Doing Business in Latin America 2016

MOORE STEPHENS

PRECISE. PROVEN. PERFORMANCE.

Moore Stephens Latin America

MISSION

To drive clients success through a strong leadership of a cohesive and well resourced international network with a top- down culture of quality.

Vision

To be a leading, recognised and highly regarded international accounting and consulting network and the ﬁrst choice in our chosen markets.

Summary

Page 1 Executive Summary 4

2 Argentine 5

3 Belize 13

4 Bolivia 21

5 Brasil 30

6 Chile 46

7 Colombia 50

8 Costa Rica 56

9 Ecuador 65

10 El Salvador 74

11 Honduras 83

12 Mexico 91

13 Panamá 99

14 Paraguay 108

15 Peru 113

16 Dominican Republic 121

17 Suriname 129

18 Uruguay 136

19 Venezuela 146

20 Double Tax Treaties 153

MOORE STEPHENS

Executive Summary

PRECISE. PROVEN. PERFORMANCE.

1. Moore Stephens

Moore Stephens is a global network of accounting, auditing and consulting ﬁrms with presence in 108 countries and more than 28.000 professionals. Since 1907 Moore Stephens provides accountancy and tax services to corporate and individual clients.

Moore Stephens has been present in Latin America from more than 100 years and today has a well organized regional structure with approximately 55 ofﬁces and 2.700 professionals, including México. More information can be found on the website: https://mslaweb.moorestephens.com/

2. Tax Information

Doing Business in Latin America summarizes the corporate and personal tax systems of 18 countries in Latin America. This content is based on tax and legal information current to December 2016 unless otherwise indicated, and it is focused on the following aspects:

• Country Proﬁle • Foreign Investment regime: types of companies and their characteristics • Auditing and Accounting • Labor system: workforce employment, recruitment, types of contracts, conditions of employment, remuneration, etc. • Exchange control regulations • Tax system: number and types of taxes, tax payment, incentives • Protection for investors • Transfer pricing • International agreements and conventions

This publication is an overview and should not be seen as a complete explanation of the Tax systems in Latin America. It is subject to amendments in accordance with the laws in each country and multilateral agreements.

Neither Moore Stephens International, nor any member ﬁrms of the global network are responsible for actions incurred or omitted based on this publication. Further details may be found in local publications, we advice readers to consult with specialists in the Moore Stephens member ﬁrms in each country.

Moore Stephens Latin America December, 2016

Ar g e n t i n e

Argentine Republic

1. Contact ﬁrm identiﬁcation Moore Stephens - Suarez & Menéndez

1.1 Ofﬁce, address, telephone Maipú 942, Piso 12 C1006ACN Buenos Aires T +54 (11) 4103 9500 F + 54 (11) 4315 0959

2. Expert Professionals

CPA Mariel Castro Taxes partner [email protected]

According to the new education act, enacted CPA Julio Suarez onDecember 15, 2006, education is compulsory Taxes Partner forchildren aged between 5 and 18 years old. There are [email protected] public and private educational entities for all levels. The

State guarantees free education for all of them, except CPA Alejandro Galván for university postgraduate studies. Audits Partner [email protected] The currency unit is the Peso.However, the US dollar

and other foreign currencies can be used for internal 3. Country Proﬁle transactions. The Argentine Republic is a sovereign state, organized as a federal and representative republic, and it is After the deep crisis of 2001, inﬂation has remained in located in the South East end of America. Its territory is two digits. There is still a high level of intervention in divided into 23 provinces, and one autonomous city, the formation of some prices via subsidies, and, in Buenos Aires, the capital city of the nation, and seat of some cases, through indirect price controls. the federal government. With a population of 40 million inhabitants, its human development indices, per 4. Foreign Investment Regime - Types of capita income, economic growth level, and quality of Companies life are among the highest in Latin America. Due to its The types of business associations mostly used by extension, 2,780,400 km², it is the second largest state foreign investors in Argentina are corporations, limited in South America, fourth in the American continent, liability companies, and branches of foreign companies. and eighth in the world. Also, the use of partnership contracts, trusts, and

franchises has become ever more frequent. The Civil Despite the diverse origins of its population, the and Commercial Code, the Companies Act, as well as common language is Spanish, and its culture unifies the different specific laws form the legal system that the country. The youngest population has, in general, a entails contracts and companies. Companies and good command of the English language, and, as a certain commercial contracts must be registered with result of the Mercosur, many are learning Portuguese. the public registry of the jurisdiction of each province, In Argentina, there is great freedom of religion and of the Autonomous City of Buenos Aires. Items to guaranteed by section 14 of the National Constitution, be highlighted of the main company types, contracts even though the State recognizes a pre-eminent role of and legal entities: the Catholic Church, which has a separate legal status with regards to the rest of the churches and religions: • according to the Argentine Constitution (section 2), the Corporations • National State must uphold the Catholic Church, and, Limited Liability Companies according to the Civil Code, it is legally compared to a • Branches of Foreign Companies non-governmental legal entity of public law. All in all, it • Trusts is a separate regime which is not considered official as • Non-Profit Associations the religion of the Republic. • Foundations

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4.1 Corporations or Public Companies (SA) Public Registry, upon prior publication in the Official Capital is represented by shares, and shareholders limit Bulletin. It must have, at least, 1 member, and it cannot their liability to the payment of the shares subscribed. exceed 50 members. Its capital is divided into shares, and members limit their liability to the payment of the Corporations are formed by one or moreshareholders, shares they subscribe or acquire. The liability of the and shares can be in the hands of private holders or members is joint and several, provided the capital is they can be traded in the Stock Exchange, since its subscribed but not paid up. All the shares grant 1 shares are negotiable and transferrable. This is the only voting right and no kind of benefits in the allocation of type of company that can offer shares publicly. The profits. Regarding management and government, it has shareholders' liability is limited to the capital subscribed managers which roles are extended indefinitely, and and paid up. Regarding the form of management and decisions are made at the shareholders’ meetings. Its government, it is managed by a board of directors, and shareholders can only be individuals. decisions are taken at the shareholders’ meeting. The company name must compulsorily include the Directors are chosen at the meeting, and they are terms "Sociedad de responsabilidadlimitada" (Limited personally liable for their acts. They must be residents Liability Company), or its abbreviation, or the acronym or native Argentineans. Shareholders can be individuals "SRL". or companies, both national and foreign. 4.3 Branches of Foreign Companies In the event a shareholder was a foreign company, In order for a company to be able to operate as a prior to participating in the creation of the local branch, it is necessary to prove the existence of the corporation, its by-laws must be registered with the parent company abroad. The articles of organization, Board of Legal Entities (IGJ), and its legal existence must by-laws, or company agreement must be registered be provenin the country of origin. A legal with the Public Registry, and representatives must be representative must be appointed, and a legal domicile appointed and registered in the same manner. must be established in the Argentine Republic. Branches are subject to control by the board of legal Corporations cannot be created in a fiscal paradise, and entities, and they must comply with the same they must maintain assets thatexceed the value of requirements as those demanded for corporations those to be invested in Argentina. Once a year, through subject to said control. Branches must keep separate their legal representative, they must confirm before the accounts from those of the parent company, and they Board of Legal Entities their continuity within the must file their financial statements with the board of category required by the laws in force in the Argentine legal entities. There is no minimum capital required for Republic. their creation.

All corporations are subject to supervision and control 4.4 Joint Ventures by government authorities. There are different types of joint ventures that could be classiﬁed as ventures for collaboration or cooperation, Corporations are created by public deed, and they are and the ones mostly used are the collaborative registered with the Public Registry, the control authority associations, and the temporary joint ventures (UTE). In with local jurisdiction. In some cases, such as their the case of the temporary joint ventures (UTE), the corporate capital amount, having shares in the stock companies incorporated in the country and individual market or in connection to the national state, control is businessmen and/or companies incorporated abroad permanent. partner for the development or performance of a certain work, service, or supply within our outside the The corporate name must contain the terms country. This is not a company, it does not create a “sociedadanónima” (corporation) or its abbreviation, new legal subject. The term of the contract shall be the “S.A.”. Shares are nominative, and non-endorsable, work, service or supply that gave origin to the and they will require the appointment of an auditor, or partnership. The contract can be executed by a public an auditing committee. The current minimum corporate or private deed, and it must be registered together with capital amounts to Ar$ 100,000; in any case, it must be the appointment of its representative with the Public in accordance with the activity foreseen for the corpo- Registry of Commerce. They do not have capital of their ration. A name, corporate purpose, term, domicile, and own, but a Common Operative Fund formed by the termination date must be established at the moment of members, to whom it belongs in the percentage set incorporation. The termination date can be any month forth in the contract. A foreign company can be part of of the calendar year. an UTE if it conforms to the requirements demanded for the branches. 4.2 Limited Liability Company (SRL) It can be created by a public or private deed, and the articles of organization must be registered with the

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4.5 Other Types of Legal Entities and Contracts 6.1 Payment and Compulsory Annual Bonus Trusts The Federal Employment, Productivity, and Minimum A trust is capital subject to a certain purpose that Adjustable Living Wage Association (National implies the transfer of title of an asset or interest under Employment Act 24013) sets the minimum monthly a trust. It is a contract that efficiently accompanies living wage sum for monthly workers, and the day and financing, real estate development organization, hour wages for journal workers. Employed workers administration, debt reorganization, investment receive an additional compulsory payment (annual projects and mechanisms for the strengthening of bonus), which is paid in two annual instalments in June guaranties and agreements, among others. and December. Each instalment equals to 50% of the best monthly, normal, and usual wages of the Non-Profit Associations semester. These are legal entities that exercise a right of association, they are private, and their main purpose is 6.2 Term of the Labour Agreement the common good; they have their own capital, For Argentine legislation, the labour agreement is capacity to acquire property granted by their articles of informal and indefinite, except when its term of incorporation, they do not subsist entirely on State duration had been expressly established in writing, or allowances, and they are authorized to operate, under when the manner of performance of the tasks or the control of the laws in force of the Board of Legal activities reasonably appreciated so justify it. Entities. It shall be understood that the labour agreement will be Foundations performed on trial during the first three (3) months These are legal entities incorporated for the common after it becomes enforceable. Any of the parties may good, non-profit, by means of a capital contribution terminate the agreement without a cause during said made by one or more persons intended to the term, and said party will not be entitled to implementation of their purposes. To exist as such, they compensation regarding termination, but it will have must necessarily be created by means of a public deed, the obligation to give prior notice. and request and obtain the authorization from the State to operate. If the founder is an individual, it can order its creation as an act of last will. It is controlled by 6.3 Severance Payment for Unfair Dismissal the laws in force of the Board of Legal Entities. In case of unfair dismissal, the employer must pay the worker a severance payment equal to ONE (1) month Cooperative Associations wages for each year of service, or a fraction greater These are legal entities formed by individuals voluntarily than three (3) months, taking as a basis the best joined to form an organization which administration monthly, normal, and usual wages accrued during the and management must be carried out as agreed by the last year, or during the time of the rendering of members. The intention is to cover the economic, social services, if shorter. and cultural needs and aspirations common to all members by means of a company. The diversity of Said basis shall not exceed a sum equal to three (3) needs and aspirations forming the company purpose times the monthly wages of the sum resulting from the defines a very varied type of cooperative associations. average of all severance payments foreseen in the To exist as such, they must obtain the authorization labour agreement applicable to the worker at the time from the State to operate. They are controlled by the of dismissal. laws in force of the National Institute of Associations and Social Economy (INAES). The labour agreement shall not be terminated without prior notice, or, in lack thereof, without a severance 5. Auditing and Accounting payment. Prior notice must be given with the following The profession of the CPA is essentially self-regulated, anticipation: and the federation of professional associations is a member of IFAC. As such, it requires the adoption of • FIFTEEN (15) days when the worker is on trial; one international accounting and auditing regulations, (1) month when the worker had been employed for which became compulsorily applicable to open no more than five (5) years, and two (2) months companies as from January 1, 2012. when exceeding said term.

6. Labour Regulations The party failing to give notice, or giving undue notice, The basic requirements for incorporating personnel to a must pay the other party a substitutive indemnity equal company must comply with the labour regulations in to the wages that would correspond to the worker force in Argentina, and with the collective labour during the terms above mentioned. agreements.

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6.4 Vacations days) and non-remunerated reserves (rate reduction to The worker shall have a paid, annual, minimum and 0%). continuous annual vacation term with the following duration: fourteen (14) running days when seniority The Central Bank continued softening the regulations does not exceed five (5) years; twenty-one (21) running on exchange matters, meaningfully simplifying the days when seniority exceeds five (5) years but not ten general conditions under which the market exchange (10); twenty-eight (28) running days when seniority had been operating from 2002 until July 2016. exceeds ten (10) years but not twenty (20); and thirty-five (35) running days when seniority exceeds The new regulations set forth that the exchange twenty (20) years. operations can be made by means of an affidavit of the sum corresponding to the exchange operation, except 6.5 Social Security for the cases in which specific requirements are set, Social security taxes are shared by the employee and eliminating, in general, the obligation to justify each the employer. The employer cost can amount to 29% exchange operation with documentation. of the wages, while the worker pays, in average, 20% of his or her wages as a deduction, excluding the Likewise, operations for the creation of external assets income tax. Formation of the sums withheld or paid for of non-residents were no longer subject to an amount commerce employees, for example, are as follows: limit, and market access restrictions were eliminated when related to derivative transactions with 6.6 Employee Contribution counterparts abroad. On the other hand, the conditions Pension 10.17% - 11% to operate in the exchange market at extended times National Social Security Administration (INSSJYP)1.5 - were softened. 3% Required External Funds (FEN) 0.89%- 0% In order to access the exchange market to perform Family subside 4.44% - 0% transfers abroad for the payment of services, interest, Health insurance 6% - 3% profits, and dividends, and for the acquisition of Life insurance (1) Ar$ 2.46 per employee 0% non-financial assets not produced, if applicable, the Occupational Risk Insurer (ART) (1) 2-3% - 0% “Survey of the issuance of debt securities and external Business Employees Union (SEC) 0%- 2% liabilities of the financial and non-financial private Union 0% - 0.50% sector” for the debt being paid abroad and the “Survey Argentine Institute of Professional and Technological of Direct Investment” compliance affidavit must be Training for Commerce (INACAP) Ar$ 13.74 per submitted. employee (1), depending on the activity of the company BCRA (Central Bank of the Argentine Republic) regulations are constantly changing, so it is advisable to 6.7 Unions analyze any international transaction prior to its Act 23551 regulates the activity of the associations, execution. This includes both import and export which purpose is the defence of the rights of the work- operations. ers. 8. Tax System 7. Exchange Market The Argentine tax system is formed by As from mid-December 2015, meaningful changes national, provincial, and municipal taxes. In the national were introduced regarding the regulations of the scope, the main taxes are: exchange market operation for a better flexibility in exchange operations. 8.1 National Taxes: • Income Tax: It includes the transfer prices policy These modifications enabled the possibility for the • Assumed Minimum Income Tax entities authorized to operate in the exchange market • Personal Property Tax to perform arbitration and foreign currency exchange • Value Added Tax operations with their clients, and they softened • Bank Debits and Credits Tax conditions for residents to have access to the exchange • market to form external assets, and conditions for the Internal Taxes • repatriation of portfolio and direct investments of Personal Property Tax: Surrogate Decision Maker non-residents. • Real Estate Transfer Tax

Within the operated changes, the regulations of the 8.2 Provincial Taxes Ministry of Finance and Public Finances are included, • Territorial Taxes applicable to certain ﬁnancial debts and investments of • Turnover Tax non-residents for minimum terms (reduction to 120 • Stamp Tax

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Likewise, there are certain duties imposed by provinces there is a compensation mechanism through which or municipalities. debits generated by the sale of products can be paid through VAT which is paid when purchasing items, or 8.3 Taxes on Companies when paying services to third parties.Tax debit is generated when applying the net sales price to the 8.3.1 Income Tax current proportional rate of the tax. On the other hand, Pursuant to the Argentine Income Tax Act, residents tax credit is generated in the purchase of consumption pay this tax on the total amount of their income. goods, hiring of services, etc. The difference between Non-residents pay taxes only on their income derived the tax included in the sales (tax debit) and that taken from Argentine sources. from the invoices of the purchase of consumption goods and services (tax credit) constitutes the sum to Argentine companies must file their annual income tax be paid to tax authorities for each tax term. return together with their financial statements. The tax return must clearly reflect the adjustments made to Tax authorities implement a system of anticipated determine taxable earnings or losses, and the tax credit. withholdings before the tax debit deposit. Tax returns must be filed with the Federal Public Revenue Administration (AFIP) within a term of five There are some products and services that are months after the closing date of the financial year. exempted from this tax.

The income tax rates are as follows: The percentage added to the price as VAT is 21%. However, there are differential rates for sales or the Companies and diverse partnerships 35% rendering of services (for example, 27% in the case of Individuals (progressive rate) 5% to 35% the electrical power supply for a shop or professional Gambling 41.50% ofﬁce, provided such person is a Registered VAT Payer Proﬁts from Digital Platforms 41.50% or an Individual Tax Payer), and 10.50% for main activity. 8.3.2 Assumed Minimum Income Tax A 1% rate taxes international assets of Argentine 8.3.5 Bank Debits and Credits Tax companies. The payment of this tax and of the income This tax is levied upon bank account deposits and ex- tax can be mutually compensated. The term to take the tractions at a 0.6% rate. 34% of the tax on bank cred- payment of the assumed income tax on account of the its can be considered a payment on account of the in- Income Tax is extended to 10 years. come tax.

The Omnibus Money Laundering Act (27260) sets forth “Pymes”, Micro and Small companies can calculate the repeal of the tax for all taxpayers based on financial 100% of the tax as a payment on account of the In- statements starting as from January 1, 2019. come Tax. Mid-sized manufacturing companies may discount 50%. Another act exempts companies classified as “Pymes” (small and medium-sized enterprises) from the 8.3.6 Internal Taxes tax for financial statements as from January 1, 2017. This tax is levied upon alcoholic beverages, beers, non-alcoholic beverages, syrups, extracts, and 8.3.3 Personal Property Tax Surrogate Decision concentrates, automobiles and gas motors, cellular and Maker satellite telephone services, champagnes, sumptuous This tax is levied upon the net accounting assets of the objects, motor vehicles and motors, and recreational or company at a 0.5% rate at the end of the financial year sportive vessels and aircraft which will be applied on the shareholders' contributions, Argentine or alien pursuant to the provisions of this act. individuals, and foreign companies. In the case of alien individuals, the provisions established in the 8.3.7 Transfer Prices Agreements must be observed to avoid double taxation In 1998, the transfer price concept was introduced to in force. tax legislation according to the OECD guidelines. The election of the transfer prices method applicable in Act 27260 grants a benefit to the taxpayers that had Argentina depends on the information available, the complied with the tax during the two previous years, type of operations, and the magnitude of the necessary being exempted from 2016 to 2018. adjustments to achieve comparability.

8.3.4 Value Added Tax The Income Tax Act incorporated the following The value added tax (VAT) or “IVA” is levied upon methods to evaluate operations of all kinds, which consumption goods, and it applies to the sale of items, includes operations for tangible and intangible assets, to the rendering of services, and to the imports of services, and ﬁnancial operations: certain goods.To maintain VAT as a consumption tax, 9

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• Comparable prices (uncontrolled); abroad can be considered a payment on account of • Actual price; this statutory tax up to the limit of the tax burden • Additional cost; increase originated by adding the income obtained • Proﬁt splits; abroad.

• Net operational margin. Non-residents pay taxes only on the income derived

from Argentine sources. A transfer prices report must be carried out annually, and penalties for not ﬁling said report amount up to Residents in the Republic shall be individual persons Ar$ 45,000. living for more than 6 months in the country during

the course of the financial year. To all purposes of this The obligation to file Transfer Price reports is not only act, residents in the country shall also be individuals due to economic relations between the Principal residing abroad to the service of the Nation, provinces, Company and the local company but also due to or municipalities, and officers of Argentine nationality functional reasons, such as the dependence upon a acting in international organizations where the single supplier or client. Relations with tax havens Argentine Republic is a member State. always require the suitability of the operations to be proven, and the demonstration of the prices agreed as 8.4.2 Income Categories between independent parties. The law establishes the following four income categories: land income, capital income, company 8.3.8 Real Estate Transfer Tax income, work income, and personal income. The tax The transfer of ownership for real estate located in return reflects the net income for each category, and, Argentina which is owned by individuals or undivided after a deduction is made on the sums permitted by inheritance are taxed with a 1.5% rate provided said law, the profits or losses are determined subject to tax. operation is not taxed by the income tax. All information provided by tax payers in their tax returns is subject to review by the Federal Public 8.3.9 Real Estate Taxes Revenue Administration (AFIP). This provincial tax is levied upon real estate, and the rates and valuations depend on each zone and 8.4.3 Personal Deductions province. Resident individuals will be able to deduct certain sums

from their net income/revenue according to the 8.3.10 Turnover Tax following table, which is applicable to the ﬁnancial This is a tax on turnover. Each tax is levied upon each year 2016: commercial operation, without any tax credit given for taxes paid during prior terms. Rates vary depending on TABLE A activity and province, and they range from 1% to 5%. (In general, primary and industrial activities are exempted). Non-taxed income 51,967.00 Spouse 48,447.00 8.3.11 Stamp Tax Children (each) 24,432.00 Public and private documents, or certain operations, Other dependents --- require the payment of the stamp tax for their formal Special deducons 51,967.00 execution, and this applies to deeds, promissory notes, and leases or other types of agreements, among others. Special deducons increased 249,441.60

A new deduction is incorporated as item i) of section 8.3.12 Withholdings 81, which can be calculated by the taxpayer or the Some types of payments to non-residents are subject to originator (in case of undivided successions): the tax withholding. In accordance with certain guidelines, housing rent. the income tax, the value added tax and the turnover tax are withheld at the moment of payment. Therefore, based on the financial year for and 8.4 Individuals Tax including 2017, from the financial year’s profit, 8.4.1 Income Tax whichever the source of the profit, 40% can be de- All income obtained by individuals is taxed by the ducted from the sums paid as real estate rent intended income tax. for housing, and up to the limit of the sum established as a non-taxable minimum provided in item a) of Individuals referred to in the previous paragraph section 23 of the act. residing in the country are taxed on the total amount of their income obtained in the country or abroad. The For this deduction to apply, the taxpayer or the sums duly paid under similar taxes on their activities originator must not hold title to any real estate proper-

Ar g e n t i n e originator must not hold title to any real estate Taxable scale for individuals on Income Tax 2016: property, whichever the percentage.

8.4.4 Applicable Rates

TABLE B Accumulated Net Taxable Income Will Pay From More Than Ar$ To Ar$ Ar$ Plus On Surplus of Ar$ 0 20,000 -- 5 % 0 20,000 40,000 1000 9 % 20,000 40,000 60,000 2,800 12 % 40,000 60,000 80,000 5,200 15 % 60,000 80,000 120,000 8,200 19 % 80,000 120,000 160,000 15,800 23 % 120,000 160,000 240,000 25,000 27 % 160,000 240,000 320,000 46,600 31 % 240,000 320,000 Hereinafter 71,400 35 % 320,000

8.4.5 Tax Payment There is tax-exempted property as well. The Personal The AFIP (tax authority) sets, by General Resolutions, Property Tax Act sets forth the manner in which the term expiration dates to ﬁle tax returns, and to pay property located in the country and abroad is to be income tax sums owed. appraised in order to pay the tax.

Payments shall be made by bank deposit or e-transfer, Act 27260 introduces changes to the Personal Property as provided by the general resolution Tax. On the one hand, the non-taxable minimum is set to Ar$ 800,000 for 2016, Ar$ 950,000 for 2017, and, Also, tax payers and income tax payers must determine as from 2018, Ar$ 1,050,000. Also, the proportional and make advance payments of the tax to be paid. rates are modified: 0.75% for 2016, 0.50% for 2017, Individuals must make 5 advance payments. and 0.25% for 2018. Likewise, since 2016, a tax will be paid on the excess value and not on all the assets The basis of the calculations is the tax determined by levied. the tax term immediately prior to that for which the advance payments will be credited. This calculations The same act grants a benefit for the taxpayers that basis allows deductions. paid the tax during the two previous years, being exempted from the tax payment from 2016 to 2018. A 20% rate will be applied to the resulting sum. This measure also covers the surrogate decision makers of property abroad and companies that pay on account The remaining tax payers, except for those that do not of their members. meet the taxable sums, must file an annual tax return for their income as of December 31, which will expire 9. Bilateral Treaties in April each year. Argentina has signed bilateral investment treaties with several countries, such as Germany, Austria, Armenia, Non-residents subject to the corresponding withholding Australia, Bolivia, Bulgaria, Canada, South Korea, Costa need not file an annual tax return. Rica, Chile, China, Denmark, Ecuador, Egypt, Spain, and USA. UU., Guatemala, Finland, France, Holland, 8.4.6 Personal Property Tax Hungary, Indonesia, Israel, Italy, Jamaica, Luxembourg, Individuals or undivided inheritance are subject to tax Mexico, Nicaragua, Malaysia, Morocco, Peru, Poland, for property they may own at the end of each calendar Portugal, Romania, United Kingdom, Senegal, Sweden, year, including those subject to economic processes, Switzerland, Tunisia, Turkey, Ukraine, Vietnam, pursuant to what is established hereunder: Venezuela, among others, in order to protect investments. • Individuals domiciled in the country, and undivided inheritance based therein for property Within the framework of Mercosur, two agreements located in the country and abroad. were signed to promote foreign Investment, thus ensuring a fair treatment for any national investment • Individuals domiciled abroad, and undivided within Mercosur: Protocol Investment Promotion for inheritance based therein for property located in non-members in 1994 (Act 24554) and the Colony the country. Protocol 1997 (Act 24891).

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10. Agreements to Avoid Double Taxation These agreements avoid investments made between Likewise, Argentina has celebrated 20 signing countries to pay income, capital and/or comprehensive agreements to avoid double taxation property taxes twice. As a main beneﬁt from these and to prevent tax evasion; see the following ofﬁcial agreements, we can mention the reduction in the site: income tax rate on royalties and interest paid abroad. http://www.mecon.gov.ar/sip/basehome dir3_convenios.htm

B e l i z e

Belize

1. Firm name and contact information Moore Stephens Magaña LLP

1.1 Ofﬁce, address, telephone 3 ½ Miles Phillip S W Goldson Highway, New Horizon Building. PO Box 1922 Belize City, Belize, Central America T: +501-223-2144

2. Professional expertise The Government The Government of Belize is operated on the principles Reynaldo Magaña, CPA, CA of Parliamentary Democracy based on the Westminster Senior Partner, International Liaison, Audit and Tax System. The country is a sovereign, democratic state. Services Queen Elizabeth II of Great Britain is the Head of State; [email protected] she is represented by the Governor General Sir Colville Young since 1993. Omar Magaña Partner, International Financial Services The House of Representatives consists of 31 members [email protected] of representatives that are elected by direct popular vote for a term of five years. The Governor General Alain Moguel appoints the Prime Minister, who is the leader of the Director - Accounting and Outsourcing Services majority party. The Governor General appoints the [email protected] Senate of 13 members, in which case six members are nominated on the advice of the Prime Minister, three Natalia Resheting are nominated on the advice of the leader of the Audit Manager – Audit and Assurance Services opposition, and three more are nominated on the [email protected] advice of the Council of the Churches in Belize and the Association of Evangelical Churches, the Belize 3. Country Proﬁle Chamber of Commerce and Industry of Belize and the Belize (formerly “British Honduras", the name of the Better Business Bureau, and the National Congress of country was changed in the year 1973) is located in the Trade Unions and the Steering Committee of the Civil east or the Caribbean coast of Central America, Society. One senator is nominated by the bordered on the north and western part with Mexico, non-governmental agencies. Currently the Honorable and in the south and the rest of the west by Dean Barrow is the Prime Minister. Guatemala. Belize achieved full independence on 21st September 1981. Belize has a legal system based on common law. There is a Supreme Court of Justice, and the president of the The population was estimated to 356,900 in 2014, Supreme Court is appointed by the Governor General with a growth rate of 2,056 % per annum. The ethnic on the advice of the Prime Minister. The Caribbean composition is as follows: 48.7 % mestizo, 24.9% Court of Justice (CCJ) has replaced the Judicial creole, 10.6% Maya, 6.1% Garifuna, and 9.7 % other. Committee of the Privy Council (Judicial Committee of Due to racial harmony and religious tolerance, the the Privy Council) as a court of last instance for the different racial elements in Belize have been mixed and members of the Caribbean Community (CARICOM) combined with success, and Belize has gained a and also serves as a court of appeal in both civil and worldwide reputation for its friendly people. English is criminal cases of common law courts in all the state the official language although Spanish, Creole, members. Garifuna and Mayan are widely spoken throughout the country. The dominant religion is Christianity - both General elections are held every five (5) years, and legal Catholics and Protestants. Small groups practice Islam, voting age is 18. There are two major political parties in Hinduism and the Baha’i. the country - the People’s United Party (PUP) and the United Democratic Party (UDP). The most recent general elections were held in November 2015, in

B e l i z e which the United Democratic Party (UDP) won 19 out one investor to another, without the of 31 seats. reconstitution of the organization under the law; The official currency of Belize is the Belize Dollar (BZ$), • Juridical Personality, meaning that the which has been pegged to the United States dollar at a corporation itself as a ﬁctive “person” has legal rate of BZ $2.00 = US $1.00 since 1976. standing and may thus sue and be sued, may make contract, and may hold property in a Belize currency denominations are printed at $ 100, $ common name; and 50, $ 20, $ 10, $ 5 and $ 2 - dollar bills and coins are $ • Indeﬁnite Duration, by which the life of the 1.00, $ 0.50, $ 0.25, $ 0.10, $ 0.05, and $ 0.01 cents company may extend beyond the participation of a unit. any of its founders.

4. Foreign investment regime - types of business 4.1.3 Registration of an overseas company entities (foreign branch) The corporate type most commonly used by foreign Foreign companies doing business in Belize are required investors in Belize is Belize Chapter 250 Limited to register as an overseas company in accordance with Company. the Companies Act Chapter 250 of the laws of Belize. The registration of an overseas company, in essence, Other business types allowed include: causes it to enjoy the benefits as if registered locally initially as a Limited Liability Company in Belize. • Sole Proprietor Documents required to register an overseas company: • Partnerships • Limited Liability Partnerships • A certified copy of the charter, statutes or memo- • Registration of an overseas company randum and articles of the company or other (foreing branch) instrument constituting or defining the constitution of the company, and if the instrument is not 4.1 Registration of business name and companies written in the English language, a certified trans- 4.1.1 Registration of business name lation thereof; In accordance with the Business Names Act Chapter • A list of the directors and secretary of the compa- 247 of the Laws of Belize, each company or individual ny containing their particulars such as full name, who operates a business in Belize must register a usual residential address, nationality, business business name. occupation, and if the director is Corporate; the Corporate’s name and registered office; Application forms can be obtained from the Registrar • The names and addresses of some one or more of Companies in Belize. All applications require a name persons resident in Belize authorized to accept on search before proceeding to avoid duplication of behalf of the company service of process and any names. Moreover, to register a business name, the notices required to be served on the company, Business Names Act provides that a business owner provide for the creation, registration, dissolution abroad must be a permanent resident or have a and liquidation of companies with limited liability; partner in Belize, and a foreign company must obtain the approval of the Central Bank of Belize. Other requirements Identification documents to be submitted with your application are a passport, social security card, voter • Must have a registered office in Belize; registration card or residence card. Certified copies are • Must keep accounting records for 5 years in Be- accepted. lize or designated office; • There is no audit requirements of the accounts; 4.1.2 Incorporation of a limited company • Every overseas Company shall, in every calendar The incorporation is usually done through a lawyer or year, file with the Registrar such a statement in accountant, and requires the filing of the the form of a balance sheet as would, if it were a Memorandum and Articles of Association in order to company incorporated in Belize and having a be issued a Certificate of Incorporation. share capital, be required under this Act to be included in the annual summary. Benefits of registering a Limited Company under Chapter 250 of the Laws of Belize: 4.1.4 Limited Liability Partnership A Limited Liability Partnership are forms of business • Limited Liability, which means that the capital entities which permit one partner to be shielded from providers are not subject to losses higher than individual joint liability for partnership obligations the amount of initial investment; created by another partner's or person's misconduct. A • Transferability of shares, whereby the rights partner's liability is not limited, however, when the of the company can be transferred easily from 14

B e l i z e misconduct took place under the supervision or control 6. Labor regime of the partner. Only liability arising from the 6.1 Duration of the contract of Work misconduct of other partners or persons is covered by In Belize, the contract of work can be formal or this law; the partnership is not relieved from liability for informal and may be for a definite or indefinite period other partnership obligations and individual partners of time depending on the type of work to be are liable for their own misconduct. A limited liability performed. Contracts for work generally include a partnership may be registered in Belize, where the probationary period of two weeks or more (up to three people who wish to form the partnership with a months) as may be approved by the employer. common view to profit, come to an agreement and understand the following provisions of the Limited Either party may terminate the contract during the Liability Partnership Act: probationary period at will without any notice.

• Provide for the creation, registration, dissolution An employee's work week by law is not to exceed 6 and liquidation of companies with limited liabiity; days or 45 hours per week. In addition, hours worked • The name of partnership includes the words in excess of 45 hours are considered overtime hours "Limited Liability Partnership", but the abbrevia- and attract a rate of time and a one half. The minimum tions "LLP" or "L.L.P." can be replaced in actual wage is BZ$3.30 per hour effective in 2012 for all use; types of workers except for highly skilled workers or • There is no limit to the number of people who professionals who can negotiate the salary with the can be partners; any person can be a partner - employer. including individuals, corporations or other limited liability partnerships; In general, the laws of the work week seem to be • You must have a registered office in Belize; comparable with other countries and the minimum wage shows signs of improvement based on cost of living. • Must keep accounting records for 5 years;

• There are no reporting or audit requirements of 6.2 Compensation for dismissal the accounts; Notice period is mandated by law and is determined by • Partners can lend money or borrow money from the duration of employment. Employees who have the association. worked 2 weeks to 6 months are given one weeks’ notice; 6 months to 2 years are given 2 weeks’ notice; 5. Audit and accounting 2 years to 5 years are given 4 weeks’ notice; and 5 The accounting profession is regulated by the Institute years and above are given 8 weeks’ notice. In any case of Chartered Accountants of Belize (ICAB). ICAB is a of employment, notice pay in accordance with notice member of the Institute of Chartered Accountants of period mandated by law is required to be paid for lack the Caribbean (ICAC) who are in turn members of the of notice. IFAC. ICAB requires adopting international standards of accounting and auditing, or may choose to adopt 6.3 Sick leave and vacation accounting principles generally accepted in the United In Belize employees are allowed 16 days of sick leave at States of America. Recent changes in laws and the regular rate of pay. To obtain sick leave regulations, locally and internationally, require authorization, an employee must have worked at least accounting records of all businesses to be kept for a 60 days within 12 months. Employees are also entitled minimum of 5 years and be available for inspection at 2 weeks annual vacation leave after working for more its registered office or designated office at all times. than 12 months per year. Women who are pregnant

TABLE A Employer's Employee's Total paid to Weekly Salary Contribution Contribution Social Security Below $70.00 $3.57 $0.83 $4.40 $70.00-$109.99 $5.85 $1.35 $7.20 $110.00-$139.99 $8.45 $1.95 $10.40 $140.00-$179.99 $9.65 $3.15 $12.80 $180.00-$219.99 $11.25 $4.75 $16.00 $220.00-$259.99 $12.85 $6.35 $19.20 $260.00-$299.99 $14.45 $7.95 $22.40 300.00 and Above $16.05 $9.55 $25.60

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6.5 National occupational safety and health TABLE B regulations. Business tax rate for companies and The new law is in its final stages of enactment and self-employed persons (local): generally covers the employer’s responsibility for Rate % on occupational safety and health of its employees. Type of business / activity gross income 7. Exchange control Regular trade or business 1.75% 7.1 Foreign investment income Professional services 6.0% Foreign investment income, which are of a capital Commissions and royalties 5.0% & 15.0% nature, earmarked for the purchase of property or to Rental income 3.0% provide commercial loans for more than one year term, Income of radio, television, and news- 0.75% must be registered with the Central Bank of Belize. papers companies Foreign currencies transferred to Belize will be Income of national airlines 1.75% converted to Belizean dollars and deposited in a local Insurance premiums 1.75% bank account. Foreign exchange earned for the export Revenues from telecommunications 19.0% of goods and services, the Central Bank of Belize acts provider as the clearing house for such foreign currencies and may authorize certain businesses to hold foreign Services for the supply of electricity 1.75% currency accounts in Belize. The income of service stations 0.75% & 1.75% 7.2 Outﬂows of foreign currency including fuel/lubricant Investors wishing to repatriate their capital can do so, Casino and gambling 8.0% as long as they are in U.S. dollars and with the Real estate business 1.75% & 15.0% permission of the Central Bank of Belize. With respect Tour operators and travel agencies 6.0% to profits and dividends, it is possible to repatriate those once Income Tax clearance is provided by the Construction 1.75% & 6% Income Tax Department. The repatriation of Local dividends withholding tax 15% investments originating from overseas can be returned Dividends paid by telecommunications to the investor once authorized by the Central Bank of 0% Belize. service provider

The interest income from financial 8. Taxation 6%, 12% & 15% The tax structure of Belize consists of national and institutions municipal taxes. At the national level, the main taxes International financial services 3% are: TABLE C 8.1 Domestic taxation: • Income and Business Tax Tax rate on foreign payments: • Personal Income Tax Type of payment Tax % • Property Tax • General Sales Tax Dividends and interest 15.0% • Stamp and Transfer Tax Management fees 25.0% There are also certain fees and taxes imposed by the Rental of plant and equipment 25.0% municipalities. Technical services 25.0% Commissions and royalties 0% 8.2 Income and business tax 8.2.1 Business tax TABLE D Businesses and self-employed with receipts over BZ $ 75,000 gross income per year must pay the tax on Corporate tax rate: gross sales known as the Business Tax. The rate varies by business classification, as shown by the following Tax Type Tax % table. Business Tax is paid monthly to the Tax T ax on net income 25.0% Department. Tax on net income of petroleum opera- 40.0% tions

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TABLE E 8.2.5 Deductions Some types of payments from Belize to non-residents Tax rate - CARICOM: are subject to withholding tax. (TABLE C). Certain local contract payments in excess of BZ$3,000 are sub- Type of payment Tax % ject to a 3% contract tax withholding. Dividends 0% 8.3 Tax on individuals 8.3.1 Income tax Management fees 15.0% Income tax is paid at a rate of 25% on the taxable income of all employed persons resident in Belize who Interest 15.0% earn in excess of BZ$25,600 (US$12,800) a year, individuals who earn less are exempt from income tax. Royalties 15.0%

Non-residents are taxed only on earnings received in Business tax payments made during the year under Belize. TABLE B count as credit toward income tax on net income of corporations. At the end of the tax year, cor- An individual is deemed to be a resident of Belize dur- porations are given the option to accept the business ing a basis tax year if he spent in the aggregate more tax paid as the final tax or can opt to file a corporate than one hundred eighty two days within the country tax return to determine whether any tax credits may be or was domiciled in Belize. due. 8.3.2 Payment of tax 8.2.2 General sales tax Employee tax is paid on the pay as you earn (PAYE) General sales tax (GST) is a tax imposed on the value or system and the estimated tax is withheld and paid the mark-up added to imports and other goods and monthly to the tax department. services supplied by one business to another or to final customers. GST is calculated and charged on transac- 8.4 Other taxes tions in the production and delivery chain but the con- The Belize Customs Tariff is modelled from the Harmo- sumer pays GST only on the final selling price. Howev- nized Description and Coding System (HS). The rates er, the tax paid on inputs by a registered person is net- are based on the Customs Value (Cost, Insurance, ted off the tax received on the output and only the Freight - CIF). Import Duties are levied at the point of difference is paid to Government. Where the input tax importation, and is the liability of the importer. The incurred by a registered person exceeds the output tax Belize Customs & Excise Department is responsible for (received), the registered person may claim the differ- the collection of import duties. Rates range from 0 to ence as a credit against future tax liability. 45% with the majority of commodities attracting a rate of 20%. There are some items that attract a Revenue There are some products and services that are exempt Replacement Duty (RRD) ranging from 5%- 40% based from this tax. on the aggregate of the Customs Value and the Import Duties. Under the CARICOM agreement, all imported The GST percent is 12.5%. products entering Belize from a CARICOM member state are exempt from import duties. In order to receive 8.2.3 Calculation and collection an exemption, importers must produce a CARICOM Businesses are required to file a monthly tax return in Certificate of Origin to the Comptroller of Customs. the prescribed form and pay the appropriate taxes by Customs brokerage services are necessary when the the due date to avoid any penalties and interest. commercial value of imported goods exceed Bz$200.00 (US$100). 8.2.4 Stamp duty and transfer tax Stamp Duty / Transfer Tax is governed by the Stamp 9. Bilateral treaties Duties Act Chapter 64 of the Laws of Belize. It be- Belize has signed bilateral investment treaties with sev- comes payable on any transactions involving taxable eral countries, including: the Caribbean Community land. Nationals and Foreign Investors alike are required CARICOM that includes Antigua and Barbuda, Barba- to pay 5% of the value; however if the value of the dos, Dominica, Grenada, Guyana, Jamaica, St. Kitts and land falls below US$10,000 then the transaction is tax Nevis, St. Lucia, St. Vincent and the Grenadines, and exempt. Trinidad & Tobago. Please see Table E for list of tax rates within CARICOM region. Public and private documents including certain transactions require the payment of stamp duty in order for it As regional group, CARICOM has negotiated and to be legally effective, including scriptures, promissory signed several bilateral trade agreements, namely: notes, and contracts.

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1. CARICOM - MERCOSUR negotiations Information Exchange Agreement (Belize/France) 2. CARICOM - Canada negotiations Order, 2010 3. CARICOM - USA negotiations Statutory Instrument No. 124 of 2010 - Tax In- 4. CARICOM - Central America negotiations formation Exchange Agreement (Belize/Ireland) Order, 2010 Other bilateral treaties include: CBI & CARIBCAN, Statutory Instrument No. 47 of 2012 - Tax In- ACP-EU relations, Belize-Guatemala Partial Scope formation Exchange Agreement (Belize/Mexico) Agreement & Central American Integration System Order, 2012 (SICA). Statutory Instrument No. 61 of 2013 - Tax In- formation Exchange Agreement (Belize/Poland) 10. Double taxation avoidance agreements Order, 2013 Belize has signed 11 double taxation avoidance Statutory Instrument No. 81 of 2013 - Tax In- treaties, all of which are in full force. Countries that formation Exchange Agreement (Belize/India) Or- have signed these agreements are members of der, 2013 CARICOM (9), Austria (1) and UK (1). Statutory Instrument No. 43 of 2014 - Tax In- formation Exchange Agreement (Belize/South Af- 11. Tax Information Exchange Agreements rica) Order, 2014 11. Tax Information Exchange Agreements Belize has signed the following Tax 12. Development incentives and fiscal incentives Information Exchange Agreements with the fol- 12.1 Development incentives lowing countries: A variety of investment incentives are offered by the Government of Belize (GOB). These allow investors a Statutory Instrument No. 90 of 2010 -Tax legal framework for participation in economic activities Information Exchange Agreement (Belize/ and were developed to provide grants to support Australia) Order, 2010 genuine investors, always when their proposals are Statutory Instrument No. 91 of 2010 - Tax approved by the GOB. As a general rule, when Information Exchange Agreement (Belize/United evaluating investment proposals, the GOB focuses on Kingdom) Order, 2010 the economic and social benefits that can be obtained Statutory Instrument No. 92 of 2010 - Tax with the investment. Other critical aspects of the Information Exchange Agreement (Belize/ proposals are the overall viability of the investment. Belgium) Order, 2010 Statutory Instrument No. 93 of 2010 -Tax In- • Fiscal Incentives Program (also known as formation Exchange Agreement development concessions). (Belize/Netherlands) Order, 2010 • Export Processing Zones (EPZ). Statutory Instrument No. 105 of 2010 - Tax In- • Commercial Free Zone (CFZ). formation Exchange Agreement (Belize/Sweden) • Program of the Qualiﬁed Retired Persons (QRP). Order, 2010 • Gaming Control (Casino & Gaming). Statutory Instrument No. 106 of 2010 -Tax In- formation Exchange Agreement (Belize/Finland) 12.2 Fiscal incentives program Order, 2010 Statutory Instrument No. 107 of 2010 -Tax The fiscal incentive program was designed to promote Information Exchange Agreement (Belize/ the genuine investment in Belize through tax exemp- Greenland) Order, 2010 tions and tax holidays. The Law provides the current Statutory Instrument No. 108 of 2010 -Tax and potential investors with a legal framework and Information Exchange Agreement (Belize/ fiscal framework to stimulate productive economic ac- Norway) Order, 2010 tivities. Statutory Instrument No. 109 of 2010 -Tax Information Exchange Agreement (Belize/Iceland) Full duty exemption: Order, 2010 Statutory Instrument No. 110 of 2010 - Tax • Duty exemption of up to a maximum of 15 years Information Exchange Agreement (Belize/ to companies granted an Approved Enterprise Denmark) Order, 2010 Order. Statutory Instrument No. 111 of 2010 -Tax • Duty exemption may be renewed for a further Information Exchange Agreement (Belize/Faroes) term of 10 years or a total of 25 years for Order, 2010 companies engaged in agriculture, agro- Statutory Instrument No. 112 of 2010 - Tax industrial products, mari -culture, food Information Exchange Agreement Belize/Portugal) processing and manufacturing with operations Order, 2010 centred on export, and that are highly labour Statutory Instrument No. 113 of 2010 - Tax intensive.

