Legislation for Foreign Investment Statutes in Countries in the Americas
Comparative Study
1. Legal bases for foreign investment
Objective: Indicate if there is a Foreign Investment Statute and describe it. In the paragraphs below, indicate the legal rank of the norms contained in the Statute, i.e., regulations for expropriation fall under which rank?
1.1 Constitutional
Paragraph 10, Article 190 of the National Constitution. Sole Article, third paragraph of the Law Approving the Cartagena Agreement (Bogota, May 20, 1969).
1.2 Legal
The legal regime in Venezuela is based on Decisions 291 and 292 of the Commission of the Cartagena Agreement, with force of Andean Community law.
1.3 Administrative
Decree 2,095 of February 13, 1992, published in the Official Gazette of the Republic of Venezuela No. 34,930 of March 25, 1992.
2. Concept and subject of foreign investment
Objective: It is essential that both the investor and the nature of the investment be identified, so as to determine to which activity and to whom the regulations will be applied. This is also essential at the international level, especially in case of dispute and arbitration.
2.1 Is foreign investment in your country legally defined or conceptualized?
Yes. Decision 291 of the Cartagena Agreement, Chapter I, Article of Decree No. 2,095.
a) Foreign Direct Investment: Contributions originating abroad, that are the property of foreign natural or juridical persons, made to the capital of a company, in freely convertible currency or tangible physical goods, such as industrial plants, new or reconditioned machinery, new or reconditioned equipment, spare parts, parts and pieces, raw materials, and intermediate products.
b) The investments and reinvestments made in accordance with these norms in national currency that is the property of foreign individuals or of foreign companies originating from capital gains, interest, amortization of loans, participations or other rights or any other resources that investors are entitled to transfer abroad.
c) That originating from the conversion of the foreign debt into investment, the property of foreign natural or juridical persons.
d) That originating from intangible technological contributions, such as trademarks, industrial models, technical assistance and patented technical know-how, that may be presented as physical goods, technical documents and instructions.
2.2 Are there registered records or mechanisms to clearly identify both the foreign investor and the nature of the investment?
Article 2, paragraph 1: The acquisition of stock and property rights of national or subregional investors on behalf of foreign investors made in conformity with the law, must be registered in the SIEX within 60 days following the date of the transaction.
Registry of foreign investments in:
a) Superintendency of Foreign Investment (SIEX)
b) Ministry of Mines
c) Superintendency of Insurance
d) Superintendency of Banks
e) General Sectoral Division of Public Finance, Ministry of Finance.
2.3 Is it possible for a natural person to resort to the foreign investment legislation?
Yes.
2.4 Is it possible for a citizen or resident to resort to the foreign investment regime?
A Venezuelan national may not.
2.5 Can a recipient company funded with both domestic and foreign capital resort to foreign investment regulations? Is this subject to restrictions?
Yes.
In the case of Investment Promotion and Protection Agreements, it must be a company controlled by the foreign investor of the state in question.
2.6 Is there a time limit for a foreign investor to be considered as such?
No.
2.7 Are restrictions imposed on the executive body or other staff of an enterprise. Are there nationality quotas? Under what conditions can the executives or other staff hired abroad send their earnings to their country of residence?
Nationality requirements: Organic Labor Law (Article 27):
"At least 90% of all workers in a company that employs 10 or more workers must be Venezuelans. In addition, remuneration of foreign staff, shall not be more than 20% of the total remuneration paid to workers of either category."
Organic Labor Law (Article 20): "Industrial relations chiefs, chief of personnel, captains of ships or airplanes, captains or whoever performs similar functions, shall be Venezuelans."
The general regime establishes no restrictions. The present system of freedom to acquire foreign exchange in the exchange market allows remittances of earnings abroad.
3. Scope of foreign investment activities
Objective: Define the legal scope of foreign investment in your country, as well as their conditions and limitations.
3.1 Describe the regulating principles of economic activity in your country.
a) Describe how economic freedom is guaranteed.
