HR and tax alert
Executive summary The Government under Special Powers given by the Congress published several Decrees in a Special Official Gazette N 6,152 dated 18 November 2014. Among other changes, the Decrees (numbers 1,435, 1,434 and 1,436) enact reforms to the Income Tax Law affecting the definition of taxable employment income, to the Master Tax Code affecting the statute of limitations for assessment of tax and penalties and to the Value Added Tax affecting rate and administration of the tax. The reforms Reform of Article 31Employment and other income:
Article 31: Net income includes all compensation or profit, regular and accidental, that individuals receive for their employment, regardless of the nature of the income, other than travel allowances and food bonuses. Additionally net income includes interest from loans and other credit granted from foreign financial institutions that are not domiciled in Venezuela, as well as income from shares with progressive taxation established in this law.
Venezuelan tax changes affect individuals
Beginning with fiscal year 2015, all income received by employees, both regular and one-time payments such as wages, salaries, allowances, bonuses, non-wage benefits such as stock options, restricted stock units and any benefits other than per diem or representation expenses, are taxable for income tax purposes. With this reform the ruling published by the Venezuelan Supreme Court in Gazette 38.635 on 1 March 2007 and its clarification published in Gazette 38.646 on 16 March 2007, which established that net income included all income that employees received in a regular and continuous basis is no longer in effect. Reform of Articles 55 and 247 Statute of limitations and appeals Under the reform of Article 55 of the Master Tax Code the statute of limitations for a tax audit and assessment of tax and penalties is modified from four years to six years. Further, the statute of limitations is extended to six years for imposing fines, other than prison sentences, for demanding payment of tax debts and penalties as well as for the right to a refund of an overpayment of tax. The statute of limitations will increase to ten years when individuals do not comply with the tax obligations established by law.
HR and tax alert 2
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In addition, under the replacement of Article 247 with Article 257 of the Master Tax Code, the lodging of appeals against assessed fines or other actions taken by the Tax Authority will not affect the Tax Authoritys ability to enforce the fines or other actions. However, the taxpayer may request in writing a suspension if enforcement of the aforementioned acts causes serious harm. Reform of Articles 27, 33 and 57 of the Value Added Tax lawRate of tax and administrative matters Reform of Article 27 of the Value Added Tax establishes that the National Executive can set and modify the general tax rate applicable to the tax base between 8% and 16.5%. Modification of Article 33 establishes that a tax credit cannot be claimed after twelve tax periods from the date of issuance of the invoice. Article 57 establishes that electronic invoicing is mandatory. Implications With these tax changes, income tax will now be assessed on non-regular employment income, such as allowances, bonuses and equity awards. Interest income from non-Venezuelan financial institutions will also be subject to tax. The tax authorities now have a longer period of time during which to assess and collect tax and penalties, and appear to have more enforcement power than in the past.
Jose Antonio Velazquez Tel: +58 212 9056621 Email: Jose.A.Velazquez@ve.ey.com Ruben Zerpa Tel: +58 212 9056676 Email: Ruben.Zerpa@ve.ey.com