Foreign Investment

• What is considered a Foreign Direct Investment in Venezuela
• Procedure (Legal Framework)

     The Mercantile Registry (Registro Mercantil)
     Superintendency of Foreign Investments (SIEX)
     Ministry of Trade and Industry (MIC)
     Venezuelan Council for Investment Promotion (CONAPRI)

• Restriction and Limitations (Sectors Reserved for National Investment)

• Taxation Regulations

     Double Taxation Treaties

• Main Laws


• Intellectual Property Legislation

      How to register trademarks and patents

• Trade and Industry Associations

• Binational Chambers of Commerce

• Trade Agreements (Commercial and Integration Agreements)

     The Andean Pact
     The Group of Three (G3)
     GSP (European Union)
     OEA
     Sucre Act

• Investor Protection

• Research and Development Organizations

Note:

Please use this information only as a guideline. For a more detailed orientation, refer to the respective organizations in charge of each area.

What is considered a foreign direct investment in Venezuela?

According to Decree 2095, Article 2:

A) Contributions from abroad, coming from foreign persons or companies, destined to the capital of a company, in freely convertible currency or in physical and tangible assets such as: industrial plants, new or refurbished machinery, spare parts, raw material and intermediate products.

B) Investments or reinvestments, in accordance to Decree 2095, carried out in national currency in the property of foreigners or foreign companies, and derived from capital gains, interests, loan amortization, participation or other rights, or any other funds transferred from abroad to which foreign investors may have the right to.

C) Funds coming from the Conversion of the Foreign Debt into Investment, property of foreign persons or companies.

D) Funds coming from non-tangible technological contributions such as brands, industrial models, technical assistance and patented or non-patented technical knowledge which may be presented as tangible assets, technical documents and/or instructions.

Decree 2.095, Article 19, establishes that the value of the direct foreign investment, reinvestment and the increase of capital, will be determined by the registration of the direct foreign investment.

The amount registered will be stated:

• In case of currency investment

• In case of tangible assets investments or intangibles

• Technological contributions

• In case of reinvestment of profit.

Procedure (Legal Framework)

The first procedure to be carried out by any investor wishing to establish himself in Venezuela is the registration and incroporation of the Company. With the counseling of a lawyer the investor should select the most convenient form of mercantile organization, regulated by the Commercial Code, among other laws, as well as the Civil Code, the Capital Market Law and Decree 2095 which regulates the treatment of foreign investments in the country.

Once the Incorporation Agreement and Bylaws are elaborated, its registration and publication shall be carried out in the "Mercantile Registry".


The Mercantile Registry / Registro Mercantil

The Mercantile Registry is where the Registration of Incorporation Agreement and Bylaws of a corporation takes place. The following is a general overview of the different forms of incorporation contemplated by Venezuelan Law:

• Corporation: ( Sociedad Anónima S.A. / Compañía Anónima, S.A. ) in which the
  social obligations are guaranteed by a determined capital. The shareholders are only   responsible up to the amount of shares they own.

• Limited-Liability Company: ( Sociedad de Responsabilidad Limitada S.R.L. ) in
  which the   social obligations are guaranteed by a determined capital divided into   participation quotas, which may in no case be represented by shares or negotiable
  titles. Limited-Liability companies or corporations are a form of incorporation which
  unites principles of stock corporations and partnerships.

• Joint Stock Companies: are those companies in which the social obligations are   guaranteed by the unlimited and solidary liability of one or more partners, called
  solidary, silent or special partners, and by the limited responsibility to a determined   amount of one or more silent partners. The capital of the special partners may be
  divided into shares.

• General Partnership: is that kind of company in which the social obligations are   guaranteed by the unlimited and solidary responsibility of all partners.

• Participation Accounts: is that sort of company in which a businessman or
  corporation grants one or more people participation in the profits or losses for one or   more, or all the operations of the business.

• Consortium or Joint Venture: ( Consorcios ) is a form of incorporation in which two
  or more companies join to act together under one direction and common rules,
  conserving each one its nature and legal independence.

• Foundation: (Fundaciones) a certain patrimony connected by the will of the founder
  or founders, with a general utility with scientific, literary, artistic or charity and
  social purpose. The Foundation shall always have full legal capacity, whenever the
  purposes are lawful.

