Tax Guide for US Expats Living and Working in Venezuela
Who Is Liable For Income Taxes in Venezuela
Resident individuals are subject to tax on their net worldwide income. Residents are subject to tax if their annual worldwide gross income exceeds 1,500 tax units or if their annual worldwide taxable income exceeds 1,000 tax units. For the 2011 tax year, the value of a tax unit is Bs.F 76. For the 2010 tax year, the value of a tax unit was Bs.F 65. The Bolivar to tax unit ratio is modified each year by the tax administration subject to the approval of the National Assembly. Nonresident individuals are taxed on all income earned in Venezuela.
Individuals are considered resident for tax purposes if they are present in Venezuela for more than 183 days in the current or immediately preceding calendar year. An individual resident in a jurisdiction with which Venezuela has entered into a double tax treaty is protected under the independent or dependent personal services clause.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Taxable employment income consists of income from all sources earned for or relating to services performed in Venezuela, regardless of where the income is paid.
Severance indemnities received by employees or their beneficiaries and travel-expense reimbursements related to rendering personal services are excluded from total gross income.
Nonresident individuals are subject to a final withholding tax at a flat rate of 34% on salary income derived from Venezuela.
Self-employment and business income. Self-employed resident individuals are subject to income tax in accordance with the rules described in Employment income.
Annual gross income in excess of 1,500 tax units or net taxable income in excess of 1,000 tax units must be formally declared. To determine net taxable income, individuals may deduct all costs and expenses necessary to produce self-employment and business income.
Nonresident individuals are subject to a final withholding tax at a flat rate of 34% on income derived from Venezuela.
Directors’ fees. Directors’ fees relating to activities performed in Venezuela and received from resident companies are taxed as employment income at the rates.
In addition, an individual is subject to social security contributions on directors’ fees. The contribution is based on a percentage of monthly salary earned.
Investment income. Interest received by resident and nonresident individuals from savings instruments issued by Venezuelan banks and other financial institutions are tax-exempt. Other interest is aggregated with other income and taxed at the rates.
Nonresident individuals are subject to a final withholding tax at a rate of 34% on royalties derived from Venezuela.
Effective from January 2001, dividends paid by Venezuelan companies are subject to withholding tax at a rate of 34% to the extent that income before taxes exceeds net taxable income for tax years beginning on or after the effective date. “Income before taxes” is defined as financial income before tax reconciliation, and “net taxable income” is income subject to tax after tax reconciliation. Recipients are subject to tax at the same rate on dividends from non-Venezuelan companies, less any foreign taxes paid.
Capital gains. Capital gains are taxed with other income according to the Tariff No. 1 rates.
Deductions
Personal deductions and personal tax credit. Resident individuals are allowed to deduct the following items from gross income:
- Mortgage interest payments for a principal dwelling, limited to an amount equivalent to 1,000 tax units, rent payments for a principal dwelling, limited to an amount equal to 800 tax units.
- Payments to educational institutions in Venezuela for taxpayers and their children under 25 years of age. The age limit does not apply to expenses incurred on the education of handicapped children and adults under the tutelage of the taxpayer.
- Premiums for surgery, hospitalization and maternity insurance paid in Venezuela to domiciled companies (no limit).
- Medical, dental and hospitalization expenses incurred in Venezuela for the taxpayer, spouse and ascendants or descendants (no limit).
Deductible expenses incurred in Venezuela may offset only Venezuelan-source gross income. Foreign-source deductible expenses may offset only foreign-source income. The supporting documents for the tax return must contain the taxpayer’s tax information number.
Resident individuals have the option of applying a standard personal deduction equivalent to 774 tax units in lieu of the above-mentioned deductions.
Resident individuals receive an additional annual personal tax credit of 10 tax units. They are also entitled to a credit of 10 tax units for the spouse and each ascendant and descendant residing in Venezuela who is under legal age or who is disabled and incapable of working.
Business deductions. Individuals may deduct all expenses necessary to produce self-mployment and business income.
Rates. Resident individuals are subject to the tax rates of Tariff No. 1, which are applied to taxable income expressed in tax units (see Who is liable). The following are the applicable rates.
Relief for losses. Business losses of a self-employed person may be carried forward for three years. No loss carrybacks are allowed.
B. Inheritance and gift taxes
Residents, resident foreigners and nonresidents are subject to inheritance and gift taxes only on assets located in Venezuela. In heritance tax is levied at the following rates, which vary depending on the relationship of the beneficiary to the deceased or donor.
C. Social security
The social security system provides the following benefits:
- Medical assistance for the worker and the worker’s spouse, parents and children
- Indemnities for temporary disability and death
- Pensions for disability, old age and dependent survivors
E. Double tax relief and tax treaties
Income is separated into two baskets, one for foreign-source income and expenses and another for domestic-source income and expenses. Foreign taxes paid on the foreign-source income may offset the Venezuelan tax on that income only. However, losses in the Venezuelan-source basket may be offset against foreign-source income.
Venezuela has entered into double tax treaties with the following countries.
Austria
Germany
Portugal
Barbados
Indonesia
Spain
Belgium
Iran
Sweden
Canada
Italy
Switzerland
China
Korea (South)
Trinidad
Cuba
Kuwait
Tobago
Czech Republic
Malaysia
United Kingdom
Denmark
Netherlands
United States
France
Norway
Venezuela has also signed double tax treaties with Brazil, Mexico, Qatar and the Russian Federation, which have not yet entered into force. Treaties are currently under negotiation with Chile, Finland and India.
To learn more about the history, culture, economy and other information about Venezuela
We have been preparing US income tax returns for US Citizens and permanent residents living in Venezuela for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Venezuela and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Venezuela.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email