Foreign currency regulations and price controls in Venezuela

5 Abril 2017

  • Venezuela
  • Contratos

Exchange controls

The existing Venezuelan foreign currency regulations significantly restrict the ability of private sector companies and individuals to convert the local currency (“Bolivars” or “Bs”) into foreign currency. Because of these restrictions, it is extremely difficult for companies in Venezuela to repatriate profits generated in Bolivars by converting those Bolivars into foreign currency, or otherwise to convert Bolivars into foreign currency to purchase foreign supplies, to pay debt in foreign currency, etc.

The result of these restrictions is the continued generation of trapped cash in Bolivars that cannot be converted into foreign currency. The foreign currency restrictions can also affect the operations of Venezuelan companies if such operations depend on foreign supplies, unless the shareholders or other affiliates of such Venezuelan company are willing to support its operations with foreign currency generated abroad. Also, because of these restrictions Venezuelan companies may not be able to convert Bolivars into foreign currency to pay intercompany debt in foreign currency.

There are currently three different official exchange rates in Venezuela: (a) the Cencoex rate, fixed by the Venezuelan government from time to time, currently at Bs.6.30 per USD (the “Cencoex Rate”), (b) the Sicad rate, fixed by the Venezuelan government from time to time, currently at Bs.13.5 per USD (the “Sicad Rate”) and (c) the Simadi rate, which is in practice fixed by the Venezuelan government on a daily basis, currently at approximately Bs.200 per USD (the “Simadi Rate”). Given the significant restrictions to convert Bolivars into foreign currency, there also exists a parallel or black market, currently at several times the Simadi rate. The Cencoex Rate (Bs.6.30 per USD) appears as hugely overvalued, if compared to the other official rates (the Sicad Rate or the Simadi Rate) or to the black market rate.

Given the existing Venezuelan exchange controls, many Venezuelan companies have accumulated over the years significant amounts of excess cash in Bolivars that cannot be converted into Dollars.

Foreign Investment Regulations

The only areas currently reserved to companies owned or controlled by Venezuelan investors are open-air television, radio broadcasting, newspapers in Spanish and professional services regulated by law. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies.

Foreign investors (i.e., foreign companies (head offices), foreign shareholders or foreign partners) must register their direct foreign investments in a Venezuelan company (branch, corporation or partnership) with the Venezuelan foreign investment authority within 60 days following the date on which investment was made (the “foreign investment registration”). The foreign investment registration is one of the documents required to purchase foreign currency through Cadivi to repatriate dividends, branch profits, and proceeds from sales of investment, liquidation of the company or capital reductions.

Several documents must be submitted to the Venezuelan foreign investment authority by the foreign investor to obtain the foreign investment registration, including evidence that the capital of the company was paid with foreign currency or contribution in kind that entered Venezuela. To obtain such evidence, the foreign investor must (a) in case of payment in cash, order a wire transfer to the Venezuelan bank account of the company from an account of the foreign investor located outside Venezuela (as a result of the wire transfer, foreign currency transferred out of the offshore account of the investor will be converted into bolivars at the official exchange rate and deposited in bolivars in the Venezuelan bank account), and (b) in the case of contribution in kind, demonstrate that the asset being contributed to the capital of the company was imported into Venezuela (copies of the import manifest, commercial invoice and other custom documents).

The foreign investment registration must be updated annually by the foreign investor within 120 days of the end of the fiscal year.

Price Controls

The Fair Prices Decree with rank, value, and strength of Organic Law (the “Fair Prices Law”), provides for the possibility of the government to set the prices of any type of good or service sold in Venezuela. The Fair Prices Law creates the Single Registry of People which Develop Economic Activities (RUPDAE) in which all persons and companies that perform commercial activities in Venezuela must be registered. The National Superintendence to Defend Economic Rights (the “Superintendence”), created by this law, has established fixed prices for food, personal hygiene products among other products. Once a list of products is published, their price is frozen until the Superintendence sets the new price (in every level of the commercial chain). In cases in which the Superintendence does not set maximum retail prices, companies should self-regulate their prices, and in no case the maximum profit margin will exceed 30% for manufacturers and 20% for importers. The Superintendence may also establish the obligation to label the maximum selling prices in the body of the product. The Fair Prices Law has also created the following crimes related to commercial activities in Venezuela: (i) sale of expired food or products; (ii) import of unhealthy products; (iii) fraudulent alteration; (iv) hoarding; (v) boycotting; (vi) destabilization of the economy; (vii) resale of products of first necessity; (viii) conditioned sales; (ix) extraction smuggling; (x) usury; (xi) alteration of goods and services; (xii) speculation; (xiii) fraudulent alteration of prices; and (xiv) corruption between private parties. Sanctions are extremely onerous and may include: closure, confiscation of assets, fines and imprisonment.

Filings with the Commercial Registry

All Venezuelan companies must be registered with a Commercial Registry. The Commercial Registry contains copies of the company’s articles of incorporation and by-laws, information on its standing (i.e. annual financial statements, liquidation or bankruptcy proceedings), registered address, directors and officers, the existence of branches, and other information. All information filed with the Commercial Registries is public. Companies must notify the Commercial Registry of changes to their articles of incorporation and by-laws and update other information filed with the registry. Companies must also file annual financial statements and periodically file minutes of shareholders appointing directors and officers.

 

The author of this post is Fulvio Italiani

General principles

There are a number of general contracting principles under Venezuelan contract law. These principles are mainly regulated by the Venezuelan Civil Code. General civil law principles like freedom to contract, capacity to contract, and formation are applicable under Venezuelan law. Contracts can be written or oral and, in general, no formal requirement for a contract to be enforceable and valid, the parties should however make sure that the signatories acting on behalf of another person or entity have authority to execute the contract.

Choice of Law and Jurisdiction

In general, the choice of foreign law by the parties as governing law for contracts is binding under Venezuelan law, provided that foreign law does not contrive essential principles of Venezuelan public policy. Collateral granted on assets located in Venezuela and other contracts relating to real estate located in Venezuela are governed by Venezuelan laws.

Choice of foreign jurisdiction is valid under Venezuela law. A foreign judgment rendered by a foreign court is enforceable in Venezuela, subject to obtaining a confirmatory judgment in Venezuela.

Such confirmatory judgment could be obtained from the Supreme Tribunal of Justice of the Republic in accordance with the provisions and conditions of the Venezuelan law on conflicts of laws, without a review of the merits of the foreign judgment, provided that: (a) the foreign judgment concerns matters of private civil or commercial law only; (b) the foreign judgment constitutes res judicata under the laws of the jurisdiction where it was rendered; (c) the foreign judgment does not relate to real property interests over real property located in Venezuela and the exclusive jurisdiction of Venezuelan courts over the matter has not been violated; (d) the foreign courts have jurisdiction over the matter pursuant to the general principles of jurisdiction of the Venezuelan Statute on Conflicts of Law (pursuant to such principles, a foreign court would have jurisdiction over Venezuelan entities if such entities submit to the jurisdiction of such foreign court, provided that the matter submitted to the foreign jurisdiction does not relate to real property located in Venezuela and does not contravene essential principles of Venezuelan public policy); (e) the defendant has been duly served of the proceedings, with sufficient time to appear in the proceedings, and has been generally granted with procedural guarantees that secure a reasonable possibility of defense; (f) the foreign judgment is not incompatible with a prior judgment that constitutes res judicata and no proceeding initiated prior to the rendering of the foreign judgment is pending before Venezuelan courts on the same subject matter among the same parties to litigation; and (g) the foreign judgment does not contravene the essential principles of Venezuelan public policy.

