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TAX NEWS - 2010

Venezuela Tax: Government sets new restrictions on foreign exchange

Venezuela's central government signed an agreement with the central bank on 1 June 2022 (Exchange Agreement No. 18) that introduces new and draconian restrictions on the foreign exchange market. Both the government and the central bank subsequently issued regulations affecting foreign currency transactions.

The central bank is now the only institution through which foreign currency-denominated transactions can be carried out. A new system, the Foreign Currency Securities Transactions System (SITME), became effective on 9 June for the purchase and sale of foreign currency denominated transactions with a view to preventing speculation in the swap market.

These measures come on the heels of the government's decision in May to temporarily suspend the "parallel" or "unofficial" market, which consisted of swap transactions using government bonds denominated in U.S. dollars that enabled Venezuelan companies unable to obtain dollars from the foreign exchange commission (CADIVI) at the official exchange rate to access dollars.

Venezuela has operated a foreign exchange control regime since 2003. In January 2010, the government devalued the bolivar by almost half after several years of a fixed exchange rate of VEF 2.15 per USD 1 dollar and replaced it with a two-tiered exchange rate of VEF 4.3 per USD 1 for most imports and VEF 2.60 per USD 1 for essentials (e.g. food, medicine, etc.). However, this devaluation was insufficient to offset inflation and stimulate the economy, with the exchange rate on the parallel market skyrocketing to over VEF 8 per USD 1.

The government has again intervened: while it will allow a parallel currency to continue, the central bank will now act as the broker to ensure that the exchange rate remains in a range set by the bank.

Regulations issued by the Central Bank (Guidelines to Purchase Securities Denominated in Foreign Currency Through the Foreign Currency Security Transaction System) require that all purchases and sales (in bolivars) of foreign currency-denominated securities, issued or to be issued by the Venezuelan government, its agencies or other entities, be made via the SITME, and the regulations set out the procedures to be followed by Venezuelan resident legal entities and individuals for such transactions. The most important features of the regulations as follows:

- Purchases and sales of foreign currency-denominated securities may be carried out by banks and savings and loan institutions in accordance with the regulations established by the central bank.

- The central bank will determine which foreign currency-denominated securities may be bought or sold and will publish daily a band with a minimum and maximum price for the U.S. dollar.

- An entity or individual purchasing securities through SITME must provide accurate information to the authorized financial institutions by submitting an affidavit that demonstrates that they satisfy the conditions to acquire securities through SITME and that the funds resulting from operations will be used only for the purposes stated in the request.

- A legal entity (other than certain importers of goods and services) in Venezuela may purchase a maximum of USD 350,000 per month (further limited to a maximum of USD 50,000 per day) under the new foreign exchange swap market.

- Authorized financial institutions participating in the foreign exchange market must publicly announce the exchange rate and any commissions they receive.

- Penalties will be imposed for failure to comply with the central bank rules.

The new rules and foreign exchange market, which will affect any business with investments in Venezuela, will significantly limit Venezuelan companies' access to U.S. dollars.
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