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12.2.1 Categories integrity are maintained. The Money Laundering Several categories of items may benefit from full or (Prevention) Act of 1996, was implemented as a partial relief from Import Duty, depending on the preventative measure to safeguard institutions and nature of the business. investment entities. Serving as a supplement to this Act, the IFSC regulates all other financial crimes such as Examples of categories that may be approved: internet fraud and other nonbanking transactions.

• Building materials and supplies 13.1 Offshore company (International Business • Plant, machinery and equipment Corporation – IBC) • Specialized tools (except hand tools) An offshore company is a company registered in a • Utility vehicles and transport country that offers a very advantageous taxation system, provided the activity is not exercised in the • Fixtures and fittings territory in which it is registered. More specifically, • Office equipment and appliances • offshore companies have three characteristics: First, Spare parts for plant, machinery and equipment must be registered as an entity within the territory. • Agricultural machinery and supply Second, the "founders" (customers) must be domiciled • Raw materials and other items for the exclusive outside the territory in which the company is use of approved enterprise. registered. Finally, the company should exert most of their business outside the territory in which it is 13. International financial services registered. Belize continues to experience steady growth in its International Financial Services (IFS) industry. In 1992, 13.2 Offshore companies with limited liability the International Business Companies Act, based on (International Limited Liability Company – LLC) the British Virgin Islands model, was enacted. This was Conceptually, a Limited Liability Company or an LLC is supplemented by the Trusts Act (1992), and followed a hybrid between two familiar business structures, by the Offshore Banking Act (1996). Key success namely, a corporation and a partnership. An LLC factors for Belize’s vibrant financial sector are a highly combines the best of both worlds by offering the literate workforce, stable democracy, flexible advantage of both a corporation and a partnership investment incentives, fixed exchange rate, and being without the disadvantages of either form. the only English-speaking country in Central America. Belize has developed a favourable reputation based on An LLC, has distinct advantages over both a investor-friendly legislation for service providers, ethical corporation and a partnership in that it not only avoids codes of conduct, capital gains repatriation, and no multiple level taxation, it also limits the liability of its restrictions on nationality. Proximity to the United members to the extent of the contributions made by States, Mexican, and Canadian markets, have created them to the Company. No member of an LLC has the platform on which the country’s international personal liability for the debts of the LLC except where financial services industry continues to grow. Also there are personal guarantees or other special supplementing this sector are our historical ties to the arrangements. Moreover, LLC members, unless United Kingdom, and European Union. restricted by agreement, fully participate in the management of the LLC, while limited partners in a Belize offers a full array of investment initiatives limited partnership may not participate in the designed to meet the needs of global investors. management of the enterprise without risking the loss Services include: of their limited liability status.

• International Business Corporation - IBC Usually offshore LLCs are more appropriate for people • International Companies with Limited Liability with high medical risks and people whose insurance (Limited Liability Corporation – LLC) coverage are inadequate or are not available. • Belize Exempt Trust • Foundations 13.3 Belize exempt trust • Protected Cell Company The primary benefit of a Belize trust is that it allows the • Mutual Funds legal ownership of property to be distinguished and separately vested from the enforceable rights of use • International Insurance and enjoyment of that property. This makes the Belize • Offshore Bank offshore trust, particularly when established as an

exempt trust, an extremely flexible, sophisticated and While the banking sector is regulated by the Central creative instrument for asset protection, tax, estate and Bank of Belize, the International Financial Services investment planning, and the preservation of Commission (IFSC) has jurisdiction on all non-banking confidentiality. transactions. The ‘Code of Conduct’ legislation assures investors that the industry’s professional standards and 19

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The Belize Trust law, based on the Guernsey Trusts Law operated fully by the Government of Belize since June of 1989 but with various modifications and innova- 11, 2013. IMMARBE first opened its doors in 1991 as tions, is one of the strongest and most flexible asset an open Ship Registry with the intention of offering to protection trust legislation in the world. the ship owners and operators of the world a very seri- The Belize Trust law, based on the Guernsey Trusts Law ous and efficient shipping registry based on reliable of 1989 but with various modifications and innova- services, competitive prices and high standards of tions, is one of the strongest and most flexible asset maritime safety. We are governed by the Merchant protection trust legislation in the world. Ships (Registration) Act, 2010 .

Other benefits of the Belize Trust include: IMMARBE operates daily through the main office located in Belize City known as the Head Office and • No legal requirements to audit Belize trust through a network of 67 Designated Offices. The accounts Designated Office authorized by the Government of • A Belize trust and its trust property is exempt Belize is located in the different main ports and from income and business tax, estate, shipping centers of the world. It is important to take inheritance, succession or gift tax and all into consideration that the success of IMMARBE is instruments relating to the trust property or to based in the promotional effort that all the Designated transaction carried out by the trustee on behalf Offices have had to perform. Success can also be of the trust shall be exempt from stamp duty. attributed to the efficiency and reliability of its Head • Trustees of a Belize trust shall be regarded as a Office staff that are challenged each and every day non-resident of Belize and shall be exempt from to provide excellence in ship registration. exchange control with regard to the trust property and to all transactions carried out by Advantages of registration the trustee on behalf of the trust. • The Belize trust is extremely flexible and can • IMMARBE has attained ISO 9001-2008 accommodate numerous asset protection Certification clauses. • Attractive and competitive tonnage taxes, fees • Typically discretionary trusts. Such trusts may and incentives also provide for automatic successor trustee and • A network of Deputy Registrars in major protector provisions. maritime centers • The Belize trust laws also permit the • Worldwide Network of General Safety establishment of private trust companies. Inspectors • A well-established legal system and mortgage 13.4 Foundations recording services A foundation created in Belize is a separate legal entity. • Professional technical staff offering 24 hours In Belize, private foundations can carry out business, service. market, buy and sell properties, sue and be sued, enter • Belize has a number of memberships in Regional into contracts, open bank accounts and maintain assets Fisheries Management Organizations under its own name. such as ICCAT, IOTC, IATTC and WCPFC.

The Foundation Act of Belize, enacted in 2010, T ypes of registration establishes the principles of offshore foundations in Belize. The principles of offshore foundations in Belize • Provisional registration (6 months) are similar to the legislation of other private • Permanent registration (without expiry) foundations. Under this Act, a person or company can • Special registration (3 months) create an offshore Foundation charitable, not • Dual-out registration (Charter out, 1 or 2 years) charitable, ordinary or without purpose. • Dual-in registration (Charter in, 1 or 2 years) • Foundations in Belize can be founded by one or more Vessels Under Construction Registration (no persons or by a company with a member of the validity period) Council. Ship registration services are provided by a Moore Ste- 14. Merchant Shipping (IMMARBE) phens Magaña LLP affiliate, Registry Services (Belize) The International Merchant Marine Registry of Belize, Limited. commonly known by its acronym of IMMARBE, is now

B o l i vi a

The Plurinational State of Bolivia

1. Identiﬁcation of the contact ﬁrm

• Moore Stephens Ratio Consulting S.A. Hugo Wast st. and San Martin Av. Equipetrol Floor 4 Santa Cruz de la Sierra – Bolivia T: (591) 3 3427921 F: (591) 3 3427927

• Moore Stephens Valdivia & Asociados Jauregui St., 2248 departments. Sucre is the Capital, seat of the judicial Quipus Building power, while La Paz is the seat of the executive and Floor 8. Between F. Guachalla and R. legislative powers, and of the electoral body. Gutierrez st. La Paz - Bolivia Ancient civilizations like the Tiwanaku developed in the T: (591) 2 2444496 / 2911571 Bolivian territory. The country became independent from the latter in 1825 and has inherited the traditions 2. Expert Professionals of the colonial, mixed races, and the pre-Colonial cul- Moore Stephens Ratio Consulting S.A. tures, that gives the quality of multi-ethnic and pluricul- Rodo Suxo tural country, rich in the mixture of traditions, and folk- Consulting and Microﬁnance Partner lore of its people of mixed races, natives, whites de- [email protected] scending from Creoles, Afro-Bolivian, and, in a minor scale, European and Asian immigrants. Rosario Molina Responsible for Taxes The Constitution sets forth the division of powers into [email protected] four government bodies:

Moore Stephens Valdivia & Asociados: Executive Power David Valdivia Peralta It’s formed by the President, the Vice-President, and Principal Partner State Ministers. [email protected] Legislative Power Daney David Valdivia Coria The Vice-President of the State heads the Plurinational Business and Corporate Tax Partner Legislative Assembly with 36 Senators and 130 Depu- [email protected] ties.

Nelly Coria Conde Judicial Power Legal and Tax Consulting Partner It’s formed by the Supreme Court of Justice, Tribunals, [email protected] Courts, and the Magistrates' Council.

3. Country Profile Electoral Body The Plurinational State of Bolivia is a landlocked coun- It’s formed by the Supreme Electoral Court, try located in the West Centre of South America, with Departmental Tribunals, Electoral Courts, Table Courts, a population of about 10.5 million inhabitants. It bor- and Electoral Notaries. ders on Brazil to the North and East, on Paraguay and Argentina to the South, and on Chile and Peru to the Economy Bolivia has a diversified economy, main- West. The Bolivian territory covers different geograph- ly focused on manufacturing, banking and extraction ical areas, such as the Andes Mountains, the Andean and export of commodities. It is the fourth largest plateau, the Amazonia, and the Chaco. It is one of the economy in regional growth, above the Latin American countries with greatest biodiversity in the world. average in 2012. GDP per capita is one of the lowest in Latin America with minimum national wage of 172 Politically, Bolivia is a plurinational, decentralized state dollars per month. The country's official currency is the with autonomous regions. It is divided into 9 boliviano (BOB). Even though both the national curren-

B o l i vi a cy and the dollar are largely accepted nationwide, and 4.2 Types of Companies for any operation, besides last years there was an im- The Bolivian legislation considers the existence of portant remonetization process as a consequence of different types of companies, which are: public conﬁdence in national currency and economic activity prospects that lead in the • Companies expansion of monetary aggregates and international • Company Transformation reserves. • Company Fusion • Partially Government-Owned Company The most important economic activities are mining (San • Foreign Company Cristobal Project), and the extraction of natural gas • Shared Risk Agreements (Joint Ventures) (YPFB), both belonging to the primary sector.

Withinthe secondary sector, Bolivia is renowned for 4.2.1 Companies beer, dairy,oleaginous, and textile sales. In the tertiary Companies can be created under different types: sector, banking and telecommunication activities are renowned. In addition, pharmaceutical and manufac- 4.2.1.1 General Partnerships turing industries, and commercial conglomerates, such General partnerships are created by public deed. as supermarkets, are renowned as well. Partners are jointly and unlimitedly liable for partnership

obligations; therefore, in case these obligations exceed- In the last years, the average GDP growth was around ed the amount of their capital contributions, partners 4.8%, reaching twin surpluses, ﬁscal (since 1940), and shall be liable to the extent of their personal assets for current account mainly due to increases in tax revenues said obligations. and public (in 2012 ﬁve times greater than 2006) and private investment. The economically active population 4.2.1.2 Limited Partnerships rate reaches 71.9%, and the unemployment rate is The limited partnership is formed by one or more 3.8%, one of the lowest in the region. limited partners that are only liable to the extent of

their capital contributions, and by one or more Bolivia is one of the countries with greatest managing or general partners that are jointly and microﬁnance development in the world (2nd position unlimitedly liable for partnership obligations, whether worldwide). they make capital contributions or not. The administra-

tion and representation of the partnership will be in the 4. Investment hands of the general partners, or third parties appoint- 4.1 National Investment Act ed, and general partnership administration rules will Bolivia has a legal framework for private investment, apply. the Investment Act, which purpose is to foster and secure national and foreign investment to promote 4.2.1.3 Limited Partnerships with Stock Capital economic growth and social and economic develop- In the limited partnership with stock capital, managing ment. partners are liable for partnership obligations as in a

general partnership. Limited partners limit their liability Investment Incentives to the amount subscribed in their shares. Foreign investors have the same rights, duties, and guarantees as national investors, aside from having 4.2.1.4 Limited Liability Companies property rights, they have guaranteed: This type of company is formed by two or more

“partners” liable for company obligations according to • A freedom of currency exchange system, neither the amount of their capital contributions. It requires a restriction for capital inflow and outflow, nor for minimum of two, and a maximum of 25 partners. Capi- the remittance abroad of dividends, interest, tal contributions must be paid infull at the time of their and royalties for technology transfer, and/or legal creation. other business concepts. • The freedom of production, trade, import and 4.2.1.5 Corporations export of goods and services, as well as the free In this type of company, shares represent capital determination of prices. contributions. The shareholders' liability is limited to the • Internal taxes and duties repayment, through amount of shares they had subscribed. The tax rebate certificates, paid on inputs and capital administration of the corporation will be in the hands goods incorporated into export goods. of a Board of Directors, formed by a minimum of three directors, whether shareholders or not, appointed by Bolivia has a simple tax system with low transfer price the shareholders' meeting. Corporate by – laws can set regulation. forth a greater number of directors, which shall not exceed twelve.

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4.2.1.6 Joint Ventures or Partnerships company, will be the representatives of the companies Joint ventures or partnerships have an agreement dissolved and acquired, notwithstanding the liabilities where one or more individuals have an interest in one corresponding to their mandate. or more certain or temporary operations to be performed through their mutual contributions; said opera- 4.2.4 Partially Government-Owned Company tions will be performed by one, two, three, or up to all A partially government-owned company is formed by a partners, as agreed in the joint venture agreement. public entity (government - dependent), and a private company for the performance or implementation of This type of association has no legal status, and no activities of collective interest, the fostering, or the de- corporate name. It is not subject to the requirements velopment of industrial or commercial activities or ser- that govern the creation of companies, and it does not vices. The liability of both parties is limited to the con- require its registration with the Registry of commerce. tributions made, and to the responsibilities established Its existence can be proven by all evidencing means. at the time of creation of this type of company. The name of partially government-owned companies must The partner(s) in charge of the operations act on their compulsorily include the reading "sociedad anóni- behalf. Third parties acquire rights and undertake obli- ma" (corporation), or its abbreviation, "S.A.", the word gations only concerning said partners, and they are "mixta" (partially government-owned), or its abbrevia- jointly and unlimitedly liable. Partners who are not in tion, "SAM". charge of the operation shave no direct right against third parties. 4.2.5 Foreign Company This type of company is formed pursuant to the laws of With the consent of the other partners, the partner(s) the place where it is created, that is to say, it is gov- in charge of the operations must make their names erned by the existing provisions there in as to its type known, so that all partners are jointly and unlimitedly and legal existence. To develop activities in Bolivia, a liable to third parties. legal status shall be acknowledged subject to provisions of the Code of Commerce, and other Bolivian laws. 4.2.2 Company Transformation A company can be transformed by adopting any other Any company created abroad which main purpose in company type foreseen in the Code of Commerce. the country is the commercial or industrial exploitation Transformation shall not dissolve the company, nor will shall be registered as a local company to the effects of it modify its rights and obligations. said exploitation, functioning, control, taxing, and liquidation regarding its business in Bolivia, and, in if it were The joint and unlimited liability of the partners, existing the case, the termination of its legal status. under the previous company type, is not modiﬁed with transformation, unless the creditors so agree. Any company created abroad can perform casual or isolated activities in the country, but it cannot carry out 4.2.3 Company Fusion acts of commerce permanently without the prior com- Fusion shall exist when two or more companies are pliance with the requirements of Bolivian legislation. To dissolved without liquidation to form a new one, or be registered with the Registry of Commerce, and to when another acquires one company or other compa- carry out the usual activities entailed in their company nies dissolved but unliquidated. purpose, these companies must:

The newly formed company, or the company acquired, Upon judicial decree, and at notary public's office shall acquire the rights and undertake the obligations appointed for its domicile in the Republic, record the of the companies dissolved at the time of total transfer articles of incorporation, its amendments, by - laws, of their corresponding assets because of the final fu- and provisions evidencing their legal existence in the sion agreement. country of origin, as well as the legal authorization or resolution of the competent administrative body of the The new company will be created according to the company to establish a branch or permanent represen- regulations that apply to the newly formed company tation in the country.This shall also apply to the individ- type. For the case of the acquired company, the articles ual(s) representing the company with broad and suffi- of organization or by laws shall be modified pursuant cient powers to perform acts encompassed in the com- to the regulations inforce. pany purpose. These individuals shall be the judicial and extrajudicial representatives of the company for all legal The final fusion agreement will be registered with the effects. Registry of Commerce, and it will be published as set forth in the Code of Commerce. 4.2.6 Shared Risk Agreements (Joint Ventures) The managers of the new company, or of the acquired Pursuant to Bolivian legislation, companies created in

B o l i vi a the country such as government entities and trial companies; this is an additional remunera- corporations, including autarchic companies and tion for productive effort, additional as well, individuals, national or foreign, domiciled or different from the annual premium, and it is represented in the country, can enter into an aimed at exceeding certain production goal agreement through shared risk agreements; they must agreed between the company and the union. establish a legal domicile in Bolivia, and comply with • Seniority Bonus: These are monthly pay- other requirements established by national legislation. ments calculated on a percentage basis, and according to a scale. This bonus is in accordance 5. Audits and Accounting with the Minimum National Wages. Company accounting, and, in particular, registration and assessment of the elements of the annual accounts 6.3 Labour Benefits are developed by compulsorily applying the generally • Vacations: After the first year of uninter- accepted accounting principles in Bolivia, approved by rupted work, workers are entitled to a vacation the National Technical Association of Auditors and Ac- term. The duration of said term shall be accord- countants of Bolivia (CTNAC). In Bolivian the conver- ing to a scale ranging from fifteen to thirty gence process of IFRS/IAS was propose. Companies that working days. belong to General Regime, compelled to carry out an- • Maternity Leave: The law establishes the nual audits on their financial statements are those right of the pregnant woman to a maternity whose income is greater than or equal to BOB leave of 45 days before the birth, and 45 days 1,200,000, being in this regime are Large after the birth. Taxpayers (called GRACO) and PRICOS (Main Taxpayers) which by their nature have incomes higher than the 6.4 Other Labour Aspects minimum described. • Severance Payment for Term of Services: When the worker was dismissed for any reason 6. Labour Regulations not attributed to the worker, the employer must The General Labour Act determines the rights and provide a severance payment for the term of obligations in general that derive from labour, and ac- services, which shall equal a month's wages for cording to the type of labour agreement entered into. each year of uninterrupted work.

6.1 Types of Labour Agreements and Employment • Severance Pay: When the worker was Conditions suddenly dismissed due to reasons not The Bolivian legislation acknowledges the following attributed to him, the employer shall be types of agreements: compelled to make this severance payment,

which shall correspond to three wages or • Individual Labour Agreement salaries. • Joint Agreement • Training Agreement 6.5 Social Security • Engagement Agreement Social Security and Retirement Contributions: All employed or independent workers (freelancers) are 6.2 Remuneration compelled to become a member of one of the Retire- Remuneration can be: ment Funds Administrators, and to have Compulsory • Per journal Social Security. Both the employer and the employee • Per piece rate must make the payment of the contributions. The rate • Onwages derived from these contributions is calculated on the • Oncommission total amount earned (for the worker), and on the total • In kind sheet (for the company).

• With participation on the beneﬁts Contributions must be paid monthly, both to the AFP • Combined (Retirement Funds Administrators), and to the

corresponding Social Security chosen by the company, Additionally, there are other types of remunerations pursuant to the following rates: such as:

• Annual Bonus: It is equal to one monthly • Family Allowance: Pregnant working wom- wage, and itmust be paid once a year, up to en, or workers whose wives are pregnant, are December 20. • entitled to Maternity, Lactation, and Birth allow- Annual Premium: It is the legal participation ances. The ﬁrst two allowances consist in a pay- in the proﬁts, and it equals to one month wages ment in kind, equal to the Minimum National or salary. Wage, and the third one is a single payment, • Production Bonus: It is applicable to indus- equal to the Minimum National Wage for the 24

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birth of each child. inflows and outflows with due anticipation to the • Burial Allowance: It consists in a single operation date on the Central Bank website by filling in payment equal to the Minimum National the "Foreign Currency Cash Inflow or Outflow Affidavit Wages for the death of each minor child under for Sums between 50,000 and 500,000 Dollars" form. 19 years of age. Once the form is filled in, the BCB (Central Bank of Bolivia) will immediately proceed to authorize the oper- 6.6 Foreign Workers ation, and a unique number and code will be generat- The Bolivian legislation establishes that the number of ed for said operation. Interested parties shall print two foreign workers must not exceed 15% of the total copies of the form to file it before the customs authori- number, and that it will correspond to technicians only, ty at the moment of performing the operation. All since it is mandatory to have Bolivian nationality to be a sums above 500,000 dollars must be authorized by the Director, Administrator, Advisor, or Representative in Treasury Department. state entities and private companies where the activity is directly related to the interests of the State. This provision applies only to operations in foreign currency cash. E-transfers (bank transfers) are not encom- 7. Currency Inflow and Outflow Controls passed within the scope of the Decree that regulates All companies or individuals must declare currency this provision.

WORKER CONTRIBUTION COMPANY CONTRIBUTION Retirement Contribution 10% Compulsory Social Security 10% Common Risk Premium 1.71% Professional Risk Premium 1.71% AFP Commission 0.5% Pro-Social Housing 2% National Joint Fund 0.5% Joint Social Security Contribution 3% TOTAL 12.71% TOTAL 16.71%

There are also special contributions for individuals with salaries equal to or above BOB 13,000, to be paid according to the following cumulative scale:

National Joint Contribution (for salaries above Bs. 13,000) > Bs. 13.000 ( Total earned - 13000 * 1%) > Bs. 25.000 ( Total earned - 25000 * 5%) > Bs. 35.000 ( Total earned - 35000 * 10%) 8. Tax System the income taxed (which generate a tax debit), and The Bolivian tax structure is formed by taxes, rates, deducting the costs or expenses (tax credit). When the and contributions that can be national, or municipal. difference was in favour of the tax authority, the sum shall be paid in the terms established. If, on the contra- 8.1 National Taxes ry, the difference was in favour of the taxpayer, the 8.1.1 Value Added Tax VAT in favour of the tax authority corresponding to The Value Added Tax is a tax on: previous tax periods can compensate this sum, together • The sale of goods located or placed within the with the assessment update. territory of the country. • Contracts for works, rendering of services, and Tax exemptions shall include the following: any other type of rendering, whichever its na- • Goods imported by members of the diplomatic ture, performed within the national territory. body accredited in the country, or individuals • Final imports. and entities or institutions having said status according to the provisions in force, international Interest generated on financial operations will not be agreements, or reciprocal treaties with certain encompassed in the purpose of this tax. Said opera- countries. tions shall include credits granted or deposits received • Goods entered "bona fide", and travelers by financial entities. Likewise, the sales or transfer- arriving in the country as set forth in the custom ences derived from company reorganizations or capi- duties. tal contributions are not included in the purpose of • Book sales domestically produced and imported, this tax. and official publications of public institutions.

The proportional rate of this tax shall be 13%, month- 8.1.2 Value Added Tax Complementary System (RC ly payable. The calculations are obtained by adding all -IVA)

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This is a tax on all income belonging to individuals or of their annual income taxed, and the expenses neces- undivided inheritance, derived from capital investment, sary for obtaining said income, and maintaining their work, or the joint application of both factors. Interest originating source. Incomes derived from company re- generated by term deposits in the financial system is organization processes will not be taxed. exempted when they were in national currency, and for terms greater than 30 days, as well as those in foreign The proportional rate of this tax shall be 25%, annually currency, or national currency with a value equal to the payable. The net taxable profit shall result from deduct- U.S. dollar for a term of three years or greater, and the ing the necessary expenses from the gross profits for yields of other debt securities issued for a term equal to the procurement and preservation of the source, in- or greater than three years. cluding compulsory contributions to regulatory/ supervising entities, allowances for social security, and The proportional rate of this tax shall be 13%, monthly national and municipal taxes. payable. Taxpayers will be able to consider the rate corresponding to the purchase of goods and services, When, for one year, a company suffered losses of work agreements, or any other kind of services or con- Bolivian sources, that loss can be deducted from taxed sumables as paid because the tax determined by the profits to be obtained in the years immediately follow- application of said proportional rate. ing.

It is important to take into account the jurisdictional The following shall be exempted from this tax: basis of this tax, since the total amount of income derived from Bolivian sources is subject to it. In general, • Activities of the National State, Departmental income from Bolivian sources shall include those deriv- Prefectures, Municipalities, Public Universities, ing from goods located, placed, or economically used and entities or institutions belonging there to. within the country, the performance of activities within • Profits obtained by civil associations, the national territory when capable of producing in- foundations, or non-profit organizations legally come, or events taking place within the limits thereof, authorized having signed agreements, and de- without prejudice to the nationality, domicile or resi- veloping the following activities: religious, chari- dence of the owner or parties taking part in the opera- ty, humanitarian, cultural, scientific, ecological, tions, or of the place where the agreements are cele- artistic, literary, sportive, political, and unions. brated. • Interest in favour of international credit entities, and foreign official entities which agreement 8.1.3 Company Profits Tax (IUE) shad been approved by the National Congress. This is a tax on the profits resulting from the financial statements of the companies at the end of each finan- Also, there are achieved by an additional rate of 12.5% cial year. All companies, public and private, are taxed, those activities of non-renewable natural resources including: corporations, limited partnerships with stock when generating favorable conditions for minerals and capital, general partnerships, cooperatives, limited lia- metals, applied to the established annual net income bility companies, limited partnerships, de facto business when prices are above those required by law. associations, sole-proprietorships subject to regulations, branches, agencies or permanent companies formed or On the other hand, the additional tax rate for the domiciled abroad, or any other type of company. financial sector IUE (AA-IUE), 12.5% tax additional utilities of financial institutions and non-bank (except The following are also included in this tax system: those of 2nd Floor), when their benefits exceed 13% of the coefficient of return on equity. • Companies formed or to be formed within the national territory that extracts, produce, 8.1.4 Company Profits Tax Foreign Beneficiaries benefit from, reform, fund, and/or trade (IUE-BE) minerals and/or metals. When tax is paid on income derived from foreign • Companies which purpose is the exploration, Bolivian sources, it will be assumed that the net taxed exploitation, refining, industrialization, transport, profits shall equal 50% of the total amount paid or and trade of hydrocarbons. remitted, without accepting proof to the contrary. • Companies which purpose is the generation, transmission, and distribution of electrical pow- In this way, those paying or remitting said sums to ben- er. eficiaries abroad must retain a 25% rate on the assumed net taxed profit as a single and final payment. Individuals who are not compelled to keep accounting records that allow for the creation of financial state- 8.1.5 Operations Tax (IT) ments must file an annual tax return as of December 31 All individuals involved in commerce, industries, of each year, where they will include the total amount professions, trades, businesses, leasing of assets, works,

B o l i vi a and services, or any other profitable activity, shall be · Ascendant, descendant, and spouse, 1% taxed. All acts on Gratuitous Title that entail the trans- · Siblings and descendants, 10% fer of ownership of property, real estate, and interest · Other collateral relatives, legatees, and gratuitous shall also be included in the purpose of this tax. The tax donors, 20% is determined based on the gross income accrued during the tax term for the financial year of the activity 8.1.8 Tax on Flights Abroad (ISAE) taxed. This tax affects all Bolivians and residing foreign every time they leave Bolivia by air. Holders of diplomatic The proportional rate shall be 3%, monthly payable; passports and children under 2 years old are exempted the following shall be exempted from this tax: from payment. The ISAE proportional rate is BOB 254 (this amount is updated on the January 1st each year by • Personal work performed by an employee with a the Tax Authority, according to the U.S. dollar varia- fixed or variable remuneration. tion). • Exports. • Interest on deposits in savings accounts, term 8.1.9 Special Tax on Hydrocarbons, and current accounts, and any income derived from Derivatives (IEHD) securities investments. This is a tax on the import and trade of hydrocarbons • Private educational entities. and its derivatives in the internal market. The proportional rate of this tax shall be in accordance with the • Services rendered by diplomatic representations specific rates per unit of measurement, as determined in foreign countries, and international organiza- by the National Agency of Hydrocarbons, which is an- tions accredited by the State. nually updated to the variation of the Housing Promo- • The trading of Securities, and the purchase and tion Unit (UFV). sale of units of interest, in the case of Limited

Liability Companies. 8.1.10 Mining Royalties (RM)

This tax applies to each operation for the sale or export 8.1.6 Speciﬁc Consumption Tax (ICE) of minerals and metals, and any one performing explo- This is a tax on the sale of certain products, such as ration, exploitation, beneﬁting from, trading, and per- cigarettes, tobacco, beverages, beer, corn drink, and forming mineral and/or metal funding activities are alcoholic beverages, aside from the imports of these subject to this tax, which is paid now of selling or ex- products, and motor vehicles. ICE only affects whole porting. sale, and it is not applied again for retail sale.

The manufacturing of minerals and metals, that is to The rate for this tax is determined annually. Cigarettes say, those involved in transforming them into parts or are taxed according to percentage rates on their price capital goods, shall be exempted from RM. RM is not while beverages and alcoholic beverages are taxed ac- considered an additional tax to the Company Profits cording to specific rates for measurement units. Vehi- Tax (IUE), since, at the end of the administration, the cles foreseen for the transport of 10-18 passengers, consolidated annual IUE and the RM are compared, and vehicles having a chassis fitted with a cabin shall and only the larger of these two taxes will be paid. be taxed by a 10% proportional rate on the taxable basis. Vehicles for the transport of more than 18 pas- The RM proportional rate for metals such as gold, sil- sengers, and with high tonnage, as well as motor bicy- ver, zinc, led, and tin is determined according to an cles, shall have an 18% rate taxed on the taxable basis. established percentage scale. For the remaining

minerals, the rate is determined by the international Vehicles built and equipped for health and security prices of the minerals or metals; so, it varies according services, such as ambulances, safety cars, fire fighting to this fluctuation. This tax is consolidated at the end of vehicles, and tanker trucks are exempted. each financial year.

8.1.7 Gratuitous Property Transfer Tax (TGB) 8.1.11 Financial Operations Tax This is a tax on succession by inheritance, and legal acts This is a tax on the following operations: by which the ownership of recordable property is trans- • Credits and debits in current accounts. ferred by gratuitous title. Public entities are exempted • from this payment, as well as associations, foundations, Payments, and fund transfers. • or non-profit organizations legally authorized, such as Issuance of management’s checks, religious, charity, humanitarian, welfare services, edu- traveler’s checks, and other similar financial in- cation and training, cultural, scientific, artistic, literary, struments existing or to be created. sportive, political, and professional organizations, or • Money transfers or money wiring abroad or unions. Proportional rates are established according to within the country the blood relationship degree: • Delivery or reception of funds owned or belonging to third parties. 27

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The proportional rate of the tax is 0.15%, applicable to motor vehicles. A 3% rate is applied on the greatest sums above USD 2,000. Operations for savings ac- amount between the value of the property, and the counts in national currency, or with value value in the records. maintained, are exempted from this tax. 8.3 Customs Duties 8.1.12 Direct Tax on Hydrocarbons (IDH) Except as set forth in the international agreements in The IDH applies throughout the country, to the force, the import, export, customs transit and storage production of hydrocarbons from the wellhead, of goods, and other customs operations shall be subject measured and paid as royalties (18%) according to to the General Customs Act, and its regulations, aside current regulations. from other complementary provisions.

The tax base is equal to the royalties and participations The Generating Fact for customs duties is the entry of that applies to volumes or energy of the hydrocarbons foreign goods, or the outﬂow of goods from the cus- produced. The rate is 32% non-progressive on total toms jurisdiction under the control of customs authori- hydrocarbons measured at the point of control. ties. The taxable basis of customs duties is the customs value of the good imported. The taxable basis on which 8.1.13 Tax Game (IJ) the customs duties are paid shall be formed by the This tax is levied on gambling, lotteries and business transaction value of the goods, which is determined by promotions throughout the national territory, not being the assessment methods established in a scale, plus the achieved in their entirety those who are destined for loading and unloading expenses, transport cost, and charitable goals or assistance. insurance to the border customs, which operate as customs for entering the country. The rate is 30% for gambling and lotteries, and 10% for business promotions. The Consolidated Customs Duty (GAC) to be paid shall be: 10% for general goods and 5% for those listed as 8.1.14 Tax participation in games (IPJ) capital goods. However, in case of an existing commer- The IPJ tax participation in gambling and lotteries in all cial agreement signed by Bolivia, the GAC to be paid of Bolivia territory, with a rate of 15% levied on the will depend on the tax exemption of the property in taxable people involved in that activity. question.

8.1.15 Tax on the sale of foreign currency (IVME) When transported by air, the cost of the air freight shall This tax reached total sales of foreign currency by the be twenty-five per cent (25%) of the sum duly paid for financial intermediaries (banks, non-bank and money this concept for the determination of the Customs CIF exchange). The IVME is not deductible to IUE, and is value. monthly payable. When there is no commercial documentation Exemptions from this tax are the ones done by the Cen- evidencing the transport cost, it shall be assumed that it tral Bank of Bolivia (BCB) and sale of foreign currency equals 5% of the FOB value of the goods. When the by taxpayers at BCB. transport operation is carried out without insurance, the premium shall be assumed to be 2% of the FOB The tax rate is 0.7% in case of banks and non-banks value of the goods. The national insurance policy shall and 0.35% for the money exchange houses. only be accepted when irrefutably obtained before the shipping of the goods in the country of origin. 8.2 Municipal Taxes For vehicles entering the country by their own means of 8.2.1 Real Property and Motor Vehicles Tax (IPBI, transport, or luggage of the traveler’s regime, in order IPVA) to determine the taxable basis, the transport cost shall Owners of real estate and/or motor vehicles pay this be two per cent (2%) of the FOB value. tax. The percentage to be paid varies according to the characteristics and value of the property, which is ob- To pay the Added Value Tax, and to apply the percent- tained, based on zoning tables, tax scale, and deprecia- age of the proportional rate of the Specific Consump- tion. That is to say, the basis of the calculations for this tion Tax, in the case of imports, the taxable basis shall tax is the tax assessment established by each municipal- be formed by the border customs CIF value, plus the ity, in the case of real estate, and values declared at Customs Duty duly paid, and other non-invoiced ex- customs, for motor vehicles. penditures necessary for customs clearance.

8.2.2 Real Estate and Motor Vehicles Transfers As a general rule, the term for the payment of customs Municipal Tax (IMT) duties shall be three (3) days to be counted from the This is a tax on casual transfers of real property and/or

B o l i vi a working day following the acceptance of the declara- The methods accepted by the Tax Administration will tion of goods by the customs administration. be welcomed by the OECD (Method Comparable uncontrolled price, resale price, the cost added, the Profit The same term shall apply for the payment of obliga- Distribution and Transactional Net Margin), together tions derived from the liquidation carried out by the with either the Notorious Price Transaction in transpar- customs administration, and it will be counted from the ent markets. time the notification with the liquidation is given. The National Customs shall be able to grant an extension to In the event that the price or value of transactions this term with general scope for exceptional cases. between related is outside of comparable rank, and as a result has been diminished taxable IUE. 8.4 Transfer Pricing As part of the new transfer pricing regime established The adjustment will be determined at a value equiva- by Law No. 549 of July 21, 2014 and Supreme Decree lent to at least sample plus average value of the same. 2227, the Tax Administration of Bolivia has issued on April 30, 2015 Normative Resolution No. 10-0008- 15, Penalties for not filing EPT F.601 or presentations later, which regulates the formal obligations in the matter. buggy or incomplete information is punishable with fines ranging from 50% to 100% of the maximum Companies linked to other national or foreign, must penalty provided in Art. 162 of Law No. ° 2492 of the carry out its operations as economic and as would have Tax Code. been made between independent reality. Otherwise the Tax Administration has the power to make adjust- 9. International Treaties ments and / or corresponding revaluation. 9.1 Bilateral Investment Agreement Bolivia has entered into international agreements with Formal obligations shall take effect from September the following countries: Argentina, Great Britain, 2015 and for each taxpayer is determined in France, Sweden, Spain, and Germany. accordance with the materiality of the amount of transactions with related accumulated in a year, 9.2 Agreements to Avoid Double-Taxation applying the following scale: The countries of the Andean Community have signed Decision 578: a regime to avoid double taxation, and to Both the Study of Transfer Pricing, as the Sworn prevent tax evasion. Declaration Form 601 must be submitted by the deadline for filing the Tax Return and payment of tax The criterion applied is the tax exemption for the coun- on Company Profits (IUE). try where the taxable income is pretended to be consolidated; that is to say, the income is taxed by source- The EFA must be made in physical and digital format, based taxation regime. sent via the website of the National Tax Service of Bo- livia. Greater than or equal to Electronic Form 601 Affidavit

15,000,000 Bolivianos must submit Informative and The same shall be prepared in Spanish language, ex- (BOB) Study of Transfer Pricing (EPT) pressed in Bolivianos, and It must be signed by the le- Electronic Form gal representative of the taxpayer. Equal to or great- 601 Afﬁdavit must submit er 7,500,000 Bolivianos Informative Operations with (BOB) It must contain at least the following information: Related Parties. • Index They must keep records to • show that related party trans- Executive Summary Less than Bs. 7,500,000 actions were made at market • Functional analysis Bolivianos (BOB) prices, or that the necessary • Economic analysis adjustments were made. • Conclusión

B r a s i l

Federative Republic of Brazil

1. Identiﬁcation of the ﬁrm contact Moore Stephens performs its activities in more than 12 Brazilian cities.

Contact data of each of them please see on site: http:// brazil.moorestephens.com

1.1 Main contacts Rua Milton José Robusti, 75, 15o Andar – Jr. Botânico, 14021-613 Ribeirão Preto SP - Brasil T +55 (16) 3019 7900 F +55 (16) 3019 7900

2. Main Contacts Head of State for a certain period. It is Presidential because the president of the Republic is the Head of Marco Antonio Olívio Palos State and Head of the Government. It is federative [email protected] because the states have home rule.

Lygia Caroline S. Carvalho The Union is divided into three powers, all independent [email protected] and harmonic among them: the Legislative, that works out the laws; the Executive, that acts in the execution 3. Country profile of programs or performing public services; and the 3.1 Territory Judiciary, that solves conflicts among citizens, entities Brazil is the fifth largest country in the world, with a and the state. total area of 8.5 million square meters, covering about half of South America. The country is divided into five Brazil has a multiparty political system, in other words, regions. one that admits the legal formation of several parties. The political party is a spontaneous association of According to data collected by the Brazilian Institute of people that share the same ideas, interests, objectives, Geography and Statistics (IBGE) the Brazilian and political doctrines, trying to influence and be part population is estimated at 206.081.432 people (last of the political power. Census held in the country in 2016). The state of São Paulo is the most populous state with 44.749.699 4. Types of companies inhabitants, followed by the states of Minas Gerais 4.1 Simple company (20.997.560) and Rio de Janeiro (16.635.996). The less A company is considered simple when its social object populous Brazilian state is Roraima which has 514.229 results from intellectual profession, of a scientific, in habitants. literary, or artistic nature.

3.2 Language This company has a contractual nature, not being Portuguese, the ofﬁcial language in Brazil, was characterized as business company . The private assets introduced in Brazil with the Portuguese colonization. of the partners may be executed for debts of the Currently it is the eighth most-widely spoken language company, but only after the social assets have been in the world. executed, if these are not sufﬁcient to pay the debts. In this case, the partners respond with their social equity 3.3 Political System at the proportion of their shares in social losses, except Brazil is a Presidential Federative Republic, formed by if on the social contract there is a clause stipulating the the Union, states, the Federal District and supportive responsibility. municipalities, in which the exercise of the Power is assigned to different and independent governmental To change the articles of association, voting and entities, submitted to a control system to guarantee unanimity are necessary when the contract determines compliance with the laws and the Constitution. a different quorum.

Brazil is a Republic because the Brazilians elect the 4.2 General partnership In a general partnership the partners respond for the 30

B r a z i l supportive obligations in an unlimited form. This means 4.5.2 Limited partnership with share capital that the creditors may demand what is due to them This company has the capital divided in shares, being from any one of the partners and the partners respond ruled by norms referring to the joint stock company. with all the personal equity. However, in this type of company only the shareholder has the right to manage the company and, as director, In spite of that, as the contract may establish that the responds in a subsidiary and unlimited way for the obli- partners are the managers, the same contract may gations of the company (articles 1.090 to 1.092 of the establish the responsibility of each partner. New Civil Code).

4.3 Limited partnership 4.6 Cooperative company The limited partnership is formed by partners of two It is a simple company, ruled by the Law 5.764/1971; it categories: the general partners, individuals, having must be registered in the Commercial Registry. It is supportive and unlimited responsibility for the social characterized by: variability or exemption from capital obligations; and the limited partners, obliged only for stock; a minimum number of partners is necessary to the value of their stake. the composition of the board. However, there is no restriction on maximum number of members; limitation The limited partnerships are additionally ruled by the of the share of capital stock for each partner; capital norms of the general partnership, so that the general shares are not supposed to be transferred to third par- partners have the same rights and obligations. ties unknown to the cooperative members, even as heritage; quorum of installation and deliberation of the Even if not having affected his right to participate in the assembly of the cooperative members, established ac- deliberations of the company and inspect its opera- cording to the number of partners present to the social tions, the limited partner is entitled neither to practice meeting and not based on the represented capital; any management action nor have the name of the so- each cooperative member is entitled to one vote only; cial firm, on condition to be subject to the responsibili- distribution of the result in a direct proportion to the ties of the general partner. value of the operations effected by the cooperative partner with the company; the reserve fund cannot be In this case, the contract has to discriminate the general divided among the partners, even in the case of dissolu- partners and the limited partners. tion of the company responsibility of the partners in a limited or unlimited way regarding the debts. 4.4 Brazilian limited liability company In this company, the responsibility of each partner is 4.7 Individual Entrepreneur restricted to the value of its shares, but all respond The individual entrepreneur (formerly called individual supportively for the subscription of the capital stock. firm) is just a person performing in his name a business activity. This type of company will have a consolidated basis in just one legal diploma, as the existing company called It is a company with only one person as holder who company of shares of limited responsibility, had its legal subscribes his own assets to run his business; in other basis fixed by the Decree n° 3.708/1919, revoked, and words, here the separation of the assets is not in force. additionally by the Law of Business Corporations (Law n° 6.404/1976). The subsidiary application of the law of 4.8 Individual limited liability enterprise (“EIRELI”) joint stock companies continues being possible, as long Since January 9, 2012, an individual limited liability as there is an express provision on the articles of the enterprise can be formed, after publication of the Law association. 12.441/2011.

