Taxation of international executives
Tax returns and compliance
Termination of residence
Economic employer approach
Types of taxable compensation
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation
All income tax information is summarized by Alcaraz Cabrera Vázquez, the Venezuelan member firm of KPMG International, based on the Venezuelan Income Tax Law (Official Gazette No.5.566 dated 28 December 2001) and it’s Regulation (Official Gazette No.5.662 dated 24 September2003).
When are tax returns due? That is, what is the tax return due date?
All individuals obtaining yearly net income that exceeds 1,000 tax unit or gross income that exceeds 1,500 tax units must report such income by filing a tax return with the Venezuelan tax administration within the first three months after the end of the fiscal year, or by 31 March in each year.
The value of the tax unit for the year 2015 is VEF 150, for fiscal year 2014 was 127 .
Spouses, if not legally separated, are considered to be joint taxpayers. The spouse may elect to file a separate return for his/her own employment income, but in that case only one of the spouses may claim the deductions and exemptions available to both parties.
The tax payment arising from the final income tax return may be paid in three installments, the first one on or before 31 March of each fiscal year when filing the tax return, the other two installments will be pay on the date issued by the Tax Administration in the payment commitment. If any of these payments is made after the applicable due date, taxpayer must pay in full the amount owed, it may not elect to pay in installments, however an interest charge will be imposed on the late payment.
Individuals pay tax either through withholding or by making estimated tax payments. Both residents and non-residents are subject to withholding of income tax by the employer on wages. Wages include cash payments for services performed by an employee for his/her employer. Non-cash payments would not be subject to withholding. The income tax withholding rate is determined based on Form ARI, which is the tax withholding determination. For non-residents, income tax withholding is required only for job rendered in Venezuela; and tax withholding is set at a flat rate of 34 percent on all income.
Estimated tax payments
A self-employee individual who has income that is effectively connected with a Venezuela trade or business (other than salary income) is subject to estimated payment requirements, only if had a gross income exceeding 1,500 tax units (VEF 265,500) in the year from other activities or services (self-employed). An estimated tax return must be filed by 30 June of every year.
An individual is considered to be a tax non-resident of Venezuela if he/she stays in the country for 183 days or less during the calendar year and has not qualified as a resident in the preceding calendar year.
Non-residents should file a Venezuelan tax return for all income from or losses sustained in Venezuela, whatever the amount. Frequently, tax return for nonresident with working visa is required at departure time at the airport.
The tax table for 2015 is based on tax units of income.
Income tax table for 2015
|Taxable income bracket||Tax rate on income in bracket|
|From tax unit||To tax unit||Percent|
Non-residents are subject to a 34 percent flat tax rate on any income from Venezuelan source.
The non-resident tax rates are as follows.
|Type of income*||Percent|
|Gross employment income||34|
|Professional services income||34|
|Other taxable (business) income||34|
|Interest income (except bank interest)||34|
* Refers only to Venezuelan source income.
An individual is considered to be a tax resident of Venezuela if he/she stays in the country for more than 183 days during the calendar year or in the previous calendar year.
Also, individuals who have established their residence or home in the country, except if they remain in another country for a consecutive or non-consecutive term of 183 days during the calendar year and evidence having acquired residency in that other country for tax purposes.
No, there is no de minimus number of days rule.
The days present in Venezuela before the assignment begins would count in order to determine tax residency.
If residence is terminated, it is necessary to file an income tax return with the tax administration for the period of time during the year in which income was received. If the total income received during such period of time does not exceed 1,000 tax units, an income tax return needs to be filed indicating that it is not subject to income tax.
Days present in Venezuela will be considered to determine the tax residence period. If the trip is work related, there is no chargeback to the Venezuelan entity and the individual claims to have tax residency in another country and the individual is resident in a country who has signed a treaty to avoid double taxation on income tax with Venezuela, it is likely that there would be no obligation to pay taxes, nevertheless it is important to file a tax return claiming tax treaty benefits and to provide a foreign residence certificate to be issued by the Tax Administration of the country of residency.