It is guaranteed in the National Constitution, Chapter V: Economic Rights, first paragraph of Article 96 and Article 98
Article 96: "Everyone may freely engage in the lucrative activity of his choice, with no other limitations than those provided in the Constitution and those established by law for reasons of safety, health or others of social interest. The law shall enact rules to prevent usury, undue price increases and, in general, abusive maneuvers directed toward obstructing or restricting economic activity."
Article 98: "The State shall protect private initiative, without prejudice to the right to execute measures for planning, rationalizing and promoting production, and regulating the movement, distribution and consumption of wealth in order to stimulate the country’s development."
b) Is the principle of economic nondiscrimination guaranteed? Describe how.
Yes. Article 15 of the National Constitution: Foreigners have the same duties and rights as Venezuelans, with such limitations or exceptions as are established by the Constitution or by law.
Decree 2,095, Article 13: "Foreign investors shall have the same rights and obligations to which national investors are liable...."
National treatment is established in the Investment Promotion and Protection Agreements.
c) Public and private enterprises (local and foreign): do they compete on equal terms, or does the State have higher benefits?
There is no juridical differences between public and private enterprises.
3.2 Indicate the scope of foreign investment, i.e., does it include movable and immovable property, assets, concessions, claims to money, intellectual property, industrial property, leasing, technology, etc.
All those mentioned (See Decree 2,095, Article 2). In Venezuela, the foreign investor is free to invest in practically all sectors of the national economy, save the sectors reserved by law.
3.3e Reserved sectors
a) Indicate the sectors or economic activities reserved exclusively for the state in your country. Explain the regulations pertinent to these areas.
a) Firearms and explosives. The Firearms and Explosives Law (Article 5). The National Government alone may establish factories for arms and munitions of war, in conformity with the previously cited regulations. The Venezuelan State does not grant concessions in this sector.
b) Petroleum and petroleum derivatives
Organic Law reserving to the State the hydrocarbons industry and trade, August 30, 1975.
Law reserving the natural gas industry to the State, August 12, 1971.
Law reserving to the State the exploitation of the domestic market of hydrocarbon derivatives.
The State reserves to itself all matters relating to the exploitation of deposits of petroleum, asphalt and other hydrocarbons found in the national territory, as well as their manufacture and refining, transportation by special means and storage, domestic and foreign trading of the substances exploited and refined, and the works necessary to carry them out.
The State reserves to itself the natural gas industry derived from hydrocarbon fields.
Investors may invest in this sector via two channels. First, through strategic associations with PDVSA on large projects; and, second, through investment in projects in marginal fields.
c) Mining
The State reserves to itself the exploitation of iron ore. The State reserves to itself the exploration and exploitation of all the minerals referred to in the law. The right to exploit minerals may only be acquired through concessions granted by the Executive. All national and foreign persons may acquire concessions, provided they are not foreign Governments or states or enterprises that depend on them.
d) Postal and Telegraph Services
Mail is a public service provided exclusively by the State.
The provision of mail services by private companies is a matter of concession by the competent authority, with prior approval by the Ministry of Transport and Communications.
e) Rail Transport Services
Railroads shall be constructed by the State or by private companies under a concession granted to natural or juridical persons domiciled in the country that are in no way connected with a foreign government. A foreign government may have no interest or share therein, by itself or through an intermediary.
f) Port and Waterway Operations
The Executive may grant specific concessions for the operation and management of ports for public and private use.
g) Air Traffic Control Service.
h) Navigation Aid Services
b) Indicate the sectors or economic activities in which only foreign investment is excluded, restricted or limited in your country. Explain in what consists said exclusion, restriction or limitation.
a) ansmission of radio and television programs and radio and television services.
