Corporate - Income determination

Last reviewed - 20 February 2020

Inventory valuation

Inventories may be valued at cost or the lower of cost or market value. Any method generally accepted for accounting purposes can be accepted for tax purposes.

Capital gains

Capital gains are taxable as ordinary income, and capital losses are deductible from ordinary income. Note that capital losses resulting from the sale of stock, capital reduction, or liquidation of a company are only deductible if they meet one of the following conditions:

  • The cost of the capital stock was not in excess of the price quoted on a stock exchange or an amount with a reasonable relationship to the book value of the capital stock.
  • The holding period of the investment was for at least two years immediately preceding the date of the sale.
  • The stockholder proves that the company selling the shares carried on economic activities for at least two years preceding the date of sale.

At present, the tax law contains two different rulings relevant to the deductibility of losses incurred through operations on the Venezuelan Stock Market, one of which has been described above. The second ruling pertains to income obtained from operations on the local market. This income is subject to a final 1% tax that is withheld at the source. Losses in this kind of operation are not deductible against other income. Corporate shareholders not domiciled in Venezuela may not deduct such losses from other taxable income other than dividends arising from Venezuelan sources.

Gains upon liquidation or reduction of capital are taxable to the liquidating entity.

Dividend income

A dividend tax is levied at a flat rate of 34% on the positive difference between book income and tax income generated after 2000. Book income is understood to be that approved at a shareholders’ meeting and based on the financial statements prepared pursuant to generally accepted accounting principles (GAAP). To determine the applicable difference, a last in first out (LIFO) method applies. The tax is triggered when a dividend is paid and shall be remitted via withholding. Withholding is to be made at the moment a dividend is declared or credited to the account of a recipient. The 34% (domestic) rate can be mitigated under tax treaties.

Dividends obtained from companies incorporated or resident abroad or incorporated abroad and resident in Venezuela are taxed at a flat 34% rate.

Stock dividends

Dividends of stock are subject to payment of the aforementioned dividend tax. Moreover, stock dividends are subject to an advanced payment of dividend tax equivalent to 1% of the dividend distributed. Stock dividends have no cost for tax purposes.

Interest income

Unless the debtor can prove otherwise, any sum paid by a debtor in excess of the principal is deemed to be interest. As a general rule, interest is sourced in Venezuela if it is derived from activities carried out in Venezuela or from property located in Venezuela. Specifically, interest is deemed to be derived from activities carried out in Venezuela if the loan principal is used or enjoyed in the country. Interest received by non-resident corporations is therefore subject to Venezuelan income tax if the loan is granted or invested in Venezuela.

Interest paid on loans granted by non-resident financial institutions is subject to a final withholding tax (WHT) at source at a rate of 4.95% on gross income. Interest paid to other non-resident legal entities is subject to tax at a rate of 34% applied to 95% of the gross income.

Royalty income

Royalties derived by non-residents are subject to income tax on 90% of gross receipts in the case of royalties and similar payments, other than those derived from mining activities, resulting in an effective WHT rate of 30.6%.

Foreign income

Extraterritorial income is subject to Venezuelan CIT based on the concept of worldwide income taxation, according to which:

  • Resident companies must pay a tax on total income whether from national or foreign source.
  • Non-resident companies with PE in Venezuela will pay tax on their income, whether of national or foreign source, attributable to the Venezuelan PE.
  • Non-resident companies will pay taxes on their income originated or caused in Venezuela.
  • Resident companies as well as non-resident companies with PE in Venezuela may credit the tax paid abroad for earnings of an extraterritorial source against the income tax payable in Venezuela, subject to limitations.
  • In general terms, taxation of foreign-source income is ruled by domestic provisions on taxation of territorial-source income. Foreign-source dividends are taxable when dividends are received. However, in case of investments located in a JLFT, anti-deferral rules in the international fiscal transparency regime apply (see below).

Foreign technical assistance and services

Taxable income of foreign taxpayers providing technical assistance or technological services from abroad to individuals or entities that use them in Venezuela or assign them to third parties is presumed to be 30% of gross income for technical assistance fees and 50% of gross income for technological service fees. If the contract does not specify the proportion in which the services are rendered, the law provides that 60% of the technical assistance and technological service fees are deemed to be rendered abroad (i.e. foreign-source), with the other 40% deemed to be rendered in Venezuela. The law also provides that 75% of the entire income related to technological services and 25% of that related to technological assistance is rendered abroad if not otherwise specified in the contract. See the Withholding taxes section for more information.

