Master Act for Coordination and Standardization of States and Municipalities’ tax powers (LOCAPTEM for its initials in Spanish)

by | Sep 20, 2023 | News Bulletins | 0 comments

On August 10, 2023, the Organic Act for the Coordination and Standardization of the Tax Powers of the States and Municipalities (LOCAPTEM and hereinafter the “Act”) was published in the Venezuelan Official Gazette No. 6.755 Special series. Its main purpose is to guarantee the coordination and standardization of states and municipalities’ tax powers, by establishing parameters, limitations, tax rates, and applicable rates.

This Act executes the statutory reserve set forth in article 156, section 13 of the National Constitution. According to the aforementioned article, the National Public Power (Venezuela’s Federal Government) is responsible for legislating on guarantees that ensure coordination and standardization of the different tax powers granted by the National Constitution, in favor of the three political-territorial levels granted with tax powers, which are the State (Federal level), the States (State level), and the Municipalities (Local level).

The Act is a commendable piece of legislation, but it has been criticized for not including taxes created, administered by the State, as well as parafiscal contributions destined to levy funds to a specific purpose by the State. Regardless of the exclusion of the previously stated taxes and para fiscal contributions, ultimately, they still have an impact and affect the general tax burden to which producers, traders, industrialists, and service providers are subject.

Here are some of the most relevant aspects of the Act:

Unit of account

The exchange rate of the highest value currency published by the Venezuelan Central Bank (BCV for its initials in Spanish) is established as the dynamic unit of account for the calculation of taxes, accessories, and penalties, notwithstanding that the obligations must be paid exclusively in the equivalent amount in bolivars (VES).

Limits to penalties

The quantification of penalties for tax violations or non-compliance with tax regulations of the states and municipalities must comply with the limits established in the Master Tax Code for equivalent, analogous, or similar factual situations.

Suppression of accredited collections or creditworthiness certificates

The tax administrations cannot request additional requirements to those contemplated in the regulations in force for the determination, returns, and payment of state and municipal taxes, as well as for registrations, enrollment, or requests for prior authorization. Procedures requiring unnecessary documents must be simplified, especially since they under the power of the authority that must process and decide the request or that are easily accessible.

Nullity and judicial protection 

Any interested person, as well as the Ombudsman’s Office, may go to the Constitutional Chamber of the Supreme Court of Justice to demand the nullity of state Acts and ordinances contrary to the provisions of the Act.

Digital repository

The states and municipalities must publish and keep updated in their electronic websites all their tax-related legal rules.

Higher Council for Tax Standardization

The Higher Council for Tax Standardization was created as an office of participation and consultation for the policy making aimed at the coordination and standardization of the execution of States and Municipalities’ tax powers. The Higher Council for Tax Standardization will be comprised of:

    • The Minister of Economy and Finance matters, who will act as Chairperson of it.
    • The highest authority of the National Tax Authority (SENIAT for its initials in Spanish).
    • Three governors.
    • Three mayors.

The Act also mentions the attributions of the Council, the Ministry of Economy and Finance matters, and the general obligations of the States and Municipalities.

TAX STANDARDIZATION

Economic Activity Tax (ISAE for its initials in Spanish)

The following maximum rates per activity are established.

Activities

Maximum Rate

Economic activity of industry, commerce, services or of  similar nature

3% of gross income earned

Mining, oil, advertising, alcoholic beverages, food, banking, and insurance, among others.

6.5% of gross income earned.

 

The Ministry of Economy and Finance matters shall issue the Standardized Classifier of Economic Activities, prior opinion of the Higher Council of Tax Standardization, for the purpose of reducing, simplifying, and standardizing the categories of activities to be considered for tax purposes.

The licenses or authorizations for the exercise of economic, industrial, commercial, service, and similar activities shall be valid for at least three (3) calendar years, without prejudice to the payment of the corresponding annual maintenance fee.

Regarding exonerations, the LOCAPTEM provides that the Municipal Ordinances may grant ISAE exonerations for the following activities:

  • Garbage and solid waste management.
  • Reincorporation of usable materials separated from solid waste into productive cycles.
  • Social assistance and public charity.
  • Housing construction for social purposes in the same municipality where the beneficiary has its permanent establishment.
  • Development of productive activities within the limits of lawfully established Special Economic Zones.

It also provides for the possibility of granting cuts of at least thirty percent (30%) of the ISAE payable, in favor of taxpayers who carry out the following activities:

  • Permanent sanitation, maintenance and/or improvement works in municipal areas.
  • Performance of economic activities through socio-productive community organizations.
  • Performance of activities that contribute to the socioeconomic development of the municipality, in accordance with the provisions of national development plans.

 

 

Urban and Peri-Urban Real Estate Taxes

The established cadastral appraisals in the Act will serve as basis for the determination of the Urban and Peri-Urban Real Estate Tax, according to the zone and type of construction, as a parameter for valuing the taxable bases and for determining the calculation of the Urban and Peri-Urban Real Estate Tax.

The Ministry of Economy and Finance matters shall establish annually, prior opinion of the Higher Council of Tax Standardization, the Chart of Values applicable for cadastral appraisals, cadastral registration, construction permits, occupational certificates, as well as for the determination of the Urban and Peri-Urban Real Estate Tax. The previous to guarantee the proportionality and adequacy of the values and to simplify the categories to be considered for tax purposes.