The submission by the parties of an agreement to arbitration in a country outside Venezuela would be binding in Venezuela. Venezuela is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Pursuant to the New York Convention, arbitral awards are enforceable in Venezuela without requiring a confirmatory judgment in Venezuela (exequatur) or a retrial or re-examination of the merits. However, the Venezuelan court in charge of enforcing the award can review the causes of nullity of awards contemplated in the New York Convention.

Enforcement

In practice, enforcement proceedings in Venezuela are generally lengthy, complex and cumbersome, and may be challenged (and therefore delayed) by the affected party on many legal grounds, and may be suspended or delayed. From our experience, an enforcement proceeding may take from several months to a few years, depending on the circumstances and complexity of the case.

In addition, a judgment or award for money issued by a foreign court or arbitration panel would likely be enforced in Venezuela only in bolivars at the then existing Cadivi exchange rate, and then the company receiving the bolivars would have difficulties in converting such bolivars into foreign currency as a result of the existing exchange controls.

In light of the above, counterparties of Venezuelan companies (whether public or private) generally take into account the assets of such companies located outside Venezuela as the real guarantee or support for the contractual obligations of such Venezuelan companies.

Contractual clauses allowing one party to unilaterally terminate a contract without judicial intervention in case of breach of the obligations of the other party may be unenforceable, unless the terminating party is the Venezuelan government or a Venezuelan state-owned company. As a general rule, termination for breach of the other party requires a declaration by the court or the arbitral tribunal (in case the contract contains an arbitration clause).

 

The author of this post is Fulvio Italiani

The options available to foreign companies to set up business in Venezuela are (a) the registration of a branch; (b) the corporation; (c) the limited liability company; (d) the general partnership, (e) the limited partnership; (f) the stock limited partnership; and (g) the consortium. In this memorandum we use the term “company” to indistinctively refer to any of the options described in this paragraph, including the branch, the corporation or any of the partnership, but excluding the consortium.

The branch and the corporation are the two most common options used by foreign companies to do business in Venezuela. The corporate features of the companies are set forth in the Venezuelan code of commerce.

Corporation

The Venezuelan corporation is owned by shareholders and is a legal entity separate and distinct from its shareholders. The corporation is indistinctively known as compañía anónima (C.A.) or sociedad anónima (S.A.).

Limited Liability

The liability of the shareholders of a corporation is limited to the payment of the nominal value (and premium, if any) of the shares such shareholder owns. As a general rule, the shareholders of the corporation are not liable for the obligations of the corporation.

However, most Venezuelan commentators accept the piercing of the corporate veil by a Venezuelan court in the event of certain exceptional circumstances, such as: (a) when the corporate form −a legal and valid mean to conduct business− has been intentionally used against the purpose of the law to circumvent the application of a mandatory rule or to attain an otherwise illegal result (fraude a la ley or fraus legis); or (b) when there has been an abuse of the corporate form that has caused damages or an unfair consequence (abuso de derecho). Venezuelan courts have also accepted the application of the piercing of corporate veil when the separation of the legal entity from its shareholders would produce an unfair situation or when the corporate form is abused to avoid a legal consequence. In addition, the Constitutional Chamber of the Venezuelan Supreme Court issued a widely criticized opinion (Transporte Saet case) in which it applied the piercing of corporate veil doctrine without explaining or invoking an exceptional circumstance to do so. In the decision, the Supreme Court held that any company that is part of an economic group may be held liable for the obligations of any other party of the group. Note however, that this decision was related to a labor matter.

Foreign Direct Investments

The only areas currently reserved to companies owned or controlled by Venezuelan investors are open-air television, radio broadcasting, newspapers in Spanish and professional services regulated by law. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies.

Foreign investors (i.e., foreign companies (head offices), foreign shareholders or foreign partners) must register their direct foreign investments in a Venezuelan company (branch, corporation or partnership) with the Venezuelan foreign investment authority within 60 days following the date on which investment was made (the “foreign investment registration”).

Several documents must be submitted to the Venezuelan foreign investment authority by the foreign investor to obtain the foreign investment registration, including evidence that the capital of the company was paid with foreign currency or contribution in kind that entered Venezuela. To obtain such evidence, the foreign investor must (a) in case of payment in cash, order a wire transfer to the Venezuelan bank account of the company from an account of the foreign investor located outside Venezuela (as a result of the wire transfer, foreign currency transferred out of the offshore account of the investor will be converted into bolivars at the official exchange rate and deposited in bolivars in the Venezuelan bank account), and (b) in the case of contribution in kind, demonstrate that the asset being contributed to the capital of the company was imported into Venezuela (copies of the import manifest, commercial invoice and other custom documents).

The foreign investment registration must be updated annually by the foreign investor within 120 days of the end of the fiscal year.

Financing a company

The corporation must have a stated or subscribed capital (“stated capital”), which is the amount of capital that the shareholders of the corporation agree to subscribe.

Although there are no statutory minimum capital requirements applicable to the stated capital, each Venezuelan commercial registry sets forth a minimum stated capital requirement on a case-by-case basis or depending on the purpose of the corporation.

The stated capital of the corporation can be paid in cash or in kind. In case of payment in cash, at least 20% of the stated capital must be paid by the shareholders at the time of the registration of the shareholders’ meeting approving the incorporation of the corporation or the corresponding capital increase (the amount of stated capital already paid by the shareholders is known as “paid-in capital”). Payment in cash of the stated capital must be made by a deposit in bolivars in a bank account opened with a Venezuelan bank under the name of the corporation. In case of payment in kind, assets for a value equal to 100% of the stated capital must be contributed to the corporation. To be eligible for foreign investment registration, the stated capital must be paid out of foreign currency or assets brought into Venezuela from abroad.

The stated capital of the corporation is represented by shares. The shares can only be issued in registered form (bearer shares are not permitted). All shares must have a par value (valor nominal), and such par value must be denominated in bolivars. The stated capital of the corporation is equal to the sum of the nominal value of the shares.

The corporation can issue different classes of shares. Issuance of shares of different classes is convenient where different shareholders or groups of shareholders are each entitled to appoint a number of directors. Preferred shares can also be issued, granting their holders preferences in the payment of dividends, liquidation or otherwise.

The ownership of the shares of a corporation is evidenced by the notations made in the book of shareholders kept by the corporation. Shares can also be represented in certificates, but the issuance of share certificates is not required

The corporation must have at least two shareholders at the time of incorporation. However, immediately after incorporation, all the shares of the corporation may be transferred to one of the shareholders and thus the corporation may become a wholly-owned subsidiary of such shareholder.

The only areas currently reserved to companies owned or controlled by Venezuelan investors are open-air television, radio broadcasting, newspapers in Spanish and professional services regulated by law. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies.

As in most other jurisdictions, there are certain controls on money laundering which generally require banks and other professional bodies to identify clients and their sources of funding and to report suspicious transactions.

Opening a branch office

The registration of a branch (sucursal) in Venezuela by a foreign company does not result in a separate legal entity being formed in Venezuela. Therefore, the foreign company (head office) will be liable for all the obligations assumed by the branch.