4.5 Share companies A “EIRELI” shall be formed by a single person who There are two types of share companies: the joint stock owns all of its capital, duly paid, amounting to not less company and the limited partnership with share capital. than a 100 times the highest minimum salary in force in Brazil. The corporate name shall be composed of the Joint stock company expression “EIRELI” following the name of the individu- In a joint stock company, the capital is divided into al limited liability company. Any natural person who shares, each partner or shareholder being responsible forms an individual limited liability company can be part only for the issue price for the shares that he subscribes of only one company of this type. or purchases. The joint stock company is ruled by a special law (Law nº 6.404/1976 and further legal deter- 5. Labor system – Consolidation of Labor Laws minations), and on the omitted cases will be applied (CLT) the legal determinations of the New Civil Code (articles The Consolidation of the Labor Laws (CLT) combined to 1.088 and 1.089). the Federal Constitution of 1988 are the main diplomas that rule the labor laws in the country. It follows a sum-

B r a z i l mary of the main points the legislation deals with: employer the payment of a fine equivalent to 50% of the value deposited on the account of the Guarantee 5.1 Terms for registration/ recruitment Fund of Working Time (FGTS) of the employee. The The employees have the right to own a Labor and So- employer will receive 40% of this value and the other cial Insurance Book (CTPS). This document is signed by 10% go to the government. If the employee has been the employer and contains information, as performed dismissed for a fair reason, the employer is not sup- position, remuneration, and working day, forming the posed to pay a fine. If the dismissal occurs during the summary of the qualifications that are part of the experience period time, these fines do not apply. working contract signed by the parties. Special employment terms or special contracts also must be men- 5.7 Litigation tioned in that Book. The recruitment of foreign em- The rigidity of the labor legislation should be consid- ployees is guaranteed as long as their international ered seriously, as compared to the norms of other identity card (RNE) (issued by Brazilian authorities) is countries. The labor litigation culture and the absence shown. Beyond the signature of the CTPS, it is neces- of flexibility of the norms ruling the labor contracts are sary the employer keeps an updated registration of all factors to be observed as the labor claims may repre- employees on the Registration Book of the Company. sent expenses for the companies involved. Every year the Ministry of Labor must be informed about the total number of employees working for the The Brazilian labor legislation allows entering the court company, specifying the number of foreigners and mi- up to a maximum of 2 years from the end of the labor nors. contract, and the employee can plead the payment of sums referring to the last five worked years. 5.2 Labor conditions The labor legislation assures the right to a decent and 5.8 Remuneration healthy labor environment. In order to assure the com- The remuneration is periodical and the general rule says fort and convenience of the workers, adequate meal it to be paid monthly in national currency. The salary is facilities or meal tickets must be supplied at the place, to be paid 13 times during the year, in view of the 13th in companies with more than 300 employees. salary, awarded to the employees at the end of every calendar year. For companies engaged in potentially dangerous and/ or unhealthy activities, before they start operations 5.9 Associated benefits there must be a previous inspection by the Ministry of Associated benefits are those that are not part of the Labor approving the offered working conditions. remunerated salary and usually are related to tax incentive programs promoted by the Federal Government, 5.3 Labor time that grants law benefits to the companies that pay The Brazilian worker uses to work eight hours a day meals, transport and/or education for their workers. and the standard week is of forty hours. The workers are entitled to have a weekly rest time of 24 consecu- The big companies also offer pension plans and policies tive hours and regular intervals for the meals. Specific of life insurance, these being considered associated professional categories are subject to different working benefits as well, due to its no-salary nature. hours. 5.10 Additional salary 5.4 Transfer of employees The legislation established the possibilities in which The legislation allows only one geographic transfer of additional values are due to the remuneration salary of the employee whose need has to be proved by the the worker. The payment of any additional is linked to company. The temporary transfers require the paying the intensification of the physical and mental stress to of additional salary not less than 25% and the travel which the employee is submitted in the situation in expenses have to be paid by the employer. which the additional is due, as follows:

5.5 Experience period • Extra hours: it is the additional due to the work The employees can be admitted for an experience peri- exceeding the working day of 8 hours. The value od not exceeding 45 days, not extendable but once for of the additional must be at least 50% more a further 45 days, totaling 90 days at the most. During than the value of the regular worked hour, the experience period, the so-called experience con- although higher percentages may be established tract between employer and employee will be in force. thru agreements and collective conventions At the end of that time, if the labor link is not ended, between workers and employers. the contract becomes deﬁnitive. • Night additional: is due to the work performed in the night period, and remuneration has to be 5.6 End of the job at least 25% higher than the normal worked The dismissal without a fair reason requires from the hour during the day.

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• Dangerous additional: is due to the workers 5.14.2 Thirteenth-month salary (Christmas bonus) submitted to activities considered dangerous by The worker has the right to receive the Christmas the legislation, and in this case it is not supposed bonus corresponding to the 13th-month salary, to be less than 35% of the salary of the equivalent to 1/3 of the salary received on the month of employee. December for every month worked during the civil year. • Unhealthy additional: is due to the workers This bonus must be included on the calculation basis of submitted to working conditions considered the social or social insurance taxes. The legislation unhealthy by the legislation, and it can vary from establishes the possibility of paying the bonus in two 10 to 40% of the salary of the employee, in separated parcels during the calendar year. view of the risk of a potential damage to the health or to the well being of the employee. 5.14.3 Family aid For every child under 14 years of age or dependents, 5.11 Minimum salary the worker has assured a supplementary monthly Minimum salary is the monthly minimum payment benefit for each dependent, variable according to the established by law to be paid to the worker. No salary received. This supplement will not be considered remuneration under the minimum salary is allowed. The on the calculation of the social insurance and other due minimum salary is R$ 937,00 in force in 2017, but taxes. variations may be established by categories or geographical regions. 5.14.4 Profit distribution The companies may establish conditions for the distribution of profits and results obtained among the 5.12 Deductions and reductions workers. Although initially there is no obligation for the In view of the labor rights be so inflexible in Brazil, it is employer to do that, once the benefit has been not possible to the employer to effect any deductions granted, it is submitted to the legal current rules, from the compensations paid or credited to the according to the formalities considered on the Law employees, except to the commissioned functions or 10.101/2000. As long as the provided conditions by the deductions prescribed by law or collective agreements, legislation are fulfilled, the company considers the such as tax withholding, social and labor unions. payments as deductible expenses.

5.13 Equality of opportunities 5.14.5 Previous notice The Brazilian criminal legislation considers the The termination of the labor contract is optional both discrimination as a crime, including the working for the employee and for the employer, as long as environment. The labor laws consider that every kind of informed 30 days before (previous notice). If one of the work of the same function must be remunerated parties interrupts the labor contract without observing equally, independently of the nationality, age, sex, or the previous notice, the 30 days will have to be marital status of the worker. compensated by the other party, as they would have been worked. The Federal Government promotes many programs of directed action for the integration in the labor market 5.14.6 General considerations for disabled, former prisoners and apprentices, among As it was pointed out previously, the Federal others. Constitution and the Consolidation of the Labor Laws are the main diplomas that rule the labor right in the However, differences in working times can be country, however, other norms can be established thru considered on the calculations to justify different salary federal laws and agreements and collective working levels. Companies having career plans can afford conventions of professional categories. We do not differences in salary levels, according to the merit or include these details in this publication, but the maturity; however, any career plans must be registered considerations made here are those causing more at the Ministry of Labor. impact on the day-to-day routine of the company.

5.14 Labor rights 5.15 Tax on salaries 5.14.1 Holidays 5.15.1 Fund of Guarantee for Worked Time The employees have the right to remunerated holidays (“FGTS”) up to thirty days for every period of 12 worked months, The company has to pay monthly the equivalent to 8% as well as receiving a holiday bonus equivalent to 1/3 of of the total salary of every worker to the FGTS, the monthly salary of the worker. The legislation depositing this amount on a proper account of a gov- establishes the possibility for the employer to purchase ernment bank in name of the worker. up to 10 days of the holidays of the worker, as long as the worker agrees with it. The use of that Fund is made available to the employee under special conditions, such as the retirement,

B r a z i l dismissal without fair reason, purchase of the home The contributions have to be paid monthly to the re- owning house and severe disease. spective agencies of the government. The delay in the payment of the contributions to the social insurance 5.15.2 National Institute of Social Insurance (INSS) causes the banning of the distribution of bonus, divi- 5.15.2.1 Contribution of the employer dends to the shareholders or distribution of the sharing The contributions for the social insurance have to be of proﬁts to partners, shareholders, or directors. Be- paid monthly by the company to the INSS, at a rate of sides, companies are also prevented to make contracts 20% charged on the gross salaries of the employees with the government, among other penalties. and adding minority charges (insurance of the compensation of the worker, educational contribution 5.16 Domestic Workers and contributions for other governmental institutions, The PEC (Proposed Constitutional Amendment), as “S”system, Senac, Sesc, Senai and Sebrae). 478/10, also known as “PEC das Domésticas”, enacted on April 2, 2013 as Constitutional Amendment no. 72 Payments to individual or honorary employees without has expanded the rights of domestic workers thus mak- a job link are also subject to the payment to INSS at a ing them equal with those of other urban and rural rate of 20%. workers.

As from 2012, with the enforcement of Law On June 1, 2015, with the promulgation of the Supple- 12.546/11, some economic sectors began to beneﬁt mentary Law 150/2015, which regulates the hiring of from the “payroll exemption”, which consists of a domestic workers, the following rights have been es- change from a 20% payroll tax rate to one varying tablished: registration in the “ Carteira de Trabalho between 1% and 2% on gross revenues (except export Social e Segurança – CTPS”, the personal job card; min- revenues) earned by companies. Below, some of the imum salary guaranteed; salary protection with crimi- sectors beneﬁting from this exemption (not a complete nalization of deliberate deduction; working hours not list): exceeding 8 hours a day and 44 hours a week; payment of overtime at least 50% higher than that of reg- Sectors Tax rate ular hours; compliance with hygiene, health and safety standards; compliance with collective agreements and Textile 1,5% conventions; prohibition of salary, function and admis- Apparel 1,5% sion discriminatory criteria; prohibition of discrimination against disabled persons; prohibition of night, un- Leather and footwear 1,5% healthy or hazardous work for people under 16 of age; Plastic 1,0% unemployment insurance; .“Fundo de Garantia por Tempo de Serviço - FGTS”, the Severance Indemnity Electric material 1,0% Guarantee Fund; family allowance; payment for night Capital goods – Mechanic 1,0% work at least 20% higher than that for day work; occupational accident insurance; day-care and pre-school Bus 1,5% aid for children and dependents of up to 5 years of Auto parts 1,0% age; remunerated weekly rest preferably on Sundays; unfair dismissal indemnity ; transportation allowance; Naval 1,5% 13th-month salary ; vacation pay plus 1/3 as legally es- 1,5 % To tablished; maternity leave; job stability due to pregnan- Air 2,5% cy; “banco de horas”; compensation for hours worked during travel; meal and/or rest break; previous notice of Furniture 2,5 % contract rescission.

IT 4,5% A further innovation is the “Simples Doméstico” a uni- Hotels 4,5% fied system for payment of taxes, contributions and Call Centers 3,00% employers´ charges, whereby a single document is used for collection of monthly contributions at the following 5.15.2.2 Contribution of the employee rates: a) from 8% to 11% - social security contribution The contribution of the employee is subject to a mini- paid by insured domestic workers; b) 8% - social secu- mum tax, collected monthly by the employer, based on rity contribution paid by employers; c) 0.8% - contri- a specific progressive table varying from 8% to 11% bution to finance accident insurance; d) 8% - contribu- according to the salary level of the worker. tion to the “FGTS”; e) 3.2% - funding of unfair dismissal or reciprocal guilt indemnity; f) withholding income The company is responsible for charging and therefore tax, if any. Besides, in the event of unfair dismissal, it must keep the percentage due from the workers. employers are also required to deposit in the employee´s secured account a 40% fine on the amount of

B r a z i l deposits made during the employment contract, duly 11.941/2009 and in force from 2008 to 2004 will be restated, plus 10% of contribution to the “FGTS”, alt- revoked. hough the latter is deemed illegal since 2012. The IRPJ is charged on the taxable net profit, being ap- 6. Tax system plied the basic percentage of 15%, plus an additional The Brazilian tax system is based on the principle of of 10% on the parcel of annual income exceeding strict legality and its fundamental principles are fixed by R$240.000.00 per year or R$ 20.000.00 (twenty thou- the Federal Tax Code of 1966 and by the Brazilian Fed- sand Reais) per month. eral Constitution of 1988. There are three jurisdictions and levels of charging taxes fixed by the tax legislation: Lastly, it is worth stressing that with the enactment of federal, state, and municipal. the Provisional Measure 627 of 2013, IRPJ and CSLL (the later outlined in the next sub-topic), will begin to 6.1 Federal tax be determined by digital bookkeeping means (Sped), The main federal taxes charged by the companies in- the records of which are made at the “ECF – Escritura- stalled in Brazil are: Income Tax of Corporation (IRPJ); ção Contábil Fiscal” (Accounting – Fiscal Bookkeeping). and the Social Contribution on the Net Profit (CSLL), By defaulting on this regulation and failing to submit or that are calculated in a similar way. submitting incorrect information, a taxpayer will be liable to fine calculated based on their company´s ability There are not distinctions regarding the origin of the to pay taxes. invested capital (be the investors foreign or national). The annual corporate income tax return must be filed The subsidiaries of foreign companies, although sel- on the date set by the “Receita Federal do Brasil – dom, are taxed in the same form as the autonomous RFB”, the Federal Income Tax Authority, usually the last subsidiaries. In principle, the company is considered to business day in June, together with information on any be seated in Brazil as long as it has been established special events such as mergers, acquisitions and splits. according to the Brazilian corporate law and have its address in Brazil. Besides, the Brazilian law requires that As regards events occurred from January 1, 2014 on- the management of the company be effectively in Bra- wards, companies are released from keeping the “Livro zil. de Apuração do Lucro Real – LALUR” , the Tax Ac- counting Ledger, using a physical medium, and the The Brazilian fiscal year corresponds to the calendar “Declaração de Informações Econômico-Fiscais da Pes- year, independently of the corporate year. soa Jurídica DIPJ “ – the Corporate Income Tax Return. However, they are required to provide the “Escrituração 6.1.1 Income Tax of Corporation (IRPJ) Contábil Fiscal – ECF” , the Accounting and Fiscal The rules of the IRPJ, consolidated according to Decree Bookkeeping. n° 3.000, of March 26, 1999, apply to all tax payers. Only the federal government is entitled to charge in- The “ECF” must be annually filed with the “SPED” by come tax, but part of it after the charge is transferred the last business day of July in the year following the to states and municipalities. calendar year to which it refers.

It should be pointed out that, with the new accounting The obligation to file the “ECF” does not apply to com- methods and criteria adopted by law nº 11.638, panies who opted for the “Simples Nacional” and inac- (December 28, 2007); the neutrality for tax purposes by tive companies (i.e., those who have had no operation- law nº 11.941/09 was defined, this is, the alterations al, equity or financial activity, including investments in that modify the recognition criteria of incomes, costs the capital market throughout the calendar year and and expenses computed on the finding of the net profit are required to meet additional obligations under spe- of the fiscal year will have no effects on finding the real cific legislation) because they are required to file a profit of the corporation subject to Transition Tax Basis, “Declaração de Inatividade” – Declaration of Inactivity. consequently for tax purposes should be considered the current accounting methods and criteria of December 6.1.2 Social contribution on profits (CSLL) 31, 2007. This tax was introduced to cover the costs of social and welfare programs and is a tax charged As from 2014, companies may opt for definitive IRPJ, additionally to IRPJ. CSLL, PIS and COFINS levying rules defined through the Law 12.973/2014, having in mind the accounting rules CSLL is charged on the taxable net profit at a percent- introduced by Law 11.638/07. And in 2015 the defini- age of 9% and is not deductable from the IRPJ. The tive taxation rules will be mandatory for all companies, calculation basis is similar to the IRPJ, although some and accordingly, as from January 1, 2015, the Transi- specific adjustments apply to one but not to the other tion Taxation Regime (RTT) instituted by the Law one.

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The CSLL percentage is 15% for financial institutions, are deductible, depending on the specific condi- private insurance companies and capitalization tions and limits established by law, which applicable to providing facts occurred from May 1, requires, among other things, the approval of 2008 on. the National Institute of Intellectual Property (INPI). 6.1.3 Taxation methods • Fines coming thru notifications from the Tax The legislation offers three methods to calculate IRPJ Authorities and fines not related to taxes are not and CSLL that fall upon the profits: the real profit, the deductible. Fines due for delay in the payment estimated profit, and the arbitrated profit: of taxes are deductible.

6.1.3.1 Real profit Tax losses: According to the system of real profit, the taxable net • Tax losses can be compensated indefinitely with- profit corresponds to the accounting net profit of the out a time limit for prescription. company, calculated following the Brazilian accounting • The compensation is limited to 30% of the taxa- practices and adjusted through additions and exclu- ble profit. sions, in compliance with the Brazilian legislation. • Tax losses get lost if between the time of its provision and that of its use, cumulatively, oc- In this sense, according to the system of real profit, the curs a change on the control and on the type of companies are required to keep appropriate accounting activity of the tax payer. registers, a book of Income Tax and documents of the calculation to confirm the demonstration of due taxes. A few changes introduced by Law 12.973/2014 are worth stressing, because the amount of compensation According to the system of real profit, the taxpayers for services rendered by employees or similar entities, have an option to calculate the taxes every three as agreed, must be added to the net income for calcu- months or yearly. The option has to be made at the lation of real income in the period to which costs and beginning of the calendar year and is valid for the expenses are appropriated. whole fiscal year. Besides, the taxable profit is calculated yearly, although an anticipated monthly payment is A further change, also introduced by Law 12.973/2014 required; (a) estimated basis; or (b) on real basis. The refers to compensation paid to employees or associates estimated corresponds to the basis of the tax on the based on shares, which must be added to the net in- estimated profit. come.

Among the main exclusions of the taxable profit are 6.1.3.2 Estimated profit dividends received from other Brazilian entities, refer- The Brazilian companies have the option to calculate ring profits provided from 1996 onwards, and equity their taxes based on the estimated profit incomes of relevant investments in other companies. as long as, on the previous fiscal year there were no Moreover, the main additions refer to non-deductible total incomes of more than $ 48 million; and neither be account provisions and non-deductible expenses. financial institutions or similar, nor factoring companies: have no profit, incomes or values coming from The deductible expenses usually are all the items refer- abroad, directly or thru the foreign subsidiaries; and ring to regular business of a company, correctly docu- not be qualified for exemption or reduction of the IPRJ. mented in a capable form and necessary to keep its income source. Now follow some examples of rules The choice, both for the IRPJ and for the CSLL, is made about how expenses for Income Tax purposes can be yearly at the beginning of the year and can be renewed deducted: every year. On this basis of estimated profit, the taxes have to be calculated and paid every three months. • The depreciation can be debited based on the useful life of the referred asset. There is a de- The estimated profit is calculated by applying a pre- tailed list of asset items published by the Tax fixed estimated percentage on the total sales, which is Authorities containing accepted depreciation variable according to the activity. The total of capital taxes. Higher taxes can also be accepted when gains, financial income and of other income must be they accomplish some requirements. When the added directly to the basis of the estimated profit in company operates in two or three shifts, these order to calculate the corporation taxes, subject to per- taxes maybe increased in 50% or 100% respec- centages of 15% and 10% (additional, if due). tively. Besides, the asset purchased according with approved or eligible projects for certain For example, for the IRPJ, the tax for incomes resulting fiscal incentive programs can be depreciated on from the sale of products is 8%, but the higher taxes. tax resulting from services is 32%. For the CSLL, the • Technical assistance and payments of royalties taxes are 12% and 32%, respectively

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Illustrative calculation: 6.1.4 Penalties and fines It should be pointed out that by the system of estimat- The penalty for delay in payment of federal taxes is ed profit, the compensation of the losses is not sup- 0.33% a day, up to the maximum of 20%, posed to be used to reduce the profit. depending to the delay period. The interest rates on delayed federal taxes are charged at a fluctuating rate Percentage IRPJ $ (SELIC) plus 1%. Gross Sales 1.000 The launching by letter for the non-payment of the tax Estimated profit for Income Tax (8%) 80 or the contribution usually is subject to a fine of 75%, which can be reduced to 37.5% when paid within the Financial income 500 time limit of 30 days. In the case of non-payment or less payment of the monthly advances of IRPJ and Total Estimated for Income Tax 580 CSLL, the fine applicable is of 50%, even when there have been identified tax losses in the yearly calculations Income Tax due (approx. - 25%) 145 of taxes. If fraudulent intentions were proved, than the fine goes up to 150%. Percentage CSLL $ Gross Sales 1.000 When there is a delay in the payment of federal taxes or social contributions, the company entities are not Estimated profit for Social Contribution (12%) 120 allowed to distribute bonus in shares to its shareholders or pay any participation on the results to the “quota Financial income 500 holders,” partners, directors or members of the man- Total Estimated Profit for Social Contribution 620 agement council. The non-observation of these restrictions cause penalties. Social Contribution due (9%) 55.80 6.1.5 Income Tax Withheld at the Source (“IRF”) The decision to pay the taxes on the income (profit) by The income tax withheld at the source applies in certain the estimated system does not prevent the Brazilian transactions made in Brazil, such as payment of fees to entities to pay dividends corresponding to the amount certain service providers, payment of salary and finan- of its account profit, if it exceeds the estimated profit. cial income resulting from bank investments (applications). In the majority of the cases, the IRF However, it is required that the company keeps appro- means an anticipated payment of the income tax on priate accounting registers and balance sheets to the final income tax statement of an individual or a demonstrate the account profits. corporation. However, in some cases it is considered a final tax. 6.1.3.3 Arbitrated profit Under certain circumstances, such as keeping non- The IRF is also due in most cases of non-residents that convenient or not trustworthy registers, the Tax Au- have a Brazilian income source (for example royalties, thorities can arbitrate the profits. In this sense the fees for services provided, capital earnings, interests, method consists of a kind of punishment applicable in etc). According to the Brazilian tax legislation, the IRF is situations provided by law. due on payment, credit, delivery, utilization, or remittance of funds; from these possibilities, what occurs The income tax paid about the arbitrated profit is first. definitive and cannot be compensated with future payments. The percentages depend from the nature of the payment, from the residence of the beneficiary and the The system of arbitrated profit is similar to that of the existence of treaties between Brazil and the country estimated profit, but having higher percentages to be where the beneficiary has his seat. The most common applied to the gross sales. Besides, the Tax Authorities percentages vary from 15 to 25%. Generally, the in- can impose penalties. come paid to beneficiaries seated in jurisdictions with low taxes is subject to be withheld 25% at the source. The management resources against decisions or official notifications must be required within 30 days after be- 6.1.6 Program of Social Integration (PIS) and Con- coming aware of it. If that is maintained, the tax payer tribution for the Financing of the Social Security can appeal to an administrative court and, even so, if (COFINS) the decision is maintained, can be appealed to a court PIS and COFINS are federal contributions charged of justice. monthly on incomes, under two basis the cumulative and the non-cumulative.

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Before, PIS and COFINS were charged at a percentage from 1st May 2004 on the import of assets and services of 0.65 and 3%, respectively, from the majority of the is also subject to the payment of PIS and COFINS at a companies, causing a harmful ripple effect, due to the combined percentage of 9.25%, as a general rule. In lack of a credit mechanism and, consequently, increas- some cases, the tax payers can recognize credits of PIS ing the tax incidence and the cost of products and ser- and COFINS on imports. vices in Brazil. 6.1.7 Tax on Industrialized Products (“IPI”) The new legal provisions about PIS and COFINS, provid- IPI is a federal tax falling upon the import and manufac- ing the non-cumulating, took effect on December 2002 ture of goods. In many aspects, it works as a value add- (Law 10.637/2002) and December 2003 (Law ed tax, charged on the added value to the final good. 10.833/2003) with effects produced from December 1, Generally, IPI paid on a previous transaction can be 2002 and February 1, 2004, respectively. Because of used to compensate the IPI obligation that comes up on these rules, the percentages of PIS and COFINS went up subsequent taxed operations. from 0.65% to 1.65% and from 3% to 7.6%, respectively, with the introduction of a credit mechanism. The applicable percentage depends of the product and its classification on a table of IPI percentages. According to this non-cumulative mechanism, the tax payers can, generally, recognize credits of PIS and CO- The IPI also has a normative nature, in other words, the FINS corresponding to 1.65% and 7.6% of certain executive power can increase its percentage at any mo- costs and expenses. These credits can be used to com- ment, by decree, as a form to implement financial and pensate PIS and COFINS due on its taxable income. economic policies. Further, the percentages can be higher in the case of non-essential products, as ciga- So, the tax payers that adopt the non-cumulative sys- rettes, perfumes, etc. tem are subject to an incidence of PIS at a percentage of 1.65% and COFINS at a percentage of 7.6%, being Every installation (subsidiary) is considered a separate permitted to recognize tax credits of PIS and COFINS tax payer for IPI purposes. charged on certain inputs. Among these inputs are: products purchased for resale; goods and services used In the case of imported products, the providing fact is as inputs when offering services or manufacture; con- the customs release, as well as the first time the prod- sumption of electric energy; property rental and fixed uct leaves the installations of the importer (in general, assets applied in the activities; purchase of fixed assets; at a sale). and returned goods, if the corresponding income was In most of the import products IPI is charged on the CIF included on the basis of taxable PIS and COFINS in the value, plus certain custom tariffs and the import tax. previous period. In most transactions in the country, the providing fact is The non-cumulative basis of PIS and COFINS is obligato- when the manufactured product leaves the installation ry for companies that adopt the method of real profit where it was manufactured. Normally IPI is charged on to calculate the IRPJ. the transaction value plus the ICMS (a state tax).

The previous system of cumulative PIS and COFINS con- The Brazilian tax legislation defines as manufacture tinues applicable to certain entities, such as financial every process that modifies the nature, the institutions and companies that adopt the system of operation, the finishing, the presentation, or the pur- estimated profit, among other, and for certain income pose of a product, or that turns a product better for resulting from services of telecommunications, consumption. transport and development of software, which usually are taxed at a percentage of 0.65% for PIS and 3% for The IPI payers have the right to an IPI credit equivalent COFINS, without available credits. The financial institu- to the tax paid on the purchase of inputs to be used in tions are taxed for COFINS at a percentage of 4%. the manufacturing process. This credit can be compensated by IPI charged on subsequent transactions. In The companies whose incomes are subject to the cu- certain circumstances the excess of IPI credits that can- mulative system and other incomes are subject to the not be compensated with IPI due in subsequent trans- non-cumulative system and will have to calculate PIS actions, can be used to compensate other federal taxes. and COFINS separately, in both systems. On incomes IPI does not fall upon the sale of fixed assets, but for referring to export transactions and to the sale of per- that certain requirements have to be fulfilled. manent assets, in general, these taxes do not fall upon. There are special basis of PIS and COFINS for companies 6.1.8 Contribution on Economic Activities (“CIDE”) of certain types of industry, such as the automotive, car CIDE, instituted by Law 10.168/2000, is a contribution parts, cosmetics, pharmaceutical, oil, beverages, pack- of 10% due on payments to non-residents as royalties, ing materials, energy, property, among other. Besides, technical and administrative services, and technical as-

B r a z i l sistance, among others. It should be pointed out that, change instrument there are also speciﬁc percentages, differently from the tax withheld at the source, CIDE is according to the situations and conditions provided on charged on those paying honoraries in Brazil and there- the referred decree. fore, cannot be reduced because of taxation treaties and does not provide a credit abroad. 6.1.10 Tax on Territorial Rural Property (“ITR”) ITR is a federal tax charged on property located outside There is a limited tax credit given to the Brazilian refer- the urban areas. The tax basis varies, ring to the CIDE paid on royalties for the use of regis- according to its value, size and location and the per- tered trademarks or commercial marks, which reduces centage according to the use of the land. the effective percentage of the tax. Law 11.452, which came into force on February 27, 2007 established that 6.1.11 Contribution for the Development of the the royalties due to licenses of software are not subject National Cinematographic Industry(“CONDECINE”) anymore to this tax. The provision goes back to 1 Janu- “CONDECINE” is a contribution falling upon the diffu- ary 2006, enabling the recognition of tax credits of sion, production, licensing and distribution of cine- CIDE for payments of software licenses. matographic and video works for commercial purposes.

CIDE Fuel is another contribution charged on the im- 6.2 State taxes port and sale of oil and products related to petrol, in- 6.2.1 Value-added Tax on Services and Circulation cluding ethanol. The manufacturer, the formulator and of Goods (“ICMS”) the importer have to pay the CIDE Fuel, according to ICMS falls upon operations related to the circulation of Law 10.336/2001. goods and on providing services of interstate and inter- municipal transport and communication. According to Decree nº 8.395/2015 (which amended the Decree 5.060/2004) , the percentages of CIDE on It is a kind of value-added tax falling upon the import the import and trading of oil and its derivates, natural of products and certain transactions involving goods gas and its derivates, and fuel ethyl alcohol – CIDE (including electricity), services of inter-municipal, and were reduced to zero for certain products. interstate transport and communication services.

6.1.9 Tax on Financial Operations (“IOF”) In general, when the transactions involve two different IOF is a federal tax charged on transactions involving sates of the federation, the percentage is 7% (when credit, Exchange, insurance and securities made thru the buyer has his seat at states located in the north, financial institutions. The tax is also applied on loan northeast and center-west regions or in the state of transactions between companies. Espirito Santo) or 12% (for buyers headquartered in the south and southeast regions). For transactions made Now IOF is based on Decree nº 6.306/2007 with fur- in the same state or in the case of imports, the percent- ther alterations. ages can be 17, 18, or 19%. The percentage of 19% is applied in the state of Rio de Janeiro; 18%, in the IOF percentages can be raised by decree of the federal states of São Paulo, Paraná and Minas Gerais; and 17% government and come into force immediately. The in the remaining states. calculation basis varies according to the providing fact and the kind of financial operation. In the state of São Paulo, sales of cars, communication services, and electricity are subject to the payment of, IOF is charged at variable percentages, depending on respectively: 18%, 25% and 25% (art. 52, I, 55 and the expiration date and the kind of transaction. 52, V, “b” of the Decree 45.490/2000). In the state of Minas Gerais, the percentages are 12%, 27% and from In the case of loan transactions (credit operations) in 25% to 30% (art. 42, “B.4”, “j”, and “A.12” NS “C”. Brazilian currency, the general rule says that IOF falls upon the daily average balance, or based on the trans- In the case of imports, in general, the calculation basis action, at a percentage of 0.0041% plus the additional of ICMS is the same as the CIF value, plus the applica- of 0.0038%. There are situations provided that reduces ble import tax, IPI, certain custom tariffs, the ICMS itself the percentage to zero. On the subject, the discussion and PIS and COFINS due on the import. settled in mid-2013 by the Câmara Superior do CARF” (CARF´s Superior Chamber) is worth mention- It should be pointed out that the Commission of Eco- ing. The argument was that no IOF should be levied nomic Matters (CAE) of the Senate, approved the Reso- on activity of a current account between an assessed lution of the Federal Senate nº 13/2012, unifying the company and its parent company. percentage of ICMS to 4% on the interstate operations with assets or goods imported from abroad, as provid- In the case of operations of exchange, insurance, trans- ed on its Article 1º, § 1º. actions with securities, gold, financial asset, or ex-

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ICMS also falls upon when a product is dealt in the every state. domestic market or when it is physically removed from an installation of the manufacturer. The taxed basis is 6.3 Municipal Taxes equal to the transaction value, including the ICMS itself 6.3.1 Tax on Services (“ISS”) (“inside calculation”), insurance, freight, and condition- The “ISS” is a municipal tax charged on income result- al discounts. To the calculation basis of ICMS also has ing from services providing. Although this is a munici- to be added the IPI when the transaction is between pal tax, the services on which it falls upon are on a list tax payers that do not pay ICMS or when a product is of a federal Law (Complementary Law 116/2003). involved that will neither be submitted to another manufacturing process nor will be dealt, as fixed asset. The calculation basis is the price of the service and the percentages vary from 2 to 5%, according to the mu- As occurs with IPI, each subsidiary of the company is nicipality where the service provider is seated and the considered a separate taxpayer for ICMS purposes. kind of service provided. In most of the cases there is a strong discussion if the ISS should be paid at the mu- Also, with the enactment of the Constitutional nicipality where the provider has its seat or where the Amendment” 87/2015 (which amended art. Par. 2, service is provided. sec. VII, of the Federal Constitution of 1988), in force since 3/31/2016, the ICMS on interstate operations is In principle, the taxpayer is the service provider. Howev- now paid by a new system. er, the municipal tax legislation can impose the responsibility of withholding the tax to the company that con- For supply of assets and services to non-taxpayer end- tracts the services. consumers headquartered in a different state, and related transactions, the ICMS corresponding to the dif- Since January 2004, ISS is also applied to the import of ference between the internal and the interstate tax services. The Brazilian companies that receive the ser- rates (which can be 4%, 7% or 12%), shall be divided vices are supposed to withhold the tax on the payment by the states of origin and destination as follows: I – of the services to non-residents. 2015: 20% to the state of destination and 80% to the state of origin; II – 2016: 40% to the state of destina- Further, as provided on the Complementary Law tion and 60% to the state of origin; III – 2017: 60% to 116/2003, the tax does not fall upon the export of ser- the state of destination and 40% to the state of origin; vices abroad. IV – 2018: 80% to the state of destination and 20% to the state of origin; and V – from 2019 onwards: When services providing involves also the supply of 100% to the state of destination. goods, ISS is applied on the total price of the service, except when there is a specific provision confirming In general, those paying ICMS have the right to a credit that the ICMS falls upon the value of the goods. on the amount of the tax paid on the previous transaction with the same asset (inputs), as long as the buyer 6.3.2 Tax on Urban Territorial Property (“IPTU”) also pays ICMS on that product, meaning that as long “IPTU” is a tax on urban territorial property charged as the subsequent transactions involving the purchased yearly by the municipalities, based on the value given to product also be subject to the payment of ICMS. The the property (which cannot correspond to its fair value tax credit can be compensated by future obligations of on the market). The percentages vary according to the payable ICMS. If the purchaser does not pay ICMS, municipality and the location of the property. and depending on his sales being or not subject to this tax, ICMS can become a cost and not be recoverable The IPTU is supposed to be paid by the owner of the under the form of credit. property or who leases / rents the asset when it is leased or rent and the contract provides its payment by 6.2.2 Tax on Causa Mortis Transmission and Dona- whom is its indirect owner (art. 34 of the Brazilian Tax- tion of any Properties or Rights (“ITCMD”) ation Code). The “ITCMD” is a state tax applied to the transfer of the properties and rights due to death (succession) and 6.3.3 Tax on Property Transfer (“ITBI”) donations. The percentages vary according to the legis- “ITBI” is a tax on the transfer of properties, charged at lation of every state. variable percentages (from 2% to 6%). This tax is not normally charged if the property is transferred 6.2.3 Tax on Automotive Vehicles (“IPVA”) within a reorganizaon process of a company The “IPVA” is a state tax charged on the property of (fusion, separation, payment of capital in cash, etc.). motorized vehicles (cars, trucks, etc.). 6.4 Rules to avoid non-payment

The Brazilian tax legislation (National Tax Code) pro- The calculation basis is the value of the vehicle and the vides that the Tax Authorities can have the power for percentages are variable according to the legislation of tax reduction of actions or transactions to reduce the 40

B r a z i l amount of tax due, avoid or postpone the payment of a by the one responsible for the incentive. Only compa- tax or hide aspects of a providing fact or the real nature nies who opted for the taxable-income taxation regime of elements that cause this fact. may opt for income tax incentives within a given calendar year. However, under the legal point of view, these provisions are still dependent of a regulation thru ordinary 6.5.1.1 Frequency of revisions law and administrative entities to come fully into force. The incentive programs of the Brazilian government are subject to frequent revisions regarding both to the 6.5 Tax incentives basic approach as well to the speciﬁc categories and There is a wide variety of governmental incentives for levels of granted tax incentives. Therefore, the compa- projects of installations of companies in Brazil. In gen- nies that want to get beneﬁts from these programs eral, the international investor has the same access to should consider essential to get good information these incentives than the local investors. about it.

The use of governmental incentives is a relevant aspect 6.5.1.2 Subventions of capital of the Brazilian business environment. The governments do not grant available sums of money to reduce the initial expense with industrial construc- Normally the incentives are rather subsidized and ex- tions and equipments. The exception is the subvention emptions or reductions of taxes instead of money of capital as land, obtained by municipal governments, granting. frequently granted through state development agencies. 6.5.1 Federal, state and municipal incentives The incentive programs of the federal government 6.5.1.3 Financing at low cost want to promote the objectives of internal Brazilian Several governmental incentive programs grant financ- policies, including the increase of exports and capitali- ing at low cost. In the past Brazil suffered under a zation of the national private industry, while the state chronic inflation and until today the bank interest rates and municipal incentive programs have specific objec- continue very high. Under these circumstances, the tives, such as the expansion of the opportunities of financing at subsidized rates has been very important to local jobs. The state and municipal governments gener- certain areas of the Brazilian economy. ally use the exemption or postponement of taxes on properties they have the right to charge, giving assis- 6.6 International tax aspects tance to potential investors to be able to access the 6.6.1 Permanent establishment available federal programs. Therefore the company that Only the companies founded in Brazil are, in general, decides to establish a new factory, whose production taxed as residents. In principle, the Brazilian companies will be exported, and is qualified to participate in feder- have to register for tax purposes. al programs, will look for the best package of local incentives before deciding about the location of its fac- The companies that exercise taxable activities in the tory. country without the due registers for tax purposes are also subject to the payment of taxes. Some of the main fiscal incentives are “Lei Roua- net” (Rouanet Law), “Lei do Audiovisual” (Audiovisual Unlike the international practices, the Brazilian tax law Law), “Fundo para Infância e do Adolescente neither embodies the concept of permanent establish- (FIA)” (Childhood and Adolescense Fund), donation for ment nor gives a clear orientation about the potential “OSCIP- Organizações da Sociedade Civil de Interesse impact, in terms of taxes, about the fact that foreign Público” (Civil Public Interest Organizations); donation entities are Doing Business in Brazil. for “Entidades de Ensino e Pesquisa, !Lei Federal de Incentivo ao Esporte” (Federal Law of Sports Incentive) There is no orientation of the Tax Authorities and we and “Fundo para Pessoas com Idade Avançada” (Aged only know about some few administrative precedents People Fund). (tax notification) about the issue. That may be due, in certain cases, that the tax charge on the income of non However, there are certain limitations on the enjoyment -residents continues to be higher than the final taxation of tax benefits. For example, micro and small business- of residents, what the characterization of an establishes who have opted for the “Simples Nacional” cannot ment as permanent would generate. For example, alt- support or make donations to cultural and social pro- hough the profits of a non-resident corporation be jects using income tax incentives, nor can companies taxed at a combined percentage of 34%, while the opting for the assumed-profit or arbitrated-profit taxa- gross honoraries for services of non-residents, in gen- tion regime, or a donor or sponsor linked to an individ- eral, are taxed in 25% (tax withheld at the source and ual, institution or company responsible for the pro- CIDE, if applicable). posal, except in case of not-for-profit institution formed

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Besides, the New Brazilian Civil Code (NBCC) bans for- the National Congress. Brazil had a treaty with Germa- eign entities to operate in Brazil without authorization, ny, which was reported by that country in 2006. The which, in principle, is obtained by establishing a subsid- official reason for its cancellation, alleged by Germany, iary, that is taxable in Brazil in the same way as a legal was the existence of many provisions that would only Brazilian entity. work one-sidedly and that were not corresponding anymore to the German policy and practices, even re- However, the following situations can provide taxation garding developing countries. The treaty also would in Brazil and therefore it is recommended to check the not be providing the necessary legal protection to the specific activities to be exercised in the country in order German economy. to evaluate the eventual risk: In fact, there are many discussions about two issues • Subsidiary in fact: the foreign company has a referring to treaties: if the Brazilian rules of transfer non-registered subsidiary or office. prices, that are not based on OECD, would act against • Consignation: Sales are made by consignation, the provisions about “Associated Enterprises”, con- without keeping appropriate account registers tained in the treaty; and if the interpretation given by by the addressee in Brazil. the Brazilian Tax Authorities regarding the withholding • Link agent: Sales are made in Brazil thru an of income at the source, can be applied to honoraries agent or contracted company and, normally, he for services, as these would fit into “Other Results” and does it. not in “Business Profits”.

6.6.2 Rules of sub capitalization 6.6.4 Transfer prices Thin capitalization rules were introduced in Brazil pur- On the Brazilian transfer price regulations, the Law suant to Law 12.249/2010, limiting thedeductibility of 12.766/2012, art. 5 (which amended the Law interest paid or credited by a Brazilian entity to a relat- 9.430/1996) establishes that interest paid or credited to ed party (individual or legal entity) or to an individual a related party will only be deductible for determination or legal entity (whether related or not) that is resident of actual benefit, if it does not exceed the amount cal- or domiciled in a tax haven jurisdiction. culated at the rate determined in accordance with this article, plus a margin such as diffusion, to be defined Soon after the enactment of Law 12.249/10, the Regu- by the Ministry of Finance, based on the market aver- latory Instruction RFB 1.154/11 stipulated that interest age, apportioned in accordance with the period to paid/credited by a Brazilian-based source to a related which the interest refers. In this sense, early in the individual or company abroad, not organized in a coun- Regulatory Instructions RFB no. 1.321 and 1.322 came try with privileged tax regime, or operating thereunder, into force, whereby the deductibility of interest paid, will be deductible only for purposes of taxable income credited or received under agreements with related and CSLL calculation basis determination, whenever it parties abroad until December 2012 and registered is evidenced that they represent necessary expenses for with the Brazilian Central Bank by that date is not sub- operations in the base period, and on the condition ject to transfer price regulations. that certain requirements mentioned in art. 2 of the Regulatory Instruction referred to above are met. Any contracts signed subsequently, i.e., as from Janu- ary 1, 2013, will be subject to the Law 12.766/12, 6.6.3 Taxation treaties which establishes interest rates based on the currency To avoid a double taxation Brazil signed treaties with of the transaction, and provides for an annual spread several countries. The main method of tax relief, ac- to be defined by the Ministry of Finance according to cording to the treaties, is the tax credit abroad. The the rates prevailing in the market. existing treaties offer very few opportunities of reduction or elimination of tax withheld at source about pay- 6.6.5 Percentages of taxes withheld at the source ments to other countries. Besides, many treaties in The main applicable percentages to payments to non- force contain clauses of estimated credit. residents are the following:

Brazil has treaties with following countries to avoid a • Interest – 15% double taxation: Argentina, Austria, Belgium, Canada, • Interest on equity capital – 15% Chile, China, Czech Republic, Denmark, Ecuador, Fin- • Royalties – 15% land, France, Hungary, India, Israel, Italy, Japan, Luxem- • Fees for technical services 15% burg, Mexico, Holland, Norway, Philippines, Portugal, • Lease and rental taxes – 15% Slovakia, South Africa, South Korea, Spain, Sweden and Ukraine. Below, what is not subject to the withholding of tax at the source (restricted to certain requirements): The treaties with Venezuela, Paraguay and Russia were executed, but are still depending on a ﬁnal approval by • Interest and commission on export ﬁnancing – 42

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0% losses on the balance sheet of the previous ﬁscal year • Interest and commission on export notes – 0% (on December 31). Normally it is necessary and essential • Export rates – 0% to compensate the accumulated losses. • Interest on certain public securities – 0% • Rental taxes of aircrafts and vessels – 0% The interest on equity capital is subject to 15% be withheld at the source, at the date of its payment or • Chartering sea and air vehicles, stay of the boat credit to whom gets them (it could also fall upon a at the port, withholding of 25% if the receiver is seated in a juris- • Payments of container and freight to foreign diction with low taxation - favored). On the other side, companies – 0% • the local taxpayer can deduct the interests on equity International hedge – 0% capital paid to residents or non-residents shareholders • Taxes for the register and keeping of patents, as a remuneration on the invested capital – IRPJ and registered marks and plant varieties. CSLL.

6.6.6 Jurisdictions with low taxation Besides, when the shareholder is a resident entity, the In most cases remittances to beneﬁciaries seated in tax withheld at the source becomes a tax credit (and in jurisdictions with low taxation are subject to withhold- this case, more tax consequences could come up, con- ing the tax at the source at a percentage of 25% . sidering that other Brazilian taxes could fall upon it).

