Tax Insights

from International Tax Services

Venezuelan tax reform limits NOL

utilization and introduces other
significant changes

January 2, 2015

In brief
On November 18, 2014, the Venezuelan government published Decrees N° 1,435 and N° 1,436 enacting
several significant changes to the Venezuelan income tax and value added tax laws. The changes include
new limits on the use of tax loss carryforwards, a repeal of inflationary tax accounting for certain
taxpayers, and additional requirements for certain expense deductions.

These changes are effective as of the date of publication and applicable to taxable periods commencing
on or after the date of enactment.

In detail or force-majeure causes and foreign operating or domestic

Income tax changes
New limits on expense
deductions
In addition to the existing
requirements for claiming
expense deductions related to
employee compensation and
professional fees, new
requirements apply in order
to claim such deductions,
including compliance with
limitations on the number of
foreign personnel in
Venezuela, income tax
withholding and work permit
/visa requirements.
In addition, expense
deductions for losses related
to the destruction of
inventories and fixed assets
will no longer be allowed
unless they relate to casualty
the losses have not been
indemnified by insurance or
otherwise.
Taxation of employees’
compensation broadened
The taxable basis for
employees’ income has been
broadened to include regular
as well as other types of
compensation paid over and
above the employee’s regular
pay, such as unscheduled
bonuses.
New tax loss carryforward
limitations
The amendment clarifies that
segregated loss carryforwards
(i.e., foreign operating or
domestic operating) may be
used only against future
income of the same type (i.e.,
operating).
Additionally, the three year
carryforward period for net
operating losses is
maintained, but the amount
of losses available for
carryforward may not exceed
twenty five percent of the tax
period’s taxable income. This
is a significant new
limitation.
The carryforward of losses
relating to inflationary
adjustments has been
eliminated.
Income tax withholding rules
The new law provides the
Venezuelan tax authority with
increased discretion to
publish administrative
rulings expanding the types
of income subject to income

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tax withholding and broadening the
definition of those that can be treated
as income tax withholding agents.
Inflationary adjustments eliminated
for some taxpayers and base changed
for others
The new law eliminates inflationary
adjustments for taxpayers engaged in
banking, financial, insurance and
reinsurance activities. We expect the
Venezuelan tax authority to publish
guidance on the transition from
inflationary accounting for the
impacted taxpayers.
In addition, for those taxpayers still
subject to inflationary accounting for
tax purposes, the inflation adjustment
is now based on the National
Consumer Price Index (INPC) rather
than the Caracas Metropolitan Area
Consumer Price Index used
previously.
specific tax rates for particular types
of taxpayers or economic sectors.
Tax exemptions
The reform has eliminated the income
tax exemption previously granted to
non-profit organizations (other than
charity and social assistance
institutions, which retain the
exemption), professional associations,
educational institutions and
universities.
Value added tax changes
Tax rates
The value added tax rate applicable to
luxury goods has been increased from
10% to 15%. More significantly, the
Executive Branch is granted the
authority to modify VAT rates.
Additional limitations for utilization
of VAT
In addition, the new law limits the
timing to utilize input VAT to within
12 months after the credit arises.
Under prior law, there was no time
limit on the utilization of input VAT
credit carryforwards.
Electronic invoicing
The new law provides the Venezuelan
tax authority with discretion to
publish guidance requiring that
taxpayers utilize electronic invoicing.
The takeaway
MNCs with current or future
investments in Venezuela should
evaluate how the new law may affect
their business operations in the
country.

Potential sector-specific tax rates The new value added tax provisions
impose additional documentation and
The reform grants the Executive other requirements for taxpayers to
Branch the power to provide for claim input VAT credits.

Let’s talk
For a deeper discussion of how this might affect your business, please contact:

International Tax Services, United States

John A. Salerno Jose Leiman Julian Vasquez

+1 (646) 471-2394 +1 (305) 381-7616 +1 (646) 471-5883
john.a.salerno@us.pwc.com jose.leiman@us.pwc.com julian.r.vasquez@us.pwc.com

Daniel Landaluce Maria Bel Lucia Echenique

+1 (646) 471-7762 +1 (646) 471-1268 +1 (646) 471-6294
daniel.landaluce@us.pwc.com maria.j.bel@us.pwc.com lucia.echenique.fossati@us.pwc.com

International Tax Services, Venezuela

Jose J. Garcia Gladys Rahbe Anna Rita Restaino

+ 58 (212) 700-6083 +58 (212) 700-6650 +58 (212) 700-6217
jose.j.garcia@ve.pwc.com gladys.rahbe@ve.pwc.com ana.restaino@ve.pwc.com

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This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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