Global Tax Alert (News from Americas Tax Center) | 8 August 2013

Venezuelan government implements new foreign exchange control adjustments

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Venezuela’s government has issued new guidance for the Supplementary System for Foreign Currency Administration (SICAD) mechanism.

Background

Since 23 January 2003, an exchange control regime has been in force in Venezuela, restricting the sale and purchase of foreign currency in the country, which is authorized by the Venezuelan Central Bank (BCV), through the official systems created for that purpose.

Up until 8 February 2013, Venezuela used two official systems for the acquisition of foreign currency at the official exchange rate, namely: (i) the system managed by CADIVI, at an exchange rate of Bs. 4.30 per US $1, and (ii) SITME, at an exchange rate of approximately Bs.5.30 per US $1.

However, beginning on 9 February 2013, the Government announced a Bolivar devaluation, establishing the official exchange rate at Bs. 6.30 per US $1.

As a result, the acquisition of foreign currency through CADIVI was fixed at Bs. 6.30, being applicable to international investments, payment of royalties, use and exploitation of patents, trademarks, licenses and franchises, as well as for payment of contracts for imports of technology and technical assistance, pursuant to Order No. 056 issued by the CADIVI, published in the Official Gazette of the Bolivarian Republic of Venezuela No. 38.006 on 23 August 2004.

In addition, on 9 February 2013 the Government announced the elimination of SITME, establishing that effective from that date, no sale bids or purchase orders for securities traded through SITME of the BCV could be processed.

In this sense, Exchange Agreement No. 21, published in the Venezuelan Official Gazette No. 40.134 on 22 March 2013, established that bids would have to be directed by the Superior Body for Optimization of the Exchange Rate System through a new system created for that purpose, called the Supplementary System for Foreign Currency Administration (SICAD), which is to be managed by BCV in accordance with the invitations to bid issued for such purposes. This Superior Body shall rule all the terms and conditions of the special bids for foreign currency, which shall be aimed at covering the import needs of the real local economy sectors.

Exchange Agreement No. 22

Following the above, Exchange Agreement No. 22, issued by the Central Bank of Venezuela (BCV) and published in the Venezuelan Official Gazette No. 40.199 of 2 July 2013, establishes that special foreign currency auctions through SICAD, managed by BCV, may be conducted with positions held by private sector individuals and corporations wishing to partake in such bids, by the Republic and BCV, and by any other entity expressly authorized by the latter’s Board of Directors.

Purchase of securities denominated in foreign currency through SICAD shall solely be aimed at obtaining foreign currency balances from the sale thereof at international markets, and shall be conducted by BCV authorized entities for the purpose of honoring the foreign currency liabilities for which they were acquired.

Based on the above, the aforementioned Exchange Agreement established that individuals may also participate in the special bids announced by the BCV, given that Exchange Agreement No. 21 only allowed corporations to partake in such bids.

Publication of Resolution providing for General Norms of the Supplementary System for Foreign Currency Administration (SICAD)

Resolution No. 13-07-01, issued by BCV, was published in the Official Gazette No. 40.200 of 3 July 2013, providing the General Norms of SICAD. In accordance with this Resolution, only individuals and corporations residing or domiciled in the country may submit bids for the acquisition of foreign currency or securities denominated in foreign currency through SICAD.

However, in the case of sales of foreign currency or securities denominated in foreign currency through SICAD, by the private sector, they may be conducted by any individual and corporation, even if not residing or domiciled in the country.

Applicants must previously register with the Register of Users of the Supplementary System for Foreign Currency Administration (RUSICAD), managed by BCV.

Transactions with SICAD shall solely be conducted through Authorized Entities, i.e., universal banks, commercial banks, and savings and loan entities currently in restructuring process. The Authorized Entity may differ from that used as an exchange operator for the purpose of performing transactions with CADIVI.

An Official Notice issued by the BCV and published in the Official Gazette No. 40.201 of 4 July 2013, stated that authorization is given to universal and micro-financial banks, as well as commercial banks, of development and savings and loan entities in restructuring process, to act as Authorized Entities for processing purchases and sales of foreign currency or securities denominated in foreign currency through SICAD.

Bolivar amounts corresponding to the payment of the awarded bids shall be cleared through BCV, which shall credit to the client’s Authorized Entity, the foreign currency amount to be transferred to the foreign currency deposit account indicated. Such account shall be kept either under a local or foreign banking system. Applicants must submit a sworn statement indicating that foreign currency obtained will solely be used for the purposes stated in the invitation to bid. Penalties have been established for the use of funds for purposes other than those for which they were requested.

In the case of corporations domiciled in the country, they may purchase foreign currency or foreign currency securities through SICAD, up to the maximum amount to be determined in the invitations to bid, under the assumptions set out therein, regarding:

  • Imports of goods and services for strategic sectors involved in high production chains; or

  • Imports of goods for economic-development enabling regions, which have not been given Foreign Currency Clearance Authorizations (ALD) by CADIVI, or which have not obtained foreign currency for ALD payment, in the 60 days prior to the date of the special auction announced.

For Foreign Currency Acquisition Authorizations (AAD) issued by CADIVI that are still in effect and unused and correspond to the same type of import for which foreign currency or securities have been requested from SICAD, corporations shall expressly waive, in writing, such requests or authorizations, as appropriate.

The above shall not apply to imports already conducted.

In the case of term transactions, foreign currency transfers shall be made once BCV is notified on the issue of the bill of lading. In the case of demand transactions, transfers shall be made at the request of the Authorized Entity, subject to prior verification of the final foreign

currency recipient being the supplier who issued the pro forma invoice of the respective import.

For processing a new request, applicants who have received the totality of the foreign currency awarded in prior auctions shall prepare an import closing statement to be filed with the Authorized Entity within the five banking days following the goods’ nationalization, submitting for such purpose the following documents: final commercial invoice, bill of lading, export manifest issued by the competent authority in the country of origin of the goods or goods’ nationalization document.

Individuals residing in the country may acquire foreign currency or securities denominated in foreign currency, under the following conditions:

  • For consumption expenses for travelling abroad.
  • For study abroad. For children under age, foreign currencies may be credited to a bank account held by their legal representative.
  • For expenses related to personal health recovery, scientific research, sports or cultural events, and any other special contingency.
  • For payment of goods required for the provision of professional services.

Full use of the annual allocation granted by CADIVI shall not be required.

Pursuant to the Transitional Provisions of this Resolution, individuals registered with the Register of Users of the System of Transactions with Foreign Currency Securities (RUSITME) shall be construed as fully registered with RUSICAD, except for corporations that, according to information provided by SENIAT, have not performed business activities during fiscal year 2012 or in the year immediately preceding the invitation to bid.

The Resolution containing the General Norms of the SICAD came into effect from the date of its publication in the Official Gazette on 3 July 2013.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Venezuela), Mendoza, Delgado, Labrador & Asociados, Caracas
  • Saul Medina
    +58 212 905 6716
    saul.medina@ve.ey.com
  • Juan Osorio
    +58 212 905 6626
    juan.osorio@ve.ey.com

EYG no. CM3712