They are the following: Andorra, Alderney (Channel Therefore, it should also be considered the applicable Islands), American Samoa and West Samoa, American tax treatment to the interests on the equity capital in Virgin Islands, Anguilla, Antigua and Barbuda, Aruba, the jurisdiction where lives the foreign beneficiary Bahamas, Bahrein, Barbados, Belize, Bermudas, British (either be the income taxable or the Brazilian tax at the Virgin Islands, Campione d’Italia, Cayman Islands, Cook source creditable, etc.) as the payment of interests on Islands, Costa Rica, Cyprus, Djibouti, Dominica, East the equity capital may offer tax opportunities. Samoa, Guernsey, Gibraltar, Grenada, Grenadines, Hong Kong, Isle of Man, Jersey, Labuan, Lebanon, Libe- The promulgation of the Law 12.973/2014 has ria, Liechtenstein, Luxemburg (referring to 1929 Hold- changed the federal tax legislation, by establishing a ings), Macau, Madeira Island, Maldives, Malta, Marshall new basis of calculation of interest on equity reserve. Islands, Maurítius, Montserrat, Monaco, Nauru, Nevis, Accordingly, from 2015 on, for calculating interest on Dutch Antilles, Niue, Oman, Panama, Saint Kitts, Saint equity reserve for income tax and social contribution Vincent, San Marino, Saint Lucia, Sark, Seychelles, Sin- determination purposes, only the following sharehold- gapore, Tonga, Turks and Caicos Islands, United Arab ers´ equity accounts will be taken into consideration: Emirates, and Vanuatu. At any moment new jurisdic- capital, capital reserves, revenue reserves, treasury stock tions may be added to this list. and accumulated losses. Under previous legislation, the interest on equity reserve would be calculated on 6.6.7 Interest on equity capital the whole shareholders´ equity, except for the revalua- According to the Brazilian law, besides the dividends, tion reserve. the subsidiaries can also pay interests on the equity capital and its shareholders. 6.6.8 Royalties The tax withheld at the source is charged on the pay- This interest is a mixed instrument as it is deductible ment of royalties at the standard percentage of 15% or for Brazilian tax purposes and, at the same time, be to that applicable, according to the treaty. considered remuneration for the investor, based on the value of the shareholders. The payments of royalties are also subject to the payment of CIDE at a percentage of 10%. CIDE is not a tax In general terms, the interests on the equity capital are withheld at the source. It falls upon the entity that pays calculated by applying the daily variation “pro rata” of royalties. CIDE generates a partial tax credit, n the case the long term governmental interest rate (TJLP) to the of royalties paid by trademarks and patents. adjusted equity capital of the Brazilian entity, considering all the variations occurred during the year. There are also discussions if the royalties are subject to the payment of PIS and COFINS, as well as ISS tax. The interest on the equity capital is limited to what is higher between 50% of the profits withheld of the The royalties on trademarks, patents and know-how, as payer (accumulated) and 50% of its current profits, well as other agreements involving technology transfer with some adjustments. However, although clearly pro- (specialized technical services and technical assistance) vided by law, the Central Bank of Brazil is not accepting are subject to specific requirements both for remittanc- remittances of interests on equity capital based on the es to be sent abroad as for being deductible. The current profits, when the company has accumulated agreements have to be registered at the Central Bank

B r a z i l and at the National Institute of Intellectual Property Brazilian tax on capital gains. (INPI). The capital gains correspond to the difference between On the royalties fall certain global and individual limits the value of the transaction (for example, Sales price) based on the net income. For example, the royalties on and the cost of the investment. However, there are two trademarks are limited on 1% of the net income and possible method for computing the cost of the shares, the royalties on patents at a percentage of the net in- which many times result on the ﬁxation of different come varying according to the type of industry (from purchase costs and, consequently, to a different 1% to 5%). amount of capital gains.

Collectively, it is not supposed to exceed 5%. However, One of these methods considers as purchase cost the as there are specific limitations of tax deductions, they historical value of the investment made in local curren- are not subject to transfer rules of valid prices in Brazil. cy (Reais), duly adjusted by the inflation of December 31, 1995. The other method considers the cost equal 6.6.9 Fees for services to the foreign capital registered at the Central Bank The taxation of fees for services is different depending (RDE-IED). on the provided services be considered technical or non -technical. In the Brazilian legislation there is not a clear There is a strong discussion which of these methods is definition of technical and non-technical services. How- correct and therefore it is recommended to discuss and ever in a recent regulation of withholding taxes at the check the issue properly before the sale or purchase of source, the Tax Authorities described technical services shares of the Brazilian company. as works or companies whose performance requires specialized technical knowledge and is made by liberal 6.6.11 Taxation of foreign profits (rules of Federal professionals or artists. Accounting Council - CFC) The Brazilian rules about foreign subsidiaries companies The non-technical services are taxed at the source at are relatively new, with some provisions distant from 25%, while the technical services at 15% and fit into the concepts and provisions that are on the CFC legisla- CIDE at a percentage of 10%. Both the technical as the tion of other countries. non-technical services are subject to the payment of PIS and COFINS, as well as ISS. The percentages of PIS and The profits produced by foreign subsidiary or branch COFINS are respectively 1.65% and 7.6%., while the offices are supposed to be part of the financial state- ISS taxes may vary from 2% to 5%, depending on the ments on December 31 of the fiscal year in which the regulation of each municipality. profits were made, independently of a distribution of dividends or profits. The profits would be considered The rules on transfer prices are supposed to be accom- taxable in Brazil, before December 31, under other cir- plished if the honoraries are to be paid to related par- cumstances, for example, liquidation of the Brazilian ties, as well as should be observed the general require- company. ments of being deductible, namely, evidence the work has been really made, formal agreements, etc. The Brazilian tax legislation says that the financial statements of the subsidiary be made according to the local In the case the services involve technology transfer, can commercial legislation and converted in Brazilian cur- be made specific requirements for remittances to be rency (Reais). sent abroad and regarding the possibility of tax deductions, as mentioned on the previous paragraph about In principle, the consolidation of profits and losses of royalties. foreign companies is not permitted in Brazil for tax purposes (except in the case of branch offices of the same 6.6.10 Capital gains entity, located in the same jurisdiction, as long as cer- When a non-resident sells an asset located in Brazil, tain conditions be observed). including shares of the Brazilian company, the capital gains are taxed at the source at 15% (25% if the seller The foreign profits gained by the Brazilian entity, thru be in a country listed of the jurisdictions of low taxa- its subsidiaries, should be considered according to each tion). subsidiary. However, the foreign subsidiary has to consolidate on the financial statements the results of its The transactions between two non-residents used to be foreign subsidiaries. (from second step onwards). exempt of taxes in Brazil. However, since 2001 these transactions are also taxed in Brazil, whenever they involve assets located in the On the other side, the losses suffered by the Brazilian country. The representative of a non-resident buyer is entity by means of the foreign company may not serve responsible for the withholding and payment of the to compensate Brazilian profits, although the rules al-

B r a z i l low the compensation of these losses with future bonds dealt with a resale clause assumed by the proﬁts of the same subsidiary, without quantitative or purchaser (locally, this operation is called Repo, qualitative limitations. or repurchase operation); for mutual funds, in cases when the portfolio of the fund is com- Finally, it is important to mention that in case of foreign posed by at least 98% of public securities; and proﬁts be subject to the payment of income tax in the for investments in investment funds in partner- country of the foreign company, the Brazilian controller ship (and for investments in emerging compa- would have the right to a tax credit in Brazil. However, nies) and funds that invest in quotes of these this credit and the corresponding compensation are funds (zero tax is applied only if the investor and subject to certain restrictions. the funds observe certain rules).

For Brazilian companies that have investments abroad it If the foreign investor is not investing according to the is obligatory the use of the method of real profit to provisions of Resolution 2.690/00, or if the investor is calculate the corporation taxes. seated in jurisdictions with low taxation, the income resulting from investments made in the Brazilian finan- As regards the taxation in Brazil, the investments of cial market is subject to taxation, in the same way as non-residents in financial and capital markets and the the investments for residents. incomes earned by foreign investors, in investments on the financial market are subject to the income tax at And finally the tax impact of IOF must be pointed out, the source, at the following percentages: as its percentages, as the providing facts can be instituted or changed by the government, by decree, and • 10% for investments in stock funds, swap oper- come into force immediately. ations and operations on the future market, made outside of the stock markets or commodi- The foreign investments in financial and capital mar- ty exchange kets, except those of variable income (for example, • 15% in the other cases, including investments in shares dealt in stock exchange) are subject to IOF at a fixed income. percentage of 1.5% in the liquidation of the exchange • 0% for capital gains, defined as gains obtained operations. with stocks, commodities, other similar transactions on the commodity Exchange, and for gold 6.6.12 Register as tax payer – CNPJ dealt outside of the market of commodities All non –resident entities that have shares, financial earned and distributed by these foreign invest- investments, assets or rights in Brazil must get a num- ment funds; for income obtained with Brazilian ber of register as corporate tax payer (CNPJ) at the Sec- public securities purchased from February 16, retary of the Federal Revenue of Brazil (SRF). 2006 on, except in case of income provided by

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Republic of Chile

1. Contact company identiﬁcation Moore Stephens Auditores Consultores Ltda

1.1 Ofﬁces, address, telephone Monjitas 527, Oﬁcina 1101, C.P. 8320070 Santiago, Chile T: +56 (2) 24768000

2. Company Professionals Victor Aguayo Principal Partner [email protected]

ongoing trade agreements – strategic agreements, free Jorge Astudillo trade agreements, economic complementation Audit Partner agreements and limited scope agreements – with [email protected] countries that represent 60% of world population. Its

main trading partners are the European Union, the Macarena Aguayo United States, South Korea, China and the P4 Tax Manager Agreement. Chile is also a member of diverse economic [email protected] forums such as APEC and is an associate member of

the Andean Community and Mercosur. Also part of Country Proﬁle the Pacific Alliance since 2011. Chile is a country located in the southwestern corner of

South America and Santiago is its capital city. It has an immense geographical and topographical diversity that 1. Main taxes in Chile includes deserts, mountains, forests, glaciers, islands The taxes most widely applied in Chile are: and a coastline that stretches more than 4,270 km in • its continental section. Income Tax to businesses and individuals • Value Added Tax (VAT) Considering its continental and insular areas and the • Stamp Tax Chilean Antarctic territory, Chile has an area of • Capital Gains Tax approximately 2,006,096 km2. It has a population of • Municipal Licenses about 17,819,054 . On average, the quality of life, economic growth, human development, globalization In addition, the tax regime includes property taxes, and GDP per capita indexes are among the highest in inheritances and donations taxes, and other minor Latin America. It is politically organized as a unitary, taxes. Except for municipal licenses, all taxes are democratic and presidential state with a clear applied nationwide. separation of the executive, legislative and judiciary branches.Chile is recognized as one of the best 2. Tax Enforcement evaluated emerging economies of Latin America and The entity responsible for the control of taxes in Chile is worldwide. the Internal Revenue Service (hereinafter the “SII”). In addition, the SII is the entity responsible for issuing During 2010 it became the first South American instructions, administrative rulings and tax law country to join the Organization for Economic interpretations. Cooperation and Development (OECD). In case of a dispute between the taxpayer and the SII, Chile has an economy characterized by the exploitation there is an administrative (not judicial) review by the and export of raw materials, strongly emphasizing the same SII, which is optional for the taxpayer. If the export of copper, fruits, fish products, paper and wine. judicial avenue is followed, the taxpayer may file a In addition, Chile is now viewed as a foreign complaint with the Tax Court, whose first instance is investment platform by other Latin American countries the SII’s Regional Director. CTDs are specialized and because of its economic, political and legal stability. independent of the SII and the National Customs The Chilean economy is one of the most open in the Service courts of first instance. Dedicated to resolving world, particularly considering the large number of the tax and customs claims that individuals or

C h i l e companies have against administrative decisions. system with two levels. A first taxation level corresponds to the First Category Tax levied main line Afterwards, there is the possibility of appealing to the business activities. In the second taxation level we find Court of Appeals and, finally, the taxpayer may reach the Global Complementary Tax and the Additional Tax, the Supreme Court to settle legal issues. As a rule, the also known final taxes. This second taxation level is statute of limitations is three years from the respective triggered once the income generated by the company tax payment due date. In special cases, the statute of is distributed to its members or shareholders. If the limitations period is extended to six years. Law 20,322 distribution is to a natural person domiciled or resident published in the Official Gazette on January 27, in Chile, the Global Complementary Tax is triggered 2009created the Tax and Customs Courts, which will with rates ranging from a 0% rate on an exempt settle controversies between taxpayers and the SII. income bracket up to a 40% rate. If the distribution is These courts are currently operating in several regions made to a nonresident, whether an individual or a of the country. However, they will start operating in juridical person, the Additional Tax is triggered, which Santiago in the year 2013. generally reaches a 35% rate. Once company profits are distributed to partners or shareholders, the First 3. Income Taxes General Category tax paid by the company (24%) can be used In general, individuals or legal entities resident or as a credit against the partners’ or shareholders’ Global domiciled in Chile are subject to taxes on income from Complementary Tax or Additional Tax. Below is a their global sources. This includes income received from summary of the main tax rates found in the Income Tax Law: activities pursued in Chile or abroad. In the case of nonresidents, they will find themselves subject to taxes TAX RATE only on income they obtain from a Chilean source. First category 24% Exempt to Second Category Exceptionally, foreign individuals will pay taxes only on 40% income earned in Chile during the first three years of Exempt to their residence in the country, a period that can be Global complementary 40% extended. Importantly, revenues of Chilean companies will always be considered as a Chilean source income. Additional (non resident in Chile) 35% Also considered Chilean income sources are those that Royalties paid abroad 30% generate income from the disposal of shares or rights Royalties for the use, enjoyment, develop- 15% representing the capital of a legal entity incorporated ment of computer software and others abroad, made to a person domiciled, resident or incorporated in the country, whose acquisition would Royalties paid abroad for films and videos 20% allow, directly or indirectly, holding more than a 10% Royalties paid abroad for copyright and ownership or profits of another company incorporated 15% in Chile. publishing Technical and engineering jobs 15% The Income Tax Law contains several categories of Professional and technical services 15% taxes depending on the taxpayer activity, namely: Other services paid abroad 35% − The First Category Tax: affects income from Interest paid to foreign companies 35% industry, commerce, mining, real estate and Interest paid to financial and banking other activities involving the use of capital. 4% − Global Complementary Tax: affects income institutions derived by individuals domiciled or resident in Sea freight 5% Chile, on the sum total of their income, whether the source is Chilean or foreign. Insurance premiums paid to foreign insurers 22% − The Second Category Tax: applies to income Reinsurance premiums paid to foreign 2% from personal services provided by employees. reinsurers − Additional Tax: affects Chilean source Taxes of a unique character income received or accrued by individuals or Rejected expenses Art. 21 in Corporations 35% legal entities not domiciled or resident in Chile. Capital gains taxes on the sale of shares 20% Integrated Taxation (*) These rates are only for reference, particularly concerning the Additional Income taxes are structured as an integrated taxation Tax, which varies with the occurrence of certain circumstances.

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Payment of income tax: Every taxpayer must file vendor or service provider, both concepts defined by an annual income tax return and pay any tax due the VAT Law itself. during the month of April following the closure of the financial year. The VAT operates on the basis of a Tax Credits and Debits system. That is, the taxpayer may take An employee who receives income only from advantage of the VAT tax charged when he purchases remunerations does not need to pay an annual tax in a product or receives a service, against the VAT April. In this case, the Second Category Tax is withheld charged by the taxpayer when he sells his product or and paid monthly to the Treasury by the employer. provides a service. Thus, the payable tax is determined by subtracting from the Tax Debit the Tax Credit The First Category tax or corporate tax is payable on accumulated by the taxpayer. income earned annually. The VAT Law also contains some specific taxes such as In most cases, provisional estimated payments must be the luxury tax and the alcoholic beverages tax, and made on account of First and Second Category, other taxes that vary according to the type of item Additional and Global Complementary taxes. being sold.

4. Specific tax on mining activities 8. International Taxation Considerations Given the importance of the mining industry for the Credit for taxes paid abroad Chilean economy, the “Specific Tax on Mining Foreign incomes are taxed in Chile on the basis of the Activities” was established in 2006, also known as the net amounts received (except agencies taxed on an “Mining Royalty Tax”. This tax affects the operating accrual basis). Provided they meet certain conditions income of metallic mining operators. Mining operators established in the Income Tax Law, investors are include all individuals or corporations who extract entitled to a credit against the First Category Tax and minerals of grantable character and who sell them in Final Tax based on the income tax withheld abroad on any of their production stages. Applicable tax rates profits remittances dividends and on revenues derived range from 5% to 14% depending on the operating from permanent establishments. The credit is capped at margin as defined in the law. 30% in the case of dividends and 20% for profits derived from a branch. In calculating taxable income, 5. Stamp tax taxes paid abroad are added to the tax base. Taxes paid This tax is levied on the issuance of documents abroad that exceed the limit and therefore cannot be containing money loan operations defined by the law. used as a credit, are allowed as deduction from taxable In the case of forward transactions, the rate is 0.033% income. per month or fraction of a month between the issuance of the document and the date of expiration of the Notwithstanding the foregoing, the cap is 30% with same with a maximum of 0.8 %. (beginning January 1, countries with which Chile has signed double taxation 2016). In the case of documents containing on demand treaties. The foreign withholding tax with a maximum money loan transactions or transactions with no of up to 20% may be used as a credit against the 20% expiration date, or foreign loans, the pertinent rate will Fist Category Tax, and the balance may be applied be 0.166%. against the Additional or Complementary taxes of the local company’s shareholders or partners. External loans are subject to the Stamp Tax irrespective of whether they are formalized in a Without detriment to the above, credits are capped at document or not. 30% of net revenues from foreign sources, net revenue meaning foreign source income less expenses that 6. Municipal licenses were incurred to generate the same. The Municipal License is an annual tax on the activity carried out by a taxpayer in the territory of a particular 9. Treaties to prevent double taxation borough. The fee is calculated on the taxpayer´s assets Chile has signed several general and specific double at a rate set by each Municipality, with a minimum of taxation treaties. The following treaties are currently in 0.25% and a maximum of 0.5%. The annual fee force: Argentina, Australia, Belgium, Brazil, Canada, cannot exceed 8,000 Monthly Tax Units (aprox Colombia, South Korea, China, Croatia, Denmark, US$640,000). Ecuador, Spain, France, Ireland, Italy, Japan, Malaysia, Mexico, Norway, New Zealand, Paraguay, Peru, Poland, 7. Value added tax, VAT Portugal, United Kingdom, Czech Republic, Russia, VAT primarily levies sales and other contracts covering South Africa, Sweden, Switzerland and Thailand. material goods and the provision of certain services. In both cases the taxable event is generally triggered All these treaties are based on the OECD model. when the sale or service is carried out routinely by a

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In addition, Chile has subscribed double taxation treties Association (EFTA), Central America, European Union, with, the United States, which have not yet become South Korea, Panama, Japan, China and Turkey. These effective. agreements tend to eliminate customs duties between member countries within the deadlines set out in each In addition, Chile has signed bilateral agreements with treaty. several countries to avoid double taxation in international cargo and passenger sea and air transport There are also bilateral and economic complementation services. agreements. Among others, with Bolivia, India, Colombia, Brazil, Cuba, Venezuela, Peru, Argentina, Article 41D of the Income Tax Law Ecuador, all of them leading to the elimination of Law No. 19,840, published in the Official Gazette on customs duties. November 23, 2002, allows foreign investors to set up in Chile a base for their investments in other countries. Chile is an associate member of MERCOSUR and has negotiated customs duties’ reductions for some Under this Law, the open joint stock companies and the products as well as immediate or gradual eliminations closed joint companies governed by the rules of the for others. former, which are established in Chile in accordance with Chilean law where their foreign capital must be The 20. 780 29/09/2014 Law on "Tax Reform" was maintained at all times in the full ownership and published in Chile, which envisages a gradual possession of partners or shareholders not domiciled or implementation, with fully effect by January 1, 2017. resident in Chile or in countries or territories considered The main objectives of the Tax Reform are; Increase the as tax heavens or harmful preferential tax regimes, shall tax burden to finance permanent expenditure and qualify (with the exception of specific provisions in the income fund the current fiscal deficit; Advance tax Law) for Article 41D of the Income Tax Law instead of equity, improving income distribution; Introducing new the general provisions of the same. and more efficient mechanisms for encouraging savings, investment and establishing new measures to According to Article 41D, for Income Tax Law purposes curb tax evasion and avoidance. the above companies will not be considered domiciled in Chile and they will only be taxed in Chile on their Among the main changes, it is highlights the Income Chilean source income. Tax Reform, considering a gradual increase in the first category tax of enterprises, 22.5% in 2015, 24% in Article 41D allows the participation of shareholders 2016 to reach 25% from 2017, according the tax domiciled or resident in Chile, but limiting their regime adopted by the company. holdings. In this regard, the tax reform contains two new Among other requirements, the aforementioned alternative tax regimes, starting on January 1, 2017; companies must have the sole purpose of making Income Attributed regime, which will affect a rate of investments in the country and abroad. The capital 25% income derived by enterprises in each tax year, contributed by the foreign investor must have a foreign which will be immediately attributed to the partners or source and bank secrecy rules will not apply to them. shareholders.

10. Customs duties Partial integration scheme will affect a rate of 27% Customs duties on imports of virtually all goods and from 2017, income derived by companies. Under which products amount to 6% of their value. There are it will be allowed to defer payment of ﬁnal taxes regional and bilateral reductions for some products, in affecting the partners or shareholders to cash the context of ALADI (Latin American Integration withdrawal or distribution of proﬁts of the company, Association). but only allows use as a credit 65% of the taxes paid by the company, unless the shareholder is domiciled in a Chile has signed free trade agreements with Australia, country with an agreement, in which case 100% is Canada, Mexico, United States, European Free Trade given.

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Republic of Colombia

1. Firm identiﬁcation Moore Stephens SCAI, S.A.

1.1 Contact details Carrera 9 No. 80-15, Oﬁcina 1003 Bogotá - Colombia T: 571-3456002 / 571-2557527 F +57 (1) 702 3659

2. Specialized professionals Edgard Pérez Director and Audit Partner [email protected] • To be dedicated to the extraction industry. Juan Guillermo Bernal • To obtain or be part of a concession by the Outsourcing and Tax and Legal Assessment Partner Colombian government. [email protected] • The operation of assemblies, boards of directors, management or administration in the country. Nayivi Lozano Tax and Legal Assessment Partner 4.2. Means for the development of permanent [email protected] activities In order to develop permanent activities in the country, 3. Country Proﬁle an investor may settle in Colombia through a branch of Colombia is the fourth country in South America by its a foreign company or a commercial partnership. territory and the only country in the continent with coasts in the Pacific Ocean and the Caribbean Sea. It 4.2.1. Branches of foreign companies limits with Panama to the northeast, Venezuela and The branches of foreign companies do not have a legal Brazil to the east, and Ecuador and Peru to the South. standing different from the legal standing of the Its government is a Democracy, a Presidential Unitary foreign company that incorporate them in Colombia Republic with two Legislative Chambers. (Home Ofﬁce).

Capital: Bogotá D.C. Their incorporation requires a public deed and the Language: Spanish legalization of some documents like those related to Currency: Colombian peso the creation, existence and representation of the President: Juan Manuel Santos Calderón company abroad, its bylaws, and those that include the Population: Approximately 48 million people 1 decision to incorporate the branch in Colombia with the formalities required by the Colombian Law. The 4. Corporate Regime capital allocated to the branch shall be channeled 4.1. Permanent activities in Colombia - Obligation through the authorized intermediaries in the to settle Colombian exchange market, or through offsetting In conformity with the Colombian commercial accounts, and register it as a foreign investment at the legislation 2, in order for a foreign company to develop Central Bank (Banco de la República). permanent business activities in Colombia it shall be legally incorporated in the country, thus creating a 4.2.2. Commercial Partnerships legal relationship. Permanent activities are understood The commercial partnerships in Colombia may adopt as follows: the following types: Joint Stock Company (S.A.S. as per its acronym in Spanish), Corporation (S.A. as per its • To open commercial stores or business ofﬁces in acronym in Spanish), Limited Partnership, and Limited the country. Joint Stock Partnership. The most common types of • To act as a contractor for the performance of companies in Colombia are the ﬁrst three ones. works or the provision of services. • To be part of activities of management, use or The incorporation of a commercial partnership is investment of private savings funds. carried out by means of a public deed or a private

1 Statistics by the National Statistics Department (DANE as per its acronym in Spanish) (May 2015) 2 Articles 471 and 474 of the Code of Commerce

C o l o m bi a document, depending on the partnership type chosen. depending on the municipality or district of operation they shall register before the territorial tax authority to Each one of the partnership types has special rules in obtain the Tax Information Registry (RIT as per its regards to its incorporation, structure, liability by the acronym in Spanish). partners or shareholders, management and internal control. All foreign investments must be recorded at the Central Bank; its entrance to the country must take place 4.3. General Requirements through the regular exchange channel with the 4.3.1. Accounting Standards compliance with the applicable exchange regulations Branches and partnerships incorporated in Colombia regarding the foreign investment. are required to carry accounting books in Colombian pesos and in Spanish, as well as to comply with the 5. Labor Regime regulations and reports required by the control entities Colombian labor legislation conforms to the and tax authorities. dispositions of the International Labor Organization. Foreign employees have the same rights and obligations The International Financial Reporting Standards (IFRS)3 as local employees, except for some diplomatic are applied in Colombia since the year 2015. The privileges. Colombian laws apply to all employees from entities that meet the requirements indicated by the the moment they celebrate a work contract. law (SME’s) started applying the IFRS in the year 2016. The modalities of work contracts are: i) Fixed Term: its As from 2017, the accounting books are carried under term may not be over three (3) years; however, the the Colombian Financial Information Standards to parties my extend it; ii) For the term of a work or labor determine the taxable basis for the income tax. contracted: it has the same term as the activity commissioned; iii) Occasional, accidental or transitory: 4.3.2. Statutory Auditor its term is not higher than one (1) month and addresses The appointment of a Statutory Auditor is mandatory activities different for the regular company activities; for the corporations and branches of foreign and iv) Long-term: no contract’s term is stipulated. companies. All other partnerships must appoint a Statutory Auditor is their gross revenues in the 5.1 Minimum Wage preceding year are equal or higher than 3,000 monthly Colombia has a minimum payment that the employees minimum legal wages in force (SMMLV as per its must earn as a remuneration for performing their acronym in Spanish)4 (approx. USD$763,000)5 and/or if activities, called Monthly Minimum Legal Wage in Force its gross assets are equal or higher than 5,000 SMMLV (SMMLV as per its acronym in Spanish). The SMMLV for (approx. USD$1.3 million). the year 2017 is COP$737,717 (approx. USD$254).

4.3.3. State’s Surveillance and control In addition, a monthly Transportation Aid is recognized, Commercial partnerships and branches of foreign which in 2017 amounts to COP$83,140 (approx. companies are subject to the supervision by the USD$29), which must be paid to the employees that Superintendency of Companies, provided that their earn up to two (2) SMMLV. revenues or assets are higher than 30,000 SMMLV at the cutoff date of their financial statements (approx. 5.2 Work Hours USD$7.6 millions). Depending on the activity carried The work hours are up to 48 hours per week. The out, other Superintendencies may exercise such control. daytime hours are from 6:00 a.m. to 10:00 p.m., and the nighttime hours are from 10:00 p.m. to 6:00 a.m. 4.3.4. Mandatory Registrations Nighttime hours include the payment of a 35% Commercial partnerships and branches of foreign surcharge on the value of the daytime hour. Overtime companies must register before the Mercantile in daytime and nighttime hours include the payment of Registrar managed by the Chambers of Commerce, a 25% and 75% surcharge, respectively, on the value which allows their public accreditation as business of the daytime hour. entities. A registry before the Single Registry of Offerors (RUP as per its acronym in Spanish) is required for the 5.3. Fringe Benefits and Legal Obligations purpose of contracting with state entities, which takes Fringe benefits correspond to: i) Severance payment: 30 place at the Chambers of Commerce. The identification days of salary per year worked, or its proportion; ii) before the tax authorities, they must process their Interests on severance payment: 12% per annum on registration to the Single Tax Registry (RUT as per its the severance payment; iii) Holidays: 15 salary days in acronym in Spanish) before the National Direction of time or in some cases in cash; iv) Legal bonus: 15 salary Taxes and Customs (DIAN as per its acronym in days paid on june 30 and 15 salary days paid on Spanish), based on which a Tax Identification Number December 20, at the latest; v) Work clothes: Employees (NIT as per its acronym in Spanish) will be assigned, and that earn up to two (2) SMMLV must receive a pair of

3 Law 1314 of 1009 regulates the accounting principles and standards and the ﬁnancial and assurance information accepted in Colombia. 4 The monthly minimum legal wage in force for the year 2017 is COP$737,717 (approx USD$254). 5 The ﬁgures in dollars herein have been calculated based on an estimated exchange rate of COP$2,900 per USD$1.

C o l o m bi a shows and the appropriate clothes from the employer granted to residents in the country and the three (3) times per year on April 30, August 31 and financial cost of lease amounts generated from December 20. international lease contracts.

5.4 Other payments • Profit from the manufacture or industrial Contributions to retirement pension: 16% of the salary transformation of goods or raw materials in the (12% in charge of the employer and 4% in charge of country, regardless of the place of sale or the employee); contributions to Health (EPS): 12.5% of disposal. the salary (8.5% in charge of the employer and 4% in charge of the employee); payroll taxes to the family • For the contractor, the total amount of the welfare funds, the Colombian Institute of Family respective contract in the case of the so-called Welfare (ICBF as per its acronym in Spanish) and the “Turn-key” contracts and other contracts for the National Learning Service (SENA as per its acronym in manufacture of material works. Spanish): 9% entirely in charge of the employer. Colombian legislation expressly indicates the income The partnerships and legal entities and similar ones that not considered as from a local source. are taxpayers of the income tax, corresponding to the employees that individually earn less than ten (10) 7.1.2 Local partnerships and permanent stores of SMMLV, are exempt from the payment of payroll taxes foreign partnerships in favor of SENA and ICBF. The general income tax rate applicable to local companies and similar ones, including the permanent 5.5 Integral Salary stores of foreign entities and foreign legal entities or There is a remuneration method called integral salary without residence required to file the annual income tax which minimum amount is equivalent to 10 SMMLV return, is 34% for 2017 and 33% as from 2018. plus 30% equivalent to the fringe benefits. The employees that receive this salary are also entitled to 15 Legal entities that are users of a free trade zone (except days of salary for holidays. for the commercial users) have a 20% tariff.

6. Migratory Regime Entities called “small entities” due to their assets Colombian migration regime is regulated in order to volume and number of employees, that have control the entrance of foreigners to the country, incorporated by December 31, 2016, at the latest, have whether as investors or employees. The following are a special income tax rate, as follows: i) 9% during the among the pertinent visas category: Business Visa, first two years; ii) 9% + (general tariff - 9%)*0.25 Temporary Visa, and Resident Visa. In addition to the during the third year; iii) 9% + (general tariff - 9%) visa applications of foreigners that enter the country *0.50 during the fourth year; and iv) 9% + (general and the companies that hire them, they must meet the tariff - 9%)*0.75 for the fifth year. These companies requirement to register before ‘Migración shall be subject to the general tariff as from the sixth Colombia’ (Colombian Migration Ofﬁce) and report the year of operation. activities he/she performs. The Colombian companies calculate their taxes on their 7. Tax Regime income from local and foreign sources, and must the The main taxes in Colombia are as follows: equity owned in and out of Colombia.

7.1. Income tax Foreign companies, branches and permanent stores of 7.1.1 Income from local sources and foreign sources foreign companies calculate their taxes on their income Colombian legislation indicates that Colombian income from Colombian sources and must declare their income sources are those from the exploitation of material or owned in Colombia. immaterial goods in the country, those derived from the provision of services in the Colombian territory, and The income tax is determined on the income that is those obtained from the disposal of material and higher between the net ordinary income and the immaterial goods located in the country in the moment presumptive income. The net ordinary income is the they are disposed of. Colombian income sources result of separating the costs and deductions authorized include: by the tax legislation from the taxable income.

• Income for the provision of technical services, The presumptive income corresponds to a minimum technical assistance and consulting services in income estimated to be obtained by the taxpayer, favor of a resident in Colombia, regardless they equivalent to 3.5% of the net equity in the preceding are provided in Colombia or abroad. year. If the entity determines tax losses, it shall calculate • Financial yield from external indebtedness its taxes through the presumptive income system.

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The taxpayers may offset from net income from the tax The surcharge rate shall be 6% for 2017 and 4% for losses obtained, as well as the excess of presumptive 2018%. income. 7.3. Tax on Occasional Gains Local entities may deduct, based on the limitations set Tax on occasional Gains applies to the income from out by law, the taxes paid abroad on income from certain operations expressly listed by the law, among foreign sources they may have earned. which are the income obtained from the disposal of ﬁxed assets owned for more than two years and the 7.1.3. Individuals income from inheritances, legacies, donations, and Individuals resident in Colombia calculate their income similar acts, as well as the income earned from the tax at progressive rates. In order to determine the spousal portion. taxable net income, a schedules income system is applied, so that the applicable rate for work income This tax rate is 10%. and pension income oscillates from 19% to 29% for income higher than 1,090 and up to 4,100 Tax Value 7.4. Tax on Wealth Units (UVT as per its acronym in Spanish); income over Tax on wealth is generated by the wealth owned at 4,100 UVT are subject to a 33% rate6. January 1, 2015, which amount is equal or higher than COP$1,000 million (approx. USD$333,000). For this tax In the case of capital income and non-work income, purposes, the concept of wealth is equivalent to the other rates apply that oscillate from 10% to 33% for total gross equity owned on the same date less the income higher than 600 and up to 4,000 UVT; income debts in charge of the tax payer that are outstanding at over 4,000 UVT are subject to tax at a 35% rate. that date.

Income for dividends from profits that have paid taxes The legal entities, de facto partnerships, individuals and in Colombia in charge of the distributing company are iliquid successions are subject to this tax, which are subject to a 5% rate if higher than 600 and up to income tax payers. 1,000 UVT, and those over such limit shall be subject to a 10% rate. If the dividend distributed is from profits The same applies to the individuals not resident in the that have not paid taxes in Colombia in charge of the country, iliquid successions from not resident distributing company, a 35% rate shall be applied, and generators, and companies and foreign entities in the afore described rates from 5% to 10% must be respect to the wealth owned in Colombia, whether later applied. directly or indirectly.

Individuals residents in Colombia are subject to taxes on This tax accrual for legal entities occurs on January 1 of their income and occasional gains from world sources the years 2015, 2016 and 2017, and for individuals, it is and must report their equity owned in Colombia and on January 1, 2015, 2016, 2017 and 2018. abroad. Individuals no resident in Colombia calculate taxes on their income from Colombian sources and The rate of the tax on wealth is progressive; it is based report their equity owned in Colombia. on the basis reported and oscillates for the legal entities from 0.4% and 2.55%, and for individuals from 0.5% 7.1.4. Regime of Entities Controlled Abroad (ECE as to 6% for the total of the years the tax is in force. per its acronym in Spanish) An ECE is an investment means with no residence in the 7.5 Value Added Tax (VAT) country, that is controlled by a Colombian tax resident. This is national tax that mainly applies to the sale of If the Colombian tax resident owns, whether directly or corporate furniture and real estate that are not assets indirectly, an interest equal or higher than 10% of the and that are not excluded, the sale or assignment of ECE’s capital or its results, and at least 80%of the ECE’s rights on intangibles related to the industrial property, total income is from passive income, the Colombian tax the provision of services in the national territory and resident shall obtain passive income, according to its abroad, and the importation of corporate furniture that interest in the ECE that he/she must include in his/her are not expressly excluded. income tax return. The party required by the tax authority to collect and 7.2. Income Tax Surcharge pay the tax is whoever performed any of the generating This surcharge applies to the taxpayers that have a facts, despite whoever financially supports this tax is the taxable basis on the income tax equal or higher than final consumer. It has three differential rates of 0%, COP$800 milion (approx. USD$320,000). The first 5% and 19%. COP$800 million in the taxable basis are not subject to Exportation of goods and services is VAT exempt. Some such surcharge. specific goods and services are excluded, such as transportation services, education services, utilities, and

6A Tax Value Unit (UVT) is equivalent to COP$31,859 (approx. USD$11). 53

C o l o m bi a interests, among others. the prices and profit margins used in operations comparable with or between independent parties. 7.6 Tax on Financial Movements (GMF) GMF applies to the financial transactions that include Special consideration must be given to the related funds deposited in current or savings accounts and parties located abroad, in free trade zones and/or to deposit accounts at the Central Bank, as well as cashier individuals located or residents in non-cooperating checks. jurisdictions, with a low or null taxation, and with preferential tax regimes. The tax rate is 0.4% of the total financial transaction amount through which the funds are disposed of. 10. Foreign Investment and Exchange Aspects 10.1. General and Control Aspects 7.7 . Consumption Tax The exchange market is free, with specific exceptions The consumption tax applies mainly to the food services that determine the operations that must be mandatorily provided by restaurants, cafeterias, self-service channeled through the stock market. restaurants (8%), mobile phones (4%), and used taxable vehicles (8% or 18%), depending on the FOB The transactions that must be channeled through the value, among others. stock market, with a stockbroker of the foreign market and/or through an clearing account (bank account in 7.8. Real Estate Tax foreign currency), are: foreign investment and the wire It is a tax that applies to the real estate owned, in transfer of profit, investment, Colombian investments charge of the owners, keepers or users, at each abroad and their profit, importation and exportation of municipal jurisdiction. The rate oscillates from 0.3% goods, external indebtedness of Colombian residents and 3.3%, approx., and applies to the real estate and their financial costs, operations from financial appraisal in force or to the self-appraisal. derivatives and endorsements and warranties in foreign currency. 7.9. Industry and Commerce Tax (ICA as per its acronym in Spanish) and the Complementary Tax 10.2. General Exchange Regime on Signs and Boards It applies to the companies incorporated under the It is a municipal tax that applies to the revenues applied Colombian legislation and the branches of foreign by the performance of industrial, commercial and companies not dedicated to the oil and mining sector service activities, that are performed or carried out, (coal, uranium and ferronickel). whether directly or indirectly, individuals, legal entities or de facto companies in the respective municipal Under this modality, Colombian residents, with some jurisdictions. The rate varies at each municipality, but it exceptions, may not pay their liabilities with other oscillates around 1%. residents in a foreign currency.

8. Agreements to avoid dual taxation Access to the stock market is allowed in order to obtain Colombia has celebrated agreements to avoid double the funds in a foreign currency to pay his/her liabilities taxation in the sea and air transportation with to non-residents. Importation and exportation of goods Argentina, Germany, Italy, Brazil, the United States and are managed through this regime and access is granted Panama. to internal and external indebtedness.

In addition, it has subscribed several agreements to 10.3 Special Exchange Regime avoid double taxation and prevent tax evasion (CDI), Applicable to branches of foreign companies dedicated which in general cover the income and equity tax, with to the exploration and exploitation of hydrocarbons, Ecuador, Peru, Bolivia, Spain, Portugal, Canada, Chile, coal, uranium, and ferronickel, and the branches that Switzerland, Mexico, India, the Czech Republic, and provide services to the oil sector, exclusively. South Korea. Under this modality, branches are authorized to receive 9. Transfer Prices and make payments in a foreign currency in the coun- Colombian regulations regarding Transfer Prices has try, provided the foreign currency is from funds ob- been prepared based on the guidelines by the tained as a result of its operation, not being required to Organization for Economic Co-operation and reintegrate the funds from their sales in a foreign cur- Development -OECD. rency to the local stock market.

In light of that regime, income tax payers who perform operations with related parties abroad must determine 10.4 Foreign Investment their ordinary and extra-ordinary income, costs and The investment of foreign capital is allowed, even for deductions, and their assets and liabilities, considering the purchase of real estate property. The investment in

C o l o m bi a national security and defense is not allowed, along with environmental license to develop projects, civil works or the processing and disposal of toxic, hazardous and activities that affect the renewable resources or the radioactive waste produced abroad. landscape; requirements for the prevention, mitigation, correction, compensation and management of The foreign investment classes are called direct and environmental effects may be imposed in respect to the portfolio investment. activities that must be undertaken as pert of the project. Direct investment is understood as the purchase of shares, interests, social quotas, capital contributions or A license is required to carry out hydrocarbons, mining, bonds mandatorily convertible into shares; the electrical, hydrological, maritime, port, land, and air acquisition of stand-alone trusts created by means of projects, and for nuclear energy, railroads, irrigation trust contracts for the development of a company, and public fluvial works, and at national natural supplementary investment of capital allocated to the reserves. branches in Colombia; the purchase of real estate 13. Intellectual Property properties and stock certificates derived from a real Intellectual property rights are divided into two estate securitization process and the acquisition of categories: interests in private capital funds. a) Industrial property related to inventions, patents, Portfolio investment is understood as the acquisition of industrial designs, layout design of integrated shares, bonds mandatorily convertible into shares, and circuits, industrial secrets, and distinctive signs, other securities registered in the National Securities like slogans, brands, names and commercial Registry; this investment is considered as speculative emblems. and not with a long-term investment purpose. b) Copyright related to the protection granted to scientific, artistic and literary works susceptible 11. Contracts with the Government of reproduction or distribution in any way, in- The regulations to contract with the government are cluding to the rights of artists, interpreters, and listed in the General Contracting Statute for Public producers of sound recordings, and holders of Administration, applicable to all public entities in copyrights of computing software. accordance with the Laws 80 of 1993, 816 of 2003, 1150 of 2007, 1450 of 2011, 1474 of 2011, 1508 of The Superintendency of Industry and Commerce is the 2012, Decree 19 of 2012, Decree 1510 of 2012, Government regulating entity in charge of the control among others; however, there are entities which and registry of the industrial property and copyright. contractual activity is subject to private contracting regimes. 14. Financial Sector The sector is under the supervision of the The contractor’s selection process may take place Superintendency of Finance, the state entity competent through any of the following modalities: tender, to inspect, supervise and control. short-term or abbreviated selection, direct contracting, merits contest, or contracting for a minimum amount. Other regulating entities are the Central Bank (Banco de las República) and the National Direction of Taxes 12. Environmental Aspects and Customs (DIAN). The financial activity is considered The Code of Renewable Resources, a law enacted in as public interest ad it may only be exercised previous 1974, determines the requirements to obtain the authorization by the Government.

Costa Rica

Republic of Costa Rica

1. Company Information Servicios Profesionales MS Costa Rica S.A.

1.1 Office, address and phone San José, Ofiplaza del Este , Torre B, Piso 2, oficina N° 8 San José, Costa Rica T: (506) 2253-5097, F: (506) 2224-1332

2. Team specialists

Lic. Francisco Ovares Moscoa Lead Partner Panama to the South, by the Paciﬁc Ocean to the West [email protected] and the Caribbean Sea to the East. Three mountain

ranges define Costa Rica, forming five distinct regions: Lic. José Becerra Muñoz the tropical lowlands on the Pacific and Caribbean Tax Specialist coasts, the North Central tropical plains, the Central [email protected] Valley highlands, and the broad mostly low

Northwestern region. Lic. José Antonio Saborio Carrillo

Tax Specialist The Central Valley's easy access and temperate climate, [email protected] with an average temperature of 20 degrees Celsius (68

degrees Fahrenheit), have attracted two-thirds of the Licda. Ruth Zárate Valverde country's population, and an even greater proportion Audit Specialist of the industrial sector. It is also the site of the capital ruth.zarate@ moorestephenscr.com city, San José, with an extension of 9.47 sq. km. (3.66

sq. miles) and an elevation of 1,150 meters (3,773 feet) 3. Country Proﬁle above sea level. Costa Rica is known for its stable democratic tradition.

The current constitution was enacted in November of 3.2 Road system 1949. Its political structure is based on a republican, Costa Rica's has one of the best-developed road representative system with three branches: systems in Central America. There are more than

7,000 km of main highways and roads and some Executive Branch: it is headed by the President 16,000 km of rural roads. There are good taxi and and two Vice Presidents, elected by direct popular vote public transportation services in the San José area. for a 4-year non-renewable term. Other members of the Executive Branch include 18 ministers appointed by 3.3 Air Travel the President. The main international airport, Juan Santamaría, is

serviced by 17 international passenger airlines and 10 Legislative Branch: this unicameral power is international cargo airlines. A new terminal is now represented by the Legislative Assembly, with 57 operational that has increased the airport's capacity members, elected by direct popular vote for a 4-year and enhanced a variety of services. term. The Assembly is the first power of the Republic.