According to the Venezuelan Commercial Code, companies domiciled abroad are considered as foreign companies, whether the main object of their exploitation, commerce or industry is in Venezuela or not. These companies may adopt the following forms of incorporation:

• A company with its own legal nature, independent from the parent company.

• A subsidiary company.

• A branch.

• A representation.

• Technological transfer contracts and licenses over patents and brands.

According to the Public Registry Law, it shall be a main registry office in each state capital, as well as subordinate offices which shall depend on this main offices, in each one of the states of the country.

Addresses in the Federal District-Caracas:

First Mercantile Registry: Primer Registro Mercantil Av. Andrés Bello, Centro Andrés Bello, Sótano 1 Phone:(58-212)781.75.65/ 37.54/ 64.97

Second Mercantile Registry: Segundo Registro Mercantil Av. Andrés Bello Centro Andrés Bello, Sótano 1 Phone: (58-212)781.35.13/ 40.76

Superintendency of foreign investments - SIEX / Superintendencia de inversiones extranjeras
In Venezuela it is not necessary to obtain a previous authorization to carry out foreign investments. All foreign investments that do not contradict legal provisions as to which sector to invest in, shall only be subject to the registration in the Superintendency of Foreign Investments (SIEX) of the Finance Ministry. This procedure has to be performed within sixty days after having been registered in the corresponding Mercantile Registry.

SIEX functions are:

• Registry of the Direct and Sub-regional Foreign Investments.

• Registry of Multinational Andean Companies(EMA).

• Registry of Technology Importation Contracts and the Use and Exploitation of Patents
  and Brands.

• Granting Company Qualification Certificates.

• Granting National Investor Certificate.

There are several considerations to determine when must a company established in Venezuela be registered as foreign. Companies are classified by the origin of the participation in the share percentage of the shareholders in:

• National company: Less than 19.9 % of foreign capital.

• Joint Company: Between 19.9 % and 49 % foreign capital.

• Foreign company: More than 49 % of foreign capital.

For the said classification, the statutory and shareholder's provisions shall be taken into consideration in relation to the shares, participation and rights of the foreign shareholders over these, concerning technical, commercial, administrative and financial direction of the company.

Address:

SIEX Bolsa a Mercaderes, Edificio La Perla, Floors 3,4, 5 and PH Caracas 1010 Apartado Postal 213 Phone: (58-212) 483- 6666 Fax: (58-212) 484-4368

Office Hours: 8:00 a.m. To 11:45 a.m. 1:30 p.m. To 4:30 p.m.

SIEX covers foreign and joint investment in all sectors, except in the hydrocarbon, mining, petrochemical, banking and insurance sectors.

In the case of Hydrocarbons, Mining and Petrochemicals, the Ministry of Energy and Mines, the General Sectorial Direction for Technology and Investment Promotion is the competent national agency that covers foreign investments, with the following functions:

• Registering direct and sub-regional Foreign Investments.

• Registering the Technology Import contracts.

• Registering the use and exploitation of Brands and Patents.

• Granting Company Qualification Certificates.

In the case of the Financial Sector, foreign investments in the Venezuelan financial sector are Registered by the Bank Superintendency .

Address:

Superintendencia de Bancos Esquina de San Jacinto Edificio FOGADE Caracas, 1010 Apartado Postal 6761 Phone:(582) 541-1133/1278 Fax:(582) 541-1632

In the case of Insurance Companies, the Insurance Superintendency is the competent national agency for foreign investments related to all insurance and reinsurance activities, having the attribution to register direct and sub-regional Foreign Investments.

Address:

Superintendencia de Seguros Ave, Francisco de Miranda con Ave. Loyola Torre Metalica, Pisos 1 al 14 Chacao Caracas 1060 Phone:(58-2)263-1344/3415/2391

Ministry of Trade and Industry - MIC / Ministerio de Industria y Comercio

Objectives:

• To promote industrial, commercial and service development

• To facilitate the insertion of the productive sector in international markets

• To act as intermediary in order to facilitate the industrialization process of
   Venezuela

Strategic outlines:

• The design, implementation and execution of industrial and commercial policies

• To contribute in reaching macroeconomic equilibrium

• To help companies access sound financial, technical and managerial assistance

For more information: MIC / Ministerio de Industria y Comercio Office of Foreign Trade Avenida Libertador, Centro Comercial Los Cedros PB Local 9 La Florida, Caracas Phone: (58-2) 7629960 / 7624762 Fax: (58-2) 7620460 Web Page: MIC

Office Hours 8:30 a.m. to 11:30 a.m. 2:00 p.m. to 4:00 p.m.