The branch must be registered with a Venezuelan commercial registry located in the city of domicile of the branch, and such registration must then be published in a Venezuelan newspaper. The foreign company can choose the domicile of the branch.

The name generally used for the branch is the same name of the foreign company (head office) or its abbreviation followed by the expression Sucursal Venezuela (which means Venezuelan branch).

The branch must have at least one representative. The branch representative will have full powers to represent and manage the branch, except for the power to sell or transfer the business (unless such power is expressly granted to the representative). Any limitations to the powers of the representative are not effective against third parties. If the branch representative is not a Venezuelan citizen, he may have to obtain a working visa in order to sign documents on behalf of the branch before public notaries or registries in Venezuela.

The foreign company must assign a capital to the branch (capital asignado or “branch capital”). The branch capital does not constitute a limitation of the liability of the foreign company (head office), since the branch is not considered a legal entity separate from the foreign company. Although there are no statutory minimum capital requirements applicable to the branch capital, the Venezuelan commercial registry sets forth a minimum branch capital requirement on a case-by-case basis.

The branch capital must be paid by the foreign company (head office), either in cash or in kind. In case of payment in cash, an amount in bolivars equal to the branch capital must be deposited in a bank account opened with a Venezuelan bank under the name of the branch. In case of payment in kind, assets for a value equal to the branch capital must be contributed to the branch. To be eligible for foreign investment registration, the branch capital must be paid out of foreign currency or assets brought into Venezuela from abroad.

Unlike the corporation, the branch is not required to appoint statutory auditors or file annual balance sheets with the commercial registry. However, the branch is required to keep accounting books for tax purposes, i.e. the journal book, the ledger book, the inventory book and the VAT books.

The branch capital and any subsequent increases in the branch capital are subject to a registration tax equal to 1-2% of the branch capital, plus other registration fees and expenses, the tax depend on the commercial registry.

Filings with the Commercial Registry

All Venezuelan companies must be registered with a Commercial Registry. The Commercial Registry contains copies of the company’s articles of incorporation and by-laws, information on its standing (i.e. annual financial statements, liquidation or bankruptcy proceedings), registered address, directors and officers, the existence of branches, and other information. All information filed with the Commercial Registries is public. Companies must notify the Commercial Registry of changes to their articles of incorporation and by-laws and update other information filed with the registry. Companies must also file annual financial statements and periodically file minutes of shareholders appointing directors and officers.

Opening a bank account

Opening a Venezuelan bank account is required to incorporate a corporation or register a branch in Venezuela. The bank account shall be opened with a Venezuelan bank under the name of the corporation or the branch by one of its authorized representatives.

A non-resident (individual or corporation) can also open a bank account in Venezuela. The bank must only check the non-resident’s identity and capacity. In the case of a corporation, the requirements are: (i) the articles of incorporation duly apostilled or legalized by the Consulate of Venezuela in the respective country and translated in Spanish by interpreter public; (ii) the Fiscal Information Registry (RIF) issued by the Venezuelan fiscal authorities; (iii) the Identity Card for Venezuelan or foreign natural persons resident in the country, empowered to mobilize the account; and (iv) the minutes of shareholders meeting in which the authorization granted to the persons empowered to mobilize the account to act on behalf of the Company.

Additional information may be required by banks to better identify the corporation or the persons authorized to mobilize the account in accordance with anti-money laundering and other banking regulation.

Utilising office space

Office spaces may either be owned by the Company or rented. Multinational companies may often acquire offices or acquire land and construct their own offices, especially given the existing Venezuelan exchange controls, see section on Regulatory Compliance below.

Rental rates in Venezuela, and in particular in Caracas, are usually high, even when compared to international standards, Residential leases are strictly controlled under Venezuelan law; these controls do not apply to commercial leases.

Immigration controls

Foreign individuals intending to work in Venezuela are required to obtain a working visa or a business visa. Working visas grant their holders the right to a continued stay in Venezuela for an extendable one-year term, renewable for the same term, and authorize their holders to work in Venezuela as well as to enter into and depart from Venezuelan without restrictions. Business visas are granted to foreign citizens traveling to Venezuela to conduct business or to take part in commercial, technical, advisory, scientific, or cultural activities. Business visas are primarily designed for brief stays in the country and are valid for one year from the date of issue, renewable for the same term, entitling the holders to multiple entries during that term. However, under this type of visa the holder is limited to a maximum length of stay in the country of not more than six months. The process to obtain visas may be cumbersome.

The author of this post is Fulvio Italiani

The Bolivarian Republic of Venezuela (“Venezuela” or the “Republic”) is one of the largest Latin American economies, given its status as one of the world’s largest oil producers and exporters.

Over the last few years, however, the Venezuelan Government has nationalized a number of businesses in the telecom, power, oil, oil service, bank, and several other industries. The Government has also imposed price controls on many core goods and significant exchange control restrictions that limit the ability to purchase foreign currency.

Despite all these setbacks, Venezuela continues to be a country with significant business opportunities for foreign investors willing to assume risks.

The business environment

Venezuela has the fifth largest proven oil reserves in the world (and the largest in the Western Hemisphere), and the second largest proved natural gas reserves in the Western Hemisphere. If we include an estimated 235 billion barrels of extra heavy crude oil in the Orinoco Belt region, Venezuela holds the largest hydrocarbons reserves in the world. PDVSA, Venezuela’s oil and gas state-owned company, is one of the world’s largest oil companies: they have acknowledged that significant additional foreign investment would be required to achieve its production goals. The Government has signed joint venture agreements for the development of oil and gas projects with international partners from China, India, Italy, Japan, Russia, Spain, the United States of America, and Vietnam among others. All of this creates enormous business opportunities for companies in the oil and gas sector.

The Venezuelan market is also a significant source of profits for several multinational consumer-products makers operating in the country since Venezuelans spend a relatively high proportion of discretionary income on personal products and services, beverages and tobacco, apparel, communications (mobile and smartphones), TV and electronic products. In the next few years, imports are expected to increase much faster than exports with the expansion of consumer demand and the decreasing in the national production of consumer goods.

Venezuela has signed economic cooperation treaties with several countries, including Brazil, China and Russia, providing an adequate framework for investments in projects by companies from such countries.

Venezuela is also a party to international treaties to avoid double taxation with several countries that protect investors against certain changes in tax legislation and is a party to bilateral investment treaties with several European, Latin American and Asian countries, which provide for adequate compensation in case of expropriation or nationalization and access to international arbitration in a neutral forum. Despite Venezuela’s withdrawal from the International Centre for Settlement of Investment Disputes, several of the existing bilateral investment treaties permit arbitration under the UNCITRAL Arbitration Rules and the ICSID’s Additional Facility rules. In certain cases, the Venezuelan Government has reached agreements with foreign investors in businesses subject to nationalization and has paid compensation in U.S. dollars.

The Venezuelan government has engaged in infrastructure and other strategic projects with foreign investors under contracts providing for payments in foreign currency and, in certain cases, for international arbitration to settle potential disputes.

Venezuela is divided into three levels of government:  the national level, the state level and the municipal level.  There are 23 states, a capital district and various federal dependencies, and each state is divided into several municipalities.  The political structure of Venezuela is governed by the Constitution of 1999, as amended in February 2009.