The Daniel Oduber Quiros Airport serves tourists Judicial Branch: it includes the Supreme Court of coming to visit Costa Rica’s beautiful beaches in the Justice, which has 22 magistrates elected by the Guanacaste area. The airport was re-inaugurated in Legislative Assembly for an 8-year term, the civil and October 1995. In addition, there are approximately 31 criminal courts, labor courts and the electoral court (the small airﬁelds in rural areas of the country. latter is independent of political powers).

3.4 Shipping 3.1 Geography Several shipping companies offer regular and frequent Situated in the geographic center of the Americas, cargo service for containers from both coasts to the Costa Rica is bordered by Nicaragua to the North, by United States, Europe, Japan and Latin America. The

Costa Rica largest of all ports, Limón, handles almost 80% of all other nations, allowing for preferential access to cargo. On the Paciﬁc Coast, Puntarenas, a new pier foreign markets. The business environment is second in was recently completed with funding from Taiwan, importance in the region. A quick analysis and which will also receive visiting tourist cruise ships. comparison of Costa Rica's social, political and economic policies with those of its neighboring Another port located 90-miles from San Jose, Puerto countries make Costa Rica the best choice for Caldera, was built in 1982 to replace the aging international investors seeking good opportunities for Puntarenas port. Caldera has ample storage space, their technology and know-how. three berths, and a passenger terminal. Caldera is a busy port handling approximately 30 to 40 ships per The colon is the ofﬁcial currency, divided into 100 month. All three ports can service containers and roll cents. For local and international transactions, the US on/roll off cargo. Dollar and Euro are the foreign currencies mostly used.

In early 2018, the company APM Terminal expects to 3.7 Population initiate the operation of a modern mega port, with an The majority of Costa Rica's almost 5 million investment of approximately 1,000 million dollars, an inhabitants are descendants of Spanish and other area of 80 hectares, a pier of 1,500 meters, five European families. Costa Rica's population growth rate docking stations, a breakwater and an 18-meter has been relatively stable over the last four years, deep-access channel, which will serve as shipping reaching 1.4 percent in 2013. The Central Valley is the center for the Caribbean and Central America. main area of concentration, which will continue to absorb about 60% of this growth, and is expected to 3.5 Communications become one giant metropolitan area comprising San The Costa Rican telephone system is excellent, offering Jose, Alajuela, Heredia, and Cartago. Promotion of direct dial access to most countries. Public telephones family planning over the last 20 years has lowered the are found throughout major cities. Costa Rica has a birth rate and altered demographic trends. In 1960, fully automated telecommunications system of high about half of the population was 15 years of age, in excellence both at national and international level, the late 70s, that figure was 20%, meaning that the including facsimile facilities and e-mail. Cellular productive population (ages 15-64) has increased from telephones were introduced in 1994 by both 49 to 67 % as of today. government and private operators, and there is currently coverage throughout the country. 3.8 Language The country's official language is Spanish. English is 3.6 Political History the most widely spoken foreign language, and the For a century and a half, Costa Rica has been building a most commonly used within the business community. stable society with benefits shared by all. The country's commitment to socioeconomic development 4. The Economy is evident in present-date Costa Rica: the nation with Costa Rica has a market economy with major the most equitable distribution of wealth, highest government participation in several sectors: insurance, health standards, and longest life expectancy in Central refineries and major service industries. They are America. In 1990, the United Nations cited Costa Rica dominated by public corporations, although as having the best human development indexes among family-owned companies are also common. Electricity, developing nations. telephone, water, insurance as well as other important industries are semi-autonomous or state monopolies. In 1996, Costa Rica again tops the list of Central However, there are currently private energy-generating America in terms of human development. For years, companies, private telephone and data transmission this small republic's democratic traditions and peaceful (broadband Internet) service providers and private business climate have encouraged and successfully insurance companies. attracted foreign investment. This is underscored by the Costa Rican Political Constitution, which, except for Both the public and private sectors recognize that participation in political affairs, guarantees foreign foreign private investment is essential to increase investors the same legal rights as Costa Rican citizens. exports and employment in the country. This is especially relevant in light of decreased U.S. aid to the All this translates into an ideal place to conduct country over the last several years. Import business. The country's industrial base is strong; the authorizations or licenses have been virtually eliminated highly educated labor force is easy to train; production and the tariffs have been reduced from nearly 80 to infrastructure is available; and a modern, efficient 20% for most non-durable goods, and to 10% for communications system ensures easy access to the capital goods. Import taxes have decreased global marketplace. In addition, the country has signed substantially for raw materials; since 1999, taxes on several multilateral and bilateral trade agreements with capital goods are 1% and 15% for finished products.

Costa Rica

4.1 Free Trade Zones Regime Likewise, Costa Rica has made agreements on The Free Zones Regime was created by the Law of Free Information Exchange on Tax Matters with Argentina, Zones No. 7210. The law establishes a group of Canada, Ecuador, El Salvador, Spain, United States, incentives and benefits granted by the country to Finland, France, Guatemala, Netherlands, Honduras, companies making important investments in the Mexico, Nicaragua, Norway, Sweden and South Africa. country and the requirements they need to meet under There are also two current agreements to avoid Double the law to have access to the regime. Taxation with regard to income and equity taxes with Spain and Germany. A third agreement of this nature Companies benefitting from this regime are supervised with Mexico is current up for legislative review. by a governmental office called PROCOMER (Foreign Trade Promoter), which is attached to the Ministry of A Tax Information and Exchange Agreement (TIEA) with Foreign Trade of Costa Rica. the United States became effective in 1991. Under this agreement, Costa Rica is now eligible for Section 936 The law establishes categories of companies that may funds. These are profits earned by U.S. companies in qualify for the regime, such as manufacturing, Puerto Rico that are tax exempt in the United States if production, repair and maintenance of goods, such profits are invested in any Caribbean Basin merchandise re-distribution and provision of services for country. In addition, the TIEA enables U.S. companies export or re-export. to hold conferences or seminars in Costa Rica and deduct those expenses on their U.S. income tax returns. Most incentives provided under the law are of a fiscal nature, particularly exoneration of certain taxes. In addition, Costa Rica subscribed in 2013 an inter-governmental agreement with the United States 4.2. Investments and export incentives to implement “The Foreign Account Tax Compliance The failed protectionism model of the 1960s and 1970s Act” of FATCA, which seeks to obtain information forced manufacturers to seek new markets outside about U.S. taxpayer accounts in other countries to fight Central America and improve their production, pricing, tax evasion abroad and promote transparency. and quality of their products. Because of increased world production and competition, the country's 4.5 Currency Exchange Controls traditional, mostly agricultural, products commanded The Central Bank of Costa Rica is responsible for low prices. In order to promote both domestic and formulating the monetary and currency exchange policy foreign investment in non-traditional exports, the in the country. It is also responsible for promoting government streamlined import and export procedures favorable conditions to strengthen, ensure liquidity and and implemented a structural adjustment program to solvency, and proper functioning of the financial carry out economic reforms. system.

Today, ﬁscal incentives are available for reforestation 4.6 Capital repatriation and tourist oriented projects. Although it is no longer necessary to register foreign capital with the Central Bank to ensure capital 4.3. Aims of Government Policy with regard to repatriation, investors are advised to convert their the Economy foreign currency through the national banking system. Government policy is directed toward stimulating economic growth, especially in distant non-urban areas, 5. Business entities and toward privatizing as much as possible All matters relating to commercial enterprises are state-owned industries and services currently under governed by the Code of Commerce. Foreigners are state monopoly. Industrial decentralization is a major granted full freedom to acquire and operate businesses objective of government economic planning and in Costa Rica with some exceptions in the area of regional incentives are available. communications. One important provision, however, is that foreigners cannot carry out business in their 4.4 Trade Agreement and Treaties personal capacity unless he or she has accumulated ten Costa Rica has signed trade agreements with Central years of legal residency. The most widely chosen America, Canada, Caricom, Chile, China, United States, alternative is to carry out business through a legally Dominican Republic, Mexico, Panama, Colombia, Peru, constituted and registered corporation in Costa Rica. Singapore and the European Free Trade Association. It also has bilateral investment agreements with 5.1 Types of commercial companies Germany, Argentina, Canada, Chile, Taiwan, Korea, Costa Rican law allows ﬁve types of companies: Spain, France, Netherlands, Paraguay, Czech Republic, Venezuela, Switzerland, Qatar, and China. In addition, • Stock Corporation (Sociedad Anónima) it has signed a multilateral agreement with the World • Limited Liability Company (Sociedad de Trade Organization (WTO). Responsabilidad Limitada)

Costa Rica

• Collective companies (Empresa Colectiva) unless otherwise provided for in its charter. Bankruptcy • Limited Liability Partnership (Empresa de of the company does not extend to its partners. They Responsabilidad Limitada) are only liable to the extent of their contributions to • Individual enterprise with limited liability (Empresa the capital. With the exception of stock corporations, individual de Responsabilidad Limitada) this is the next most common figure used to constitute (this option is the only one regarded as an individual a company. rather than corporate figure). 5.1.3. Foreign companies Of these five, the first two are the most utilized. Foreign companies may operate branch offices or transfer their headquarters to Costa Rica. Branch 5.1.1 Stock Corporations offices are subject to Costa Rican Law. They must By far the most popular form of commercial company, submit to the Commercial Registry a certificate or the stock corporation is a public entity whose members statement issued by the Costa Rican consul or other are liable only to the extent of their own contributions. friendly nation's consulate stating that the prospective Alike the case of limited liability companies, a minimum branch office has been authorized by its headquarters, of two shareholders (partners) is required. A basic to operate in Costa Rica. Foreign companies difference is that the administration of a Stock headquartered in Costa Rica continue to be governed corporation is more sophisticated. The company is by the laws of the country of origin with regard to their constituted through duly registered shares. Share titles constitution, but they are bound by Costa Rica public are recorded only in the company's shareholder law and obligated to pay income tax on the income register, a private record whose access is restricted to generated in Costa Rica. Foreign enterprises may also shareholders and/or administrators. Third parties may operate in Costa Rica through a representative who is have access only by means of judicial resolutions. granted a power of attorney to act as such. This power has to be registered at the National Public Registry. Shareholders are not necessarily the people constituting the corporation; instead, members or 6. Specific information on legal ways of doing employees of the legal agents organizing the business incorporation usually act as incorporators in a formal Powers of Attorney, guarantees, as well as trusts, can capacity, and once the corporation is registered, the be useful for doing business. The different types used shares are delivered to legitimate shareholders. There in Costa Rican are described and explained in this must be a board of directors with at least three section, as well as pertinent aspects of business-related directors and an overseer, all of whom may be legislation. foreigners if desired. The name of the corporation must be registered (and be different to those already 6.1 Powers of Attorney registered) and followed by the words Sociedad The document that gives certain rights to act in the Anónima, or the abbreviation S.A. name of and on behalf of another person is known as a Power of Attorney. A power of attorney is a rather 5.1.2 Limited Liability Company. common legal instrument that allows foreign investors The limited liability company is a stock-held to delegate the handling of certain business matters to corporation, with a minimum of two shareholders their attorneys or other trusted representative. The (partners) required for its constitution; each is only person granting the power of attorney is known as the liable for their own contribution. The share capital is “grantor”. The person or entity who receives the represented by nominal shares, which can only be power is known as the representative or proxy transferred by assignment and with the prior consent (“apoderado”). There are four types of power of of shareholders. attorney, which allows the power delegated to be adjusted to the nature of the task or type of actions This type of company requires an administrator, and needed. therefore, is suitable for medium-sized enterprises, where the basic needs pertain to the limitation of 6.1.1 Special Power of Attorney liability/risk and simple administration. It is the only A special power of attorney is granted for a given required position, which acts as a manager with a action in or out of court. Once this action is general power of attorney, though other positions may completed, the power of attorney ceases. be included. The company name must include either the phrase Sociedad de Responsabilidad Limitada 6.1.2 Very Special Power of Attorney (Limited Liability Company) or the abbreviation S.R.L. or The law requires a very special power of attorney Ltda. and it must appear on all forms of publicity, (especialísimo) to perform very concrete actions invoices, publications, and other documents. A limited established by law, for example, to engage in marriage liability company is not dissolved automatically upon or make a donation through a proxy. the death, interdiction, or bankruptcy of a partner

Costa Rica

6.1.3 General Power of Attorney 7.2 Auditing The characteristic of this power is to grant ample According to the Law for the Professional Association authority for the management of one or several of Public Accountants, only registered members are businesses as specified in the power, such as, for qualified to perform audits. External audits are example, to enter into agreements or perform actions mandatory for banks, pension funds and other financial to maintain or exploit assets of the business, demand institutions only. The accounting and auditing payment of credits in judicial or extra-judicial standards are laid down by the Professional Association proceedings and give the corresponding receipts, in of Public Accountants and are based on the addition to performing all legal actions required by the International Auditing Standards. nature of the business as part of company operations. 8. Labor Relations 6.1.4 Very General Power of Attorney Though labor costs are somewhat higher in Costa Rica Through this type of power of attorney, the than in neighboring countries, the labor force also has representative or proxy may, for all the actions listed by a higher level of education and generally a higher level the grantor, sell, mortgage or in any other way transfer of productivity. The U.S. Embassy, in its "General or encumber any type of property; accept or relinquish Business Information on Costa Rica" states, "the Costa inheritances, arrange for the execution of any type of Rican labor force can be characterized as relatively contract in court or any other action that the grantor well-educated, skilled and easy to train. The average may require, as may be determined in the power. worker has demonstrated a willingness to seek and an ability to absorb specialized training". Labor regulations 6.2 Trusts have their legal base in the Costa Rican Labor Code; The Code of Commerce contains provisions allowing additionally, as of the year 2000 the Law on Protection the establishment of trusts. A trust is a contract of Workers expanded certain labor rights. through which a legal or physical person (called “trustor”) transfers goods, money or right of ownership Since its enactment in 1943, the Labor Code has been to another legal person or entity, called “trustee”, and the country's principal law concerning labor the responsibility to manage them according to the relationships, establishing the rights and responsibilities terms of the contract. Any person or legal entity having for both workers and employers. the legal capacity to acquire rights and contract obligations may serve as a trustee. A law approved by the Legislative Assembly in December 2015 will come into force in July of 2017 The original instrument designates the beneficiary (or called Labor Procedure Reform. This law modifies trustee) who is to receive the assets of the trust. If no essential aspects of judicial and extra-judicial designation exists, then the assets are returned to the procedures in terms of labor law. In addition, it trustor or heirs. A business can be the object of a trust establishes the prohibition of all forms of discrimination and become a separate or independent asset for the in the workplace, whether for age, ethnic origin, sex, purposes of the trust. religion, race, sexual orientation, civil status, public opinion, national extraction, social origin, affiliation, The following trusts are prohibited by law: disability, labor union affiliation, or financial situation.

1. A trust made for secret purposes. As a recommendation, potential investors should 2. Trusts having a duration of more than thirty consult with a lawyer specializing in labor law to years if the trustee or beneficiary is a charitable, understand this law in depth and comply with all its cultural, scientific or artistic entity. requirements. 3. A trust in which the trustee is allotted earnings, commissions, premiums, or advantages other 8.1 Foreign employees than the remuneration indicated in the original All foreign workers require a work permit. The instrument or determined in a judicial action. employer has to submit a request to Immigration Office, which, in turn, will present its opinion to the 7. Accounting Requirements Ministry of Labor and Social Security. 7.1 Accounting Public and private companies are required to maintain 8.2 Working hours accounting records as established in the Code of The law establishes three different shifts within the Commerce and the Income Tax Law, which also workday. The day shift is between 5:00 a.m. and 7:00 requires that the annual financial statements be p.m., 8 hours per day, not to exceed 48 hours weekly. prepared in accordance with International Financial The night shift is any six hours between 7:00 p.m. and Reporting Standards (IFRS), as well as other 5:00 .a.m., not to exceed 36 hours weekly. Finally, a requirements for annual statements. Costa Rica mixed shift is up to seven hours of both day and night adopted the IFRS in 2001. hours, not to exceed 42 hours weekly.

Costa Rica

Overtime is paid at time and one-half the normal cover the employee’s salary. As of the 4th day and up hourly rate (50% additional). The workday including to 45th day of absence on leave, the occupational risks overtime may not exceed twelve hours per day. No insurance policy covers 60% of the salary reported over overtime is allowed when working conditions are the previous three months prior to the accident. After dangerous or unhealthy. Employers must pay double these 45 days of leave, the policy covers 100% of the time for work on holidays. minimum legal wage for the employee’s job category, plus 60% over the surplus between the minimum and 8.3 Holidays and Annual Leave normal wage, based on the average reported salary Costa Ricans receive remuneration for all mandatory over the last three months prior to the accident. holidays listed in the Labor Code. Religious or civic holidays are not paid by law, and the decision to give The cost of the occupational risks insurance to be paid time off varies according to the employer. If a by the employer on behalf of its employees depends on company needs to work on a holiday, it can do so by the risk category determined for each activity and letting employees know in advance and paying double ranges from 1% to 7% of the annual payroll. The rate as established by law. policy may be paid on a quarter, semester or annual basis. In addition to these holidays listed in the Labor code, a worker is entitled to two weeks of paid annual leave 8.7 Wages and salaries for every 50 weeks of continuous employment with the Minimum wages are established considering increases same employer. Employees terminated before the in the cost-of-living and productivity in the country. In 50-week period is completed are entitled to receive pay October 2016, a new methodology was approved, and for one day of annual leave for every month of the wage review is now performed on an annual employment. In practice, additional annual leave is a instead of semester basis. This methodology became common benefit offered by employers, especially as effective in January 2017. Employees generally work part of executive packages. 48 hours a week and are paid weekly or by half- month periods. Salaries of white collar and domestic 8.4 Sick leave employees are based on working hours of According to the labor Code, the employer is required approximately 200 to 220 hours per month and are to pay 50% of an employee's salary during the first generally paid on a half-monthly basis. Costa Rica has a three days of sick leave. As of the fourth day, the social very competitive labor force, which motivates security system (Caja Costarricense de Seguro Social) employers to pay above the minimum wage if they pays 60% of the worker's salary with no further want to maintain a reasonable turnover rate. obligation from the employer except to allow the employee to return to work after the sick leave period. Salaries can be paid by bank check; however, It is customary, however, for big companies to pay the companies usually use banking services to transfer employee's salary in full for those first three days. Sick salaries into personal employee accounts. leave per person averages approximately four days per year. 8.7.1 Mandatory payroll deductions and bonuses Social Security 8.5 Maternity leave The social security system operates through the Costa Expectant mothers enjoy special protection specifically Rican Social Security Office and covers health, regulated in the Labor Code. As part of this protection, compensation and pensions for retirement, disability, women in a state of pregnancy are entitled to up to old age and death. The system has three-fold four months of maternity leave, one month before and financing: state, employer and employee contributions. three months after the expected delivery date. The law These contributions are proportional to the gross salary establishes that while on maternity leave, the employer of the insured employee. The employer contribution is is required to pay 50% of the employee's salary and currently 26.33% of the salary of each employee. On the Social Security Office covers the remaining 50%. the other hand, the employee contribution is 9.34% and is deducted from the monthly salary. 8.6 Leave for work-related injuries The Occupational Risk Insurance of the National Christmas Bonus (13-month salary) Insurance Institute (INS), as determined by the relevant All workers are entitled to receive a Christmas bonus legislation, is a mandatory requirement for employers. equivalent to one-twelfth of their annual income within This insurance covers temporary or permanent leave, the first twenty days of December. The employee does resulting from job-related accidents or illnesses which not pay taxes on this bonus, and the employer may occur during the workday, or even when the employee deduct the amount paid as Christmas bonus from the is commuting to the workplace. tax base for income tax purposes.

During the ﬁrst three days of leave, the employer must

Costa Rica

Fringe Benefits Rates Costa Rican companies often grant workers benefits With the exception of free trade zones, exports of over and above those mandated by law. Such benefits reforestation products and tourist-oriented activities, vary widely, but commonly include subsidized food, the net tax rate for corporations subject to profit taxes uniforms, transportation, company medical services, based on their annual gross income, is as follows: and education and scholarship programs. a. Corporate Rates 9. Taxes Legal Entities 30% Rate 9.1. The Costa Rican Tax System Tax regulations in Costa Rica are based on territoriality Small businesses: companies whose annual gross criteria. In this sense, the Law on Income Tax states income does not exceed ₡105,872,000.00. that the income subject to taxation is that which is considered to be of Costa Rican source. To these Gross Income in Gross Income in Rate effects, the law considers the income originating from Colones dollars* services rendered, assets located in Costa Rica, and Up to ¢ capital used within the national territory as Costa Rican $95,699.00 10% 52,634,000.00 income sources. Up to ¢ $192,495.00 20% In addition to the above, the Costa Rican tax system is 105,872,000.00 characterized by the use of income/product criteria and a scheduler system. With respect to income/product, b. Rates for physical persons with profitable the law states that only the income derived from in- activities come-generating activities or normal commercial Annual Net Income in Annual Net Income business of taxpayers will be considered for income tax Rate purposes. Colones in Dollars* Up to ¢3,517,000.0 $6.394,00 Exempt Finally, the scheduler model of income tax consists of a Over the excess of ¢ Over the excess of 10% division of income tax into schedules, depending on 3,517,000.00 up to ¢ $6,394.00 up to their origin. Each schedule has its own rules to 5,251,000.00 $9,547.00 calculate the taxable base and differentiated rates. Over the excess of ¢ Over the excess of There are five schedules under the law: profit tax, tax 5,251,000.00 up to ¢ $9,547.00 up to 15% on dividends, tax on financial market returns, tax on 8,760,000.00 $15,927.00 wages and tax on foreign remittances. Over the excess of ¢ Over the excess of 8,760,000.0 up to ¢ $15,927.00 up to 20% 9.1.1. Profit Taxes 17,556,000.00 $31,920.00 The law states that all public and private companies Over the excess of ¢ Over the excess of 25% involved in profitable activities or business within Costa 17,556,000.00 $31,920.00 Rica are subject to the payment of income tax, regardless of their nationality, domicile, place of *The rate of exchange used in this case was ¢550.00 for each U.S. Dollar constitution of the company or the place where board meetings or contracts are held. This applies to all The above rates are applied to the taxpayer’s net companies legally constituted in the country, as well as income. The net income is the result of deducting all branch offices, agencies and other permanent the necessary and pertinent costs and expenses used to establishments operating in Costa of non-resident generate that income from the gross income. persons. Deductible Expenses With respect to physical persons, the law states that For expenses to be considered deductible, they must be any person undertaking profitable activities in the useful and necessary to produce the taxable income. country, regardless of their nationality, is subject to this Additionally, there must be proof of payment with tax, including liberal professionals. vouchers that comply with the requirements and authorization of the General Tax Office, including any Fiscal Year retentions required by the Income Tax Law, if The fiscal year runs from October 1 to September 30 of applicable. the following year. Nonetheless, in the case of corporate branches that prepare consolidated financial The General Tax Law provides an example of expenses statements in conjunction with their headquarters, the that can be considered deductible, as long as they law gives companies the possibility of requesting comply with the above-mentioned requirements. authorization from the Tax Office to adjust their fiscal year to the calendar year (January 1-December 31). The following is a summary of deductions that

Costa Rica corporations may apply in calculating the profit tax: Nondeductible Expenses Expenses that cannot be deducted from the gross • The costs of goods and services sold, such as the income are those that are not useful or necessary to purchase of goods and services for the object of generate taxable income o that fail to comply with the company activities, including raw materials, deduction requirements established under the Income parts, components and services needed to Tax Law such as: being excessive, not reasonable or produce taxable income. that belong to another tax period. Some examples of • Wages of the people with whom the company non-deductible expenses are the following: has an employment relationship, as long as the income tax on wages and social contributions of • Income taxes, general sales taxes, selective the Social Security Office have been withheld. consumer taxes at the established rates when • Taxes and fees levied against the goods, services such taxes have been paid by either the legal or and transactions carried out in the normal physical person as a taxpayer; the same applies course of business or activities undertaken by to surcharges, late fees and interest paid in physical persons, with the exceptions outlined in respect of any tax. the law. • Profits, social participations or dividends paid or • Insurance premiums for policies covering fire, credited to partners of a legal entity. theft or robbery and similar risks, paid to the • Expenses relating to luxury investments or National Insurance Office or another authorized personal recreation. insurance provider. • Remunerations not subject to the Social Security • Interests and financial expenses paid or incurred regime. by the taxpayer during the fiscal year, directly • Subsistence costs of the taxpayer and family, related to company operations and the among others. generation of income. • Evident bad debts if related to transactions in 9.1.2 Taxes on dividends the ordinary course of business and only when Dividends have a tax rate of 15% over the amount all legal efforts have been exhausted to collect credited or paid to a partner or shareholder. This rate the debt. does not apply in the following cases: i. if payment is • Depreciation to compensate wear and tear, or made through shares of the company making the financial obsolescence of tangible goods used to distribution of dividends, and ii. if the payment is made produce company income. to another Costa Rican corporation. If the entity • Social Security contributions (employer share) paying the dividends is registered in a local stock established by law. exchange and the shareholder acquires the shares • Payments to persons not domiciled in Costa Rica through said stock exchange, the tax rate decreases to for royalties, the use of formulas, trademarks, 5%. technical, financial or other assistance, franchise and similar fees, as long as the company has 9.1.3 Taxes on Salaries made the corresponding tax withholding. Physical persons residing in Costa Rica who earn income from sources of dependent employment, • Organization, publicity and promotion expenses, retirement, pension or other personal services are among others. required to pay income tax. Employers are responsible

for withholding the tax each month, which is calculated Depreciation as a progression of brackets based on the following Unless authorized by the Tax Administration, table: depreciation rates cannot be higher than the amounts established under the Income Tax Law and its Gross Income in Gross Income in Rate Regulations. Companies may choose either the Colones Dollars* straight line or the sum-of-digits methods of Exempt depreciation. Once the method has been chosen, it Up to ¢792,000.00 $1,440 bracket must continue to be used consistently. Over the excess of Over the excess of ¢792,000.00 and Likewise, the Tax Administration may authorize $1,440 and up to 10% up to ¢ accelerated depreciation methods in very speciﬁc cases $2,160 such as for companies dedicated to activities requiring 1,188,000.00 constant technological upgrades, which have to Over the excess of Over the excess of 15% purchase new assets in order to maintain and ¢1,188,000.00 $2,160 strengthen their comparative advantages. *The rate of exchange used in this case was ¢550.00 for each U.S. Dollar

Costa Rica

9.1.4 Tax on Foreign Remittances taking place. The company must obtain a commercial Tax on foreign remittances applies to any income or license from the municipality. The tax rate varies beneﬁt from a Costa Rican source that is paid, credited depending on the type of gainful activity and, in or made available in any way to persons residing general, is calculated based on gross income, gross abroad. For the purposes of this tax, the Law sales or taxable net income. establishes which income shall be considered to be of Costa Rican source, as well as special cases. 9.3 Real estate tax This tax is applicable to real estate, land, buildings and The physical or legal person resident in the country permanent structures. The tax is collected and making the remittance is responsible for withholding managed by local governments (Municipalities) of the the corresponding tax, based on the following table of administrative district where the property is located. rates: The responsibility for payment lies with the owners, concessionaires and occupants or holders with rightful Type of remittance Rate legal title. The basis to determine this tax is related to Transportation and communications 8.5% the value of the property registered at the Municipality. Pensions, retirements, salaries and any other The annual rate is 0.25%. remuneration paid for personal work performed 10% as dependent employment 9.4 General Sales tax Fees, commissions, per diem, and other The current approved sales tax rate is 13%, which is allowances for personal services performed 15% applied to the net selling price. According to the without dependent employment General Sales Tax Law, this tax is only applicable to the Reinsurance and premiums 5.5% sale or import of goods and services specifically mentioned in the Law. This tax is therefore considered Dividends 15% an imperfect value added tax. Interests, commissions, and other financial 15% expenses and commercial leasing The sales tax is reported and payable on a monthly Royalties, fees, technical/financial assistance 25% basis over previous month sales, less the amount paid Other concepts (non-defined) 30% within that month to suppliers.

Payments or credits made by subsidiaries or branches In the case of imports, sales tax is paid as part of the to parent companies for royalties, franchises, import duties required for the release from customs of trademarks, etc., are limited to a maximum of 10% of the goods. However, some import goods are exempt gross sales. from sales tax. The end consumer is the person assuming the tax, and businesses have the The Law establishes a general withholding tax rate of responsibility of collecting, reporting and transferring 15% applicable to the payment or credit of interests, those taxes to the Tax Administration. commissions, and other retributions of a financial nature, in favor of financial institutions registered with 9.4.1 Import Tariffs the National Council for Supervision of the Financial When Costa Rica entered the GATT (General System (CONASSIF) and banks classified as first-tier Agreement on Tariffs and Trade) in 1990, the country banks. had a 55% tax on imports. Under the GATT this percentage decreased in June 1993 to a maximum of 9.2 Municipal taxes 20% and a minimum of 5% with a few exceptions. The Municipal Code of Costa Rica stipulates that every However, luxury items such as cars are subject to tariffs company engaging in profitable activities must pay a and taxes that combined can reach 100%, including patent tax to the local government or municipality of selective consumer tax, among others. the administrative district (canton) where the activity is

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Republic of Ecuador

1. Identification of the contact firm Moore Stephens Profile Cía. Ltda. Moore Stephens & Asociados Cía. Ltda.

1.1 Office, address, telephone Av. Amazonas 477 & Roca Río Amazonas Building 7th floor, office 720 Quito – Ecuador [email protected]

2. Professional Specialists

Dr. Mauricio Esteban Durango-Pérez Partner Ecuador also has the General Law to regulate and [email protected] control the Power of the Market (Antitrust Law). This Law avoids, prevents, eliminates and penalizes any Dr. Jorge David Uribe-Reyes abuse by economic operators using market power. Partner [email protected] Additionally, Ecuador enacted a law, which grants tributary incentives and stability to investment projects Ing. Vladimir Niama-Amoroso, enginner which are defined as public-private, that is, partnerships Audit Partner between the private sector and the Ecuadorian [email protected] government. Among the benefits established are exceptions for income tax, currency outflow tax, and Ing. Oscar Fernando Castellanos Romero foreign trade, among others. Audit Partner [email protected] 4.2 Public-sector contracts To become a supplier for the Government, individuals 3. Country Profile and corporate bodies must qualify as such at the The Republic of Ecuador is a constitutional state of so- National Institute of Public Contracts (INCOP), and cial justice and rights, democratic, Sovereign, inde- register at the Permanent Registry of Suppliers (RUP). In pendent, united, intercultural, pluri-national and lay Ecuador, most public contract procedures are carried (not any particular religion). It is organized as a Republic out through the web site “Compras Públicas”. and governed in a decentralized manner. The country has an area of 283,561 square kilometers (km2) 4.3 Corporate Norms and a population estimated at 15.000.074 million peo- There are several corporate legal arrangements to carry ple. The Nation is territorially organized into regions, out economic operations in Ecuador, through local provinces, cantons and rural parishes. companies, through branches and subsidiaries of foreign companies, through holding companies, In Ecuador there are 24 provinces. The Government is though consortia, and others. divided into five branches, the Executive Branch, the Legislative Branch, the Judicial Branch, the Transparen- 4.3.1 Ecuadorian Companies cy and Societal Oversight Branch and the Electoral The corporate norms are set forth in Ecuador by the Branch. Civil Code, by the Law on Companies and the Commerce Code. 4. Investment 4.1 National Investment Norms The Commercial Companies are those that are formed The General Code for Production and Investment was by two or more natural or legal persons and are subject issued to regulate production processes, in the stages to the control of the Superintendence of Companies. of production, distribution, exchange, trade, These companies are of several kinds: Company in a consumption, management of externalities and collective name; Simple limited company divided by productive investments oriented toward Living Well. shares; Limited Liability Company; Joint-stock Corporations; and, Mixed Economy Company.

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Description Joint-stock corporations Limited-liability companies

Submit documents for approval by the Submit documents for approval of the Mercantile Constitution Mercantile Register. Register.

Administrative Bodies General Meeting of Shareholders. General Meeting of Partners. General Manager or President of the General Manager or President of the Company. The Company. The legal representative is Legal Representative (1) legal representative is appointed pursuant to the appointed pursuant to the company’s company’s by-laws. by-laws. Partners (2) A minimum of 2 shareholders. A minimum of 2 partners, up to a maximum of 15. Corporate stock (3) At least US$ 800. At leats US$ 400. Shares are in the name of the holder and Sale of partners’ holdings requires the unanimous Shares / Holdings may be freely traded on and outside the consent of all partners. securities market, Keep a corporate book of Minutes of the Keep a corporate book of Minutes of the General General Meeting of Shareholders Meeting of Partners. Keep a corporate book of Shares and Keep a corporate book of Partners and their Holdings. Shareholders. Entitled to optionally join any of the Entitled to optionally join any of the Chambers and Chambers and pay the respective dues. pay the respective dues. Submit financial balance sheets report on Submit financial balance sheets report on payroll Other Obligations payroll listing, report by manager and by listing, report by manager and by legal overseer to legal overseer to the Sup. of Companies. the Sup. of Companies. Submit a listing of shareholders or partners of the company to the Submit a listing of shareholders or partners of the Superintendence, and if any shareholders company to the Superintendence, and if any are corporate bodies submit a listing of shareholders are corporate bodies submit a listing of the shareholders, partners or members the shareholders, partners or members thereof. thereof. Notes: 1. If the Legal Representative (for an Ecuadorian company) or Agent (for a foreign branch) of a company is a foreign citizen, they may obtain a 12-VI or 9-VI visa. 2. Shareholders in Ecuadorian companies may be individuals or corporate bodies. Ecuadorian or foreign. Foreign individuals and companies may be partners in a limited - liability company, with the exception of Banks, insurance companies, capitalization and savings and foreign joint-stock corporations. The Law on Companies forbids Ecuadorian companies from having foreign shareholders or partners whose shares or holdings are to the bearer (not in their name). 3. When contituting the company, a minimum amount of the capital stock must be paid: 50% for limited-liability companies and 25% for joint stock corporations. The remainder must be paid up within no longer than twelve months. Source: Ecuadorians Companies Norm In Ecuador it is usual to establish two classes of Revenue Service the names of those who appear as commercial companies, Limited Liability Company and shareholders down to the level at which actual Joint-stock Corporations, considering that the responsi- individuals are identified. bility of their partners is limited to the contributions provided by them. 4.3.2 Foreign companies For a company constituted abroad to be able to When the capital of any of these companies comes habitually engage in its activities in Ecuador, it must from foreign investors, they are called subsidiaries, and have a permanent representative in Ecuador with full must be registered at the Central Bank of Ecuador, powers to carry out all actions and legal matters that according to the type of investment they make (local, must be done and have effect in the Nation’s territory, direct foreign, subregional or neutral). and especially to be able to reply to lawsuits and meet contractual obligations. In the event that an Ecuadorian company has shareholders or partners that are foreign companies, it However, if the activities of a foreign company in must inform the Superintendence of Companies who Ecuador will entail the implementation of public works, the shareholders or partners of those foreign public service provision or extraction of Ecuador's companies are. natural resources, it must establish domicile in Ecuador before signing the corresponding contract. It must also disclose to the Ecuadorian Internal 66

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To establish a branch office of a foreign company in instrument or contract, the labor relationship can be Ecuador, a permanent legal representative must be proven. However, the law provides for certain cases in appointed with a notarized general power of attorney, which a written contract is mandatory. Additionally, and the branch must have a minimum of two thousand there are several modalities of work, and the most im- US dollars in capital. This amount may be increased if portant are: the General Agent representative is a foreigner (USD 25,000 for each Agent that the Branch has. Further, if • Indefinite term contracts: Ecuadorian the agent is a foreigner, the company’s head office legislation establishes indefinite-duration contracts. must have assets of more than USD 100,000.) This is the standard figure for permanent or stable employment and it does not have a defined There are other legal arrangements under which one termination period. can operate in Ecuador, such as through a Consortium • Trial period contracts: In the above contracts, or Joint Venture, a temporary association or a holding when signed for the first time, a trial period can be company. stipulated, lasting no longer than ninety days. After that time, the labor relationship effects are the same 5. Audits and accounting as an indefinite term contract. Accounting must be kept using the double-entry system, in the Spanish language and in US dollars, 6.2 Remuneration taking into consideration generally accepted accounting A wage is the stipend that an employer pays a worker principles. according to a work contract. A salary is the remuneration that employees receive for their work. A For corporate bodies subject to control and oversight by worker’s remuneration cannot be lower than the the Superintendence of Companies, Value Market and monthly minimum wage, which is USD 375, 00 since Insurances or Superintendence of Banks, their January 2017. accounting must be kept according to International Financial Reporting Standards (IFRS) adopted for Additionally, there are other extraordinary preparing financial statements as of 1 January 2009. remunerations, such as:

Ecuadorian standards oblige to have an external audit • Thirteenth salary (Christmas bonus): This lead to domestic Mixed Economy Companies and Joint- remuneration is paid up to December 24 of each stock Corporations with the participation of legal year or in a monthly way. This bonus is equivalent to persons of public law or of private law with social or one-twelfth of the compensation one has received public purpose, and branches of foreign companies during the calendar year. whose assets exceed 100,000,oo dollars of the United • Fourteenth remuneration: This annual bonus is States of America, and local Joint-stock Corporations, equivalent to a minimum wage which is USD Simple limited company divided by shares and limited 375,00, paid up to March 15th in the Coast and liability Companies, whose assets exceed the amount of Island regions and by August 15th in the Highlands 500.000.oo dollars of the United States of America. and Amazon regions. It may be paid in a monthly way a well. To be an external auditor of companies, one must qualify as such at the Superintendence of Companies, If a worker, for any reason, leaves or is separated from Value Market and Insurances. To be an auditor of his or her job before the above dates, he/she will financial institutions (banks, cooperatives, building and receive the proportional part of the 14th remuneration loan associations, etc.) one must qualify as an auditor at the time of leaving or separation. at Superintendence of Banks. 6.3 Worker’s benefits 6. Work-related standards • Vacations: An uninterrupted period of 15 days According to labor legislation, working is a right and a of rest, including non-working days such as social duty. The purpose of the labor relationship is the weekends and holidays. Workers who have provision of lawful and personal services under the provided services for over five years in the same command of the employer. Labor relationships must company or for the same employer will be entitled comply with the local legislation and collective labor to an additional day of vacation for each succeeding agreements. year, or will receive the money corresponding to the

remuneration for these extra days. These additional

days shall not exceed 15 unless the parties, through 6.1 Types of work contracts and terms of individual or collective agreement, agree to extend employment such beneﬁt. Under Ecuadorian legislation, labor contracts may be either written or verbal. That is, even if there is no • Proﬁt-sharing: The employer or company shall 67

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pay its workers fifteen percent (15%) of its liquid 6.5 Social Security profit, distributed as follows: • Social Security Contributions (IESS): All workers engaged as employees or independent − Ten percent (10%) divided among the (self-employed) must affiliate to the Ecuadorian company’s workers. Institute of Social Security. If employed, it is the employer’s obligation to pay a monthly contribution − Five percent (5%) given in equal proportions equivalent to 21.60% of the worker remuneration, directly to the employees with family depend- distributed as follows: 12.15% has to be paid by the ents (spouse or partner, children under age 18 employer, and employees have to contribute with and handicapped children of any age). In the the remaining 9.45%. event that any of these individuals (considered as a family dependent) provide services for the In the case of self-employed workers or same employer, the profits must be considered independent professionals, they can affiliate individually for the payment of this 5%, for each themselves to the Ecuadorian Social Security, but it one. is not mandatory. If they do, the obligation to affiliate applies to the total income received Finally, in the event that a child reaches the ma- according to their personal activity and the jority age or a divorce takes place within the affiliation rate is 20.60%. fiscal year, the employee will lose his 5% benefit in profit sharing. • Reserve Fund: All workers who provide their services for over a year are entitled to receive a − Starting January 1st 2016, profits distributed to month’s salary, from their employer, for each full year employees cannot exceed the equivalent of 24 after the first year of work. monthly minimum wages (USD 9.000,00). In case the amount surpasses this limit, the surplus 7. Currency Exchange Oversight will be endowed to the solidarity regime of the 7.1 Incoming Foreign Exchange Social Security System. All foreign investment must be registered at the Central Bank of Ecuador (BCE) for statistical purposes. This − Additionally, employers will be able to unify the registration may be done by the foreign investor, by profits of two companies, as long as they share someone on their behalf, or by the Legal Representative productive or commercial processes. Thus, it of the company in which the investment was made. cannot be done in companies that share the The Central Bank of Ecuador will register these same economic activity, corresponding to the investments as direct, subregional or neutral foreign same value chain. investment at the prevailing rate on the open exchange market on the registration date. 6.4 Other work-related aspects • Payment for unjustified layoff: Up to three The BCE also registers foreign loans in foreign currency years of employment, an amount of three years of between individuals or corporate bodies with legal the worker remuneration. After working for over domicile in Ecuador and financial entities, head offices three years, the worker has the right to receive and other residents outside our national territory. one-month remuneration for each year of service, Overdrafts in checking accounts are not required to be up to a maximum of twenty-five years. Special registered. regulations applies when a worker is pregnant, being in some cases ineffective the layoff. 7.2 Sending Foreign Currency There is a tax on Outgoing Foreign Currency, which we • Bonus for dismissal: twenty-five percent of the will explain in detail below. equivalent of the last month remuneration per year of employment with the same company or 8. Tax system employer. Ecuadorian tax structure comprises taxes, fees and contributions. Taxes can be national, provincial and • Employer retirement: Workers, who have municipal. The main taxes are outlined below: provided services for twenty-five years or longer, continually and uninterruptedly with the same 8.1 National taxes: employer, have the right to be retired by their employer in addition to the social security retirement benefits (IESS). (A monthly pension paid through the IESS or payment of a lump sum to the worker).

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8.1.1 Income tax (IR) Individuals must liquidate and declare income tax, This tax is levied over the total income obtained by and present any deductions, in March for the Ecuadorian or foreign corporate bodies, individuals and operations done between January 1 and December undivided estates. Taxpayers are all individuals, 31 the previous year. undivided successions, and corporate bodies with taxable income. Additionally, individuals must also submit a sworn statement per year of their assets when it exceeds There is no differentiated treatment between domestic an amount USD 216.000 as individuals or USD and foreign companies. 432.000 as connubial partnership between spouses.