Only Venezuelan nationals and Venezuelan companies which own more than 80% of the capital, may invest in radio and television.
b) Customs and tax services
Customs operations shall always be undertaken by a customs broker. To act as such: i) he must be a Venezuelan or a local company within the terms of the Cartagena Agreement; and ii) be established in the locality of the customs authority where he will operate.
c) Dairy products
The economic activity of milk dehydration is reserved to Venezuelans and Venezuelan companies in which foreigners may not own more than 40% of the equity. The equity of companies with foreign participation shall be distributed as follows: 1) at least 40% of the capital shall be owned by the milk suppliers of the company that dried the milk; 2) 20% of the capital must be owed by the State. The State shall sell 5% of its shares to the workers in the drying company and it shall sell the remaining 15% progressively to new producers who are incorporated as suppliers.
d) Maritime Transport
Shipping agents, to act as such before the maritime authorities, must be Venezuelans and in the case of juridical persons, at least 80% of the equity must be contributed by Venezuelan natural or juridical persons.
e) Air Transport
Only Venezuelans and Venezuelan juridical persons may register aircraft in Venezuela that are intended for public air transport services or private air service.
f) Specialized Air Services
Commercial air service operations that provide specialized air services or aerial works, pursuant to Venezuelan legislation, shall be carried out in accordance with the provisions of the license issued by the Ministry of Transport and Communications and may only be performed by companies with a minimum of 51% Venezuelan capital and Venezuelan technical staff, unless the latter is not available in the country.
g) Vacation Camps
Only Venezuelans, or foreigners with at least five years of uninterrupted residence in the country, may manage or operate tourist camps as owners and managers.
h) Organic Law of Security and Defense.
No foreigner may acquire, possess or hold, whether by himself or by an intermediary, without the written authorization of the National Executive through the Ministry of Defense, property or other rights to real property in the security zone on the border and in the security zone surrounding military bases and basic industries, save with the authorization of the Ministry of Defense.
i) Bus Terminal Services
This is within the competence of the National Executive who may grant concessions to private companies, Venezuelan corporations.
j) Professional services
Investment in companies providing professional services which are regulated by national laws is reserved to Venezuelan companies.
c) Does the Principle of International Reciprocity exist in the legislation of your country?
The National Executive has the right to apply the principle of international reciprocity in respect of investments in banking and insurance. Article 106 of the General Law on Banks establishes that "the National Executive, when he deems fit, may request conditions of reciprocity for Venezuelan capital from the countries of origin of the foreign capital participating in the national financial system."
The Law on Insurance and Reinsurance establishes in Article 42: "The National Executive, when he deems fit, may request conditions of reciprocity for national capital from the countries of origin of the foreign capital participating in the Venezuelan insurance system."
d) Is foreign investment subject to performance requirements?
Only for the automotive sector.
To enjoy tariff rebates on the importation of parts and pieces, assembly plants must incorporate a proportion of domestic parts. National parts are considered as parts originating in the Andean countries that are parties to the agreement.
The legal regulations containing this provision are: "Complementarity Agreement on the Automotive Sector, " signed by Colombia, Ecuador and Venezuela, September 13, 1993, in the framework of the Cartagena Agreement.
Decree No. 3,303 of December 22, 1993 (Rules for the Development of the Auto Industry).
Decree No. 121 of April 13, 1994.
Resolution No. 0001 on Rules for the Development of the Auto Industry, of January 2, 1995.
e) Can foreign investors take part in the privatization processes of your country?
For each case, a percentage of foreign investment is established in the privatization of Venezuelan public enterprises.
4. Rights and protection of foreign investment
Objective: Identify the type of treatment granted foreign investment i.e.: its rights, protection and incentives.
4.1 Treatment granted to the foreign investor and the investment.
a) National treatment or Most-Favored-Nation clause ? (Refer to paragraphs 3.1 and 3.3).
Venezuelan legislation grants national treatment. (Decision 291 and Decree 2,095). Foreign investors shall have the same rights and obligations to which national investors are liable, with the sole exception of the provisions of special laws and the limitations contained in this decree.
In addition, most favored nation treatment is granted in the Investment Promotion and Protection Agreements.
4.2 Protection of Property
a) Constitutional or legal grounds that may lead to expropriation of, or limitations to property.
National Constitution. Chapter V. Economic Rights. Articles 101, 102, 103 (Annex 1).