At the national level, the government is divided in the executive, legislative, judicial, civic and electoral branches.  The President of Venezuela (the “President”) is the head of state, head of the national executive branch, and the commander-in-chief of Venezuela’s armed forces.  All executive powers are vested in the President.  The President is also entitled to veto laws passed by the National Assembly.

The national legislative power is vested in the Asamblea Nacional or National Assembly.  The National Assembly has only one chamber, and its members (diputados) are elected by universal suffrage for terms of five years, and may be re-elected for unlimited five-year terms.  The National Assembly is empowered to enact laws, which require the promulgation of the President and its publication in the Official Gazette to become effective.  The work of the members of the National Assembly is done through several Commissions and Sub-Commissions.

The judicial branch is vested in the Venezuelan Supreme Tribunal (Tribunal Supremo de Justicia) and various lower tribunals.  The Supreme Tribunal is the final court of appeals.  It has the power to void laws, regulations and other acts or decisions of the executive or legislative branches that conflict with the Constitution or the laws.  The current number of justices of the Supreme Tribunal is 32.  Justices of the Supreme Tribunal are appointed by the National Assembly for twelve-year terms

The Supreme Court has five chambers, the Constitutional Chamber, the Social Cassation Chamber, the Civil Cassation Chamber, the Criminal Chamber, Electoral Chamber and the Political-Administrative Chamber.  Each Chamber is composed of three justices, except for the Constitutional Chamber which is composed by five.

The Venezuelan court system is a national system; there are no state courts, but there are national courts sitting in each respective state.  Judges are appointed by the Supreme Court.  The jurisdictions of courts are divided by subject matter: civil, commercial, labor, tax, administrative, criminal and family, among others.

Venezuelan courts are generally biased in favor of the Venezuelan government (the Republic or Venezuelan state-owned companies); therefore, it would be very difficult to win a case against the Venezuelan government in a Venezuelan court. In addition, bringing judicial proceedings against the Venezuelan government may have adverse effects on the business of the claimant and on its ability to be awarded further projects or contracts from the government.

At the state level, the government is divided in the executive and legislative branches.  The executive branch of a state is in charge of its governor (gobernador) elected by universal suffrage within each state.  State legislative power is vested in state assemblies whose members are also elected by universal suffrage within each state.  States have virtually no taxing power but they may create taxes on non-precious metals and minerals that are not reserved to the State.

At the municipal level, the government is divided in the executive and legislative branches.  The executive branch of a municipality is in charge of its mayor (alcalde), elected by universal suffrage within each municipality.  Municipal legislative power is vested in municipal assemblies (consejos municipales) whose members (concejales) are also elected by universal suffrage within each state.  Municipalities are empowered to levy business tax on gross income and to approve construction projects in cities and other population centers.

 

The author of this post is Fulvio Italiani

The Bolivarian Republic of Venezuela (“Venezuela” or the “Republic”) is one of the largest Latin American economies, given its status as one of the world’s largest oil producers and exporters.

Over the last few years, however, the Venezuelan Government has nationalized a number of businesses in the telecom, power, oil, oil service, bank, and several other industries. The Government has also imposed price controls on many core goods and significant exchange control restrictions that limit the ability to purchase foreign currency.

Despite all these setbacks, Venezuela continues to be a country with significant business opportunities for foreign investors willing to assume risks.

Venezuela has the fifth largest proven oil reserves in the world (and the largest in the Western Hemisphere), and the second largest proved natural gas reserves in the Western Hemisphere. If we include an estimated 235 billion barrels of extra heavy crude oil in the Orinoco Belt region, Venezuela holds the largest hydrocarbons reserves in the world. PDVSA, Venezuela’s oil and gas state-owned company, is one of the world’s largest oil companies: they have acknowledged that significant additional foreign investment would be required to achieve its production goals. The Government has signed joint venture agreements for the development of oil and gas projects with international partners from China, India, Italy, Japan, Russia, Spain, the United States of America, and Vietnam among others. All of this creates enormous business opportunities for companies in the oil and gas sector.

The Venezuelan market is also a significant source of profits for several multinational consumer-productsmakers operating in the country since Venezuelans spend a relatively high proportion of discretionary income on personal products and services, beverages and tobacco, apparel, communications (mobile and smartphones), TV and electronic products. In the next few years, imports are expected to increase much faster than exports with the expansion of consumer demand and the decreasing in the national production of consumer goods.

Venezuela has signed economic cooperation treaties with several countries, including Brazil, China and Russia, providing an adequate framework for investments in projects by companies from such countries.

Venezuela is also a party to international treaties to avoid double taxation with several countries that protect investors against certain changes in tax legislation and is a party to bilateral investment treaties with several European, Latin American and Asian countries, which provide for adequate compensation in case of expropriation or nationalization and access to international arbitration in a neutral forum. Despite Venezuela’s withdrawal from the International Centre for Settlement of Investment Disputes, several of the existing bilateral investment treaties permit arbitration under the UNCITRAL Arbitration Rules and the ICSID’s Additional Facility rules. In certain cases, the Venezuelan Government has reached agreements with foreign investors in businesses subject to nationalization and has paid compensation in U.S. dollars.

The Venezuelan government has engaged in infrastructure and other strategic projects with foreign investors under contracts providing for payments in foreign currency and, in certain cases, for international arbitration to settle potential disputes.

Venezuela is divided into three levels of government:  the national level, the state level and the municipal level.  There are 23 states, a capital district and various federal dependencies, and each state is divided into several municipalities.  The political structure of Venezuela is governed by the Constitution of 1999, as amended in February 2009.

At the national level, the government is divided in the executive, legislative, judicial, civic and electoral branches.  The President of Venezuela (the “President”) is the head of state, head of the national executive branch, and the commander-in-chief of Venezuela’s armed forces.  All executive powers are vested in the President.  The President is also entitled to veto laws passed by the National Assembly.

The national legislative power is vested in the Asamblea Nacional or National Assembly.  The National Assembly has only one chamber, and its members (diputados) are elected by universal suffrage for terms of five years, and may be re-elected for unlimited five-year terms.  The National Assembly is empowered to enact laws, which require the promulgation of the President and its publication in the Official Gazette to become effective.  The work of the members of the National Assembly is done through several Commissions and Sub-Commissions.

The judicial branch is vested in the Venezuelan Supreme Tribunal (Tribunal Supremo de Justicia) and various lower tribunals.  The Supreme Tribunal is the final court of appeals.  It has the power to void laws, regulations and other acts or decisions of the executive or legislative branches that conflict with the Constitution or the laws.  The current number of justices of the Supreme Tribunal is 32.  Justices of the Supreme Tribunal are appointed by the National Assembly for twelve-year terms

The Supreme Court has five chambers, the Constitutional Chamber, the Social Cassation Chamber, the Civil Cassation Chamber, the Criminal Chamber, Electoral Chamber and the Political-Administrative Chamber.  Each Chamber is composed of three justices, except for the Constitutional Chamber which is composed by five.

The Venezuelan court system is a national system;  there are no state courts, but there are national courts sitting in each respective state.  Judges are appointed by the Supreme Court.  The jurisdictions of courts are divided by subject matter: civil, commercial, labor, tax, administrative, criminal and family, among others.