Overall income is understood as all income the taxpayer • Corporate Income tax. There is a differentiated has received. For the purpose of income tax, this in- tax rate for companies of 22% or 25% come includes: (depending on its shareholders have fiscal residence in a tax heaven, preferred tax regime or • Income from an Ecuadorian source obtained for minor tax jurisdiction) on a taxable amount free or for a cost, resulting from work, from calculated through the process called “tax capital or from both sources, consisting of reconciliation”, explained below. The Tax money, in kind and services. Administration grants a discount of ten percentage points in the tax rate 12% for • Income obtained abroad by individuals with legal companies that decide to reinvest their Available domicile in Ecuador or by Ecuadorian corporate Profits, providing that this reinvested amount is bodies. used to purchase new machinery or new equipment, assets for irrigation, vegetative The taxable base income for this tax is the total taxable material, seedlings and all plant inputs for income minus the costs and expenses that, according agricultural, forestry, livestock and to Ecuadorian norms, are deductible. Some activities flower-growing production, used for their are exempt from income tax in order to promote productive activity, as well as to purchase goods investment, for social reasons, and for other reasons related to research and technology to improve exonerating taxpayers from paying taxes. productivity, diversify production and increase employment. As a requirement to take According to the legal norms, there is income advantage of this tax benefit, the company must considered exempt from income tax, such as dividends formalize the reinvestment (by Capital Increase) distributed to shareholders and partners who are at the Mercantile Registry by the following year. Individuals or corporate bodies domiciled abroad (but not in a “tax heaven, preferred regime”) or Ecuadorian Additionally, other types of special deductions may be corporate bodies, income obtained under international granted. agreements, among others. Further, individuals must liquidate and declare this tax According to the law, the public-private partnerships, in April for the operations done between January 1 and which invest and develop projects in Ecuador, are December 31 the previous year. exempt to pay income tax. This kind of associations will enjoy an exemption from payment of income tax for a Since April 20, 2015, tax administrative assessments period of ten years from its first fiscal year in which that recognize 15% benefit in profit sharing in favor of they generate operating income. employees will accrue interests, when there is an enforceable judgement.. • • Income tax for Individuals. Individuals and Tax Credit for Income Tax: Tax credit comprises one-owned businesses pay income tax those amounts prepaid and those withheld in the proportionally to their income, at a rate varying course of a year, which constitute a right for the according to the income received, up to a company to discount them from their final maximum of 35%. income tax payment. This credit includes:

− Expenses that individuals may deduct for income tax Advance income tax payment: Individuals, purposes include “personal expenses”, which cover: undivided successions, corporate bodies, health, education, clothing and food, which are companies that have signed or will sign deductible up to an overall maximum in 2012 of hydrocarbon exploration and extraction contracts 50% of total taxable income, as long as this is not under any contractual modality and public higher than the equivalent of 1.3 times the basic un companies subject to income tax payment must -taxed base amount for income tax for individuals determine, in their declaration for the preceding (USD 11,290.00 since 2017). ﬁscal year, the advance payment to be made for

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the current fiscal year. from payments that they make locally or abroad which are taxable for the payee. Percentages of a. Individuals and undivided successions that are not withholding may range from 0,2% to 10% for local obliged to keep accounting and companies that payments, and 22% for payments abroad or 35% if have signed or will sign hydrocarbon exploration the beneficiaries have fiscal residence in a tax heav- and extraction contracts under any contractual mo- en, preferred tax regime or a minor tax jurisdiction. dality: A sum equivalent to 50% of the income tax If withholding at the source plus advance payments determined in the previous fiscal year, minus in- are higher than the tax payable after liquidating come tax withholding at the source. Income tax, a rebate may be requested for the over- payment, or that credit may be used for following b. Individuals and undivided successions obliged to years (but only if the balance is due to keep accounting and corporate bodies: An amount over-withholding at the source). equivalent to the mathematical summation of the following items: − ISD paid to import inputs, raw materials and capital goods: Tax credit for the purposes of declar- 1. Zero point two percent (0.2%) of total equity. ing, liquidating and paying income tax, also includes 2. Zero point two percent (0.2%) of total costs and payments for the Tax on Outgoing Foreign Cur- expenses that are deductible for income tax rency (ISD) on payments to import raw materials, purposes. capital goods and inputs for the purpose of incorpo- 3. Zero point four percent (0.4%) of total assets. rating them into production processes that are on 4. Zero point four percent (0.4%) of total taxable the listing made by the Tax Policy Committee. income for income tax purposes. Additionally, as of 1 January 2013, Ecuadorian The calculated advance payment must be made in two legislation allows the ISD tax paid (tax credit for income equal amounts in July and September. tax) and not offset during the year when it was generated or in the following four fiscal years to be There are special regulations regarding fuel dealers and returned by the SRI under the following considerations: distributors in the automotive sector, taxpayers whose economic activity is exclusively related to agricultural − Apply to the fiscal authority once the income tax production projects with agroforestry and silviculture of declaration has been made, forest species, and taxpayers whose economic activity is exclusively related to developing software or − Not having been able to offset or use the ISD tax technology projects. paid as a deductible expense for income tax,

Similarly, for private financial institutions and − The rebate will be made by a credit note, which companies issuing and administering credit cards, is negotiable and can be used to pay income tax subject to oversight by the Superintendence of Banks for the same five-year period in which the ISD and Insurance (except for building / savings and loan tax paid could have been used as tax credit. associations) there is an advance payment for income tax of 3% of taxable income from the previous fiscal • Tax reconciliation year. This off-the-books process consists of determining taxable income, out of the overall Further, newly constituted companies and newly total income received by the company or recognized investments under the Production Code, individual, and subtracting all expenses that can individuals obliged to keep accounting and undivided be deducted from this tax that are related to the successions obliged to keep accounting, that begin taxable income, to obtain the taxable base activities, will be subject to make this advance payment income and apply the corresponding tax rate. The after their fifth year of operations. amount of tax payable, minus any tax credit (advance payment of income tax and withholding Taxpayers have the benefit of requesting the reimburse- for income tax), times the respective rate, gives ment of income tax advance payment, whenever the the income tax to be paid. average effective tax rate of the taxpayers is exceeded. The procedure for the effect is established by resolution • Regulation of Transfer Prices and Full Competition NAC-DGERCGC17-00000121 dated February 15, 2017, In 2005, Ecuador incorporated OECD guidelines in issued by the Tax Administration. our legislation on regulating transfer prices, to regulate those transactions done between related com- − Withholding at the source for Income Tax: Indi- panies when the sales are at or below cost. This viduals obliged to keep accounting and corporate regulates prices so they will not be lower than those bodies must perform withholding for income tax current on foreign markets at the time of the sale;

E c u a d o r

whereas for imports it will make sure they are not the transfer or movement of foreign currency abroad as higher than international prices. cash or by drawing checks, transfers, sending, withdrawing or paying in any way. The tax rate on According to local regulations, related parties are when Outgoing Foreign Exchange is 5%. an individual or company, with domicile in Ecuador or abroad, participates directly or indirectly in the Additionally, to the above taxable actions, it will be management, administration, control, or stock of the legally presumed that there has been outgoing foreign other company; or when a third party (an individual or currency in the following cases: company, with domicile in Ecuador or abroad) participates directly or indirectly in the management, • In all payments made abroad by Ecuadorian or administration, control, or stock of these companies. foreign individuals or corporate entities domiciled or resident in Ecuador. The norms oblige certain taxpayers to present studies • In the case of exports of goods or services and information on their transactions with related generated in Ecuador, done by individuals or parties to the Tax Administration, along with their corporate entities domiciled in Ecuador, who income tax declaration. engage in economic activities of exportation, when the foreign exchange to pay for those It is important to clarify that local norms have imposed exports does not enter Ecuador within 180 days’ the obligation for the information presented to cover time. both operations with local related parties and those domiciled abroad. This ISD is declared annually and may be discounted from the ISD payable on the basis of an estimate for 8.1.2 Value-added tax (VAT) imports. Value-added tax (VAT) is an indirect tax levied on consumption whenever a taxpayer takes an action or These circumstances are exempt from tax on foreign signs a contract for the purpose of transferring or exchange outflows: importing physical chattel goods, transferring copyright or horizontal property, at all stages of the selling; and 8.1.4 Tax on Extra Income provision of services (local and imported). Rates for VAT This tax is levied on extra income obtained by are normally 12% or 0%. However now a days the companies that have signed contracts with the National general rate is 14% (temporally up to June 1st, 2017). Government for exploration and extraction of non-renewable resources. This tax can be transferred by the taxpayer to another taxpayer, because the intention is for the tax burden to The taxable base amount is the total extra income, i.e., be paid by the final consumer, if producing goods and the difference between the selling price and the base services subject to the 12% (14% temporally) tax rate. price established in the contract, multiplied by the Otherwise, a proportional part of this tax credit can be number of units sold at that price. This tax rate is 70%. used. 8.1.5. Tax on special consumption The taxable base amount for VAT is the value of the This tax is levied on cigarettes, alcoholic beverages, soft goods transferred or the services provided. In the case drinks, perfumes and toilette waters, video games, of imports, the taxable base amount is the sum of the firearms, sports weapons and ammunition, motor CIF (cost, freight and insurance) amount, taxes, customs vehicles and hybrid or electric vehicles, paid television tariffs, fees, charges, surcharges and other expenses services, dues, shares or subscriptions to social clubs, appearing on importation documents. whether from Ecuador or imported.

VAT taxpayers must present a monthly declaration for The taxable base amount is the sales price to the public their operations during the preceding calendar month. suggested by the manufacturer or importer, minus the VAT and the ICE (as long as this amount is not lower Through the Organic Law of Solidarity and Citizenship than the result of adding 25% to the presumptive Stewardship, in force since May 20, 2016, the VAT rate minimum marketing margin to the ex-factory or changed temporally from 12% to 14% exclusively for ex-customs price, as the case may be) or on the basis of the ﬁscal year 2016. the reference prices established by a Resolution annually by the Director-General of the Ecuadorian 8.1.3 Tax on Foreign Currency Payments (ISD) Internal Revenue Service. The Tax on Outgoing Foreign Currency is levied on all monetary transactions that are done abroad, with or 8.1.6 Tax on Rural Land without the intervention of the institutions comprising This tax is levied on land owned or possessed the ﬁnancial system. The taxable action for this tax is measuring more than 25 hectares in area in the rural

E c u a d o r sector according to the city limits set by each 8.1.9 Customs Duty municipality in their ordinances, located within a 40 km The customs system is governed by the Code of radius from watersheds, conduction canals or water Production, designed for strategic international sources defined by the Ministry of Agriculture and interaction, facilitating foreign trade, customs Livestock or by the environmental authority. control and cooperation and information exchange through trade policy, with a modern, transparent, Taxpayers must pay the equivalent of 0.1 percent (one efficient customs system. mill) of the basic untaxed amount for Income tax (individuals and undivided estates) pursuant to the Taxes on foreign trade are: Domestic Tax System Law, per hectare or fraction of hectare of land over 25 hectares. a. Customs duty b. Taxes established in general and regular laws 8.1.7 Tax on holding assets abroad c. Fees for customs services The monthly tax on funds available and investments held abroad by private entities regulated by the Customs duty is charge on foreign goods entering or Superintendence of Banks and Insurance and the merchandise leaving the customs territory under the Intendancies of the Securities Market in the customs authority’s control. The taxable base amount Superintendence of Companies is based on holding any for customs duty is the value of the imported merchan- certificate for funds available in entities domiciled dise in the customs. outside Ecuadorian territory, whether directly or through affiliated subsidiaries or offices of the taxpayer According to the public-private law, the projects carried abroad; and investments abroad by entities regulated out under this modality shall enjoy the same benefits, by the National Securities Council. which are enjoyed by the public entities in customs imports. Taxpayers must pay the equivalent of 0.25% monthly of the average monthly balance of funds available in 8.1.9.1 Customs Modalities foreign entities and investments issued by entities Common customs modalities are final export (the domiciled outside national territory. merchandise is exempt from all taxes) and import for consumption (the merchandise is subject to certain When the funds are received or the investments held or taxes, including customs duty). made through subsidiaries located in fiscal paradises or preferential fiscal systems or through affiliates or offices Additionally, importing merchandise involves paying abroad of the taxpayer, the applicable rate will be value- added tax (VAT) and the tax on special 0.35% monthly of the taxable base income. consumption (ICE) if applicable. In certain specific cases, merchandise can be subject to compensatory duty (anti 8.1.8 Environmental Taxes -dumping) and an additional safeguarding fee. These 8.1.8.1 Environmental Tax on Vehicular Pollution measures are o prevent unfair trade practices pursuant This tax is levied on environmental pollution from the to WTO and CAN norms. use of motor vehicles for overland transport. The taxpayers are the owners of such motor vehicles for over- There are other import modalities, such as: Temporary land transport. admission for re-export in the same condition, temporary admission for asset improvement, This tax is paid prior to registering vehicles, along with replacement of merchandise free of customs duty, the annual tax on ownership of motor vehicles. transformation under customs control, customs deposit, and re-import in the same condition. The taxable base amount for this tax is the engine displacement of the vehicle, expressed in cubic 8.2 Municipal Taxes centimeters. To establish the amount of the tax, the Our legislation, in addition to the above taxes, provides calculation formula considers, in addition to the taxable for other taxes on a series of transactions done by base amount (i.e., the vehicle’s engine displacement in taxpayers. Here we are referring to municipal taxes to cubic centimeters) the vehicle’s age, using an finance sub- national government. Among the main adjustment factor. consist:

Since February 2017, a tax exemption is granted to • Tax on Urban Property vehicles owned by the State; Vehicles of terrestrial • Tax on Rural Property transport that are dedicated to productive activities; • Municipal Excise Tax Ambulances and rolling hospitals, classic vehicles, elec- • Municipal Business License tric vehicles. • Tax on Public Shows

• Tax on the extraordinary Proﬁt or Capital Gain on

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the Sale Urban and Rural real estate. Spanish, if necessary, and authenticated by the • One Point Five (1.5) Per Thousand Over Total Assets respective Ecuadorian Consul, is also required.

9. International treaties 10. Solidarity contributions 9.1 Bilateral Agreements on Investment Through Organic Law of Solidarity and Citizenship Ecuador has signed bilateral treaties on investment with Stewardship, in force since May 20, 2016, the the following countries: Germany, Argentina, Bolivia, following contributions are established during 2016: Bulgaria, Canada, Chile, China, Costa Rica, Denmark, El Salvador, Spain, United States, Finland, France, 10.1. Contribution on gross remunerations Honduras, Nicaragua, Paraguay, Peru, Netherlands, The contribution of a day salary is established for those United Kingdom, Sweden, Switzerland, Dominican who earn more than a thousand dollars a month. The Republic and Venezuela. salary cap is USD 20,000, which will be charged as determined by the Internal Revenue Service. 9.2 Agreements to Avoid Dual Taxation Ecuador has treaties to avoid dual taxation, for income 10.2. Contribution on Assets which exceed 1 tax, with: Belgium, Belarus, Canada, Chile, China, million dollars France, Italy, Rumania, Switzerland, Spain, Germany, Contribution corresponding to 0.9% of the net assets Brazil, Mexico, Romania, South Korea, Singapore, Qatar of natural persons resident in Ecuador (including assets and Uruguay. inside and outside the country) and non-residents in Ecuador (including only assets located in Ecuador). Additionally, Ecuador has signed Decision 578: system to avoid dual taxation and prevent tax evasion among 10.3. Contribution on Capital Representing Rights the countries of the Andean Community (Ecuador, For those foreign companies that maintain capital Colombia, Perú, Bolivia). This Treaty uses the overriding representing rights in local societies must pay this principle of taxation in the source country instead of contribution as follows: the residence principle. A treaty with Argentina (applicable only for air transport) has also be signed. Must take the equity value of their shares as per 2016 and pay the contributions at a rate of 0.90% and a rate Since June 2016, International Tax Treaties to Avoid of 1.8% if the owner of the Capital Representing Double Taxation will not be applied immediately in Rights is domiciled in tax heaven, preferred regimes. operations that exceed twenty basics tax-free amount for income tax for individuals (USD 225.800). On those 10.4. Contribution on property (fixed assets) cases, common income tax withholdings will be applied Contribution on Properties located in Ecuador owned and it will be necessary to fill a formal devolution by legal entities resident abroad. For this, the value of request to Ecuadorian tax authority. the cadastral valuation will be taken at a rate of 0.90%; or 1.8% if the owner of the property is domiciled in tax To verify payments abroad for agreements on dual havens (or his residence is unknown). taxation for transactions done in a given fiscal year, totaling more than ten basic tax-free amount for 10.5. Profit Contribution income tax for individuals (USD 112.900) requires a Contribution due to Ecuadorian company’s taxpayers certification by Independent auditors. Ecuadorian tax subject to income tax (includes Trusts whether they pay authority has set tax regulations, which establish this or not income tax) and Natural persons subject to the certification will not be necessary when tax treaties are payment of income tax with a tax base over than USD not applicable directly. 12,000.00 (excluding dependent relationship income and employee profit sharing). The rate in this case will A certificate of fiscal residence, issued by the relevant be 3%. authority of the other country, with a translation into

El Salvador

Republic of El Salvador

Identiﬁcation of contact ﬁrm Audit & Consulting Financial Tax, S.A. de C.V. Moore Stephens International Limited.

Ofﬁce, address, telephone 11 Calle Pte y 79 Av. Nte #741; Col.Escalón, San Salvador. T: (503) 2522-6500 F: (503) 2522-6565

2. Professional specialists Pedro David Hernandez Fuentes Managing Partner [email protected]

3. Country profile El Salvador is located in Central America; it is located (0.2%); Government (1.2%) and transport between Guatemala at the West, and by Honduras at communications and storage (4.9%); electricity and the North, having the Pacific Ocean at the South. water (0.6%); construction (4.1%); Banks, insurance and other financial institutions, (0,5%) and fixed assets 3.1 Population (3.8%). 6.13 million (2015 estimate) 66% Urban population. 3.5.1 Principal Industries Agriculture, chemicals, electricity, fishing, food pro- 3.2 Language cessing, footwear, forestry, petroleum products, textiles Spanish. English is also understood by many members and clothing. of the business community in the capital and larger cities. 3.5.2 Principal trading partners The country`s principal business partners are: the Cen- 3.3 Currency tral America area, the United States of America, the US Dollar. European Union and Japon.

3.4 Geography and climate 3.6 Political system Area of 21,040 sq. km. Democratic republic (integrated by 14 departments). The president of the Republic is in power for a term of five. El Salvador has a tropical climate with two seasons; the rainy season (May to October) and the dry season 4. Legal presence: (November to April). A legal presence in El Salvador, generally, implies a substantial investment for foreign investors. A legal entity 3.5 Economy in El Salvador, must comply with different legal, fiscal PIR Nominal (2015) $25,850 (Mil) and accounting requirements; this compliance may PIR Per Capita (2015) $4,273 result in significant expenses.

The economic activities in El Salvador grew by 2.5% In this sense, the forming of a corporate presence in El during 2015; a growth driven by domestic consumption Salvador, should be carefully studied, taking into ac- an increase in private investment and exports. This re- count the following: a legal presence is necessary? is it sulted in the highest growth rate in the last ﬁve years. recommendable? And what type of society?

The demand resulting from the different economic Commercial acts including the different forms of busi- factors, has resulted in increases in the following economic sectors: community, social, personal and do- ness enterprise are governed by the Salvadorian Com- mestic services (2.5%); Commerce, Restaurants and mercial Code that became effective in 1970, and has Hotels (3.3%); manufacturing industry and mining been modiﬁed and supplemented by certain legislation. (3.9%); Agriculture, hunting, ﬁshing and forestry

El Salvador

Business may be undertaken in the name of individuals •Internal Tax Ofﬁce (DGII), and in the name of entities that are granted existence •Departament Statistics and Census Department by law as legal person. The companies in El Salvador (DIGESTYC), are divided into partnership companies and stock com- • Ministry of Labor, panies, both can be of variable capital (C.V.). •The Local Municipality City Hall,

•Salvadoran Social Security Institute (ISSS), 4.1 Types of legal structures: •Pension Fund Administrator (AFP). Limited company (S.A.)

Limited responsibility society (S.R.L.) 4.3 Registrations

A branch in El Salvador must be inscribed with the 4.1.1 Requirements Commercial Registration Ofﬁce. The following docu-

mentation must be ﬁled in this country: • The company is incorporated before a Salvadoran

Notary Public by means of a Deed of Incorporation. In • Certified copy of Articles of Incorporation order to grant the Public Deed of Incorporation a (By-laws) of the foreign company that desires to estab- minimum two (2) people should appear as founder lish the branch. Everything must be shareholders, these can be either individuals or com- translated into Spanish; panies; • Agreement issued by the Administration of the com- • The Public Deed must be registered at the pany (i.e. Shareholders Meeting, Board of Directors) Registry of Commerce in order to obtain a legal status; approving: (i) the establishment/opening of the branch • The stock capital of the company shall be at least US in El Salvador, and (ii) the designation of the legal rep- $2,000.00. At incorporation, at least 5% of the capital resentative; must be paid; • Power of Attorney granted by the company to a dom- • The company’s administration shall be iciled local person or to a foreigner residing permanent- performed by a Board of Directors or by a Sole Admin- ly in El Salvador, to act as the legal representative of the istrator. The Directors or Sole Administrator may last in branch and to follow the registration process at the their position from 1 to 7 years, and may be reelected competent authorities; and by the members of the board; • The minimum capital must enter the country through • It is also necessary that the company registers in the a transference of funds to a bank of the local financial Registry of Commerce its Business and system in order to obtain the respective document in Commercial License. This License must be support of the remittance received, this investment renewed each year, paying duties during the same must be registered with the National Investment office month the company was originally ONI. incorporated; • The initial balance sheet must be registered at the 4.4 De facto societies Registry of Commerce; In El Salvador, de facto societies are considered to be • The company must be registered at the Local City Hall unions between 2 or more people with the same objec- of the city where it will be operating and the Statistics tive or interest in starting a commercial activity. and Census Department (DIGESTYC). • There are no limitations regarding the nationality of 5. Banking system the founder shareholders. 5.1 Central Reserve Bank El Salvador’s financial sector is regulated by the Central 4.2. Branch and/or Permanent Establishment: Reserve Bank of El Salvador (BCR), which is supported For tax and commercial purposes the branch is having by the Superintendence of the Financial System and the the same rights and obligations as local companies. The Institute of Guarantees and Deposits (IGD). legislation that applies to a branch of a foreign company is the Salvadoran law. The Central Reserve Bank of El Salvador is the authority responsible for exchange activity. With the enactment In terms of the capital required by law to establish a of the actual Law No. 746, dated April 12, 1991, the branch in El Salvador, the minimum capital should be of Central Bank is empowered to promote and maintain US$12,000.00 dollars, such investment is initially regis- the monetary, exchange and financial conditions that tered at the National Investments Office (ONI) of the most benefit the stability of the national economy. Ministry of Economy before filing the registration of the entity at the Registry of Commerce. 5.2 Commercial banks Due to various reforms in the financial sector, In addition, the branch must be registered in El Salva- El Salvador has established a strong banking dor with the following local authorities/entities: community, with positive tax laws that attract foreign investment.

El Salvador

To develop the Salvadoran banking sector in line with 5.3 Banks in El Salvador international standards, the Superintendence of Banks; 5.3.1 Central Bank (an independent regulatory body that supervises the Central Reserve Bank of El Salvador. banking sector according to the Basle Committee recommendations, was established in 1990). During the 5.3.2 State Banks past years, the legal framework under which the bank- Banco de Fomento Agropecuario. ing system operates has been enforced with the intro- Banco Hipotecario de El Salvador, S.A. duction of legislation such as the following: 5.3.3 Private Banks • Law against Money and Assets Laundry No. 498, dat- Banco Agrícola, S.A. ed December 2, 1998. The present Law has the objec- Banco Citibank de El Salvador, S.A. tive of preventing, detecting, sanctioning and eradicat- Banco Davivienda Salvadoreño, S.A. ing the crime of money and assets laundry, as well as Banco G&T Continental El Salvador, S.A. the withholding of information. Banco Promérica, S.A. • Law for Insurance Companies No. 844, dated October Scotiabank El Salvador, S.A. 10, 1996. This Law has the objective of regulating the Banco de América Central, S.A. constitution and functioning of insurance companies, Banco ProCredit, S.A. as well as, the participation of insurance intermediaries, Banco Azteca El Salvador, S.A. in order to ensure the public rights and facilitate the Banco Industrial El Salvador, S.A. development of the insurance activity. Banco Azul de El Salvador, S.A. • Law of Banks No. 697, dated September 2, 1999, reformed during 2000, 2001, 2002 and 2004. The 6. Labor and Social Security banking Law has the objective of regulating the func- 6.1 Labor Law Requirements tioning of financial intermediation and other bank op- Please find below a summary of the most remarkable erations, propitiating that these entities give transpar- requirements included in the Salvadorian Labor Code. ent, reliable and agile service, which contribute to the development of the nation. 6.2 Wages and salaries • Monetary Integration Law No. 201, dated The Government has the power to establish the differ- November 30, 2000. This Law establishes that the legal ent salary levels. During December, 2016, an agree- exchange rate between the “Colon” and the United ment to increase the minimum monthly salaries, was Sates Dollar shall be fixed and unalterable starting from approved, coming into force in 2017; establishing the the validity of this Law at 8.75 Colones per U.S. Dollar. following amounts: commercial and service sectors US$300.00; Agricultural sector US200.00 – US$224.00, • Law for the Creation of the Multi-sector Bank of In- clothing and textile sectors US$295.00. vestments No. 856, dated April 21, 1994. The present

Law created the Multi-sector Bank of Investments, as a 6.3 Proﬁt sharing public institution for credit. The bank’s objective will be It is not mandatory; however a bonus may be payable to promote the development of investment projects in according to agreements with employer and/or goals the private sector in order to: achieved by the employee.

− Promote the growth and development for all the pro- 6.4 Christmas bonus ductive sectors. This bonus applies in different categories: − Promote the development and completion among businesses. • − Propitiate the development of micro and small busi- With more than 1 year but less than 3 years nesses. working for the same company, employees − Job generation, and receive 15 days of basic salary; • − Improve the education and health services. Workers with more than 3 years but less than 10 years of employment with a company, receive Foreign Banks: According to Article 31 of the Banks 19 days of basic salary; and Law No. 697, a foreign bank operating in El Salvador • For workers with more than 10 years of shall have the same rights and obligations as Salvadori- employment with the same company, the bonus an banks. Foreign banks will operate in the country is of 21 days of basic salary. through branches, which must obtain a previous authorization by the Superintendence of the Financial 6.5 Employee beneﬁts: System (SSF). In addition, they will be subject to the Non-cash compensations given to employees (beneﬁts same laws and regulations as national banks, and un- in-kind) for the services rendered in the country, are der the supervision of the above-mentioned Superin- considered as taxable income for the employee. tendence.

El Salvador

6.6 Labour hours: that have more than 10 employees. Furthermore, in The Maximum Labor hours that are permitted by law terms of financing the program for the technical in- are 8 hours daily, and should not exceed 44 hours a struction and employee training, managed by a specific week; the workweek has to end at noon on Saturday. institution (INSAFORP), the contribution required for Any modification at the end of a workweek at different employers is 1% of total monthly payroll. hour has to be approved by Ministry of Labor. INSAFORP, (the National Institution for Professional 6.7 Paid holidays and vacations Training) ensures that the Salvadorian workforce re- After each continuously worked year employees are mains a high quality asset within the region by offering entitled to receive fifteen workdays of paid vacation. training and courses for employees.

6.8 Termination of employment 7. Social Security System of El Salvador: Section 48 through Section 54 in the Salvadorian Labor Law No. 1263 of the social security system in Code establishes the causes for termination of con- El Salvador was enacted December 3, 1953, and was tracts. last reformed in 1994. The Law is also complemented by several regulations on the social security interest. A Labor contract can terminate with or without legal The Salvadorian Constitution in its Article 186 establish- liability for the parties and can be done with or without es the obligatory social security as an institution of pub- legal intervention. lic interest.

Termination of the contract without legal liability and 7.1 The social security system contemplates: without legal intervention can be done by means of • Health/Maternity Benefits: In health disability the mutual consent, or by the resignation of the employee. employer pays the first 3 days, after the third day social security covers 75% of salary. In case 6.9 Payment of severance: of maternity social security covers 100% of the Generally the severance payment is payable in case of monthly salary and the employer grants a 16- unjustified dismissal at one month salary per year of week period for maternity care. uninterrupted service. The law specifies the causes of • Disability: If there is a disabled employee for 1 “just” dismissal. year at least, a percentage of the salary is paid by social security, for over a year pension funds 6.10 Economic benefit for voluntary resignation will recognize a percentage of the salary de- On January 1, 2015 the Law Regulating the Economic pending on the level of disability. Benefits for Voluntary Resignation came into force, • Old Age: Retirement- men at sixty (60) and which has the objective of regulating the conditions women at fifty five (55) years can retire after 30 under which the permanent employees working in the years of labor services. private sector and autonomous entities that generate • Death: Pension funds will pay the victim’s family income, and whose labor relations are subject to the an allowance depending on the victim’s amount obligations contained in the labor code, even though of savings. these are not mentioned in this Law, including the • Pension Fund (AFP): Savings are obligatory Salvadoran Institute of Social Security and the Comisión through pension funds managed by private Ejecutiva Hidroeléctrica del Río Lempa (CEPA), are enti- Pension Fund Administrators- AFP’s. tled to an economic benefit when they resign from their work on a voluntary basis, always summing they 8. Accounting and audit requirements and have completed a minimum of two years’ service on a practices voluntary basis. 8.1 Accounting

The Supervisory Board of the Public Accounting and The economic benefit for voluntary resignation by Auditing Professions issued Resolution 113 /2009, permanent employees who have more than two years which establishes “the adoption of the International of service, will consist of the economic equivalent of Financial Reporting Standard for Small and Medium fifteen days basic salary for each year of service. Sized entities, official Spanish language version, issued

by the International Accounting Standards Board (IASB), For the purposes of the calculation of the economic as a requirement in the preparation of general purpose benefit referred to in the previous paragraph, the salary financial statements and other financial information, cannot exceed twice the current legal minimum daily for all of the entities that are not quoted in the stock salary in the sector in which is applicable to the employ- exchange, except for the entities that, on a voluntary er’s economic activities. basis have adopted the full version of the International

Financial Reporting Standards. Entities must present 6.11 Technical education tax their ﬁrst ﬁnancial statements on the basis of this A payroll based contribution is imposed to employers standard for the period commencing January 1, 2011.

El Salvador

The early adoption of this standard is permitted”. to the Congress for their approval taxes and contributions. The entities that are not quoted on a stock exchange or that do not have public accountability, may adopt, on a 9.1 Taxes over corporate income: voluntary basis, the full version of the International Fi- Applying a tax rate of thirty percent (30% over the nancial Reporting Standards (IASB), the entity must taxable income, except for the taxpayers’ who have disclose this fact in the notes to their financial state- obtained income equal to, or less than, one hundred ments. and fifty thousand Dollars (US$150,000), to which a tax rate of twenty five percent (25%) will be applied. 8.2 Statutory Audit Requirements In El Salvador, all local companies and branches Taxable income is net of the costs and expenses consid- operating in the country are required by law to appoint ered necessary for generating and maintaining the re- an External Auditor. Financial Statements prepared for lated source of income, and other deductions allowed companies and partnerships engaged on commercial, by law. Gross income, on the other hand, comprises services or industrial businesses are also required to be income or profits collected or accrued, either in cash or audited by public accountants licensed in El Salvador, in kind, from any sources such as business, capital and which must be appointed by the entity as the External all types of products, gains, benefits or profits, whatev- Auditor for a 1 year period that can be renewed indefi- er their origin might be. nitely. Juridical entities are required to follow the accrual Regarding Tax Auditors, according to the Salvadoran method of accounting, which means that income is Tax Code their appointment is mandatory for: reported although not collected, and costs and expens- • Entities having total assets exceeding es are reported when incurred and not when paid for. US$1,142,857.14, • Entities obtaining incomes exceeding For tax purposes, income is computed for 12-monthly US$571,428.57, periods, also known as taxable periods, and the tax • Entities resulting from a merger or period for judicial entities begins on 1 January and ends transformation process, and on 31 December of each year. • Companies under a liquidation process. 9.2 Advance income tax payments: In El Salvador, the same person or entity may provide A 1.75% tax rate is applied over the gross monthly external and tax audit services. revenues obtained, this is paid during the following month and represents an advance tax payments, which 8.3 Books and records are applied against the Corporate Income Tax at the Both the Commercial Code and the Tax Code prescribe end of the year. the principal books of accounting to be maintained by business enterprises. The books and records normally 9.3 Tax over branch income: required are: Ledger and Major, Financial Statements, In El Salvador, tax rates on branch profits are the same purchase book for VAT purposes, book of operations as for domestic corporations. No tax is withheld on with final consumers and detail of exports, book of transfer of profits to the head office provided the entity operations with VAT registered contributors, as well as distributing them reports and pays the corresponding other special records and files required for the control income tax thereon. of VAT. Administrative offices: the law does not provide a sepa- These books are authorized by the external auditor, and rate treatment to administrative offices located in El each page must be numbered and then stamped with Salvador. The general regulations in this respect indi- the seal of the public accountant. cate that branches, agencies and/or permanent establishments operating in the country, with owned or According to the Commercial Code, all records must be leased installed infrastructure, employing domestic in Spanish, and all accounts recorded in Colones or US staff, and performing their economic activities in a ma- Dollars. The books must be located, and the accounting terial and perceptible manner in the country are subject made, in El Salvador, even for branches, agencies or to the same taxes as duly incorporated local companies. subsidiaries of foreign companies. 9.4 Value added tax (IVA): 9. Aspects relating to corporate taxes: VAT is levied at a rate of 13% over the taxable amount. In El Salvador, national taxes, duties and other special As a general rule, the taxable amount is the price or contributions on all types of goods, services and income remuneration agreed upon by the parties. For imports, are created by the Salvadoran Congress, while local the taxable amount is the custom value. governments (Municipalities) may elaborate and submit

El Salvador

The following transactions are subject to VAT when • Public transportation. performed within the Salvadorian territory: • Insurance premiums covering individuals, and reinsurance in general. 1. Transfer/sale of tangible movable goods. 2. Withdrawal of tangible movable goods from the Exports are levied at 0% VAT. Foreign source income is inventory made by the company for self- not subject to VAT. consumption by its parents, directors or personnel. VAT taxes paid by a registered taxpayer company on it 3. Import of goods and services purchases (tax credits) are credited against VAT taxes 4. The supply of services of any type whether charged to its customers (tax debits), on a monthly ba- permanent, regular, continuous or periodic; sis. technical advice and project designs; lease and sublease agreement over tangible goods; lease 9.5 Tax on simple or sweetened soft drinks sublease agreements over real estate for com- This is an ad valorem tax levied at 10% over the selling mercial purposes; lease of services in general; price to the public as suggested by the manufacturer, construction of real estate properties or building importer or distributer, excluding VAT and returnable contracts; auctions; freight; whether inland; air bottle taxes. or maritime; lease, sublease and any form of use regarding trademarks. 9.6 Tax over the importing and production of alcohol and spirits: 9.4.1 The following imports are exempt from VAT: This tax is levied on domestic or imported alcohol spirit • Imports made by diplomats and consulate repre- at rates ranging from 0.0825 to 0.15 over each 1% of sentatives of foreign nations with presence in alcohol volume per liter or in proportion thereof. At the the country according to international agree- beginning of 2010 spirits and alcohol also have an ad ments adopted by El Salvador. valorem tax levied at 5% over the suggested selling • Imports made by international organizations to price to the public. which El Salvador is a party. • Travelers’ luggage according to customs regula- 9.7 Tax on tobacco products tions. This tax is levied at USD 0.005 per cigarette, cigar, • Donations to non-profits organizations. cigarettes or any other tobacco product. Also, an ad • Imports made by municipalities, if the good im- valorem tax is levied at 39% over the suggested con- ported are for the public benefit of the commu- sumer selling price reported, excluding items such as nity. VAT taxes, the specific tax established by the law.

• Imports of machinery by taxpayer duly registered 9.8 Municipal taxes for this purposes which will be part of the tax- Municipal taxes are assessed according to a progressive payer’s ﬁxed assets. tariff issued by each municipality applicable to the com- • Vehicles for public transportation, which can pany’s assets located in each municipality. only be transferred after ﬁve years.

The tariff list is applied separately to commercial, indus- 9.4.2 The following services shall be exempted trial and ﬁnancial sectors. from VAT:

• Health services rendered by public institutions. 9.9 Tax over the transfer of real estate: • Lease and sublease of real estate properties for Transfers on real estate property are taxed according to housing. the value of the real estate, at a tax rate of 3% applica- • Services rendered under a labor relationship, and ble over amounts exceeding USD 28,571.43. those rendered by public and municipal employer. 9.10 Tax over ﬁnancial operations Law: • Cultural public performances authorized by Establishes a tax of 0.25% (for amounts over one competent authorities. thousand Dollars), which is applied over the amount • Educational services rendered by authorized en- paid by check or electronic transfers made in the na- tities, (i.e. the Ministry of Education. tional territory, in the legal currency in circulation in the • Interest on deposits and loans, provided by local country, in accordance with the regulations contained ﬁnancial institutions or entities registered with in this Law. the Central Reserve Bank of El Salvador. • Interest on securities issued by the government Furthermore, a tax withholding of 0.25% must be and/or private entities traded through a stock made over the excess of $5,000, which originates from exchange. deposits, and cash payments or withdrawals, whether • Water supplied by public institutions. in an individual or accumulated basis during the same month. 79

El Salvador

10. Other Tax Regime tion amount from the donors’ net income of the re- 10.1 Simplified regime for casino and slot spective tax period. machines No special regime exists for casino, slot machines or Amortization of goodwill, trademarks and other similar betting games. In fact, legal limitations have been is- intangible assets are not deductible for income tax pursued by local authorities in various municipalities pro- poses. hibiting the functioning of these activities. 11.8 Net operating losses: 11. Corporate deductions: Operating losses cannot be carried forward to future 11.1 Permitted deductions: years, and Salvadoran legislation does not permit the All business expenses considered necessary to produce carry back of losses, for the purpose of being deducted taxable income and/or maintain income source (freight, for tax purposes. marketing, power, telecommunication, water, salaries, lease contracts, merchandise and transport insurance, 11.9 Tax withholdings: fuel and interest paid on loans used by income generat- Payments or amounts credited to non-residents arising ing sources, and other similar items) are deductible for from income obtained in El Salvador are subject to a income tax purposes. 20% WHT. Income earned in El Salvador covers income from assets located in the country, and from any activi- 11.2 Interest: ties performed or capital invested in the land, and from If a loan is made by a foreign company or bank that is services rendered or used in the national territory, re- not registered by the Central Bank or if the loan is be- gardless of whether they are provided or paid outside tween related parties, income tax is withheld at 20%. If the country. the foreign bank is registered by the Central Bank in 2010, then 0% income tax will be withheld. Income from services used in the country is income earned in El Salvador by the service provider, irrespec- 11.3 Taxes: tive of whether the relevant income generating activi- Other than penalties and interest charges on unpaid ties are performed abroad. Payments to foreign entities taxes, income, VAT and conveyance of real estate prop- located in the tax haven regimes are subject to a with- erty taxes, and state and municipal taxes and duties on holding tax rate of 25%. imports of goods and services rendered by the company are not deductible. Payments to domiciled individuals with respect to services rendered other than under a labor relationship, 11.4 Depreciation are subject to a 10% income tax withholding. Depreciation allowances on fixed assets are determined by the declining balance method at the following rates: The acquisition of intangible goods among domiciled entities in the country is subject to a 10% income tax Type % withholding. Buildings 5 12. Tax incentives: Machinery 20 6% over the free on board value (FOB) of the exports Vehicles 25 outside of the region. Other movable assets 50 This law was repealed during January, 2011, and sub- 11.5 Amortization: stituted by a return mechanism that was approved, for Amortization of goodwill, trademarks and other similar the rights paid over raw materials and goods imported intangible assets are not deductible for income tax pur- to be exported. El Salvador offers a wide range of in- poses. centives to attract foreign investments and drive new commercial and industrial developments. There are no 11.6 Payments to foreign affiliates: restrictions on foreign ownership or on mergers, acqui- Remittance of royalties, interest income and services sitions or joint ventures. fees to foreign affiliates are deductible provided proper contracts are in place and withholding tax of 20% is There are three specific laws in El Salvador that seek to applied and if these services have actually been re- encourage foreign investment by improving the coun- ceived. Payments to entities located in tax haven re- try’s competitiveness in all areas involving the granting gimes, are subject to a withholding tax rate of 25%. of tax incentives. These laws are the Industrial and Commercial Free Zone Law, Law of International Ser- 11.7 Other significant aspects: vices and the Export Reactivation Law, which was re- The deductibility of charitable donations is limited to placed in 2011 by the Law of re-imbursement of tariffs 20% of the amount resulting from deducting the dona- over importations.

El Salvador

The industrial and Commercial Free Zone Law No. 405 (municipalities) may suggest contribution rates and pro- dated September 3, 1998; grants companies the fol- pose their approval to the National Congress by way of lowing incentives: speciﬁc laws.

• Exemption from income tax Ministry of Finance; the Ministry controls the State’s • Exemption from VAT finances and defines and guides the government’s fi- • Exemption from real estate transfer tax when nancial policy, and also harmonizes, directs and imple- the land is intended to be used for productive ments its policies on taxation, through the following activities agencies: • Exemptions from duties for imports on machin- • ery, raw material, equipment and intermediate Internal Revenue Service (DGII): was created by goods used for production. Law No. 451, dated February 22, 1990; • Option to sell merchandise or services linked to replacing the former Direct Revenues Services, international trade produced in the free zone in and is charged with managing and collecting the the Salvadorian market is permitted as long as country’s main internal revenues. • companies pay the corresponding import tax, Customs Authorities (DGA); the DGA was income tax, VAT, and municipal taxes on the created by Law No. 903, dated December 14, final goods admitted. 2005; replacing the former Customs Revenues • Any foreign company may establish and func- Services, and its main function in the exercise of tion in a free zone or bonded warehouse if they its customs powers, to facilitate and control in- are engaged in: production, assembly, manufac- ternational trade within its domain, and monitor turing, processing, transformation, or commer- and collect duties and taxes imposed upon mer- cialization of goods and services; and/or render- chandise entering and existing the territory. ing of services linked to international or regional trade, such as gathering, packaging and repack- 13.1 Tax returns: aging, cargo consolidation, distribution of mer- VAT returns are filed on a monthly basis within the first chandise and other activities connected or com- ten (10) working days of each month following the plementary to them. period under taxation.