Law on Expropriation on grounds of public benefit or social interest. Title 1
Article 101: "The expropriation of any kind of property may be declared only on grounds of public benefit or of social interest, by final judgement and payment of fair compensation...."
Article 102: "Confiscation may not be decreed or executed except in the cases permitted in Article 250 (Article 250: "This Constitution shall not lose its validity or cease to be observed because of an act of force or repeal by any other means other than that provided in the Constitution....")
Article 103: "Lands acquired for the purpose of exploitation of mining concessions, including hydrocarbons and other combustible minerals, revert to full ownership by the nation, without indemnity of any kind, when the respective concession is terminated for any reason."
b) How is compensation determined? Which value is it based on? How is it settled?
The Expropriation Law on grounds of public benefit or social interest.
Article 3: "Expropriation will be done after: 1) Legal provisions that declares the benefit. 2) Declaration that its execution indispensably requires the transfer or alienation of the entire property or a part thereof. 3) Fair price of what is to be transferred or alienated. Payment of the price representing the indemnity."
Works of public benefit are deemed to be those which are directly intended for use or improvements to benefit the community (Article 2)
Articles 32, 33 and 35 of the Expropriation Law establish the procedure for setting fair price. If there is no agreement between the parties, the judge designates an appraiser. Among the elements taken into account in the appraisal are the tax value of the property, the value in the transfer records over the six months prior to the decree of expropriation, and average prices in the last twelve months.
c) Can the authorities take possession of expropriated assets prior to paying compensation?
Only exceptionally, the Expropriation Law permits temporary possession.
Article 47: "Any work declared of public benefit is liable to temporary possession of property belonging to another by the expropriator in the following cases only: 1. To study or undertake short-term operations in order to collect data for the formulation of the project or for the redesign of the work. 2. For the establishment of stations or provisional roads, workshops, warehouses, or storehouses for supplies, or any other required or the construction or repair of the work. Possession shall last for the minimum time necessary, and should not exceed six months. It may, however, be extended for the same period, and once only, on duly justified grounds."
Article 50: "The temporary occupant of another’s property shall indemnify the owner for damages, on just determination by experts, after hearing the respective owner."
Article 54: "In cases of force majeure or absolute necessity, such as fire, flood, earthquakes and so forth, the property of another may be temporarily occupied, by order of the police in the area."
d) Is property of both corporal and incorporeal assets equally guaranteed?
Yes
Industrial Property Law of 1955.
Decisions 344, 345 and 351 of the Cartagena Agreement
Paris Agreement on Industrial Property.
Berne Copyright Convention
Copyright Law of 1994.
Agreement establishing the World Intellectual Property Organization (WIPO)
Law approving the Marrakech Agreement.
Law approving the Free Trade Agreement with Mexico and Colombia.
Law approving the Paris Copyright Convention, July 1971.
Law approving the Convention for the Protection of Artists and others, October 1961.
4.3 Transfers of investment, remittances of capital and benefits.
a) Under what conditions may investments in the form of foreign exchange, capital goods, technology, associated credits, etc., be brought into the country? Are there specific regulations for each item?
There are no restrictions. Decree 2,095. Article 2, paragraph 1.
b) Are there restrictions to the remittances of capital, benefits, debt service, or other remittances derived from foreign investment?
The investment regime has established no limitations. Nevertheless, the foreign exchange control regime authorizes the remittance of profits only, save in the case of nationals of countries with which Investment Promotion and Protection Agreements have been signed. It is possible to remit capital through the free market of Public Debt Securities, denominated in dollars.
c) Are there different kinds of exchange ratets? To which does the foreign investor have access?
There is a single exchange market in which free mobility of foreign exchange is permitted into and out of Venezuela.
The exchange rate fluctuates in accordance with the market.
In addition, investments may be made through the bond market in Brady Bonds.
Regulation, published in the Official Gazette No. 292,283 of September 9, 1995.
It is free and governed by supply and demand.
4.4 Taxes and incentives to foreign investment.
a) Explain briefly the taxes that foreign investments are subject to.
