or operations thereof) and the supply of production procedures or formulas, data, information and technical specifications, diagrams, plans and technical instructions, and the supply of elements of basic and detailed engineering.
Payments qualifying as technical assistance under the restrictive definition established in the Income Tax Law are subject to an effective withholding tax at rates of up to 10.2% (with a commonly applicable top marginal rate of 34% of a presumed or notional net income of 30%) and 17% in the case of technology services (in this case commonly withholding tax at the rate of 34% on a presumed net notional income of 50% of the invoiced amount).
Capital gains from the sale of stock in Venezuelan corporations are subject to withholding at the rate of:
- 5% if the recipient is a non-resident legal entity;
- 34% if the recipient is a non-resident individual; and
- 1% (as final payment) if the stock corresponds to an entity listed on the Venezuelan stock exchange and the transfer takes place through the stock exchange.
The following table shows the most up-to-date standard domestic withholding tax rates.
|Capital Gains||0.0 %|
|Royalty Copyright||30.6 %|
|Royalty Patent||30.6 %|
|Royalty Trademark||30.6 %|
|Service Management||0.0 %|
|Service Technical||10.2 %|
*Rates are current as of 04 December 2022