VENEZUELA: An Introduction

Labour & Employment a Venezuelan Overview 

Venezuela’s outlook for 2023 seems to be much better than for  previous years. 2022 saw GDP growth of 18.7%, according to the Banco Central de Venezuela (Venezuela’s Central Bank) (other sources 7%) and it is estimated that it will grow between 4.4% and 7.5% in 2023 (the highest growth in the region).

The global impact of the war in Ukraine is putting pressure on western countries to have reliable and easily available sources of oil & gas and Venezuela has been identified as a leading option to fill that market.

The opening towards Colombia may be followed by enhanced relations with Brazil and other countries in the Americas. There also seems to be a trend in the international community regarding the lift of sanctions which may open new opportunities for investment, not only in oil & gas but also in other areas, such as agroindustry, construction, infrastructure or electricity. To do so, it is necessary to make efforts to improve the legal stability of the country.

From a domestic perspective some of the most relevant features of the legal framework are the following:

Economics and Taxes 

Venezuela’s tax system includes:

(i) National taxes as IT (territorial and worldwide basis and tariff up to 35% on net income), VAT (16%), Large Networth Tax (0.25% on net patrimony) and financial transactions taxes (2% or 3-% on transaction value),

(ii) local or municipal taxes, as Economic Activities tax IAE and Real State local taxes, and

(iii) several special tax contributions (social, sports, technology and sciences, among others).

Venezuela has an interesting double taxation net, and we have DTT with more than 35 countries including: Germany, Spain, Switzerland, USA, Italy, Portugal, amongst other countries, which is very interesting to keep in mind when promoting foreign investment.

The legislative agenda for 2023 includes the debate and approval of the following laws:

(i) “Harmonization and Coordination tax law” aiming at reducing the impact of double or multiple tax situations and to rationalize the applicable tax base and tariffs and a

(ii) E-commerce act.

Moreover, there have been benefits attached to importing  a large list of products for the last two years and recently an exoneration for importing hydrocarbons has been granted in favour of both public and private entities.

Labour  

 Venezuelan labour legislation is protectionist to employees, so the main challenge for employers is to improve remuneration schemes to minimise labour risks and guarantee the continuity of their operations and retain their personnel.

An informal dollarisation process has increased the adoption of foreign currency schemes of employee remuneration, the effects of which must be carefully measured.

Corporate and Merger & Acquisitions  

As of 2020, some changes in public policy have had a positive impact on the corporate environment, thus contributing to certain recovery signals in the economy. For example, there have been changes in relation to the lifting of the exchange control regime, a flexibilisation towards price control regulations, the eventual possibility of minimising the sanctions regime imposed by OFAC, among others.

Investors and entrepreneurs in areas such as hospitality, food, telecom, commerce among others, have seen their market opportunities improved.

Banking and Finance 

The Venezuelan banking sector has seen an improvement since the legal reserve was lowered from 85% to 73% in 2022. The monetary liquidity as well as the monetary base are lower than the previous trimester (January-March 2023), but both remained high at 20% and 18%, respectively; on the other hand, the Banking Superintendency (SUDEBAN for its acronym in Spanish) recently informed of an increase on the loan portfolio of 759.19% and of 1,473.07% on the microloans. Commentators have linked this improvement to the authorisation of Banks to grant legal tender loans using the proceeds obtained from operations with foreign currency.

Arbitration  

Arbitration has consolidated its position as a reliable and trustworthy alternative to dispute resolution, considering the current position of general litigation in the country and over the last few decades.

From a local perspective, Venezuelan-based ADR centers such as the Conciliation and Arbitration Business Center (CEDCA for its acronym in Spanish) which is tied to the Venezuelan-American Chamber of Commerce and Industry (VenAmCham); as well as the Arbitration Center of the Chamber of Caracas (CACC for its acronym in Spanish) have built up their reputation as the two most prestigious and reliable ADR centers, gathering the attention of cases related mostly to commercial arbitration.

On the international stage, Venezuela has continued to be involved in international arbitration, specifically in investment arbitration. In spite of Venezuela in 2012 denouncing the ICSID Convention, investors have found ways and means to effectively raise their claims and have them addressed. Also, for commercial arbitration, ICC has been very active in hearing cases regarding Venezuela.

Oil & Gas 

Venezuela's oil production has increased in the first quarter of 2023. As reported by OPEC in its last monthly report, there has been an increase of 5.2% in the daily production in comparison with the last quarter of 2022; there are various elements that have helped oil production development in Venezuela, but most certainly the OFAC license to several oil & gas companies for the maintenance of their facilities located in Venezuela and to restart operations alongside with PDVSA has been very important. Moreover, considering recent events in the complex geopolitical scene, the OFAC seems to be taking a lighter approach on Venezuela's Sanctions, and so is the international community, allowing Venezuela's market to grow substantially. Recently, some companies participating in joint ventures operating in the Venezuela's oil & gas scene have been selling their shares, creating a chance for new foreign investment. A handful of experts also comment that the country could use the petroleum loan agreements to leverage its improvements in the industry.

Compliance  

In Venezuela, in terms of Compliance, it is relevant to highlight that, in recent years, especially since 2021, the regulatory bodies of the banking sector, insurance, securities market, tourism, virtual assets or crypto-assets, among other sectors of the national economy, have issued a set of legal regulations by which obligated parties are required to design, develop and implement a Comprehensive Risk Management System ("SIAR") for money laundering, money laundering and crypto-assets, have issued a set of legal regulations requiring the regulated entities to design, develop and implement a SIAR for Money Laundering, Financing of Terrorism and Financing the Proliferation of Weapons of Mass Destruction (LC/FT/FPDADM). To this end, these regulations provide, within the framework of the SIAR, for the implementation by regulated entities of a Compliance Program to mitigate, control and prevent ML/TF/TFDDM risks. In addition, it should be noted that Venezuela has recently enacted a new legal instrument for the fight against corruption. Indeed, on April 28, 2023, the Organic Law of Extinction of Commerce was published, a law that incorporates for the first time in the Venezuelan legal system the figure of "extinction of domain".