Standardization Measures for other Taxes

The following charts show the standardization measures, in terms of rates and taxable bases, of the following taxes:

  • State tax on the use of non-metallic minerals.
  • Municipal vehicle tax.
  • State tax on lending instruments.
  • State tax on any means of payment.
  • Service fees.

In any case, it should be noted that, for virtually all taxes, an additional administrative action is required by the Higher Council for Tax Standardization, either through a Single Classification of Economic Activities, for the ISAE, or through a Chart of Values applicable for the determination of taxable bases, in other cases.

 

State Tax on the use of non-metallic minerals

Taxable Base

Rate

Value per cubic meter of mineral extracted.

Between 1% and 20%.

 

Municipal vehicle tax

Type of Vehicle

Annual Fee

Motorcycles

Up to 10 times the official exchange rate

Private use

Up to 30 times the official exchange rate

Passenger transportation

Up to 40 times the official exchange rate

School transportation

Up to 30 times the official exchange rate

Light cargo transportation

Up to 40 times the official exchange rate

Heavy cargo transportation

Up to 120 times the official exchange rate

Other types of vehicles

Up to 20 times the official exchange rate

 

State tax on lending instruments

Taxable Base

Maximum Rate

Value of credit granted

One bolivar per thousand granted (1×1000).

 

State tax on any means of payment

Taxable Base

Maximum Rate

Amounts on payment orders

One bolivar per thousand (1×1000).

 It is caused at the time of issuance of the contractor’s payment order.

Stimulus to entrepreneurship

The Act also includes several measures to stimulate entrepreneurship. These measures include:

  • The establishment of a simplified tax regime for small businesses.
  • The exemption of certain taxes for businesses that operate in Special Economic Zones.

Standardization of Fees

The due proportionality between the cost of the public service provided and the benefit received or realized for the taxpayer must be guaranteed, considering the nature of the rates as an exceptional or complementary instrument in the provision of public spending.

The following is a descriptive chart of the maximum limits applicable to the following fees for services:

Rate

Amount

Garbage and solid waste Management Fee.

Up to the amount established in accordance with the special Act that regulates the matter, considering factors such as the amount of garbage generated, zoning, and other variables that guarantee the financial viability of the companies that provide the service.

General Inspection Fee.

Up to 0.10 the official exchange rate of the highest value currency published by the BCV.

Inspection fee for the sale of spices and alcoholic beverages.

Up to 0.20 the official exchange rate of the highest value currency published by the BCV.

Fee for obtaining copies and document certificates.

Up to 1 time the official exchange rate of the highest value currency published by the BCV for the first page of the document and up to 0.4 times the official exchange rate of the highest value currency published by the BCV per additional page.

Fee for the process of granting licenses, permits, authorizations, conformity, and solvency.

Up to 15 times the official exchange rate of the highest value currency published by the BCV.

Fee for maintenance of the license or authorization for the exercise of economic, industrial, commercial, service, and similar activities.

Up to 15 times the official exchange rate of the highest value currency published by the BCV.

Fee for use of public goods.

Up to 0.10 the official exchange rate of the highest value currency published by the BCV.

Fee for conservation and use of land roads.

Up to the amount established in accordance with the special Act that regulates the matter, considering the type of vehicle, length of the road and other applicable variables.

Service Enabling Fee.

Up to 100 times the official exchange rate of the highest value currency published by the BCV.

Fee for Non-Emergent Services

Up to 150 times the official exchange rate of the highest value currency published by the BCV.

It is important to note that these are just the maximum limits, and the actual rates may be lower. The specific rates will be determined by the States and Municipalities.

Standardization of Sealing Paper, Stamps and Labels

  • Proportionality and Sufficiency for Purpose: the amounts required for tax stamps, stamps and sealed paper must keep due proportionality and sufficiency with respect to the purpose of granting the corresponding authenticity to the official documents issued by the bodies and entities of the territorial political entity.
  • Electronic tax stamp: the states must implement the electronic tax stamp, which constitutes an instrument of different denomination that must be issued by the state tax authorities through an automated system, for which they must establish its characteristics, dimensions, and fiscal value through the corresponding legal instrument. issued for such purposes.
  • Limit of Tax Stamp, Stamps and Sealed Paper: the amounts required for fiscal stamps, stamps, and sealed paper, for each procedure or request, cannot exceed an amount 10 times the official exchange rate of the highest value currency published by the BCV in the case of natural persons. and 500 times the official exchange rate of the highest value currency published by the BCV, in the case of legal persons.

Repeal of state or municipal taxes not stated in this Act

With the entry into force of this Act, the provisions of state acts and municipal ordinances that establish different taxes to those provided for in the Constitution and the LOCAPTEM are repealed.

Entry in-force

This Act will enter in-force ninety (90) continuous days following the date of its publication in the Venezuelan Official Gazette, that is, it will enter in-force on November 10, 2023. The States and Municipalities must adapt their acts and municipal ordinances regarding taxes to the provisions of this Act, within a period of ninety (90) continuous days following its publication in the Venezuelan Official Gazette.

Early entry in-force

With the publication of the LOCAPTEM in the Venezuelan Official Gazette, articles 27, 28, 29, 32, 37 (Powers of the Higher Council for Tax Standardization), 44 and 45 (Economic activities excluded from the simplified regime), as well as the power granted to the Ministry of Economy and Finance matters to issue the value charts, referred to in articles 38 (Tax on the use of non-metallic minerals), 39 (Tax on vehicles) and 49 (Limits to Rates) of the Act enter in-force.

 

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