The Law of International Services Law, No. 431, dated In addition, public and private juridical entities, October 11, 2007; grants the same benefits as the Free domiciled in the country for tax purposes, other than Zone Law, but the beneficiaries are companies operat- farm and cattle concerns, are required to make income ing in Services Centers specially created according to tax advance payments at 1.75% of gross revenues. this law and dedicated to international services as de- These advance payments are due, together with the fined therein. corresponding return, within ten (10) working days following the corresponding calendar month. The Export Reactivation Law No. 460 dated March 15, 1990; grants reimbursement of 6% free on board (FOB) The annual corporate income tax returns must be filed value of exports destined outside the region. each year no later than April 30, following the end of the tax year. In El Salvador the fiscal year is from Janu- 13. Compliance with corporate taxes: national ary 1 to December 31. taxes, fees and other contributions on all type of goods, services and income in El Salvador are levied by the 14. Current tax and withholdings rates. National Congress, with local government 14,1 The monthly income tax withholdings table for employees is presented below:

Up to USD 472.00

USD 472.01 to USD 895.24 10% over USD 472.00 plus USD

USD 895.25 to USD 2,038.10 20% over USD 895.84 plus USD

USD 2,038.11e 30% over USD 2,038.10 plus USD

El Salvador

14.2 The employee discounts and employer contributions to the Salvadoran Institute of Social Security ISSS), Pension Fund Administrator (AFP), Social Prevision of the Armed Forces (IPSFA) and the Institute of Professional Formation (INSAFORP), are presented as follows:

IPSFA

INSAFORP More than 10 employees US$ 685.71

Ho n d u r a s

Republic of Honduras

1. Firm Contact Identiﬁcation Moore Stephens Baggia & Asociados

1.1 Ofﬁces, Address and Telephone Tegucigalpa, Honduras, C.A. Col. El Prado, 1st St., No.147 PBX: (504) 2239-4795 Fax: (504) 2231-0932

San Pedro Sula, Honduras, C.A. Ediﬁcio Dallas, 2nd Level, Apto. 1 Blvd. Suyapa, 4ª St., Ave. Circunvalación Phone: (504) 2509-2498 • Woodwork Cel. Phone (504) 9992-2029 • African Palm crude oil

• Tobacco 2. Specialized Professionals

Douglas Baggia 4. Investments Founder/Partner-Director 4.1 National Investment [email protected] For the legal establishment of a company in Honduras

a period of more than two months is required for the Attorney Jorge Wilfredo Fonseca entry of the records of the Municipality, and the Associated Tax Consultant Executive Directorate of Revenue (Dirección Ejecutiva [email protected] de Ingresos - DEI) now known as Revenue

Management Services (Servicio de Administracion de 3. Country Proﬁle Rentas – SAR). The Republic of Honduras is located in Central

America, with a large indigenous culture of the Mayan Types of Commercial Companies: heritage and the Spanish influence during the colonial • era. General Partnership. • Honduras for its location in the hemisphere is a Limited partnership. Sub-Tropical country. The climate is hot and humid on • Limited Liability Company (LLCs). the coast and cooler in the mountains. It is bordered • Public Limited Company/Corporation on the northern coast by the Caribbean Sea and the • Company limited by shares. Pacific Ocean and to the south by the Gulf of Fonseca. • Cooperative. It shares borders with Guatemala to the northwest, El Salvador to the south and southeast by Nicaragua. The Municipal Tax Records country has an area of 112,492 km2. Its capital is For the registration of a legal entity in the records of Tegucigalpa, Department of Francisco Morazán. Its the Executive Directorate of Revenue (DEI) now known population is 8.6 million and its official language is as Revenue Management Services (Servicio de Spanish. Honduras also has other aboriginal languages Administracion de Rentas – SAR), who is the body such as Garifuna. Its system of government is responsible for the country's tax administration, it is republican, democratic and representative. It is required to provide all documentation of identity, exercised by three branches: Legislative, Executive and copies of the public deed to apply for and obtain the Judicial: complementary, independent and without National Tax Registration Number (Registro Tributario subordination. Nacional, RTN), which identifies it as a taxpayer. Also, an operating permit must be requested in the Mayor’s On the economic front, the currency is the Lempira. Its office where the Company is established. main exports are: 4.2 Foreign Investment • Coffee (7.9% del PIB) Any company that has an interest in operating in • Tilapia Honduras must register locally or possibly proceed to • Cultivated Shrimp establish a branch office through formalities with the • Bananas Ministry of Finance. • Fruits

Ho n d u r a s

4.2.1 Legal Framework for Foreign Investment structure that grants cover contingencies arising from The laws of Honduras promote foreign investment and the major risks associated with the course of people's include provisions guaranteeing private property rights lives. on an equal basis to both domestic and foreign investors. Objet: This law aims to create the legal framework of public policies in the field of social protection, in the Accounting context of conventions, principles and best Starting 2012, the laws of Honduras require the international and national practices that govern the preparation of the financial statements under the matter, in order to allow residents, to achieve International Financial Reporting Standards for Small progressive and sustainable financially, decent and Medium Entities (IFRS for SME). coverage, through social promotion, prevention and management of risks that it involves people's lives 5. Labor Regime ensuring medical care, livelihood protection and other 5.1 Employment Contracts and Conditions social rights necessary for the achievement of individual The Labor Code establishes that employment contracts and collective well-being. shall be oral and written. However, the law provides for certain cases the mandatory written contract. Social Security: • Contributions to the Honduran Social 5.2 Remuneration Security Instituto (Instituto Hondureño de Remuneration can be agreed in the following ways: Seguridad Social – IHSS): the employer is required to enroll their employees to the IHSS. • Per unit of time. Under the new Law of the System of Social • Per work or assignment Protection from September 4, 2015 the • For participation in the profit, sales or collections. contributions for the year 2015 are as follows: • Mixed: a fixed part and a variable part. disability, old age and death: employer 3.5%; worker 2.5%, on a wage ceiling of L8,882.30. There are other obligatory remunerations: Health care insurance scheme: employer 5.0%, worker 2.5%, on a wage ceiling of L7,350.00; • Seventh Day: the employee will enjoy one The Labor coverage insurance scheme: employer 0.66%; The Social protection insurance scheme: day of rest, preferably on Sunday for every six employer 2.5%, worker 1.5% payable monthly, days of work. above a wage ceiling of L8,882.30 • Thirteenth Month Salary: as an additional

salary. It will be paid to permanent employees Contribution to Private Contributions Regime and retirees during the month of December of (Regimen de Aportaciones Privadas, RAP): each year based on the last salary. •Fourteenth Month Salary: : as a social compensation. It will be paid to all the • Starting from the entry in force of the Law of permanent employees as 100% of their ﬁxed Social Protection, (Decree legislative 56-2015) salary if they have worked for a complete year to and its reform (Decree 77-2016), in their articles June 30 or the proportion according to the time 53 and 59-to, empowers Private Contributions worked. Regime (RAP) to capture and manage the accounts of individual capitalization, starting 5.3 Work Beneﬁts from the date in which RAP was authorized by Vacation Time: vacation time will be paid after the National Commission of Banks and one year of continuous work in a range of 10 to 20 Insurance Companies (Comisión Nacional de days maximum according to the Labor Code Law. Bancos y Seguros - CNBS) on August 30, 2016, according to resolution SS No. 659/12-08-2016.

5.4 The law under the system of social protection: • To ﬁnance the Social welfare insurance regime, Legal Basis: the Executive Agreement No. STSS-390-2015 On May 14, 2015, the National Congress approved the sets a rate of contribution and compulsory Law under the System of Social Protection, through monthly contributions from employers and Decree No. 56-2015 published in the ofﬁcial journal workers respectively, equivalent to 1.5% by dated July 2, 2015. (Gazette No. 33,771). It shall enter each of the contributors on the surplus of the into force on September 04, 2015 top contribution of the capitalization (IVM).

The Law under the System of Social Protection includes • Contribution to the Professional a system of social protection with a multi-pillar Development Institute (Instituto Nacional de Formación Professional, INFOP): The 84

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Companies that have ﬁve employees or more or 5) Tax special treatment for cases which by their whose capital stock is higher than Lps.25,000 nature or conditions not possible to apply the and have less than ﬁve employees shall general treatment. contribute with a monthly 1% of the total 6) Formal obligations related to this regulation and salaries and wages. its sanctions in case of non-compliance.

6. Currency Exchange Control 7. New Tax Code The currency of the Republic of Honduras is the Lempira Adoption of the new tax code which entered into force (L) and the exchange rate is in relation to the Dollar of the January 1, 2017 through its publication on December United States of America (US$). In July 2011 the Board of 28, 2016, in the official journal La Gaceta No. 34,224 the Central Bank of Honduras stated that the basic price through Decree No. 170 - 2016. Such Code, among of the currency will be reviewed monthly taking into other news, includes the figure of the monotax or account the inflation rate differential, the evolution of the one-time only tax, which is based staged aliquots, exchange rates of partner commercial countries applying according to the parameters set out in the law; as well an adjustment to the result of the above factors, however, the exchange rate as of July 25, 2011 is L18.8951. Under as, the creation of an administrative court called Tax this system, the purchase price of the foreign currencies is Management empowered to dictate general in constant change. administrative acts that contain the procedures and technical criteria necessary for the application of those Regulation of the billing regime, other tax regulations in tax matters. This new code regulates the documents and registration tax of printers: granting and enforcement of tax exemptions. It is composed of 214 items and establishes the basic Legal basis: Agreement No. 189-2014. Published in principles and fundamental standards which constitute the official newspaper “Gazette” No. 33,407 on April the legal regime of the tax system and its applicability 21, 2014. to all taxes.

OBJECT: This regulation aims to develop the 8. New Minimum wage 2017 and 2018 provisions contained in article 57 of Decree No. 17- Approval of the tripartite agreement of Minimum 2010 containing the law of strengthening of income, Wage for years 2017 and 2018 effective since January Social equity and rationalization of public expenditure, 1, 2017. Representatives of the employer, employee published in the ofﬁcial newspaper "Gazette" on April and public sector whom integrated the Minimum 22, 2010; as well as the provisions of articles 28, 29 Wage Commission, agreed on the new minimum wage and 30 of the Decree No.51-2003, law of tax equity. that would be in force in the country during years 2017 and 2018 starting January 1st, 2017 in agreement to Scope of Application: the economic activities and size of the companies in This regulation regulates the following: relation to the number of employees, resulting in the following percentages: 1) The documents prosecutors and modalities of printing that should be used in the generation 9.Creation of the Revenue Administration Service and spread of these documents. (Servicio de Administracion de Rentas – SAR) 2) The inherent aspects of the registration, Through executive decree No. PCM-084-2015 operation and control of printers and auto- published on February 27, 2016 in the ofﬁcial printers in the tax registration of printers for newspaper La Gaceta No. 33,971, the Revenue generation, printing, and extension of tax Administration Service (Servicio de Administracion de documents, duly authorized by the Executive Rentas – SAR) was created as a decentralized entity Directorate of Revenue (Dirección Ejecutiva de attached to the Presidency of the Republic with fun- Ingresos - DEI) now known as Revenue ctional, technical, administrative autonomy and natio- Management Services (Servicio de nal security, with legal personality, responsible for tax Administracion de Rentas – SAR). administration, authority and competence in national territory and residing in the Capital. The SAR acquired 3) Requirements that must comply with tax the functions of the DEI which was suppressed and documents so that they can be used as tax liquidated though Decree No. PCM 083-2015 from credit, expenses or cost accounting support and November 26, 2015. sustenance of the internal transfer of goods.

4) Records of control that should be made by

taxpayers, as well as the requirements and

formalities to be met by these to be valid before the DEI now known as Revenue Management Services (Servicio de Administracion de Rentas – SAR).

Ho n d u r a s

Percentage Adjustment of the Minimum Wage Rentas – SAR) was created as a decentralized entity Year attached to the Presidency of the Republic with Category functional, technical, administrative autonomy and 2017 2018 national security, with legal personality, responsible for From 1 to 10 Employees 3.31 3.90 tax administration, authority and competence in national territory and residing in the Capital. The SAR From 11 to 50 Employees 3.31 3.90 acquired the functions of the DEI which was From 51 to 150 Employees 5.00 5.50 suppressed and liquidated though Decree No. PCM 083-2015 from November 26, 2015. From 151 and on 6.00 6.15 10. Taxation System 10.1. Income Tax and Sales Tax Tax or Tax Category Description Income or taxable Applicable Rate Taxes the income that comes from capital, work Gross income minus exempt Over Income: or a combination of both. income and non-taxable 25% Companies The ﬁscal period in from January to December expenses according to the 31 of every year. Income Tax Law. Annual Temporary Legal entities pay a temporary solidarity This surcharge of the income tax contribution (5%) applicable on the excess of calculation and Solidary is not deductible from the net taxable income of more than one million quarterly Contribution income tax. Lempiras (L1,000,000) permanently. payment Companies shall pay a Total Net Asset Tax of The total net asset minus a 1% over the total net assets. The amounts paid Net Asset 1% credit (by law) of L.3, 000,000 for this concept are considered a credit against and other deductions by law. the payable income tax. The taxpayers (individuals, companies or inde- Income Tax 10% pendent employers) are required to withhold over salaries: minimum Total income earned less the the income tax to its employees and executives Salary 25% deductions permitted by law that are liable to the payment of this tax in a Withholdings maximum progressive scale.

Taxpayers (entities or individual employers) are Income Tax required to withhold the income tax to their Withholding: employees and executives that are liable to the The total income received un- 12.5% Article No. 50 payment of this tax for professional fees, allow- der this concept. (12.5%) ances, commissions, gratiﬁcations, bonus and remunerations for technical services.

The capital gains or any extraordinary income Tax over Capital gains minus direct costs from the Individuals or legal entities domiciled 10% capital gains derived from those gains. or not in Honduras. Income perceived by individuals or legal per- Dividends declared and not sons, residents or domiciled in the country or paid, prepaid dividends, ac- Tax over that receive income or any other share or re- counts receivable partners or Dividend serve participation as well as dividend distrib- 10% related companies that do not Distribution in uted by companies protected by special systems. arise from a commercial Cash The capitalizations of reserves or proﬁt are ex- operation period greater than empt from this tax payment. 100 calendar days. Income Tax Payments on Results while dividing the income tax from the Account and previous years’ tax return divided by four. Three Represents a pre-paid sum of Quarterly Temporary equal payments due on June 30, September the Income Tax of the year. Solidary 30 and December 31. Contribution Pre-paid Individuals with liabilities and companies with withholding income higher than L15,000,000 per year are For the purchase of goods and 1% of 1% Income assigned as withholding agents of 1% in- services. Tax come tax to their suppliers. 86

Ho n d u r a s

Tax or Tax Category Description Taxable Income Applicable Rate

25% Income from real estate or movables except

for the ones included in numeral 5 and 7 of

Article No.

Salaries, wages, commissions or any other 25% compensation for local or overseas’ services.

10% Income or proﬁt earned by foreign companies

through their branches, subsidiaries, agencies,

legal representatives among others that

operate in the country.

Income, proﬁt, dividends or any other form of 10% participation in the proﬁt or reserves of

Individuals or legal entities.

Royalties and any other amount paid for the 25% use of patents, designs, procedures and secret

formulas, factory brands and author rights,

except for those included in numeral 12.

10% Gross income from Interest over commercial operations, bonuses, Honduran sources by securities and any other class of obligations.

individuals or legal entities One-Time Income tax 10% not resident or to non-domiciled Income for the operation of aircrafts, ships non-domiciled in the individuals in and automotive. Honduras country, will pay ax

10% according to the Income from operations of telecommunication percentage detailed by companies, use of software, IT solutions, this chart. telematics and other areas of

telecommunications. 10%

Insurance premiums and deposits of any policy

hired. 25%

Income derived from public shows

25% Movies and video tapes for cinemas, television,

video clubs and cable TV rights.

10% Any other income not mentioned in the

previous items.

Ho n d u r a s

Tax Category Description Tax or Income or Taxable base

15% for sale of goods and Calculated over the sales of taxable goods services in the and services in national territory; it is ap- national Over imports and sales of Sales Tax plied in a non-cumulative basis during the territory goods and services liable to the import and in the sale over the value of 18 % Sales Tax Law. the good or service. speciﬁcally for liquors and cigarettes

15% economy Over aircraft and service charg- 15% for national and international Sales tax over class es and the payment is monthly aircraft transportation and 18% for ﬁrst airline tickets 18% business in the ﬁrst ten days of the and business class aircraft transportation. class month

Major taxpayers are assigned as sales tax Sales Tax Sales tax of the controlled withholding agents of services indicated 15% Monthly Withholdings service. in the Law.

Advance payments, 1.5% over net income declared as reform to Article advance payments of income tax when Sales or net income of ten 1.5% 22-A, Law of the taxpayer has net income of ten (10) million lempiras onwards. income tax million Lempiras onwards.

10.2 Municipal Taxes

Tax Category Description Tax or Applicable Rate Taxable Income

Tax over Industry, Monthly tax over annual income Charge per every thousand The total income of Trade and Services from manufacturing activities or according to the scale of the the ﬁscal period. (Sales Volume) services. Municipality Law.

Tax over the annual income that Charge per every thousand Personal Tax All the income earned individuals receive in the according to the scale of the (Impuesto Vecinal) by individuals. Municipality. Municipality Law.

The payment of this Tax over the property equity in Over Real Estate Annual tax is due on August the Municipality. 31 of every year.

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10.3 Security Charge (Decree No. 17-2010, Law for Population Security)

Tax Category Description Tax or Applicable Rate Taxable Income

Debits (withdrawals), demand deposits to checking accounts performed in financial institutions, in savings account The taxable amount is the of legal entities, payments or transfers total value of the transaction to third parties, transfer or money or- performed in a financial insti- ders overseas or in the interior of the tution with the exception of country. The applicable rate is L2 per the accounts of the Central Law for Bank of Honduras, debits or Financial transactions for every thousand. Population Se- withdrawals in savings de- population security. curity posits in local currency, with Transitionalmeasure that Cashier check emission, certified checks, a monthly average of will be in force for five traveler’s checks and any other financial Financial Trans- L.120,000; debits or (5) years. instrument existent will pay L1.50 per actions withdrawals of savings de- every thousand. posits in foreign currency with an average balance of Annual credit card membership US$6,000; remittances and renovation (applicable only to the card- others included in the Law holder) in agreement with the credit line for Population Security. between a payment range between L500 and a maximum of L1,000.

Mobile Taxes mobile telephone Total Monthly Gross In- 1% Telephones services. come

Taxes the exploitation The special transitory rate of the FOB (Free On Board) of the Mining Sector and selling of minerals. mining sector is 2%. export.

Taxes the exploitation FOB (Free on Board) of the Environment and selling of minerals in 5% export registered in the mer- protection the country. chandise declaration.

Taxes the selling of food Food and Bever- and beverages under a 0.5% Total Monthly Gross Income age Sector special regime

Taxes the income of Casino and Slot casinos and slot ma- 1% Monthly Income Machine Sector chines.

Cooperative Requires a special contri- An obligatory payment of 3.6% of the Annual net proﬁt Sector bution annual net proﬁt.

Ho n d u r a s

Special Assessment Norms between related parts 11. International Treaties In Honduras, the Law on Transfer Pricing Regulation Honduras has no tax treaties. There are free trade became effective as of December 10, 2010 and shall be agreements with Chile, Mexico, Panama, Dominican Republic and Taiwan, and the Free Trade Agreement applied effectively for fiscal year 2014. Its scope extends CAFTA, between the United States, Central America to any operation performed by individuals or legal and the Dominican Republic. entities domiciled or resident in Honduras, with individuals or companies linked or related overseas. 12. Free Trade Zone The whole country has been designated as a Free Zone. Largely, the companies are located in these areas and in Transfer Pricing: Are the prices at which areas of Export Processing. commercial or financial operations are registered between related parties. The factories in these zones enjoy the following benefits among others: duty free import of machinery, Reforms in the New Tax Code raw materials, supplies and everything required in the The natural and legal persons that have related, linked operation of the plant; dispatch of incoming and outgoing shipments in less than a day with minimal or associated parts with national territory, not will be documentation; foreign ownership permit in a 100% subject to the presentation of the studies of transfer sales tax exemption and unrestricted repatriation of pricing, except those that are related or linked with profits and capital at any time. natural or legal entities covered in special regimes that enjoy tax benefits. For these effects, the Secretariat of The profits accruing from operations in the Free Zone are exempt from payment of income tax. State in the Office of Economic development will develop an electronic platform that will serve for 13. Free Tourist Zone (Zona libre Turistica, consultation to determine the prices of reference in the ZOLITUR): national market for tax purposes. The benefits to this law were abolished, so that there is controversy and claims from the sectors affected requesting their restitution, due that they considered un- constitutional such abrogation.

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United States of Mexico

1. Information of the ﬁrm to contact Moore Stephens Orozco Medina, SC

1.1 Ofﬁce, Address, Telephone Insurgentes Sur 1793 oﬁcina 308 Col. Guadalupe Inn Ciudad de México, 01020

1.2 Professional specialists CPC & PCF Miguel Ángel Orozco Medina Managing Partner [email protected]

CP Eduardo Pérez A. Chief Operating Officer [email protected] Law entered in force as from August 9th, 2012 whereby it is mainly established that based on Free CPC y CPFI Felipe Domínguez P. Commerce Trade Agreements entered by Mexico and Fiscal, Legal and Transfer Pricing Director the United States of America, Canada, Chile, Costa [email protected] Rica, Colombia, Nicaragua, El Salvador, Guatemala, Honduras, Uruguay, Japan and Peru, Mexico is 2. Country profile engaged to grant investors, coming from these Mexico is a country located at the North America’s countries, the same treatment as it is provided to southern region: at north with the United States of national investors. America USA, south with Belize and Guatemala, east with the Gulf of Mexico and west with the Pacific On the other hand, it is important to remark that the Ocean. It is the fourteenth country with the widest following is considered as a foreign investment: surface nearly to 2 million square km and the eleventh most populated with approximately 129 million people • Participation of foreign investors at any as of December 2016. Spanish is the native language proportion in Mexican company’s capital stock; that government has recognized as the national • Mexican companies with investment mainly language along with 67 indigenous languages. from foreigners and

• Foreign investment participation in activities and 3. Foreign Investment Regime acts classiﬁed as such by the Foreign Investment Due to its extreme economy importance Mexico has Law. rules to encourage the growth of foreign capital through the Foreign Investment Law, which is ﬂexible 3.1. Direct Foreign Investment and establishes important advantages for investors, Foreign investors are allowed to directly participate in since in addition to saving time in the establishment of most of economic sectors without complying with companies, it provides them with legal certainty excessive requirements. Nevertheless, an authorization necessary for foreign investors. will be required if foreign investment is likely to be

more than 49% and its total assets value is higher than Mexico is one of the most attractive countries for the determined amount by the authorities. foreign investment in the Latin American region considering advantages of the Mexican market, the 3.2 Indirect Foreign Investment borderline with the Unites States of America, the North Indirect investment grants limited rights and obligations American Free Trade Agreement (NAFTA) among to foreigners by legal special procedures such as trust Mexico, United States of America and Canada, the and non-share right investment (neutral investment). possibilities of the Latin America Integration

Association (LAIA), the lack of restrictions to repatriate 3.3 Neutral investment capital or to pay proﬁts to foreign owners, as well as It is the investment that can be executed in Mexican Mexico’s politics stability, above all. Likewise, within the companies or authorized trustees and will not be more important general foreign investment resolutions, considered as direct foreign investment. related to the criteria to apply article 17 of mentioned

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3.4 CNIE (National Commission of Foreign Stock Company (SAS). Its main characteristics are: only Investment) individuals are admitted as partners with only one part- This Commission is in charge of granting the ner as minimum; its income may not exceed authorization related to foreign investments in Mexico $5,000,000 Mexican pesos (approximately $250,000 that shall be whether accepted or rejected in a term no dollars); Its creation may not be carried out before a longer than 45 days. public notary, but by electronic means before the Min- istry of Economy and the Public Registry of Commerce, 3.5 RNIE (National Registry of Foreign Investment) within a period of approximately ﬁfteen days; partners The Registry is directed by the Secretary of Economy cannot simultaneously be shareholders of other (SE) in charge of controlling and registering all foreign companies; and the SAS will have a cash ﬂow tax investment transactions. scheme on income and expenses.

3.6 Energy reform 6. Accounting registries Foreign investment in energy is welcomed with The Certified Public Accountants of Mexico College is well-established rules derived from the recent reform at the main institution governing the rules or guidelines constitutional level and from which the secondary laws regarding accounting registries matters adjusting them have already been issued in 2016 for immediate into the Financial Information Standards frame. implementation. The sectors whose productivity will be Corporations listed in the National Stock Market shall benefiting and increasing with energy reform and apply the International Financial Information Standards. foreign investment are oil and its derivatives, as well as Likewise, said College keeps updated the accounting, electricity, mainly. financial, fiscal and legal community in relation to main information for business undertaking. 4. Trading Corporations In our country there are different types of capital or 7. Wages and salaries persons societies and predominate the following: This is a main topic in the Mexican legal and tax system since it represents an important financial burden for

companies. The Federal Labor Law, the Social Security • Anonymous Corporations (SA) Law and the Income Tax Law are the set of norms to be • Limited Liability Company (S de RL) followed. The legal burdens pertaining to this concept • Civil Society SC are as follows: The legal burdens pertaining to this con- • Civil Association AC cept are as follows:

The two ﬁrst mainly (than can also be of Variable • Income Tax (ISR) (Acronym in Spanish) Credit “CV”) carry a social trade objective for • Social Security Contributions (IMSS) mercantile purposes and last two a social purpose • Housing Funds Contributions (INFONAVIT) (however under certain rules they are also able to carry • Retirement funds (SAR) a mercantile objective total or partial). In the corporate • Local payroll tax of each State. provisions to incorporate a company the following opportunities can be observed: Mentioned concepts increase the employees’ incomes

and company’s fixed expenses. • The indefinite duration of the mercantile societies 8. Federal Labor Law • For S de RL de CV companies minimum capital In December 2012 our labor matters legislation was stock value shall be set forth in the articles of strongly amended in order to obtain an adequate incorporation, and appointed by shareholders; equilibrium of the working relationship between • Likewise in the Anonymous Corporations (SA de employer and employee. CV) shareholders are free to establish the minimum capital stock; With these amendments it is accomplished an • More flexibility to publish notifications and call important safe protection to employers, highlighting for meetings. the new regulation of subcontracting (outsourcing), an • More protection to interests of minor annual limit for accrued and salaries (by settlements), shareholders. new type of testing or training contracts, payment of salaries by electronic means and a better control and 5. Unipersonal Society or Simplified Stock supervision of unions. Labor amendments benefit Company SAS foreign investment allowing to having a better certainty With the aim of encouraging and resurgence of micro and labor environment clarification that affect and small companies, as from September 14, 2016 the employers and employees directly. creation of a new sort of company with various flexibil- ities to develop a business is allowed: the Simplified 92

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9. Mexican Taxing System (MTS) 3. Improvements Contribution. It is a set of laws and legaltaxing norms arisen from 4. Rights. the Unites States Mexican Political Constitution, where 5. Use of public services contributions. by it is established the liability to contribute in order to defray the States, Federation and Municipality expenses 9.1 Taxes along our country. The main objective is to collect the They are divided as following: obligatory resources from taxpayers by applying jurisdictional faculties from the State as fiscal authority. 9.1.1.Income Tax (ISR) This tax assesses corporations and individual’s income Contribution classification: last mentioned amount. that modiﬁes their patrimonies, and it is classiﬁed as 1. Taxes. follows: 2. Social Security Contributions.

• Residents in Mexico: 30% rate on Taxing Result (income less deductions)

• Foreign resident having permanent establishment: 30% Corporations rate on Taxing Result from income as obtained from such establishment taxpayers • Foreign residents without a permanent establishment: different rates on incomes obtained from México as follows:

I. Salaries and wages: • It is exempt by the ﬁrst $125,900 ($6,295 dollars approximately) • 15% on income between $125,900 and $1,000,000 ($50,000 dollars approximately) • 30% on income exceeding $1,000,000.00

II. Fees income for the rendering of independent professional services: 25% on total income without any deduction. III. Temporal use or enjoyment of real state Main Concepts of incomes from foreign properties: 25% on total income without any without permanent establishment coming deduction. from Mexico IV. Temporal use or enjoyment of goods or assets: 25% on total income without any deduction. V. Alienation of Real State: 25% on income without any deduction VI. Alienation of Shares: 25% on sales price without any deduction. VII. Interests: different rates from 4.9% up to 30% depending on each type of interest. VIII. Royalties and technical assistance: Different rates from 5% up to 30% depending on the operation. IX. Artists, show business, sportiest: 25% without deduction on income.

Along the chapter of resources from México obtained 9.1.2 Individuals living in Mexico by abroad residents, when it is mentioned the applica- Fiscal Regimes. Individuals pay taxes according to their bility of the maximum income tax rate for individuals, type of income: 35% will be such rate, otherwise the tax rate mentioned therefore will be the applicable one. I. Wages and Salaries. II. Business activities and professional services.

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III. Temporal use and enjoyment of goods. performed. Since 2014, this tax has been imposed on IV. Alienation of goods. products with a caloric content of more than 275 kilo- V. Acquisition of goods. calories (soft drinks, desserts) in order to avoid high VI. Dividends. rates of obesity in the country. Likewise, the rates of VII. Interests. some purely energy products and some special services VIII. Other incomes. increased.

Payable tax for individuals is obtained assessing a By 2016, the adoption of a fixed rate IEPS scheme for progressive rate. For 2016 (same as 2015) 30% rate automotive fuels is established, instead of the one cur- will be applied on income up to $750,000 Mexican rently applied and corresponding to variable rates. In pesos ($37,500 dollars aproximately), 32% rate on turn, it is stipulating the differentiation of fossil fuels income superior to the previous amount and up to from non-fossil fuels, establishing the levy for the latter $1’000,000 ($50,000 dollars aproximately), 34% will and defining which are considered as such. be applied on income exceeding the previous amount and up to $3’000,000 Mexican pesos ($150,000 dollars It is also envisaged that a maximum and minimum aproximately) and 35% rate on income superior to the bands scheme will be established for maximum con- last mentioned amount. sumer prices in 2016 and 2017 with the aim of pro- tecting the consumer from price volatility during those 9.2 Fiscal Incorporation Regime RIF two years; Such a scheme is in line with the existing With the expectation of weakening the informal trade, proposal, to advance the liberalization of fuel prices it is allowed to tax in the RIF’s regime to natural from 2016, thereby leading to a gradual and orderly persons with business activities that do not require a transition to the full opening of the automotive fuel professional title to carry out their businesses. They market in 2018. must earn income less than $2’000,000 Mexican pesos (approximately $100,000 dollars). One of the main 9.6 Social Security Contribution advantages is to tax on cash flow. These are contributions for the employee’s social well-being mainly in charge of employers; however 9.3 Value Added Tax these contributions are granted in three parts: The following acts or activities are VAT taxed by Employer, Employee and Government. The workers applying the three general rates, depending on the act and their economical dependent families are the bene- or activity: ficiaries, considering also hospital medical attention, medicines, economical support, retirement funds and • Alienation of goods. mortgage credits (pertaining to INFONAVIT). • Rendering of independent services. • Granting the temporal use and enjoyment of 9.7 Improvement Contribution goods. This contribution shall be paid when taxpayer obtains a • Importation of goods. direct benefit from Federal public infrastructure.

The applicable rates are as following: 9.8 Rights • 16% general rate They are contributions for the use or enjoyment of • 0% some certain acts or activities (such as Nation public domain properties. exportation and sale of food and medicine) 9.9. Use of public services contributions Likewise some acts and activities can be exempted or These are incomes collected by the State for its public considered VAT free. and legal functions and duties.

9.4 Cash Deposit Tax Law (IDE) 9.10. Electronic invoicing This tax was abolished as from 2014 that main In 2010 Mexico started a tax technological process (by objective was to assess the informal economy by taxing internet means) and as from 2014 electronic invoicing cash deposits higher than $15,000 Mexican pesos of sales and purchases is mandatory to support any ($750 dollars approximately) in the ﬁnancial institutions business transaction. at a rate of 3%. Nevertheless, banks will continue One of the most controversial subjects was the liability informing to tax authorities about those taxpayers who of issuing electronic invoices to support the payroll receive deposits in cash higher than such amount. payments.

9.5 Taxes on Products and Services (IEPS) 9.11. Dividends Its purpose is to tax special operations such as As from 2014, dividends generated as from such year telecommunications, tobacco and alcohol, among will be taxed with a deﬁnitive 10% income tax only for others. This tax rate varies with respect to each activity Mexican individuals and foreign corporations

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9.12. Nondeductible exempt wages sanctions established to ensure proper compliance with One of the most analyzed 2014 reforms was the this Law are extremely onerous for offenders, without reduction of salaries deduction in the part exempt for leaving aside that in some cases will face imprisonment, employees. Employer will only deduct (i) 57% of the if the offense constitutes a crime. exempt part or (ii) 47% in case the wages items were reduced in the previous fiscal year. This situation 9.16. Anti-Money Laundering Law. remains in 2016. The second major administrative task for organizations in Mexico relates to the Money Laundering Act. In 9.13. Sending the accounting registries by order to achieve greater compliance with the internet international requirements recommended by the GAFI Another new liability for taxpayers, companies and (International Financial Action Task Force on Money individuals, is to submit by electronic means part of the Laundering Group), the Federal Law for the Prevention accounting registries (e-conta), to be received and re- and Identification of Operations with Resources of Illicit viewed discretionally by the authority. The items to Origin was created. It is in force as from July 17, 2013 send are (1) chart of accountants, (2) monthly balance and is intended to protect the financial system and the and (3) accounting registries, in different moments and national economy. This norm establishes a series of under different rules for each tem. The Tax E-Mailbox measures and procedures to prevent and detect acts or “Buzón Tributario” is the suitable application to send operations that involve resources of illicit origin through this information. an inter-institutional coordination (Tax – Judicial Powers). Its purpose is to gather useful elements to 9.14. Tax domicile visits, reviewing of accounting investigate and prosecute crimes related to operations registries and electronic audits. involving sources of illicit provenance related to them, With the same approach to the use of computerized the financial structures of criminal organizations and means, the tax authorities’ faculties to review and avoiding the use of resources for their funding. verify facts or omissions that result from the non- compliance of contributions payment, will be applied 9.17. Stimulus for the immediate deduction of through the use of the Tax E-Mailbox “Buzón investments for 2016 and 2017. Tributario”. It is intended to reduce the duration of the Certain new investments in fixed assets can be reviews carried out by tax authorities. deducted in the acquisition tax fiscal year by applying attractive deduction percentages, such as: Building With this platform, taxpayers will be informed of their 74% in 2016 and 57% in 2017; machinery in general rights to know the facts or omissions detected by the 85% in 2016 and 74% by 2017. Beneficiaries must authority in tax domicile visits, reviewing of accounting meet various tax requirements. registries and electronic audits. 9.18. Repatriation of capital. Therefore, taxpayers must check daily the contents of A fiscal stimulus was enacted during 2016 for natural their tax e-mailbox in order to be able to exercise their and legal persons who had obtained income from rights within legal deadlines. direct or indirect investments that they had abroad. The facility was represented in the possibility of paying the 9.15. Personal data. income tax at the rate of 35% or 30% provided that The protection of individuals’ personal information is such investments were returned to México. Despite one of the two most important administrative tasks several limitations, this facility will be presented equally that companies must cover as a result of their business in 2017 and in future years for sure. operations (which is regulated by the Federal Law on the Protection of Personal Data held by Particulars). Its 10. Auditing and fiscal opinion object is to regulate and legitimate the controlled and As of 2013 it had been set forth the fiscal liability for informed treatment of personal data in order to taxpayers to audit their financial statements for fiscal guarantee the privacy and the right to purposes when they were within grounds whether self-determination of persons. The territorial scope of income higher to $39’140,520 Mexican pesos this Law will address: i) the establishment of the ($1’957,026 dollars approximately), assets with a responsible person that treats personal data and that is higher value of $78’281,070 ($3’914,054 dollars located in Mexican territory; ii) personal data that are approximately) or having a monthly average of more treated by a manager regardless of its location in the than 300 workers during the year to be audited. name of a responsible in Mexican territory; iii) to the Auditing main objectives had been to provide credibility person who is not established in Mexican territory but to financial numbers and to the correct compliance of who is applicable to Mexican law, derived from the an entity’s fiscal obligations. The revision and conclusion of a contract or in terms of international evaluation has been only performed by a Certified law, and iv) to the person who is not established in Public Accountant (CPA) who issues a fiscal opinion at Mexican territory and uses National territory. The the end of his work. The fiscal audit had been

M e x i c o representing a protection to taxpayers who had • More legal certainty. audited their financial figures as a liability or as option, • Elimination of hard paper formats. as long as in case of practicing a direct revision, the • Better information safety. authority would request the CPA paper works firstly. Regarding Free Commerce Agreements, Mexico made a As from 2014 the fiscal audit was abolished and it will lot of progress in South and Central America. Regard- only be exercised as an option for those whose income ing Peru, the Agreement of Economical Complementa- gets to be higher than $100’000,000 Mexican pesos tion N°8 was agreed to be extended for two more years ($5’000,000 dollars approximately), average of assets (up to 2011), reactivating the business process of this higher than $79’000,000 ($3’950,000 dollars agreement. Mentioned countries finished the negotia- approximately) or had had an average of 300 tions and signed the Mexico-Peru Trade Integration employees on monthly basis. Agreement on April 11th, 2011 that is in force as from February 2012. 11. International Treaties to avoid Double Taxation The Unique Free Trade Agreement Mexico-Central Internationally Mexico has played a main role in fiscal America (Guatemala, El Salvador Honduras, Costa Rica evasion in the world by entering different international and Nicaragua) replaces the three current commercial treaties to avoid double taxation as well as agreements agreements entered into between Mexico and Central with wide interchange of financial and fiscal America. It unifies the commitments and areas applied information. At the end of 2015, Mexico has entered to commerce between the parties. Besides, mentioned into more than 70 agreements to avoid double agreement deeps the countries integration and updates taxation, to interchange fiscal information, others the customs and commercial situation. related to international transportation, plus those in process to be agreed. In Latin American region Mexico The reestablishing of the Economical Complementation has entered agreements with the following countries: Agreement (ACE 55) represents another important progress between Mexico and Argentina in the automotive • Argentina: international transportation. field by keeping in force its application and Annex I • Argentina: Double taxation in negotiation. “About the Commerce in Automotive Field”, among • Belize: information interchange. other related paragraphs. • Brazil: to avoid double taxation. • Colombia: to avoid double taxation. Free Trade Agreements Mexico has entered into with • Costa Rica: information interchange and for the countries of the zone are the following: penal matters. • Chile: avoid double taxation. Central and South Ameri- In fore since • Ecuador: to avoid double taxation. ca Free Trade Agreements • Nicaragua: Double taxation in negotiation. • Panamá: to avoid double taxation. Costa Rica Jan 1, 1995 • Peru: Double taxation in negotiation Colombia. Trade with Ven- • Uruguay: to avoid double taxation. ezuela stopped opera- Jan 1, 1995 • Venezuela: Double taxation in negotiation. tring on Nov 19, 2006

12. Foreign Commerce Nicaragua Jul 1, 1998 A relevant progress in this item is the VUCEM (acronym in Spanish) Single Window Web Page of Foreign Chile Ago 1, 1999 Commerce. This application has the aim to connect the different Federal Public Administration entities in order Salvador and Guatemala, to ease the administrative paper work regarding Norh Triangule mar 15, 2001; and Hon- customs. The use of this Web Page is obligatory from duras as from Jun 1, 2001 June 1st, 2012 for all individuals and company’s entities performing imports and/or exports with the Uruguay Jul 15, 2004 following benefits: El Salvador and Nicaragua • Delivering electronic information in one single Sep 1, 2013. Costa Rica, contact point. CentraL America Guatemala and Honduras • Permanent attention from any place. will be entering in force sub- • Less cost and time. sequently • Better logistics. • More transparency. 96

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12.1. Certification of companies reached. In view of above mentioned, in the fiscal audit By virtue of the 2014 fiscal reforms, the IMMEX the CPA shall provide the information of the (permanent importing and exporting activities) transactions among related parties in order to provide companies, the automobile and auto transport indus- his opinion about the reasonableness of the income tries, the taxed strategy place (storage), and to elabora- prices and deductions on market’s values. tion, transformation and repairing in taxes-place, shall pay the value added tax VAT and in case the Special 14. Transfer Pricing Tax on Products and Services IEPS by the time of tem- 14.1 Legal frame porary importations of goods destined to their produc- Generally, the main obligations from taxpayers that tive processes. perform operation with related parties are:

In order to avoid paying such contributions VAT and • To obtain and keeping supporting IEPS, the corresponding rules establish that taxpayers documentation (Transfer Price Study) of said shall be certified; nevertheless if they do not wish to do operations with related parties. it, they shall guarantee such contributions for each temporary importation practiced. • Jointly present the annual return and the operations informative report with foreign The certification protection will be subject to its type (A, related parties (both of them based on the AA, AAA) that might be for one, two or three years transfer price study information). with an automatic renewal as long as they credit that remain continue fulfilling with all of the certification • To demonstrate that accrual income and requisites. authorized deductions were agreed on market values through the application of any Income 13. Related Parties Tax Law method. Based on Income Tax Law, transactions among related parties (corporations or individuals) take place when Requisites that supporting documentation shall include one party participates directly or indirectly in the other regarding transfer price studio matter: party or parties’ management, control or share stock. • Related parties names, trade names, addresses, Among other cases, related parties are present in: and fiscal locations;

• Documentation to demonstrate the direct or − One party participates direct or indirectly in the indirect participation between related parties; administration, control or stock of another or • Information related to activities or functions other parties. carried on, assets used and taken risks by the − An Association in Participation (Joint Venture) taxpayer in each type of operation; with respect to its members. • Information and documents about operations The corporate headquarters of a permanent with related parties and their amounts for the – establishment or other establishments of the related party involved and by each type of same one. operation; • The applied methodology to be analyzed. The operations performed between the Related Parties (intercompany transactions) required to be analyzed by 14.2. Authority faculties regarding transfer a Transfer Price Study except for the following cases pricing study. (2016 exchange average): Some of the authority powers regarding transfer pricing are as following: − Companies aimed to business activities − obtaining income in the previous fiscal year up Verifying processes − to $13’000,000 ($650,000 dollars To perform adjustments − aproxijmately). To use confidential operations to determine the − Companies aimed to render services obtaining payments between related parties. − incomes in the previously fiscal year up to To solve APA’s (anticipated pricing agreements $3’000,000 ($150,000 dollars aproximately). with the fiscal authority)

In Mexico this concept has rapidly gained importance 14.3. Consequences of not having supportive due to the opening of the multinational companies’ documentation of Transfer Pricing market and the growth of domestic entities towards − abroad, and also nowadays the permanency and The Independent Auditor shall report it in his feasibility in company’s operations can be easily ﬁscal opinion.

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− The benefit of fines reduction is lost. II. Companies that belong to the Optional Tax − Classification and computation of prices by the Regime for Groups of Companies (formerly authority estimating process. called "fiscal consolidation"); − In case Transfer Pricing Informative Tax Report is III. The State entities (“Empresas Paraestatales”)of not submitted payments made abroad shall not the Federal Public Administration and, be deductible. IV. Companies residing abroad who have a permanent establishment in the country. 14.4. Additional benefits of the transfer price study In the same sense of this commitment of Mexico with Some of the additional benefits by elaborating the the OECD, the mechanism that financial institutions transfer price study are as following: resident in Mexico or abroad with a branch in Mexico has been incorporated into the Fiscal Code of the − Improvement market analysis where the Federation that should be complied with the generation company is acting; of a Common Reporting Standard, which involves the − Improvement of the group corporate structure; identification and automatically exchanging of − Allowing the proper taking of decisions information on new and pre-existing high and low val- regarding the internal control of different areas; ue financial accounts − Developing of strategic alliances; − Defining competence strategies and the 16. FATCA organizational structure, sales and marketing. Following the international commitments as mentioned in the previous point, the Mexican tax authority will be For the 2016 year this related parties item did not able to know the financial information regarding suffered adjustments, so it continues being imperative investments that Mexican citizens maintain in the US that national taxpayers carry on the fulfillment of the and will verify if they have paid taxes correctly on the aforementioned liabilities when enter into transactions profits generated by those investments, In accordance between related parties located in México or abroad. with the Foreign Account Tax Compliance Act (FATCA), which entered into force in October 2015. As a 15. Related parties. Additional information returns consequence of the above, the authority will carry out In order to follow up the BEPS Erosion and Profit the first audits derived from the information received Shifting recommendations of the Organization for under the aforementioned FATCA during fiscal year Economic Co-operation and Development (OECD), in 2016 to taxpayers suspected of having failed to proper- particular number 13, whose purpose is to weaken bad ly comply with the payment of interest and exchange business practices of some taxpayers with international rate taxes generated by the mentioned investments. operations that erode contributions, as well as weaken the abusive use of the gaps, frictions and As a consequence of the above, the authority will carry inconsistencies of the tax rules, in 2016 Mexico out the first audits derived from the information included in the Income Tax Law the obligation to received under the aforementioned FATCA during fiscal submit at the latest December 31, 2017 three year 2016 to taxpayers suspected of having failed to informative declarations related to transfer prices: properly comply with the payment of interest and exchange rate taxes generated by the mentioned − Master Information Statement of related parties investments. of the multinational business group. − Local informative statement of related parties. 17. Unlinked of the Minimum Wage. − Country-by-country information statement of After an arduous analysis during 2016 it was the multifunctional business group. established that from the year 2017 the minimum wage will be unlinked as unit of account, index, base, Obligors are (subject to certain exceptions): measure or reference to establish prices that use federal, state and Mexico City laws. For this reason, the I. The legal persons that are taxed under Title II Unit of Measure and Update "UMA" is created. It is Income Tax Law with income equal to or greater hoped to contribute to establishing a policy to recover than $ 644,599.005 Mexican pesos the purchasing power of the minimum wage. (approximately $32,229,950) in the last fiscal year or, in that year have placed shares in a stock exchange;

P a n a m á

Panamá

1. Contact´s signature Identiﬁcation AG Accounting&Consulting, S.A.

1.1 Address, phone, email and web site Obarrio Ediﬁcio AFRA, Piso 8 Ciudad de Panamá, República de Panamá T: +507 3979293 /94

2. Partner´s proﬁle

Delia García, CPA., M.B.A. Managing Partner of Taxes and Audit [email protected] mainly because the isthmus is located between North and South America, bordered by the Caribbean Sea Alvaro Ayala, CPA. and Pacific Ocean. This was one of the reasons why Partner of Audit and Outsourcing France, in 1881, then the United States, in 1904, decid- [email protected] ed to build the Panama Canal, which opened on Au- gust 15, 1914. Today is the most important logistics Imelda Quintero Economist. ( Mgtr. In Accounting point for the trade world, and transiting annually, are Taxation ) more than 14,000 ships bound for 144 sea routes. Tax Director [email protected] Panama also has free zones for transit of goods, as the Colon Free Zone, which is today the largest in the 3. The country´s profile Western Hemisphere, where more than 3,000 compa- The Republic of Panama is a sovereign country with a nies are established. In addition, there is the Special democratic government with political, financial and Economic Zone, for business establishments with spe- economic stability. The Government of Panama is by cial activities like house performances, regional corpora- constitution, unitary, republican democratic and repre- tions, and high-tech services or call center operators. sentative. The public power emanates from the people Panama has a strong financial and banking structure and is exercised by the state through three organs: with more than 100 banks and financial institutions established in the country. 1. Legislative, enacts the laws 2. Executive, is the ruler of the country, including The legal currency in Panama is the Balboa (B /.) which the president and ministers of state is at par with the US dollar (USD) and its use is legal 3. Judicial, administers justice. since 1904.