 

The author of this post is Fulvio Italiani

Enforcement of foreign decisions and arbitral awards in Venezuela

21 Março 2017

  • Venezuela
  • Arbitragem
  • Contratos
  • Contencioso

Exchange controls

The existing Venezuelan foreign currency regulations significantly restrict the ability of private sector companies and individuals to convert the local currency (“Bolivars” or “Bs”) into foreign currency. Because of these restrictions, it is extremely difficult for companies in Venezuela to repatriate profits generated in Bolivars by converting those Bolivars into foreign currency, or otherwise to convert Bolivars into foreign currency to purchase foreign supplies, to pay debt in foreign currency, etc.

The result of these restrictions is the continued generation of trapped cash in Bolivars that cannot be converted into foreign currency. The foreign currency restrictions can also affect the operations of Venezuelan companies if such operations depend on foreign supplies, unless the shareholders or other affiliates of such Venezuelan company are willing to support its operations with foreign currency generated abroad. Also, because of these restrictions Venezuelan companies may not be able to convert Bolivars into foreign currency to pay intercompany debt in foreign currency.

There are currently three different official exchange rates in Venezuela: (a) the Cencoex rate, fixed by the Venezuelan government from time to time, currently at Bs.6.30 per USD (the “Cencoex Rate”), (b) the Sicad rate, fixed by the Venezuelan government from time to time, currently at Bs.13.5 per USD (the “Sicad Rate”) and (c) the Simadi rate, which is in practice fixed by the Venezuelan government on a daily basis, currently at approximately Bs.200 per USD (the “Simadi Rate”). Given the significant restrictions to convert Bolivars into foreign currency, there also exists a parallel or black market, currently at several times the Simadi rate. The Cencoex Rate (Bs.6.30 per USD) appears as hugely overvalued, if compared to the other official rates (the Sicad Rate or the Simadi Rate) or to the black market rate.

Given the existing Venezuelan exchange controls, many Venezuelan companies have accumulated over the years significant amounts of excess cash in Bolivars that cannot be converted into Dollars.

Foreign Investment Regulations

The only areas currently reserved to companies owned or controlled by Venezuelan investors are open-air television, radio broadcasting, newspapers in Spanish and professional services regulated by law. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies.

Foreign investors (i.e., foreign companies (head offices), foreign shareholders or foreign partners) must register their direct foreign investments in a Venezuelan company (branch, corporation or partnership) with the Venezuelan foreign investment authority within 60 days following the date on which investment was made (the “foreign investment registration”). The foreign investment registration is one of the documents required to purchase foreign currency through Cadivi to repatriate dividends, branch profits, and proceeds from sales of investment, liquidation of the company or capital reductions.

Several documents must be submitted to the Venezuelan foreign investment authority by the foreign investor to obtain the foreign investment registration, including evidence that the capital of the company was paid with foreign currency or contribution in kind that entered Venezuela. To obtain such evidence, the foreign investor must (a) in case of payment in cash, order a wire transfer to the Venezuelan bank account of the company from an account of the foreign investor located outside Venezuela (as a result of the wire transfer, foreign currency transferred out of the offshore account of the investor will be converted into bolivars at the official exchange rate and deposited in bolivars in the Venezuelan bank account), and (b) in the case of contribution in kind, demonstrate that the asset being contributed to the capital of the company was imported into Venezuela (copies of the import manifest, commercial invoice and other custom documents).

The foreign investment registration must be updated annually by the foreign investor within 120 days of the end of the fiscal year.

Price Controls

The Fair Prices Decree with rank, value, and strength of Organic Law (the “Fair Prices Law”), provides for the possibility of the government to set the prices of any type of good or service sold in Venezuela. The Fair Prices Law creates the Single Registry of People which Develop Economic Activities (RUPDAE) in which all persons and companies that perform commercial activities in Venezuela must be registered. The National Superintendence to Defend Economic Rights (the “Superintendence”), created by this law, has established fixed prices for food, personal hygiene products among other products. Once a list of products is published, their price is frozen until the Superintendence sets the new price (in every level of the commercial chain). In cases in which the Superintendence does not set maximum retail prices, companies should self-regulate their prices, and in no case the maximum profit margin will exceed 30% for manufacturers and 20% for importers. The Superintendence may also establish the obligation to label the maximum selling prices in the body of the product. The Fair Prices Law has also created the following crimes related to commercial activities in Venezuela: (i) sale of expired food or products; (ii) import of unhealthy products; (iii) fraudulent alteration; (iv) hoarding; (v) boycotting; (vi) destabilization of the economy; (vii) resale of products of first necessity; (viii) conditioned sales; (ix) extraction smuggling; (x) usury; (xi) alteration of goods and services; (xii) speculation; (xiii) fraudulent alteration of prices; and (xiv) corruption between private parties. Sanctions are extremely onerous and may include: closure, confiscation of assets, fines and imprisonment.

Filings with the Commercial Registry

All Venezuelan companies must be registered with a Commercial Registry. The Commercial Registry contains copies of the company’s articles of incorporation and by-laws, information on its standing (i.e. annual financial statements, liquidation or bankruptcy proceedings), registered address, directors and officers, the existence of branches, and other information. All information filed with the Commercial Registries is public. Companies must notify the Commercial Registry of changes to their articles of incorporation and by-laws and update other information filed with the registry. Companies must also file annual financial statements and periodically file minutes of shareholders appointing directors and officers.

 

The author of this post is Fulvio Italiani

General principles

There are a number of general contracting principles under Venezuelan contract law. These principles are mainly regulated by the Venezuelan Civil Code. General civil law principles like freedom to contract, capacity to contract, and formation are applicable under Venezuelan law. Contracts can be written or oral and, in general, no formal requirement for a contract to be enforceable and valid, the parties should however make sure that the signatories acting on behalf of another person or entity have authority to execute the contract.

Choice of Law and Jurisdiction

In general, the choice of foreign law by the parties as governing law for contracts is binding under Venezuelan law, provided that foreign law does not contrive essential principles of Venezuelan public policy. Collateral granted on assets located in Venezuela and other contracts relating to real estate located in Venezuela are governed by Venezuelan laws.

Choice of foreign jurisdiction is valid under Venezuela law. A foreign judgment rendered by a foreign court is enforceable in Venezuela, subject to obtaining a confirmatory judgment in Venezuela.

Such confirmatory judgment could be obtained from the Supreme Tribunal of Justice of the Republic in accordance with the provisions and conditions of the Venezuelan law on conflicts of laws, without a review of the merits of the foreign judgment, provided that: (a) the foreign judgment concerns matters of private civil or commercial law only; (b) the foreign judgment constitutes res judicata under the laws of the jurisdiction where it was rendered; (c) the foreign judgment does not relate to real property interests over real property located in Venezuela and the exclusive jurisdiction of Venezuelan courts over the matter has not been violated; (d) the foreign courts have jurisdiction over the matter pursuant to the general principles of jurisdiction of the Venezuelan Statute on Conflicts of Law (pursuant to such principles, a foreign court would have jurisdiction over Venezuelan entities if such entities submit to the jurisdiction of such foreign court, provided that the matter submitted to the foreign jurisdiction does not relate to real property located in Venezuela and does not contravene essential principles of Venezuelan public policy); (e) the defendant has been duly served of the proceedings, with sufficient time to appear in the proceedings, and has been generally granted with procedural guarantees that secure a reasonable possibility of defense; (f) the foreign judgment is not incompatible with a prior judgment that constitutes res judicata and no proceeding initiated prior to the rendering of the foreign judgment is pending before Venezuelan courts on the same subject matter among the same parties to litigation; and (g) the foreign judgment does not contravene the essential principles of Venezuelan public policy.

