Advance Payment of Tax on Large Financial Transaction and Value Added Tax




Caracas, August 23, 2018


Constituent Decrees Concerning Taxation

The following Constituent Decrees were published in Official Gazette Special Issue No. 6.396, dated August 21, 2018:

  1. Constituent Decree establishing a Temporary System for Advance Payment of Value-Added Tax and Income Tax by those Classified as Special Taxpayers.
  2. Constituent Decree amending the Executive Decree Enacting the Large-Financial-Transactions Taxation Act.
  3. Constituent Decree amending the Value-Added Tax Act.

PRELIMINARY NOTE: Before outlining the most salient aspects of these Decrees, we must point out that they were issued by the National Constituent Assembly, a body whose legitimacy has not been recognized by several countries; this raises questions regarding the legality of the decrees.

I Temporary System for Advance Payment of Value-Added Tax and Income Tax:

The most important aspects of this Decree can be summarized as follows:

    1. The purpose of this System is to obtain advance payments from those classified as Special Taxpayers engaging in economic activities other than mining, hydrocarbons and related activities and who are not recipients of royalties from the activities in question.
    2. The system calls for two types of advance payments: One in the case of the value-added tax, based on the tax reported the previous week, and an advance of the income tax based on gross income earned during the previous tax period in the case of value-added tax.
    3. The Decree provides for an exemption in the case of individuals in a relationship of dependence who have been classified as special taxpayers.
    4. The advance payment of the value-added tax will be based on the tax reported each week, divided by the number of working days in the week. The advance payment of income tax will be based on the gross income earned during the previous taxation period in the case of value added tax, multiplied by the given percentage. In the case of the financial and insurance sector, the basis for calculation of the advance payment will be the gross income earned the previous day.
    5. In the case of the tax return and payment of the advances, the Decree speaks of a daily payment, but does not clearly define what type of advance payment is involved. In this case, it will be necessary to wait for publication of the respective administrative directive.
    6. The percentage set for advance payments of income tax is 2% in the case of the financial and insurance sector, and 1% for the other taxpayers.
    7. The advance payments may be deducted when filing the final income tax and value-added tax returns.
    8. Given that this is a temporary system, these rules replace the provisions regarding advance payments provided for in the Regulations to the Income Tax Act for as long as it remains in force. The provisions of Article 32 of the Value-Added Tax Act, whereby the taxation period is considered to be a calendar month, are also suspended.
    9. The value-added tax payable is to be determined on the basis of weekly tax periods.
    10. The Tax Administration has been granted the authority to: 1) Sectorize the special taxpayers for application of the Decree, on the basis of economic activity, taxpaying capability or geographical location. 2) Make determinations based on presumptions.
    11. The taxation period for value-added tax currently underway must be completed; then the basis for calculation for the first taxation period will be the tax collected the previous week.
    12. The effective date of the Decree is September 1, 2018, and it will remain in force until entirely or partially repealed by the National Executive.

II Amendment of the Decree Enacting the Large-Financial-Transactions Taxation Act:

In this case of this Decree, the amendment only changes the rate of the tax to be paid, now set at 1% effective September 1, 2018.

III Amendment of the Value-Added Tax Act:

The changes made by the amendment to this law are as follows:

    1. Elimination of the exemption provided for in Article 18, section 4, for hydrocarbon-based fuels as well as inputs and additives used to upgrade gasoline quality, such as ethanol, methanol, methyl tertiary-butyl-ether (MTBE), ethyl tert-butyl-ether (ETBE) and their by-products used for the above-mentioned purpose.
    2. Changes to the exemption stipulated in Article 19, section 2, which was only applicable to the service of transportation of merchandise in the case of some goods; the exemption has been extended to cover all types of transportation of merchandise.
    3. Elimination of the reference to Tax Units in the case of goods and services considered luxuries, leaving just the U.S. dollars amount.
    4. Elimination of the provision in Article 48, section 3, of the Decree Enacting the Hydrocarbons Act that provided for payment of an excise tax at a rate of 30% to 50% per liter of hydrocarbon by-products sold on the domestic market; the rate of this tax was set annually in the Budget Act.
    5. As for the effective date of this amendment, the Decree itself states that it is to become effective on the first day of the second calendar month following publication in the Official Gazette of the Bolivarian Republic of Venezuela; nevertheless, according to the amended law published at the end of Decree the effective date will be September 1, 2018.
    6. It is also important to point out that, although in this Decree the rate of the tax continues to be 12%, the rate was changed to 16% in Decree No. 3,584 dated August 17, 2018, published in Official Gazette Special Issue No. 6.395 of that same date.

Please do not hesitate to contact us if you have any questions or need further assistance.

Yours truly,


Ysabel N. Figueira G

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