Do the immigration authorities in your country provide information to the local taxation authorities regarding when a person enters or leaves your country?
The immigration authorities can provide information to the local tax authorities regarding when a person enters or leaves your country upon request. This information is requested when the tax administration provides a Tax Residency Certificate.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
It is probable that often the assignee leave the Country, still receive income connected to its Venezuelan resident status or Venezuela source. In such cases a tax return should be filed.
Once the individual has broken Venezuela tax residency and has no Venezuelan-source income, there would be no filing requirement in the following year of repatriation, unless the individual has tax credits subject to refund, for which a tax return filing is required to avoid its prescription term.
There is no precedent that the Venezuela taxation authorities adopt the economic employer approach to interpreting Article 15 of the OECD treaty, however it is more probable that the economic employer approach is adopted by the tax administration. Most of the double tax treaties that Venezuela has signed with other countries follows the OECD model and its commentaries are general used to support tax interpretations which in many cases it is aligned with the local tax doctrines.
Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
There is no de minimus number of days before the local taxation authorities will apply the economic employer approach.
The following typical components of an expatriate’s compensation package should be regarded as taxable unless otherwise stated:
The following income is considered tax-exempted according to the tax law.
Local savings plans and retirement funds
Interest on local savings and deposit bank accounts
Labor severance indemnities
There are no special concessions generally available to expatriates. Nevertheless, the Government may grant annual exemptions (3000 tax units exemptions granted in 2015 tax year) for individuals. Also Venezuelan has signed double tax treaties with several countries that contain special tax treatment for short-term assignment.
When a resident renders its services outside of Venezuela on behalf of his/her Venezuelan employer, then the remuneration received for those services is taxable in Venezuela. However, for non-Venezuelan residents if the services rendered by the individual outside the country are on behalf of a foreign employer, then the remuneration received will not be taxable in Venezuela.
Capital gains on real property are taxable in Venezuela according to progressive tax table rates. The capital gains arising are added to total taxable income, subject to some special procedures. However, the gain may not be taxable if it results from the sale of the principal family residence, if the gain is reinvested in another principal home.
If a capital gain is produced through the sale of stock, the gain is added to total taxable income, which in turn is subject to general income tax as already described. Sale of stocks traded through the Venezuelan Stock Exchange will be subject to a 1 percent tax on gross proceeds only.
Dividends, interest, and rental income
Taxable dividends from Venezuelan domiciled entities would be the amount distributed equivalent to the accumulated earnings on financial statements not taxed at the corporate level. Special regulations exist to determine dividends source and imputation of the distribution. Moreover, taxable dividends from foreign entities would be the 100 percent of the dividend paid for residents, and it will be subject to a proportional tax rate of 34 percent.
The tax-withholding rate for dividends paid by a Venezuelan entity would depend on the payer’s activities, as follows:
Interest income obtained from savings account in local banking institutions is not taxable. Interest from foreign institutions would be taxable for Venezuela residents; they are added to the taxable income and taxed at the progressive tax rates.
Rental net income (expenses related activities are deductible) is included in the total taxable income. They are added to the taxable income and taxed at the progressive tax rates.
Gains from stock option exercises
|Residency status||Taxable at:|
|Other (if applicable)||NA||NA||NA|
Foreign exchange gains and losses
Foreign exchange gains and losses could be taxable and deductible when realized, depending on the nature of asset and liability and circumstances.
Principal residence gains and losses
Gain resulting from the sale of the principal family residence would not be taxable if the gain is reinvested in another principal home. Certain rules applies.
Losses resulting from sale of shares or participation quotas in the corporate stock and in the cases of liquidation or capital stock reduction of stock companies and taxpayers assimilated to stock companies shall only be admissible when the following circumstances concur.
Other capital losses should be admitted as long as the capital was income producing and taxable.