The submission by the parties of an agreement to arbitration in a country outside Venezuela would be binding in Venezuela. Venezuela is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Pursuant to the New York Convention, arbitral awards are enforceable in Venezuela without requiring a confirmatory judgment in Venezuela (exequatur) or a retrial or re-examination of the merits. However, the Venezuelan court in charge of enforcing the award can review the causes of nullity of awards contemplated in the New York Convention.

Enforcement

In practice, enforcement proceedings in Venezuela are generally lengthy, complex and cumbersome, and may be challenged (and therefore delayed) by the affected party on many legal grounds, and may be suspended or delayed. From our experience, an enforcement proceeding may take from several months to a few years, depending on the circumstances and complexity of the case.

In addition, a judgment or award for money issued by a foreign court or arbitration panel would likely be enforced in Venezuela only in bolivars at the then existing Cadivi exchange rate, and then the company receiving the bolivars would have difficulties in converting such bolivars into foreign currency as a result of the existing exchange controls.

In light of the above, counterparties of Venezuelan companies (whether public or private) generally take into account the assets of such companies located outside Venezuela as the real guarantee or support for the contractual obligations of such Venezuelan companies.

Contractual clauses allowing one party to unilaterally terminate a contract without judicial intervention in case of breach of the obligations of the other party may be unenforceable, unless the terminating party is the Venezuelan government or a Venezuelan state-owned company. As a general rule, termination for breach of the other party requires a declaration by the court or the arbitral tribunal (in case the contract contains an arbitration clause).

 

The author of this post is Fulvio Italiani

The options available to foreign companies to set up business in Venezuela are (a) the registration of a branch; (b) the corporation; (c) the limited liability company; (d) the general partnership, (e) the limited partnership; (f) the stock limited partnership; and (g) the consortium. In this memorandum we use the term “company” to indistinctively refer to any of the options described in this paragraph, including the branch, the corporation or any of the partnership, but excluding the consortium.

The branch and the corporation are the two most common options used by foreign companies to do business in Venezuela. The corporate features of the companies are set forth in the Venezuelan code of commerce.

Corporation

The Venezuelan corporation is owned by shareholders and is a legal entity separate and distinct from its shareholders. The corporation is indistinctively known as compañía anónima (C.A.) or sociedad anónima (S.A.).

Limited Liability

The liability of the shareholders of a corporation is limited to the payment of the nominal value (and premium, if any) of the shares such shareholder owns. As a general rule, the shareholders of the corporation are not liable for the obligations of the corporation.

However, most Venezuelan commentators accept the piercing of the corporate veil by a Venezuelan court in the event of certain exceptional circumstances, such as: (a) when the corporate form −a legal and valid mean to conduct business− has been intentionally used against the purpose of the law to circumvent the application of a mandatory rule or to attain an otherwise illegal result (fraude a la ley or fraus legis); or (b) when there has been an abuse of the corporate form that has caused damages or an unfair consequence (abuso de derecho). Venezuelan courts have also accepted the application of the piercing of corporate veil when the separation of the legal entity from its shareholders would produce an unfair situation or when the corporate form is abused to avoid a legal consequence. In addition, the Constitutional Chamber of the Venezuelan Supreme Court issued a widely criticized opinion (Transporte Saet case) in which it applied the piercing of corporate veil doctrine without explaining or invoking an exceptional circumstance to do so. In the decision, the Supreme Court held that any company that is part of an economic group may be held liable for the obligations of any other party of the group. Note however, that this decision was related to a labor matter.

Foreign Direct Investments

The only areas currently reserved to companies owned or controlled by Venezuelan investors are open-air television, radio broadcasting, newspapers in Spanish and professional services regulated by law. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies.

Foreign investors (i.e., foreign companies (head offices), foreign shareholders or foreign partners) must register their direct foreign investments in a Venezuelan company (branch, corporation or partnership) with the Venezuelan foreign investment authority within 60 days following the date on which investment was made (the “foreign investment registration”).

Several documents must be submitted to the Venezuelan foreign investment authority by the foreign investor to obtain the foreign investment registration, including evidence that the capital of the company was paid with foreign currency or contribution in kind that entered Venezuela. To obtain such evidence, the foreign investor must (a) in case of payment in cash, order a wire transfer to the Venezuelan bank account of the company from an account of the foreign investor located outside Venezuela (as a result of the wire transfer, foreign currency transferred out of the offshore account of the investor will be converted into bolivars at the official exchange rate and deposited in bolivars in the Venezuelan bank account), and (b) in the case of contribution in kind, demonstrate that the asset being contributed to the capital of the company was imported into Venezuela (copies of the import manifest, commercial invoice and other custom documents).

The foreign investment registration must be updated annually by the foreign investor within 120 days of the end of the fiscal year.

Financing a company

The corporation must have a stated or subscribed capital (“stated capital”), which is the amount of capital that the shareholders of the corporation agree to subscribe.

Although there are no statutory minimum capital requirements applicable to the stated capital, each Venezuelan commercial registry sets forth a minimum stated capital requirement on a case-by-case basis or depending on the purpose of the corporation.

The stated capital of the corporation can be paid in cash or in kind. In case of payment in cash, at least 20% of the stated capital must be paid by the shareholders at the time of the registration of the shareholders’ meeting approving the incorporation of the corporation or the corresponding capital increase (the amount of stated capital already paid by the shareholders is known as “paid-in capital”). Payment in cash of the stated capital must be made by a deposit in bolivars in a bank account opened with a Venezuelan bank under the name of the corporation. In case of payment in kind, assets for a value equal to 100% of the stated capital must be contributed to the corporation. To be eligible for foreign investment registration, the stated capital must be paid out of foreign currency or assets brought into Venezuela from abroad.

The stated capital of the corporation is represented by shares. The shares can only be issued in registered form (bearer shares are not permitted). All shares must have a par value (valor nominal), and such par value must be denominated in bolivars. The stated capital of the corporation is equal to the sum of the nominal value of the shares.

The corporation can issue different classes of shares. Issuance of shares of different classes is convenient where different shareholders or groups of shareholders are each entitled to appoint a number of directors. Preferred shares can also be issued, granting their holders preferences in the payment of dividends, liquidation or otherwise.

The ownership of the shares of a corporation is evidenced by the notations made in the book of shareholders kept by the corporation. Shares can also be represented in certificates, but the issuance of share certificates is not required

The corporation must have at least two shareholders at the time of incorporation. However, immediately after incorporation, all the shares of the corporation may be transferred to one of the shareholders and thus the corporation may become a wholly-owned subsidiary of such shareholder.

The only areas currently reserved to companies owned or controlled by Venezuelan investors are open-air television, radio broadcasting, newspapers in Spanish and professional services regulated by law. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies.

As in most other jurisdictions, there are certain controls on money laundering which generally require banks and other professional bodies to identify clients and their sources of funding and to report suspicious transactions.

Opening a branch office

The registration of a branch (sucursal) in Venezuela by a foreign company does not result in a separate legal entity being formed in Venezuela. Therefore, the foreign company (head office) will be liable for all the obligations assumed by the branch.