Venezuelan Council for Investment and Promotion CONAPRI

Restrictions and Limitations (Sectors reserved for National Investment)

A) According to Decreee 2095, Article 26, the following economic sectors are reserved
   for national companies, as has been defined by the Andean Pact Policy, which
   establishes that national investors must be the holders of at least 80% of the stock:

• Television and radio

• Spanish-language newspapers

• Professional services, the exercise of which is regulated by national laws

B) In the case of the oil industry, it was nationalized in 1975, restricting the
   participation of national and foreign investors. Nevertheless, new associations and     projects are being developed with national and foreign investors, according to
    previsions of the law and to guidelines established by the oil Industry, upon
    authorization of the National Congress.

C) The stock of companies dedicated to air transportation must belong to Venezuelan      investors by at least two thirds (2/3) in order to be able to register airplanes under
     the national flag.

D) Domestic navigation in general, including cabotage, is reserve to vessels registered
    under the national flag, belonging to companies whose stock belongs to national
   investors in more than 80%, this being an absolute reserve in favor of national
   companies.

Taxation regulations

A) Income Tax: This tax is calculate on the basis of tax units (UT), whose value is to
   be adjusted according to the Consumer Price Index (IPC) published by the Central
   Bank of Venezuela. Taking 1994 as its base, the value of each tax unit is one thousand    bolivars (Bs. 1,000.00). Article 229 of the Organic Tax Code establish that it will be a    readjustment at the beginning of each year-before January 15 (Resolution of the Tax    Administration). At present (1997), the value of each tax unit is Bs. 5,400.00.

B) Incentives: Foreign investment enjoys the same incentives that are applicable to all     investments. There is a fiscal credit equivalent to 20% of the investment in the
    agro-industrial, agricultural, fishery, livestock and tourist sectors, within five years
    of the entrance into effect of the Income.

Tax Act of May 1994 . Reductions are transferable for up to three fiscal years as of the investment registration. There is a special incentive for investment in the exploration of hydrocarbons; equivalent to 8% of the contributed fixed assets. There is also an additional fiscal credit of an additional 4% in activities associated with this industry.

C) Tax Rates: National and Foreign

Tax Units or Tranches

Up to 2000           15%
2000 up to 3000    22%
3000 and up         34%

D) Dividends are income from shares or securities, investments in mines, founders     percentages and other forms of interest, except for profit sharing.

E) Net profits from loans and other credits granted by financial institutions which are     incorporated and domiciled abroad will only be taxed at a rate of 4.95%

F) All individuals or companies involved in commerce are subject to payment of tax on     business assets.

G) All private individuals, public and private companies, importers of goods and
   services, manufactures and traders who do not make the final sale are passive
   subjects of a wholesale tax. Those whose retail sales account for more than 50% of
   their total sales, or whose sales do not exceed 12,000 tax units (Bs. 64,800.000) will
   not be subject to this tax.

Double taxation treaties:

In order to avoid double taxation Venezuela has signed a series of International Treaties aimed at avoiding the double taxation of foreign firms with business or investments in Venezuela territory.

These Treaties are:

• USA (in negotiation)

• Italy (in effect)

• France (in effect)

• Holland (signed)

• Belgium (signed)

• Sweden (signed)

Intellectual Property Legislation

The protected figures are the following:

Patents, Industrial Designs, Industrial Secrets, Brands, Commercial Names, Firms Official Names, Integrated Circuits and Industrial usefulness Models.
the legal framework of the intellectual property is:

• Industrial Property Law of 1955

• Decisions 344 and 345 of the Cartagena Agreement on Industrial Property and
  Vegetable Varieties, October 1993

• Bern Treaty

• Author Rights Law of 1993

• Decision 351 of the Cartagena Agreement, on Author Rights.

Investor Protection

Venezuela has signed several bilateral and multilateral treaties, the sole purpose of which is to protect and promote foreign investment. Among them are:

Currently in Force:

• Negotiating one with the USA

• Treaty of Investment Promotion and Protection, with Holland, Argentina,
   Switzerland, Ecuador, Chile, Portugal and Barbados.

• Treaty on Recognition of Arbitration Decisions.

• International Center on the Settlement of Disputes about investment (CIA)