IN211 - Venezuela: Where Protecting Investments is a Vital Part of International Structuring

Venezuela: Oil and the Expanding Social Programme

The dependence of the Venezuelan economy on oil reserves is well known. It is within the top ten countries in the world, in terms of the size of its oil reserves. Oil generates about 80 percent of the country’s total export revenue and contributes approximately 50 percent to central government income.

Another less commonly appreciated characteristic of the Venezuelan economy is the expanding state social programme and the slow, but steady, advance towards a full socialist economy. This has led Venezuela to nationalise strategic sectors of business and expropriate property across a wide range of activities.

Asset Protection in Venezuela

The need to protect investments in Venezuela is therefore a vital element within an efficient international structure. A strategy that offers protection, and simultaneously presents opportunities for tax efficiencies, is ideal.

Treaties between Portugal and Venezuela

Madeira is an integral part of Portugal and the Investment Protection Treaty and the Double Tax Treaty signed between Portugal and Venezuela make Madeira companies effective strategic vehicles for outbound investment from, and inbound investment to, Venezuela.

The favourable political relationship between the two countries is even more important due to the collapse of the Investment Protection Treaty between Venezuela and Holland and a number of failures in a similar treaty between Venezuela and Spain.

The Investment Protection Treaty signed between Portugal and Venezuela does not prevent the expropriation or nationalisation of investments. It does, however, ensure that any such acts will result in the payment to investors of a “fair market price” for their investments.

The rules and regulations within the Treaty dictate how the “fair market price” of any investment will be calculated. Definitions contained in the Treaty allow for the protection of any Portuguese individual or company holding investments in Venezuela. The term “investment” is defined as any kind of assets and rights held by an individual or company in the territory of the other contracting state.

The International Business Centre of Madeira

Portuguese companies incorporated in Madeira present a safe investment holding option. The advantages in using such companies are enhanced still further by Madeira’s preferential tax regime and the related fiscal benefits approved by the European Union (EU).

Madeira companies are subject to a reduced corporate tax being 4% in 2012 and then 5% to the end of 2020. These reduced corporate taxes are applied in conjunction with ceilings relating to taxable income and are directly dependent on the number of jobs created in Madeira. A low level of taxation is often more attractive than the use of a zero tax jurisdiction. The latter may invoke Controlled Foreign Company Rules and negate Double Taxation Agreements.

Additional tax benefits include:

• Exemption from capital duty, notary and registration fees
• Capital gains are not taxed separately from the company’s overall income. This means that capital gains realized by these companies also benefit from the low corporate tax rates 

There are a range of other benefits available to Portuguese companies registered in the International Business Centre of Madeira. Full details are detailed in the Madeira Jurisdiction Note featured on the Dixcart website.

Examples of Popular Madeira Corporate Structures used in Venezuela



The most commonly used structure is the Operating Company, where all commercial activity is undertaken by the company itself. Typically activities include trading activities and consultancy.

The corporate tax rate of 4% in 2012 and 5% thereafter until 2020.

For non-EU companies, where there is a Double Tax Treaty in existence (such as between Portugal and Venezuela), the authorities will apply the withholding percentages referred to in the treaty itself (12% in this instance).

In this instance the Madeira company also benefits from the Investment Protection Treaty (between Portugal and Venezuela).

Summary

Venezuela’s uncertain political and economic climate imposes additional challenges for business intermediaries. Solutions need to be constantly found to protect the position of international clients. This demands careful strategic planning and the application of appropriate investment solutions.

Within the range of possible vehicles for outbound and inbound investment to Venezuela, Madeira presents a safe, solid and tax-efficient option, and offers substantial potential advantages to an investor.

Additional Information

If you require additional information about investing in Venezuela and the opportunities presented by Portuguese companies registered in Madeira, please speak to Nuno Coelho at our office in Madeira: nuno.coelho@dixcart.pt or contact us.