The branch must be registered with a Venezuelan commercial registry located in the city of domicile of the branch, and such registration must then be published in a Venezuelan newspaper. The foreign company can choose the domicile of the branch.

The name generally used for the branch is the same name of the foreign company (head office) or its abbreviation followed by the expression Sucursal Venezuela (which means Venezuelan branch).

The branch must have at least one representative. The branch representative will have full powers to represent and manage the branch, except for the power to sell or transfer the business (unless such power is expressly granted to the representative). Any limitations to the powers of the representative are not effective against third parties. If the branch representative is not a Venezuelan citizen, he may have to obtain a working visa in order to sign documents on behalf of the branch before public notaries or registries in Venezuela.

The foreign company must assign a capital to the branch (capital asignado or “branch capital”). The branch capital does not constitute a limitation of the liability of the foreign company (head office), since the branch is not considered a legal entity separate from the foreign company. Although there are no statutory minimum capital requirements applicable to the branch capital, the Venezuelan commercial registry sets forth a minimum branch capital requirement on a case-by-case basis.

The branch capital must be paid by the foreign company (head office), either in cash or in kind. In case of payment in cash, an amount in bolivars equal to the branch capital must be deposited in a bank account opened with a Venezuelan bank under the name of the branch. In case of payment in kind, assets for a value equal to the branch capital must be contributed to the branch. To be eligible for foreign investment registration, the branch capital must be paid out of foreign currency or assets brought into Venezuela from abroad.

Unlike the corporation, the branch is not required to appoint statutory auditors or file annual balance sheets with the commercial registry. However, the branch is required to keep accounting books for tax purposes, i.e. the journal book, the ledger book, the inventory book and the VAT books.

The branch capital and any subsequent increases in the branch capital are subject to a registration tax equal to 1-2% of the branch capital, plus other registration fees and expenses, the tax depend on the commercial registry.

Filings with the Commercial Registry

All Venezuelan companies must be registered with a Commercial Registry. The Commercial Registry contains copies of the company’s articles of incorporation and by-laws, information on its standing (i.e. annual financial statements, liquidation or bankruptcy proceedings), registered address, directors and officers, the existence of branches, and other information. All information filed with the Commercial Registries is public. Companies must notify the Commercial Registry of changes to their articles of incorporation and by-laws and update other information filed with the registry. Companies must also file annual financial statements and periodically file minutes of shareholders appointing directors and officers.

Opening a bank account

Opening a Venezuelan bank account is required to incorporate a corporation or register a branch in Venezuela. The bank account shall be opened with a Venezuelan bank under the name of the corporation or the branch by one of its authorized representatives.

A non-resident (individual or corporation) can also open a bank account in Venezuela. The bank must only check the non-resident’s identity and capacity. In the case of a corporation, the requirements are: (i) the articles of incorporation duly apostilled or legalized by the Consulate of Venezuela in the respective country and translated in Spanish by interpreter public; (ii) the Fiscal Information Registry (RIF) issued by the Venezuelan fiscal authorities; (iii) the Identity Card for Venezuelan or foreign natural persons resident in the country, empowered to mobilize the account; and (iv) the minutes of shareholders meeting in which the authorization granted to the persons empowered to mobilize the account to act on behalf of the Company.

Additional information may be required by banks to better identify the corporation or the persons authorized to mobilize the account in accordance with anti-money laundering and other banking regulation.

Utilising office space

Office spaces may either be owned by the Company or rented. Multinational companies may often acquire offices or acquire land and construct their own offices, especially given the existing Venezuelan exchange controls, see section on Regulatory Compliance below.

Rental rates in Venezuela, and in particular in Caracas, are usually high, even when compared to international standards, Residential leases are strictly controlled under Venezuelan law; these controls do not apply to commercial leases.

Immigration controls

Foreign individuals intending to work in Venezuela are required to obtain a working visa or a business visa. Working visas grant their holders the right to a continued stay in Venezuela for an extendable one-year term, renewable for the same term, and authorize their holders to work in Venezuela as well as to enter into and depart from Venezuelan without restrictions. Business visas are granted to foreign citizens traveling to Venezuela to conduct business or to take part in commercial, technical, advisory, scientific, or cultural activities. Business visas are primarily designed for brief stays in the country and are valid for one year from the date of issue, renewable for the same term, entitling the holders to multiple entries during that term. However, under this type of visa the holder is limited to a maximum length of stay in the country of not more than six months. The process to obtain visas may be cumbersome.

The author of this post is Fulvio Italiani

The Bolivarian Republic of Venezuela (“Venezuela” or the “Republic”) is one of the largest Latin American economies, given its status as one of the world’s largest oil producers and exporters.

Over the last few years, however, the Venezuelan Government has nationalized a number of businesses in the telecom, power, oil, oil service, bank, and several other industries. The Government has also imposed price controls on many core goods and significant exchange control restrictions that limit the ability to purchase foreign currency.

Despite all these setbacks, Venezuela continues to be a country with significant business opportunities for foreign investors willing to assume risks.

The business environment

Venezuela has the fifth largest proven oil reserves in the world (and the largest in the Western Hemisphere), and the second largest proved natural gas reserves in the Western Hemisphere. If we include an estimated 235 billion barrels of extra heavy crude oil in the Orinoco Belt region, Venezuela holds the largest hydrocarbons reserves in the world. PDVSA, Venezuela’s oil and gas state-owned company, is one of the world’s largest oil companies: they have acknowledged that significant additional foreign investment would be required to achieve its production goals. The Government has signed joint venture agreements for the development of oil and gas projects with international partners from China, India, Italy, Japan, Russia, Spain, the United States of America, and Vietnam among others. All of this creates enormous business opportunities for companies in the oil and gas sector.

The Venezuelan market is also a significant source of profits for several multinational consumer-products makers operating in the country since Venezuelans spend a relatively high proportion of discretionary income on personal products and services, beverages and tobacco, apparel, communications (mobile and smartphones), TV and electronic products. In the next few years, imports are expected to increase much faster than exports with the expansion of consumer demand and the decreasing in the national production of consumer goods.

Venezuela has signed economic cooperation treaties with several countries, including Brazil, China and Russia, providing an adequate framework for investments in projects by companies from such countries.

Venezuela is also a party to international treaties to avoid double taxation with several countries that protect investors against certain changes in tax legislation and is a party to bilateral investment treaties with several European, Latin American and Asian countries, which provide for adequate compensation in case of expropriation or nationalization and access to international arbitration in a neutral forum. Despite Venezuela’s withdrawal from the International Centre for Settlement of Investment Disputes, several of the existing bilateral investment treaties permit arbitration under the UNCITRAL Arbitration Rules and the ICSID’s Additional Facility rules. In certain cases, the Venezuelan Government has reached agreements with foreign investors in businesses subject to nationalization and has paid compensation in U.S. dollars.

The Venezuelan government has engaged in infrastructure and other strategic projects with foreign investors under contracts providing for payments in foreign currency and, in certain cases, for international arbitration to settle potential disputes.

Venezuela is divided into three levels of government:  the national level, the state level and the municipal level.  There are 23 states, a capital district and various federal dependencies, and each state is divided into several municipalities.  The political structure of Venezuela is governed by the Constitution of 1999, as amended in February 2009.