Income Tax
Juridical persons are taxed on the income of economic activities in Venezuela or by virtue of property located in the country, based on the following scale:
Up to 2,000 tax units - 15%.
Between 2,000 and 3,000 - 20%
Over 3,000 - 34%
The capital gains tax rises to 1% on the gross income of the operation.
Interest on foreign credit - 4.95%
Technical assistance - 10.2%
Technology services - 17%
Royalties - 30.6%
b) Are there special tax rules for foreign investment?
No.
c) Has your country signed agreements with other countries in the Americas to avoid double taxation? If yes, list those countries.
No agreements have been signed with countries in the Hemisphere. Agreements of this type are in force with France and Italy only.
Double-taxation treaties on maritime and air transport have been signed with the following countries: Argentina, Brazil, Canada, Chile, Trinidad and Tobago, the United States.
d) Are there other incentives to foreign investment, such as access to domestic credit, investment insurance, industrial parks, customs exemptions, etc.?
Foreign investment enjoys the incentives common to all investments; therefore there are no incentives in Venezuela for foreign investment exclusively.
Common incentives exist in the agriculture, agroindustries, fishing, livestock, tourism, and hydrocarbons sectors. By the amendment to the Income Tax Law of May 25, 1994, tax rebates are granted to investments as indicated in the law.
5. Dispute settlement
Objective: Because Bilateral Investment Treaties (BITs) will be part of another study, only an overview of the subject is required here.
5.1 Domestic settlements: Can the foreign investor resort to the same procedures as the national investor? Are there special forms of appeal available to foreign investors? Please describe.
Yes (First question)
No (Second question)
5.2 International settlements: Is your country a member of ICSID or other international arbitration mechanisms on the subject of investment?
Venezuela is a member of ICSID; the Convention of New York on the Recognition of Arbitral Awards and is a party to the Multilateral Investment Guarantee Agreement (MIGA); it is also a member of the Inter-American Convention on International Commercial Arbitration.
5.3 Has your country signed BITs with other countries in the Americas? What is the present status of said agreements, i.e., approved, ratified, in effect?
Argentina, signed on November 16, 1993. Entered into force on July 1, 1995.
Barbados signed on July 15, 1994. Entered into force on October 31, 1995.
Brazil, signed on July 4, 1995. Not yet into force.
Chile, signed on April 2, 1993. Entered into force on May 25, 1995.
Ecuador, signed November 18, 1993. Entered into force on February 1, 1995.
Peru, signed on January 12, 1996.
Canada, signed on July 1, 1996.
5.4 Where in the juridical hierarchy of your country are international treaties and specifically the Investment Protection Agreements? Analyze your response in relation to the Constitution and domestic laws.
From a study of the Constitution, it may be inferred that a treaty duly ratified and published is applied directly with no need for enforcement measures, having the power to repeal existing laws. The treaty may not be repealed by a later law.
Article 8 of the Civil Procedure Code establishes: " In cases where Private International Law is applied, judges shall first consider public treaties of Venezuela with the respective State, on the point in question; where there are no such treaties, the provisions of laws of the Republic on the matter or what can be inferred from the spirit of national legislation shall apply; and finally, the generally accepted principles of such Law shall apply.
5.5 Do said agreements have "direct effect", that is to say, can they be invoked by the parties directly before the Courts and then applied to the case in question? If not, under what circumstances can they be invoked and applied?
See the reply to the preceding question.
6. National authorities
Objective: To identify the agencies in charge of foreign investment, their organization and functions.
6.1 Is foreign investment handled by specially appointed offices in your country? What is their hierarchical status? How are their actions integrated? What are their main attributions?
Superintendency of Foreign Investment, attached to the Ministry of Finance with the level of General Sectoral Division.
It is headed by an official called the Superintendent of Foreign Investment, who shall be designated by the Minister of Finance for a period of three years, and whose term of office may be ratified for periods of equal length.
Duties and functions: (See Article 9 of Decree 2,095).
The competent entity to report on investments is the National Investment Promotion Council (CONAPRI), which includes private and public sector participation.