International fiscal transparency regime

A regime of international fiscal transparency is created for the purpose of establishing special standards of fiscal control, governing capital investments in countries classified as a JLFT, or tax havens. Under certain conditions, a Venezuelan taxpayer may be required to recognise income generated in its JLFT subsidiary on an accrual basis in its tax return.

Inflation adjustment

A system for the adjustment of non-monetary assets, non-monetary liabilities, and shareholder’s equity has been established. ‘Non-monetary assets’ include land, construction, machinery, vehicles, installations, inventories, and investments other than in securities (e.g. bonds and stocks).

There are two phases to the adjustments: (i) initial adjustments and (ii) annual adjustments. Both phases are mandatory adjustments for taxpayers engaged in commercial and industrial operations, and in the exploitation of mines and hydrocarbons. The annual adjustment is optional for taxpayers performing non-business activities.

The following taxpayers are excluded from the inflation adjustment: (i) taxpayers engaged in banking, financial, insurance, and reinsurance activities and (ii) taxpayers designated by the tax authorities as ‘special taxpayers’.

For those taxpayers subject to inflation accounting for tax purposes, the inflation adjustment is based on the National Consumer Price Index (NCPI).

Initial adjustment

The initial adjustment on depreciable fixed assets requires a registration tax of 3% on the amount of the adjustment.

The initial adjustment must be filed at the closing date of any fiscal year ending after 1 January 1993. This adjustment is applicable to all non-monetary assets and non-monetary liabilities.

The initial adjustment is calculated by applying the variations between the NCPI prevailing in the month in which the non-monetary assets were acquired and the month corresponding to the initial adjustment. Assets acquired before 1950 are deemed to have been acquired in January 1950.

A registry tax of 3% is applied exclusively to the initial revaluation adjustment of depreciable fixed assets. For payment, taxpayers must be registered with the Asset Revaluation Registry, maintained by the tax administration. The resulting tax may be paid in three consecutive annual instalments, beginning on the date of registration.

Companies in the pre-operating stage, deemed to end with the first invoice, must determine and pay a 3% tax once the pre-operating period has ended.

Depreciation or amortisation on the revaluation adjustment is allowed, based on the original estimated life of the asset.

Annual adjustment

The annual adjustment is applied each year in determining taxable income. The adjustment factor must be applied to the following balance sheet items at the closing date of the fiscal year. The resulting adjustment will increase or decrease taxable income.

Balance sheet items Adjustment factor Tax effect
Non-monetary assets:    
Inventories (including inventories in transit) (2) Annual variation of the NCPI Increase taxable income
Fixed assets (3) Annual variation of the NCPI Increase taxable income
Other assets, trademarks, patents, production licences, other rights, and investments in stock not registered in the Superintendencia Nacional de Valores (SNV) and deferred charges (except interest). Annual variation of the NCPI Increase taxable income
Investments in shares registered in the SNV Adjusted to the share market value at the end of the year Increase taxable income
Non-monetary liabilities:    
Deferred credits (except interest) Annual variation of the NCPI Decrease taxable income
Tax initial equity (1) Annual variation of the NCPI Decrease taxable income


  1. Tax initial equity is defined as the difference between assets and liabilities at the beginning of the tax year, less accounts receivable from administrators, affiliated companies, and related companies. In order to determine the initial tax equity, assets not located in the country, as well as goods, debts, and liabilities entirely applied to the production of deemed, exempt, or exonerated income, are excluded.
  2. Inventories are to be valued at historical cost for purposes of applying the NCPI. The provisions of the VITL detail the procedures for applying the NCPI. The revaluation of inventories in the tax year is included as part of the initial inventories of the following year.
  3. The annual revaluation adjustment of fixed assets is considered part of the cost when the assets are sold.

More recently, there has been a delay in publishing the NCPI. To date, the last NCPI published is that corresponding to September, 2019

Net losses arising from the annual adjustment that have not been offset cannot be carried forward.

Gains or losses originating from the adjustment of accounts receivable or investments, as well as debts and liabilities in foreign currency or with a re-adjustability clause, are deemed to be carried out during the fiscal year in which they become demandable, collected, or paid, whichever comes first.