At the national level, the government is divided in the executive, legislative, judicial, civic and electoral branches.  The President of Venezuela (the “President”) is the head of state, head of the national executive branch, and the commander-in-chief of Venezuela’s armed forces.  All executive powers are vested in the President.  The President is also entitled to veto laws passed by the National Assembly.

The national legislative power is vested in the Asamblea Nacional or National Assembly.  The National Assembly has only one chamber, and its members (diputados) are elected by universal suffrage for terms of five years, and may be re-elected for unlimited five-year terms.  The National Assembly is empowered to enact laws, which require the promulgation of the President and its publication in the Official Gazette to become effective.  The work of the members of the National Assembly is done through several Commissions and Sub-Commissions.

The judicial branch is vested in the Venezuelan Supreme Tribunal (Tribunal Supremo de Justicia) and various lower tribunals.  The Supreme Tribunal is the final court of appeals.  It has the power to void laws, regulations and other acts or decisions of the executive or legislative branches that conflict with the Constitution or the laws.  The current number of justices of the Supreme Tribunal is 32.  Justices of the Supreme Tribunal are appointed by the National Assembly for twelve-year terms

The Supreme Court has five chambers, the Constitutional Chamber, the Social Cassation Chamber, the Civil Cassation Chamber, the Criminal Chamber, Electoral Chamber and the Political-Administrative Chamber.  Each Chamber is composed of three justices, except for the Constitutional Chamber which is composed by five.

The Venezuelan court system is a national system; there are no state courts, but there are national courts sitting in each respective state.  Judges are appointed by the Supreme Court.  The jurisdictions of courts are divided by subject matter: civil, commercial, labor, tax, administrative, criminal and family, among others.

Venezuelan courts are generally biased in favor of the Venezuelan government (the Republic or Venezuelan state-owned companies); therefore, it would be very difficult to win a case against the Venezuelan government in a Venezuelan court. In addition, bringing judicial proceedings against the Venezuelan government may have adverse effects on the business of the claimant and on its ability to be awarded further projects or contracts from the government.

At the state level, the government is divided in the executive and legislative branches.  The executive branch of a state is in charge of its governor (gobernador) elected by universal suffrage within each state.  State legislative power is vested in state assemblies whose members are also elected by universal suffrage within each state.  States have virtually no taxing power but they may create taxes on non-precious metals and minerals that are not reserved to the State.

At the municipal level, the government is divided in the executive and legislative branches.  The executive branch of a municipality is in charge of its mayor (alcalde), elected by universal suffrage within each municipality.  Municipal legislative power is vested in municipal assemblies (consejos municipales) whose members (concejales) are also elected by universal suffrage within each state.  Municipalities are empowered to levy business tax on gross income and to approve construction projects in cities and other population centers.

 

The author of this post is Fulvio Italiani

The Bolivarian Republic of Venezuela (“Venezuela” or the “Republic”) is one of the largest Latin American economies, given its status as one of the world’s largest oil producers and exporters.

Over the last few years, however, the Venezuelan Government has nationalized a number of businesses in the telecom, power, oil, oil service, bank, and several other industries. The Government has also imposed price controls on many core goods and significant exchange control restrictions that limit the ability to purchase foreign currency.

Despite all these setbacks, Venezuela continues to be a country with significant business opportunities for foreign investors willing to assume risks.

Venezuela has the fifth largest proven oil reserves in the world (and the largest in the Western Hemisphere), and the second largest proved natural gas reserves in the Western Hemisphere. If we include an estimated 235 billion barrels of extra heavy crude oil in the Orinoco Belt region, Venezuela holds the largest hydrocarbons reserves in the world. PDVSA, Venezuela’s oil and gas state-owned company, is one of the world’s largest oil companies: they have acknowledged that significant additional foreign investment would be required to achieve its production goals. The Government has signed joint venture agreements for the development of oil and gas projects with international partners from China, India, Italy, Japan, Russia, Spain, the United States of America, and Vietnam among others. All of this creates enormous business opportunities for companies in the oil and gas sector.

The Venezuelan market is also a significant source of profits for several multinational consumer-productsmakers operating in the country since Venezuelans spend a relatively high proportion of discretionary income on personal products and services, beverages and tobacco, apparel, communications (mobile and smartphones), TV and electronic products. In the next few years, imports are expected to increase much faster than exports with the expansion of consumer demand and the decreasing in the national production of consumer goods.

Venezuela has signed economic cooperation treaties with several countries, including Brazil, China and Russia, providing an adequate framework for investments in projects by companies from such countries.

Venezuela is also a party to international treaties to avoid double taxation with several countries that protect investors against certain changes in tax legislation and is a party to bilateral investment treaties with several European, Latin American and Asian countries, which provide for adequate compensation in case of expropriation or nationalization and access to international arbitration in a neutral forum. Despite Venezuela’s withdrawal from the International Centre for Settlement of Investment Disputes, several of the existing bilateral investment treaties permit arbitration under the UNCITRAL Arbitration Rules and the ICSID’s Additional Facility rules. In certain cases, the Venezuelan Government has reached agreements with foreign investors in businesses subject to nationalization and has paid compensation in U.S. dollars.

The Venezuelan government has engaged in infrastructure and other strategic projects with foreign investors under contracts providing for payments in foreign currency and, in certain cases, for international arbitration to settle potential disputes.

Venezuela is divided into three levels of government:  the national level, the state level and the municipal level.  There are 23 states, a capital district and various federal dependencies, and each state is divided into several municipalities.  The political structure of Venezuela is governed by the Constitution of 1999, as amended in February 2009.

At the national level, the government is divided in the executive, legislative, judicial, civic and electoral branches.  The President of Venezuela (the “President”) is the head of state, head of the national executive branch, and the commander-in-chief of Venezuela’s armed forces.  All executive powers are vested in the President.  The President is also entitled to veto laws passed by the National Assembly.

The national legislative power is vested in the Asamblea Nacional or National Assembly.  The National Assembly has only one chamber, and its members (diputados) are elected by universal suffrage for terms of five years, and may be re-elected for unlimited five-year terms.  The National Assembly is empowered to enact laws, which require the promulgation of the President and its publication in the Official Gazette to become effective.  The work of the members of the National Assembly is done through several Commissions and Sub-Commissions.

The judicial branch is vested in the Venezuelan Supreme Tribunal (Tribunal Supremo de Justicia) and various lower tribunals.  The Supreme Tribunal is the final court of appeals.  It has the power to void laws, regulations and other acts or decisions of the executive or legislative branches that conflict with the Constitution or the laws.  The current number of justices of the Supreme Tribunal is 32.  Justices of the Supreme Tribunal are appointed by the National Assembly for twelve-year terms

The Supreme Court has five chambers, the Constitutional Chamber, the Social Cassation Chamber, the Civil Cassation Chamber, the Criminal Chamber, Electoral Chamber and the Political-Administrative Chamber.  Each Chamber is composed of three justices, except for the Constitutional Chamber which is composed by five.

The Venezuelan court system is a national system;  there are no state courts, but there are national courts sitting in each respective state.  Judges are appointed by the Supreme Court.  The jurisdictions of courts are divided by subject matter: civil, commercial, labor, tax, administrative, criminal and family, among others.

 

The author of this post is Fulvio Italiani