Personal use items
In Venezuela, taxes are imposed on the transmission of property to beneficiaries domiciled in Venezuela or to non-residents in respect of property located in Venezuela. Each taxable beneficiary must compute and pay tax on his/her inheritance or gift. Rates vary, depending on the amount of the inheritance or gift and on the degree of family relationship to the decedent or donor, from 1 percent to 55 percent.
Tax treaties in few cases create tax exceptions in Venezuela.
Deemed disposal and acquisition
There are some deductions that can be made from annual income.
Itemized deductions - individuals
The original documentation for said deductions should be available with the annual tax return.
The deductions mentioned above can only be taken by taxpayers classified as residents in Venezuela.
Alimony and child support payments are not allowed as deductions.
If the taxpayer decides not to use the itemized deductions, a standard deduction of 774 tax units can be used.
The Decree number 2,266 published on Official Gazette No. 40,865 dated March 9, 2016, established a partial exoneration for individuals’ residents in Venezuela. For the 2016 tax year the exemption remain in 3,000 Tax Units (e.g., Bs. 531,000.00 for fiscal year 2016). Individuals with late filing status will lose the possibility of using this income exoneration.
This would depend, employers in Venezuela always follows the policies for expatriation of the Parent Company. To avoid a monthly taxable income to the employee, the rollover method may result more beneficial.
Tax withholding is performed in the monthly payroll. The employer is regarded by the Venezuelan tax authorities as a tax withholding agent and must withhold income tax to employees on a monthly basis.
For self-employee individuals, an estimated tax return may be required if the individual’s income exceeds 1,500 tax units in the preceding fiscal year from the following sources.
Partnerships are exempt from the estimated tax requirement when their earnings are taxable on an individual basis for their partners.
Pay-as-you-go (PAYG) withholding
The Venezuelan Income tax Law provides for a double tax relief based on Foreign Tax Credit method.
In addition, Venezuela has subscribed tax treaties with the following countries: Austria, Barbados, Belarus, Belgium, Brazil, Canada, China, Cuba, Czech Republic, Denmark, France, Germany, Indonesia, Iran, Italy, Korea, Kuwait, Malaysia, the Netherlands, Norway, Portugal, Qatar, Russia, Spain, Sweden, Switzerland, Trinidad and Tobago, United Arab Emirates, United Kingdom, United States, and Vietnam, which contain the Foreign tax credit or the exemption method in order to reduce the double tax burden.
The Venezuelan income tax law, provides certain tax credits against income tax for residents as follows:
*Applicable only if the spouse or dependents are resident in the country.
This calculation assumes a married taxpayer resident in Venezuela with two children whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD 100,000 and the calculation covers 3 years.
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
The exchange rate to be used by an individual would depend on each circumstances subject to technical evaluation.
Calculation of taxable income
|Days in Venezuela during year
|Earned income subject to income tax||6,3||6,3||580|
|Net housing allowance||226.800.00||252.000.00||23.200.000,00
|Moving expense reimbursement||-||-||11.600.000,00
|Other income (Interest)
|Total earned income
|Tax Exception 3000 TU
|Total income for Income Tax Return
|Deductions (Housing +Education)
|Total taxable income
|Venezuelan Tax Thereon
|Less: Personal deduction
|Less: Tax deductions dependents (spouse + two
|Total Venezuelan Tax||221.530,60||77.343,60||39.601.521,00|
The example above shows the incomes received by the assignee in bolivars, we apply the exchange rate of 6,3 bolivars per dollar for fiscal years 2014 and 2015. For fiscal year 2016, the income were exchanged at the floating DICOM rate for purposes of this example.
1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.
3Sample calculation generated by Alcaraz Cabrera Vázquez, the Venezuelan member firm of KPMG International, based on the 2001 Venezuelan Income Tax Law (Official Gazette No.5.566 dated 28 December 2001) and its Regulation (Official Gazette No.5.662 dated 24 September 2003).
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