Its capital is the City of Panama and the country is The ofﬁcial language is Spanish, but English is divided into 10 provinces, 3 indigenous regions and 2 commonly spoken because it is the commercial indigenous municipalities. Panama is the isthmus link- language. Other languages spoken in Panama are ing Central and South America, bordered to the north French, Italian, Portuguese and Mandarin. by the Caribbean Sea, south by the Paciﬁc Ocean, east of the Republic of Colombia, and the West with the The climate in Panama is tropical and has two stations Republic of Costa Rica. Panama is located in north- in the year: dry season occurs between the months of western South America and South-Central America January to April, this time of year the weather is sunny and extension territory of 75,517 square kilometers. and the rainy season from the months of May to De- cember. The average temperature throughout the year Its population according to the last census of 2013 is is between 20C to 27C or 68F to 80F. 3,662,009 inhabitants, composed by age; 29.2% under 15 years, 63.4% between 15 and 64 years and 4. Foreign Investment Regime 7.4% over 65 years. In Panama, according to Panamanian constitution, any foreigner can come to invest in the country, but must The geographical position of Panama has become one meet the basic requirements of starting a business and of the most important logistical centers of world trade, operating legally authorized business activities in the

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Republic. However, foreigners are restricted from • Trusts, operating retail activities and professions requiring • Cooperatives, suitability licenses for exercise. • Civil Partnership, and • Non Proﬁt Association. The ofﬁcial list of restricted professions in Panama is: • The codes that govern the societies are • Nursing. Law 1, 1954 • Commercial Code, and • Barbering and Cosmetology. Law 4, 1956 • Fiscal Code, • Special Laws. • Dentistry. Law 22, 1956

• Architecture. Law 15, 1959 And government agencies are: • • General Directorate of Revenue, Ministry of Agricultural Sciences. Law 22, 1961 Finance (DGI). • Pharmacy. Law 24, 1963 • Ministry of Trade and Industry (MICI). • Public Registry. • Chiropractors. Decree 8, 1967 • SMEs Authority • Nutrition. Decree 362 of 1969 5.1 Foreign Companies • Medicine. Decree 196 1970 According to the Commercial Code, foreign • Psychology. Law 56, 1975 commercial companies that want to establish or create branches in the Republic, submitted to the Registrar for • Medical Assistant. Decree 32, 1975 registration, besides the testimony of the notarization of its statutes, contracts and other documents relating • Accounting. Law 57, 1978 to its constitution, the ﬁnal balance operations and a • Journalism. Law 67, 1978 certiﬁcate to be incorporated and licensed under the laws of the respective country, issued by the Consul of • Laboratory Technicians. Law 74, 1978 the Republic in that country, and in his absence by a • Public Relations. Law 37, 1980 friendly nation. If the scriptures are in another language they must be translated into Spanish; They must also • Speech Therapy, therapists and the like. Law appoint a legal representative in Panama, which must 34, 1980 be a lawyer.

• Economics. Act 7, 1981 5.2 Types of Companies 5.2.1 Limited company • Social Work. Law 17, 1981 Law N°32 of February 26, 1927, creates the • Veterinary Medicine. Act 3, 1983 Corporations (SA). This law applies equally to all Corporations incorporated in the Republic of Panama, • Physiotherapy. Law 47, 1984 either performing local businesses, within the Republic, • Medical Radiology. Law 42, 1980 or companies whose activities are carried out outside the territory. • Advocacy and Law. Act 9, 1984 To form a corporation is required to prepare the public • Dental Assistant. Law 21 1994 deed and its registration with the Public Registry. • Sociology. Law 1, 1996 By law three directors and three ofﬁcers are needed, which will form the board of the company, taking the • Chemical. Law 45, 2001 positions of President, Secretary and Treasurer, the • Education. Law 47 1946. President being the legal representative of the company, if not expressed about appointment is made. In writing the purpose and business of the company, 5. Corporate regime the activities detailed must be lawful or legally author- Today, more companies are incorporating are: ized in Panama. There is no minimum capital require- • Limited companies ment and the shares may be par value or no par value • Limited Liability Companies and and capital need not be paid. The document should • Private interest foundation also detail the period of existence of the society that is normally at perpetuity. Any change has to be done in relation to the company must be made through a pub- But there are also in our legislation the following lic deed and register with the Public Registry. To clarify entities: a question always made by an investor, one person can

own a 100% of the shares constituting the entire share

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P a n a m á capital without the company losing its legal status. vate Interest Foundation cannot conduct business unless it is done sporadically and serving the accomplish- As of October 2016, all Offshore Companies must ment of the purposes of the foundation. This has no maintain accounting records and the resident agent members or shareholders but is governed by a must be responsible for the holding of those account- body that manages the assets on behalf of the benefi- ing records. In the event that the accounting records ciaries and the administrative body it must be detailed are outside Panamanian territory, the Company must in writing. The minimum capital to form the foundation provide the Resident Agent with the following infor- is B / 10,000.00, and must have a resident agent who is mation: a lawyer. Also, you must keep the register of goods, where the details of the goods you have in the founda- I. Physical address where accounting records and tion remains. supporting documentation are maintained; Y II. Name and contact details of the person who 6. Audit and Accounting keeps them in their custody. The Law 57 of September 1, 1978, is the one that regulates the profession of the certified public account- In the event of a request by the authorities, if the ac- ant. This law states that the Technical Board of Ac- counting records are outside Panamanian territory, countancy; which is under the Ministry of Trade and they must be submitted to the Resident Agent, in no Industry (MTI) is responsible for ensuring that the meter more than fifteen (15) business days. In case the resi- complies with the law and with the regulations in the dent agent does not receive the information, the infor- private sector, on this last point, the public sector is the mation must be submitted within a period of no more responsibility of the Office of the Comptroller General than ten (10) days and face a fine of 500.00 USD. If of the Republic. the company does not provide the accounting records, it will incur a penalty of 1,000.00 USD and 100.00 USD Since 2005, legally accounting standards adopted in for each day that passes without providing the records. Panama, they are the International Financial Reporting Standards (IFRS). Other entities may also establish rules 5.2.2 Limited liability company and different to IFRS accounting practices, and are ac- Law 4 of January 9, 2009, is when the Limited Liability cepted in Panama, are the Superintendency of Securi- Companies (SRL) or Limited Partnerships (SL) in Panama ties, the Superintendency of Banks and Insurance and are established. The SRL or SL companies may have Reinsurance, and is allowed because of the kind of commercial activities anywhere in the world. In Panama business They are depending on their relationship with the SRL or SL are incorporated through a private docu- the international market. Also, the generally accepted ment or also by a public deed both have to be accounting principles (GAAP / USGAAP) are used registered in the Public Registry of Panama. because there are subsidiaries of US companies that need to consolidate, but you have to use the IFRS for The incorporation of the company is carried out with a the official books. minimum of two partners. Besides its partners may be natural or legal persons. The authorized equity capital The required accounting records that all merchant contribution has no minimum or maximum, but the should bear are: A Journal and Mayor. Commercial amount must be written in the document of incorpora- companies must also keep records of Minutes and a tion. Such companies do not have a time limit, since its register of shares and shareholders, and a Record of lifetime can be defined or undefined. quotas or contributions from proprietary interest or Social Participation. These can be in the form of books The SRL or SL have an administrator who is or folios can be in the form of accounting system, pro- responsible for the company and manages assets on vided it is authorized by the Directorate General of Rev- behalf of the other partners and must be appointed in enue, Ministry of Finance (DGI). writing. A Social Shares book should be carried where the assets invested by each partner is recorded. The Legal entities that do not perform transactions that are limited liability companies must have a resident agent perfected, consummated or have effect in the Republic who must be a lawyer or a Panamanian law firm. of Panama are not obliged to keep its accounting records necessary unless domiciled and operating in the 5.2.3 Private interest Foundation Republic of Panama. Any merchant that has a commer- Law 25 of June 12, 1995, creates the Private interest cial establishment in the Republic of Panama, without Foundation companies. This company is registered with exception in terms of location, shall be obliged to bring the Public Registry through a public deed. The purpose their accounting records in Spanish and in the legal or of the Private interest Foundation companies is to pro- trade currency in the Republic of Panama. The docu- tect all assets registered in the company. Including the ments supporting transactions and correspondence assets in the foundation, this protects the heritage, and may be in the language in which it originates and, if a help in estate planning. Under the legislation, the Pri- translation is required by any competent authority, the

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P a n a m á trader must deliver within a reasonable time and cost, a translation of the same.

6.1 Employment regime Anyone over 18 may work in the Republic of Panama. Foreigners who wish to work in the Republic must have a residence visa and their respective work permit. There are different ways to obtain residency, but if a foreigner wants to work abroad in the Republic of Panama can get your resident visa as an investor or through a foreign or local company, which is responsible to help you get your resident visa and work permit, if agreed by both parties. In both cases, you must have an immigrant visa either permanently or for the period that he will be working in Panama. The resident visa is granted by the National Immigration Service (DGM) and the work permit is granted by the Ministry of Labor and Workforce Development.

In the Labour Code it is defined and established that the employment relationship is equated with the existence of an employment contract and has the same effects and sets out criteria to establish that legal subordination and economic dependence. The employment relationship may be of definite or indefinite or permanent.

Employment beneﬁts are detailed below: Description Bajo Relación de Dependencia

Regulation Labour code Governmental Autho- Ministry of labour and the rity Caja de Seguro Social

Relation Employer-Employee o Patron-Worker Sustenance Work contract 1.Indeﬁnite 2.Fixed period/ deﬁnite The contract is an agreement for the provision by lawful services of the worker Liabiility in exchange for payment. The worker is legally subordinated to the

employer's orders, with ﬁxed schedule. Personnel Costs Dependence relationship Wage or Salary Minimum wage is US $ 624 and depends on the service, The company's business and its operating location. Thirteenth month Additional payment made in 3 quotas in April, August and December and corresponds to one month's sala-

ry further divided into three parts. CSS contribution For employees lies a contribution in respect of future retirement, disability and applied to 100% of salary.

Employee contribution is 9.75% and 12.25% for the employer For independent concept lies a contribution for pension and disability that is discounted over 52% of their gross annual income

A day of rest for every eleven days of the employment Vacations relationship, which equals thirty (30) days annual paid Cese de relación laboral Pagos Proportional thirteen month, proportional Unjustiﬁed vacations, notice, seniority premium Compensation Proportional thirteen month, proportional Justiﬁed or resignation vacations, seniority premium. The Labour Code governs the protection and safety of the employee, establishing the day breaks, holidays, contracts, and obligations of the worker, employer obligations, employee health and safety. In addition, other laws have been established as the law 59 of 2005, which protects people with chronic, involuntary and / or degenerative diseases

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P a n a m á when they are not included in the labor code. 8.1.2. Tax import The Tax import is applied on any product entering the The Caja de Seguro Social (CSS) is the entity in charge country which has to pay tax according to of being the collecting agency of the income tax of tariff table. natural persons, so at the end of each ﬁscal year, a report, Form 03 is prepared in which It detailed per This table contains detail, class, equipment, use and employee proceeds and presented to the DGI for this disclosure, indicating the tariff to be applied to prod- entity to collect taxes from the CSS. ucts being imported on the territory.

According to the Organic Law of the Social Security 8.1.3. Income taxes for natural persons and their Fund, a compulsory membership is required for all na- related tionals or foreign workers who provide services within The taxes paid by individuals are on their taxable the Republic of Panama, including employees and self- income, which are the result of all revenues generated employed. during the fiscal period less expenses and costs authorized by the tax code. The tax rate is described Therefore, whether or not there is a work permit and below: appropriate visa, the employer is obliged to register • From B/. 0.0 to B / 11,000.00 annual taxable their foreign employees on the same terms and condi- income is exempt, tions as national employees. • From B/. 11001.00 to B/.50000.00 pays a rate Once affiliates, the company is obliged to calculate, of 15% • withhold and pay to the state corresponding From B/. 50,001.00 onwards, pays a rate of labor-management fees, as established by the law 25% itself. Payment is made through a Sworn Statement of Tax 7. Exchange controls and regulations Income for Natural person and his presentation is until The monetary unit of the Republic of Panama is the 15 March following the fiscal year end. There is an ex- Balboa. The current dollar of the United States and its tension period of one-month, which expires on April 15 multiples and divisions will be legal tender in the Re- and this prevents a fine of B/.100.00 for late filing, but public for his equally to the respective nominal value not the surcharges and interest for the payment of trib- Panamanian currency. ute.

This has been one of the determining factors for the 8.1.4. Income taxes for legal persons economic stability of the country and therefore has no Income tax of legal persons is applied to the net foreign exchange regulations. income, from taxable income generated in the country.

8. Tax system The income tax rate is 25%. The tax assessment is done The tax system is established under the Constitution of by a Sworn Statement of Income tax for legal persons the Republic of Panama. Taxes and national contribu- and should be submitted by 31 March following the tions, as well as tariffs and customs duties are set to fiscal year end, with an extension of one month which become law by the Legislature. The law ensures that expires on April 30. any tax or charge on the taxpayer is in direct proportion to their economic capacity. The Tax Code provides that legal persons pay income tax to 25% of the greater of: In the Republic of Panama there are two sub-systems 1. The net taxable income calculated by the tributaries: method called Traditional; or 1. National and 2. The net taxable income resulting from applying 2. Local, the 4.67% to the total taxable income, as long the taxable income excess the amount of one The national system is administered by the Directorate millon five thousand dollars, during it fiscal year General of Revenue (DGI) of the Ministry of Economy ( 1.500.00 USD). and Finance. Instead the local system is managed by the respective municipality. If by reason of payment of income tax, the legal person were to be in losses, he may request to the Directorate The Panamanian tax system is essentially territorial, in General of Revenue, the non-application of paragraph the sense that is considered taxed at the income tax 2 of this article. Same application may request the tax- only those operations and assets located within Pana- payer whose effective rate of income tax exceeds twen- manian territory. ty-five (25%).

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P a n a m á persons, or legal with taxable income less than B / 8.1.8. Complementary and Dividend tax 250,000.00 should prepare its tax return on the basis According to Article 733 of the Tax Code, the of the International Financial Reporting Standards applicable tax rates on dividends are: (IFRS). • 10% if dividends are derived from local operations or Panamanian source; • Micro, small and medium sized enterprises (SMEs) pay 5% in the case of foreign dividends, foreign the tax according to the rate of natural persons on that source or exempt. portion of its net taxable income attributable to their annual gross income not exceeding B / 100,000.00 and If dividends are not distributed or if the distribution is according to the normal rates applicable to legal per- less than 40%, you must pay a supplementary tax rate sons on the part of the net income exceeding the an- of 4%. nual gross income of B/.100,000.00 without exceeding the amount of B/.200,000.00. The rate is 20% for bearer shares. Branches of foreign legal entities in Panama will pay 10% for 100% of their The period of fiscal closing of taxpayers is 12 months taxable income obtained in Panama, minus taxes paid and usually is from January 1 to December 31. Howev- by the same income in the country. In this case when er, if the company requires another fiscal year or what you pay the tax is a flat fee. is known as special periods, you can get permission from the DGI. Taxpayers need to file your Affidavit of Whenever dividends are distributed must first exhaust Income Tax, and have up to three months after the the incomes of Panamanian source before distributing fiscal closing. An extension ordered can be of one (1) dividends exempt income, foreign or export operations. month to submit the same, so that B./500.00 fine for late filing can be avoided, but not, of surcharges and 8.1.9. Capital gains tax interests should pay the tax. The capital gain on any sale of bonds, securities, stocks, real estate, when the latter is not part of the ordinary Taxpayers must file and pay their taxes by payslips, course of business of the company. These transactions although you can pay online, it is preferable to ensure are taxed at 10% on the gain on the sale. When it which will be credited and the use of ballots is advised. comes to selling securities, it is required to pay 5% of the total sales price as advance tax. This can be claimed if the These ballots are identified according to the tax they result of this tax is more than 10% of the profit or you have to pay. If the tax generates interest, surcharges can opt for this advance as a final payment of tax. In the and fines are to be paid at the same time. case of real estate the same process is followed on the gain value, with the difference that the percentage is Tax returns and tax reports are prepared and sent 3%. electronically via the internet. There may also be special cases in which the presentation of the same via disk- 8.1.10. Tax on Transfer of Personal Property and ette, CD or portable memory that engages USB will be Services (I. T.B. M. S.) requested. This tax is applicable to the ultimate consumer and in other countries is known as the IVA or VAT. In Panama The tax is levied on taxable income less costs and the rate is 7%, being the lowest in Latin America. expenses that are deductible in accordance with established regulations. Deductions for expenses It is a land tax to specific transactions listed in the tax incurred must comply with the provisions of the Tax base and its scope are the economic activities within Code in force. Panamanian territory. It is not decisive:

• 8.1.5. Accumulated losses The place where the contract is concluded; Accumulated losses may be amortized over ﬁve years, • The residence or nationality of the parties; at a rate of 20% per year, and up to 50% of taxable • The place where payment is made; income. Unused amounts are lost. • The place where payment is received

8.1.6. Carry-forward tax credit This tax is considered as an exemption of the same on Carry-forward tax credit is made up of the amounts food supplies, health services, medicines, educational paid to the Treasury for estimated tax in the next year services, ships and aircrafts, among others. based on the amount paid in the previous period and any amount that has been overpaid. This credit can be In sworn statements-liquidations, the taxpayer applied for the payment of income tax you have to pay determines the tax difference between the debt and in the next ﬁscal period. the tax credit. The tax debit shall consist of the sum of the tax payable on taxable transactions of the calendar month. The tax credit will consist of: 104

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1. The sum of the tax included in the purchase resident individuals or incorporated entities abroad, in invoices on the domestic market for goods and case they do not have a branch, agency or establish- services corresponding to the same period, pro- ment in Panama. vided they meet the requirements for documentation. The thus determined amount withheld will be a tax 2. The tax paid during said period as a result of the credit in case the taxpayer is a withholding agent. Such importation of goods. credit shall be included in the liquidation of the month in which the withholding is made. 8.1.12. Remittances abroad: It is considered taxable and therefore subject of Income It is applied to the entire bill, retention 0.065421 and Tax by Withholding, the income received by natural or no later than within 10 days from the date of the reten- legal persons whose domicile is outside the Republic of tion the payment of the ITBMS should be sent to the Panama product of any service or act, documented or Tax office through a multiple payslip. not, that benefit individuals or corporations, domestic or foreign, which are located within the Republic of 8.1.13. Transfer Price Regime Panama. From 2012 onwards, is mandatory the documentation of transactions with related parties made by the taxpayers For purposes of this provision the concept of minimum in Panama, with entities located outside of Panama, pro- income equals to the concept of residual income. The vided that these transactions generate taxable income or concept of taxable income includes, but is not limited deductible costs or expenses. to fees and income from copyright royalties, key brands or trademarks, patents, "know-how", techno- Taxpayers are responsible for reporting to the DGI if they logical and scientific knowledge, trade or commercial perform transactions with related entities established secrets. It includes services rendered abroad. outside Panama that could be subject to the regulations of transfer pricing, provided that such transactions exist, Such income shall be the income tax over the income they are accountable to the entity to present the Annual retention, to the extent that such services have an im- Report of the Transfer Pricing (Article 762-I of the Tax pact on the production of income from a Panamanian Code) and Study of Transfer Pricing (Article 762-J of the source or the conservation of this and the expenditure Tax Code) accordingly. has been considered as expenses deductible by the person who received them. For the interpretation of the provisions contained in this field apply the Transfer Pricing Guidelines for Multina- The natural or legal person, national or foreign, located tional Enterprises and Tax Administrations, adopted by in the territory of the Republic of Panama who benefits the Council of the Organization for Economic Co- from the service or act concerned shall apply the gen- operation and Development in 1995, or those that re- eral tariffs laid down in Articles 699 and 700 of the Tax place them in insofar as they are consistent with the pro- Code on the fifty percent (50%) of the amount to be visions of the Tax Code. remitted. In the case of a foreign legal entity, the effective holding will be 12.5% (25% over 50%). The reten- 8.1.14. Property Tax tion of the Income Tax applies over the consignment or The property tax is levied on all real estate and the tax is gross pay, ie regardless of any costs. levied on property owners, depending on the value of the property which includes land and buildings or per- Every natural or legal person not resident in the manent structures that have been made over the territo- Republic of Panama is obliged to withhold the income ry. In this law there is also the exemption of tax on new tax to, on any Panamanian source income paid or cred- property with a maximum of 20 years and owned by the ited by: state, municipalities, autonomous, semi-autonomous institutions used by the state, schools, universities, hospi- • Public entities, be they the central government, tals and exempt under international treaties, and family semi -autonomous bodies, local governments, heritage. state enterprises or joint stock companies in which the state owns 51% or more of its The application of the combined rate of this tax is as shares; follows: • Entities which are not taxpayers of the income a. 1.75% of taxable income over thirty thousand tax; and/or dollars (B/.30,000.00) to fifty thousand dollars (B / • Taxpayers who are in loss. 50,000.00). b. 1.95% of taxable income over fifty thousand If the services are rendered in Panama, the ITBMS dollars (B / 50,000.00) to seventy-five thousand retention should also be made by those who pay or dollars (B / 75,000.00). credit retributions for taxable transactions made by c. 2.10% of taxable income over seventy-five

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thousand dollars (B / 75,000.00). • Municipal tax paid monthly depends on this table and according to their operations. The exemption of the first thirty thousand dollars (B / 30,000.00) of this fee does not apply to the land of es- 9.1. Colon free Zone tates subject to the Horizontal Property Regime, during The Colon Free Zone (ZLC), since its inception in 1948, is the period that is legally exempt the value of improve- a secreted free trade wholesale operations located on ments; in these cases the rate of one percent (1%), oth- the Atlantic coast, near the entrance to the Panama Ca- er buildings for affordable housing will be applied. This nal area. This area is located in a unique international tax is paid in three batches, the first due on April 30, the center for trade. second on August 31 and the third on 31 December. The goods coming into the ZLC can be imported, stored, 8.1.15. Ship tax re-packaged and re-exported without being subject to At present, worldwide, registering ships in Panama charges or import taxes. Companies operating in the ZLC remains the vessel registration number 1 in the world by require authorization from the Free Zone Administration tonnage, followed by Liberia, UK and Bahamas. Because to settle in the ZLC. The Free Zone Administration gives of that, the Law No. 8 of 1925 adopted the open regis- permission to be free from export taxes, capital gains or tration system and restrictions on nationality and resi- dividend payments of external operations, transfer or dence were removed. Since then, the Ship Registration direct operations. Among the benefits there are no in Panama accepts vessels owned by nationals and for- consular fees or any other charges on shipments to or eigners alike. The condition is that they must comply from the ZLC. with the provisions, especially those concerning the management of ships, safety standards for pollution Customs authorities make a service charge on control, technical standards and taxation. Surveillance custody of goods re-exported and this charge is applied as appropriate and Free Zone • The Ship Registration in Panama offers owners Administration does an annual fee of B/.200.00 by a key the following advantages: operation, this charge applies to all companies. • An open register. Any person or company, regardless of their nationality or place of 9.2. Special areas: incorporation, is eligible to register ships under Panama Pacifico Special Economic Zone the flag of Panama. The special economic zone of Panama Pacifico was es- • Registration fees are low compared to other tablished by law 41 of 2004. This zone grants tax bene- countries. fits to business such as: • Total exemption from tax on income derived • Regional International corporations, from the operations of ships engaged in interna- • Administrative Offices or representation tional trade. • Call or Operators centers • Double registration, provided that the country • Logistics Services that issued the original record of the ship still • Technological Institutions allows it. • Maintenance and repairs of aircraft • Any business related to aviation services 8.1.17. Excise tax • Foreign companies Source (offshore) It is a tax on consumption of soft drinks, spirits, wines, • Film industry beers and cigarettes domestically produced and import- • ed, hereinafter the encumbered assets and certain ser- Scheduled Radio TV, audio and video vices, such as mobile phones and luxury goods and priz- transmission • es in games of chance. The general rate is 5%. Transfer of inventory between companies • Travel services; cruise ships, aircraft and 8.2. Municipal tax passengers Municipalities in Panama are the ones applying the local • Export of products manufactured in countries tax and each municipality in the country imposes the tax outside of Panama. in their municipality. In the municipality of the city of Panama, you must submit the Affidavit of gross annual Tax incentives that Panama Pacifico offers the legally income during the month of January following the clos- established and release form companies in the special ing fiscal year. The tax is applied is based on a table pre- area are listed below: pared by the municipality according to business operations. Currently it has two municipal taxes Exemption from • Income Tax • Label tax monthly according with the size meas- • Tax or complementary dividend tax ured in sqm the change is 2.00 USD per sqm, • Transfer Taxes and the minimal charge is one (1) sqm. • Exempt from any tax rate of import duty on

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products, equipment, services and other kinds The program or software that will be used for handling of equipment sent to Panama Pacifico. and printing invoices must also be approved by the • Tax-exempt Transfer of Personal Property and Ministry of Economy and Finance. Services (I.T.B.M.S.) this is a value-added tax is charged for each business transaction. Requirements to be met with bills: • Exempt from paying import tariffs on fuel • The name that is appropriate for the type of storage and its derivatives. document, whether invoice or receipt. • Exempt from tax license and register their taxes, • The consecutive numbering and unique point of • Exempt from real estate taxes and billing. improvements to the land. • The registration number of the fiscal printer. • Exempt from paying duties on imports of any product, equipment or services, • Exempt from paying taxes on loans, interest, • The name and surname or company name, fees and royalties on any financing granted to address and number of Taxpayer Registration of entities established in Panama Pacifico prolong- invoicing. ing business operations. • The date (in the format of day, month and year) • Furthermore, the institutions have payment as of issue of the invoice or equivalent document. work incentives, • The description of the operation indicating • Overtime is paid 25% quantity and amount. the amount may be • Day festive weeks the surcharge is 50% omitted in operations which by their nature can- • An entity may ask for more foreign workers not be expressed. • than the previous limit is 10%, ie for every 10 The breakdown of ITBMS, excise tax and any employees in January Panamanian abroad. other applicable taxes. • • Note: Any entity established in Panama Pacifico, The individual value of the transfer, the sale of is subject to pay direct taxes: goods or the service, and the total amount of • Income tax, the invoice. • • Dividends and additional taxes The fiscal logo. • • Transfer Tax Where they are loaded or incur additional concepts that discounts, refunds, cancellations, and A waiver of the above and the respective permit any adjustment to the price paid or agreed, de- exemption. scription and value they are made.

10. Mandatory Invoicing Regime 11. Current tax information As of January 1, 2016, will come into effect a system of It is mandatory to document all transactions concern- ITBMS retention for those who, whether or not are ing transfers, returns, discounts, sale of goods and pro- ITBMS taxpayers and meet in the immediately vision of services by all persons resident in Panama for preceding fiscal year the criteria for annual purchases of issuing invoices. goods and services identical or exceeding ten million dollars (B / 10,000,000.00). All invoices must be issued through fiscal printers purchased from suppliers duly authorized by the The amount will retain fifty percent (50%) of ITBMS Ministry of Economy and Finance (MEF). included in the invoice or equivalent document that the supplier is presented to the withholding agent.

Companies in this obligation will be published in an ofﬁcial list by the DGI every year.

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Republic of Paraguay

1. Contact identiﬁcation: AYCA - Accountants and Consultants Associates

1.1 Oﬁcina, address, phone Teniente Jara Troche 655 c/ Juan de Zalazar Asunción, Paraguay T: 595.21.232.283-4

2. Professional Specialists

Lic. Manuel Stark Robledo Partner [email protected]

Dr. Fernando José Estigarribia Lezcano Partner Courts. b) The Supreme Electoral Tribunal, wielded [email protected] by three Ministers Election, who are responsible for administering justice Voters, along with their Lic. Gustavo Fernandez Petter courts. Audit Manager [email protected] Currently the legal tender in the country is the Guarani. In Paraguay the annual change in 3. Country proﬁle consumer price index in 2014 stood at 4,2%. The Republic of Paraguay, located between Brazil, Bolivia and Argentina, whose territory is divided into 4. Investments seventeen departments, each with an independent 4.1 National Investment Regulations. Legal Government. It has an area of 406,752 square km, Framework of Investment in Paraguay with a population of 7,200,000 inhabitants. It has three branches: legislative, consisting of the Senate and Legislation on foreign investment

Chamber of Deputies, the judiciary and the executive. Paraguay has a very liberal regime on the issue of foreign investment, which required no government The powers of the state are divided into ﬁve functions: authorization to conduct investment. The investment regime is based on four laws: Law 60/90 which • The Executive: It is exercised by a President establishes a system of tax incentives for investment by and Vice President, both elected for a term of ﬁve domestic and foreign capital. "Law 117/91 Investment, years as well as the Ministries of State and other which gives foreign investors the same rights and the agencies and institutions to meet, within their same obligations, required it to nationals.

competence. Maquila Act, which allows foreign companies to settle • The Legislature: It is exercised by two chambers: in Paraguay as maquiladoras is introduced through the the Senate and the House of Representatives. In temporary admission into the country foreign raw both cases the number of representatives is based materials with a series of fiscal and tax incentives, to on the number of people available to each assemble and manufacture their products using hand department of the Republic. Performs the functions national force, and finally re-export it, adding to it the of law making and enforcement, including the added value of the transformation process. possibility of raising impeachment against the President, the Vice President and the Ministers of Law 2.421/04 July 2004, Fiscal Adjustment and State, Ministers of the Supreme Court, and Administrative Reorganization repealing some of the Magistrates in general. investment incentives established by Law 60/90. The entry into force of the Law on fiscal adjustment in 2005 • The Judiciary: is exercised by: a) Court of nine has meant a decrease in the processing and approval of ministers, who are responsible for the investment projects under the 60/90. administration of justice, and is shaped by the Supreme Court, the Courts of Appeals and the Overall investment activity in Paraguay presents

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business opportunities arising from both the maquila Holdings. system, modeled Mexican, and derived from membership of the Mercosur, a customs union once 4.3.1 National Companies perfected, will allow access to a market of more than The corporate regime is regulated in Paraguay by the 230 million (25 million more if you include Venezuela, Civil Code and the Commercial Code. There are several recently incorporated into the agreement as a full classes of companies: AUNIPERSONALES SOCIETY, THE member, once you overcome the technical difﬁculties ANONYMOUS SOCIETY, THE LIMITED LIABILITY of access to the Customs Union). The main problem is COMPANY, COOPERTAVIAS SOCIETIES. There also the high level of legal uncertainty. Consortia, Transnational Corporations, branches, subsidiaries, but there is still no regulations to enable 4.2 Procurement Holdings. To become the provider of state natural and legal persons should be enabled as such in the National • Companies: These are companies that are made Public Procurement, registering in the Register of up of two or more individuals or corporations Providers. and are subject to the rules of the Civil Code. They are called corporations. 4.3 Corporate regime There are various legal forms that allow corporate • Limited Liability: Those that are made up of economic operations in Paraguay, as AUNIPERSONALES two and up to twenty-ﬁve people or SOCIETY, THE ANONYMOUS SOCIETY, THE LIMITED corporations. They are called party companies by LIABILITY COMPANY, COOPERTAVIAS SOCIETIES. There quotas. also Consortia, Transnational Corporations, branches, subsidiaries, but there is still no regulations to enable

Description Companies Limited Liability

Are presented documents for preparation We present the documents to be made up before a notary public and then to the De- before a notary public and then to the De- Constitution partment of Public Records and ﬁnally to the partment of Public Records and ﬁnally to the Tax Authority. Tax Authority Governing Bodies Shareholders Cuotapartistas Council Legal Representative (1) Directors or proxies or attorneys Directors or proxies or attorneys 2 partners minimum to a maximum of 25 Partners (2) Least two shareholders members. Social Capital (3) No minimum No minimum established set

Are bearer shares, except where the To trade shares requires the consent of 75% Shares / Units ﬁnancial system must be registered and free of the partners. trading on the stock exchange and OTC.

Bring Social Book of the Acts of the Bring Social Book of Minutes of General General Assembly of Shareholders. Meeting of Shareholders. Bring Social Book of Shares and Bring Social Book of Shares and Partners. Shareholders. Optional enrollment in both House and pay Optional enrollment in both House and pay fees. fees Other Liabilities Presentation of Financial Statements. Presentation of Financial Statements.

For companies who bill annually Gs. 6,000 For companies who bill annually Gs. 6,000 million or more (U.S. $ 1,052,631. - A T / C of million or more (U.S. $ 1,052,631. - A T / C of 5,700 Gs. Per U.S. $) must report Tax Compli- 5,700 Gs. Per U.S. $) must report Tax Compli- ance prepared by its external auditors. ance prepared by its external auditors.

Notes: 1. If the Directors of the companies are foreign, they must be at least resident in Paraguay. 2. The shareholders of the companies may be individuals or corporations, domestic or foreign. Foreign legal and natural persons may be members of the limited company, with the exception of banks, insurance companies, capitalization and savings.

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5. Audit and accounting • List of Employees; Accounts shall be kept by the double entry system, in • Writing S.R.L contract, S.A. and Castilian and Guarani language, taking into account • Corporations other documents, Act of Assembly, the generally accepted accounting principles. Specific etc. rules for financial, insurance, publicly traded companies • Foreigners must also submit: and the cooperatives. - Paraguayan identity card p / foreign • Certificate of Filing and the country under penalty For companies who bill annually Gs. 6,000 million or of fines. more (U.S. $ 1,052,631. - A T / C of 5,700 Gs. Per U.S. $) must report Tax Compliance prepared by its external 7. Exchange control auditors. 7.1 Join Currency There is a currency revenue control exercised by the 6. Labor system Department of Prevention of Money Laundering who According to the labor law is right and a social duty. has control of money laundering and terrorist The object of the employment relationship is the financing. Also exporters must sell dollars, their export provision of personal and lawful for the employer products on the open market and thus download the under the command of this. The employment required changes that are generated when clearing his relationship must comply with labor legislation in goods for export. Paraguay and collective bargaining agreements. 7.2 Exit Currencies 6.1 Wages, employment contract rates and Actually there is a tax on profit remittances amounting conditions of employment to commercial 20% of them.

• Minimum monthly wage: Gs.1.824.055 - 8. Tax system (US$320) The Paraguayan tax structure consists of taxes, fees and • Salary p / day monthly workers: Gs. 76,000 contributions. Regarding taxes can be national and (U.S.$ 12) municipal. • Regular labor day: -Day time: (06:00 a 20:00 hours) Here are the main taxes: - Night time: (20:00 a 06:00 hours) • Maximum daytime business hours: 8 (eight) Government taxes hours per day or 48 (forty eight) hours. IRACIS: The Income Tax to commercial, industrial or services other than personal. Are taxed Paraguayan The maximum duration of the trial period is: source income coming from commercial, industrial or services other than personal. • 30 (Thirty) days for domestic workers and unskilled workers. Obligated: Sole proprietorships, partnerships with • 60 (Sixty) days for skilled workers or or unincorporated, associations, corporations and other apprentices, and private entities of any nature. Public companies, • For highly skilled technical workers, the parties may autonomous bodies, decentralized and mixed agree a different period as the modalities of work companies. Person domiciled or entities incorporated abroad and its branches, agencies or establishments Social Charges by Employee carrying out taxable activities in the country. The parent Contribution Social Security Institute (IPS) 9.00% must pay tax on the net income than those you pay or credit. Cooperatives, with the scope established by Law Social charges paid by the employer Social No. 438/94 "From Cooperatives". Security Social Security Institute (IPS) 14.00% Residence: They are made by the tax only those 6.2 Employer obligations Registration in the activities within the country, regardless of nationality, Employer domicile or residence of persons involved in the All employers in the Republic should proceed to operations and venue contracts. registration in the Management Authority authorized by Labor - Labor Department - within 60 days from the However, there are some exceptions to this general rule beginning of the employment relationship by such as interest, commission, capital gains or income submitting the following documentation: invested abroad and exchange differences, when the investing institution or beneﬁciary incorporated or • Certiﬁed copy of Identity Card; established within the country. • RUC; • Registration in the Social Security Institute;

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Determination of the taxable income or loss: Great Estate: Gross Income is considered the difference between a. Gross Revenue: the gross annual income for rural total revenue from commercial operations, industrial or properties individually or jointly meet or have a service and the cost thereof. Within the taxable income useful agro logically area exceeding 300 hectares. is the sale of fixed assets or capital gain, except (Three hundred acres) in the Eastern Region and resulting from revaluations of fixed assets and capital 1500 hectares. (Fifteen hundred acres) in the contributions or activities from untaxed or exempt from Western Region, with an efficient and rational tax. productive use will be the total income generated by agricultural activities. International Income Base: Persons or entities located abroad, with or without Branch performing b. Net Income: Net Income to set deducted from gross taxable activities in the country determine their income income all expenditures relating to the business of under the presumptive regime on the perceived, the activity, expenditure and investment from becoming the payer withholding agent. relevant to obtaining the taxable income and the maintenance of its source, provided they are real Base of imputed income: Tax Administration is and are properly documented in accordance with authorized to establish net income over alleged basis the provisions of this law and its regulations. for those taxpayers who are not required to keep Division of plots in large, medium, and small accounting records. producers. These latter are free from tax. Tax base: The tax base in terms of land area that agro Fees: The overall rate is 10% on net income but logically are useful, that is, which are not dividends distributed. If it does, add an additional 5% accounted for those taxable parcels are not suitable (total 15%). for agricultural production, such as rocky ground, flooded forests etc. Dividends or profits distributed: For resident income taxpayers. The tax on dividends is (5%) five Taxes: Form of tax assessment. In all cases, the percent of the amount of profit to be distributed. For taxpayer has the option to use three different methods. foreign income taxpayers: The tax on dividends when they are transferred abroad is given a further additional a. For the actual utility system, as balance the rate is rate (15%) fifteen percent, which, in this case, the 10% (ten percent). taxpayer paid a total (30%) Thirty percent. b. For the simplified system, which consists of assessment of VAT on the difference between Tax incentives: The law provides tax incentives for admission and discharge, the rate is 10% (ten those making capital investments either domestic or percent). foreign. Stimulus to create jobs: It has issued a special c. Alleged System: Based on a presumed production law to occupy the national workforce by Maquila law, according to a pre-set scale according to the which is achieved with a minimum tax rate (1%) characteristics of each production area multiplied percent. Tax treaties to avoid double taxation by the average price of goods produced and whose agreements have been signed to avoid double taxation result applies a rate of 2.5% (Two, five percent) with Argentina and Chile. Exemptions’: You are exempt from tax for small IMAGRO: Income Tax on Agricultural Activities taxpayers, according to the following taxpayers this tax is levied on sales from agricultural activities classification. Is considered small with less than 20 (agriculture and livestock). hectares in the Eastern Region and 100 in the Western Region. Obliged: All natural and legal persons performing agricultural activities within the country. Determination RPC: Rental’s Small Taxpayers of the taxable income or loss: Gross Income, Net Income: The gross income determination should be Obligated: The gravel event also commercial, performed in all cases, regardless of whether the industrial or services other than personal and whose property is realized or not a productive use efficient and income does not exceed about (20,000) twenty rational. The determination of gross income, net thousand dollars a year. income and the tax is made according to the surface property agro logically helpful and efficient and Taxable: Determined on a real or perceived, at the rational exploitation according to the following criteria: option of the taxpayer. Net income will be considered The taxable event is set annually at the end of the fiscal as real positive difference between revenues and total year. expenses and net income is alleged 30% (thirty percent) of the gross annual turnover.

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Rate: The tax rate is also the (10%) ten percent For simple societies: They are deductible expenditures and investments that relate to obtaining IRP: Income Tax Personal Service: The tax rate is taxable income and font handling. the (10%) ten percent. Exemptions: You are exempt from income tax for Obligated parties: They are taxed source income pensions and retirement, salaries of diplomats on a coming from Paraguay conducting personal income reciprocal basis, interest, and fee income from generating activities when the activity takes place investments in banks, etc. within the country, regardless of nationality, residence, or place of the contract. Estate Tax: This tax Municipalities perceive.

Be considered included among others: The Determination of the taxable income or loss: The exercise of professional services, trades or occupations tax base is the assessed value of property established by or the personal services of any kind independently or the National Cadastre. Additional tax on vacant: The dependency relationship, whether in public or private, wastelands are additionally taxed with a rate of 4% decentralized, autonomous, mixed economy, binational (four thousand) in the capital and 1% (one per entities, whatever is the name of profit or thousand) in the inland municipalities. Property tax in remuneration. The 50% (fifty percent) on addition to very long and estates. As the tax base and dividends. Interest, fees, and other income from capital appraisement of Property Tax is the percentage (0.5%) and income not subject to other taxes on income. to 1% according to the amount of area and location of the property location. If whatever large estate, (there is Capital gains arising from the occasional sale of a special law that clarifies the rules on large estates) tax property transfer of rights and income securities, equity is charged an additional fee of 50%. shares and Corporations. Rate: The tax rate is 1% (one percent). For rural Taxpayers: a) Individuals b) simple societies. properties, under 5 hectares the tax rate is 0.50% (zero point fifty percent). Determination of the taxable income or loss: Presumption of Taxable Income: For any taxpayer, it is 9. International Treaties presumed, unless evidence to the contrary, that any 9.1 Agreements to avoid double taxation enrichment or equity increase comes from income Paraguay holds treaties to avoid double taxation on subject to the tax. income tax, with: Germany, Belgium and China. Argentina, Chile, and Uruguay (Applicable only to air Net Income: For Individuals. All deductible transport), Switzerland, Spain, Germany, Brazil, Mexico, personal expenses and investments of the taxpayer and (not entered into force for lack of ratification). his family, since the expenses relating to the maintenance, education, health, clothing, housing and recreation.

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Republic of Peru

1 . Contact Firm Moore Stephens Peru

1.1 Ofﬁce, address, phone number Juan de Aliaga Av. No. 421, Ofﬁce 612 Lima - Peru [email protected] Phone Number: (511) 208-1720

2. Professionals specialist Jaime Vizcarra Moscoso - Partner [email protected]

Alberto Viale Rendón - Partner [email protected] In this sense, the Spanish are official languages, and in areas where they predominate, so are the quechua, [email protected] Aymara, and other Aboriginal languages, according to law. [email protected] With respect to its strategic location, has the Inter-Oceanic Highway and the Amazon River to access 3. Country Profile the regions located in the Atlantic side of South Peru is a democratic, independent, and sovereign America. Also through the Andes Peru is republic. The government is unitary, representative, interconnected with five South American States. and decentralized, and it is organized according to the principle of separation of powers. It is located in the Through the Pacific Ocean, Peru is interconnected with South American Pacific region and has an area of the APEC countries, the most important, rich and 1.285.216km², being the third largest country in the fastest growing market in the world, of which Peru is a region and is characterized by a territory geographically member. divided into three regions: Coast, Highlands and Rainforest Since late 2014, the official currency is the SOL, and it is possible to use other currencies. The second most used It is politically divided in 24 departments and has an currency is the U.S. Dollar; the currency exchange is tax estimated population of 31 million people, being its free. capital the city of Lima. The last five years, Peru has made great progresses in its It also has several ports, of which the main one is the development, including high growth, low inflation, Port of Callao, which is strategically located in the macroeconomic stability, and debt and poverty middle of the Pacific coast of South America, being reduction. It is expected that the country will grow therefore an important point of exchange of goods around 6.0%-6.5% during the period 2012-2015 and and circulation of people for various countries in this will remain the most stable economy in the region. region, especially those states that are on the Atlantic South American side, Thus, it is consolidation as a In Latin America, Peru is a member of the Andean bridge of connection between markets of South Nations Community – CAN and the Latin American America, Asia and the United States is expected. Integration Association - ALADI, also has signed an agreement of Economic Complementation (AEC) with Peru as an ancient country, collects within its MERCOSUR. population and native communities, the same ones that have their own native languages. These 4. Foreign Investment Regime-Types of communities are derived from ancient cultures that companies inhabited Peru, specifically in Cuzco, the Inca culture In Peru there are no restrictions for the incorporation of remains as one of which has had more recognition companies and other local entities by foreigners, except worldwide. certain exceptional cases provided by the respective

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P e r u regulations. be incorporated in certiﬁcates. The will of the Company does not need a General Shareholders Meeting to form Law 26887, General Corporations Law, effective from it. January 1, 1998, governs Corporation’s regime, without prejudice to special regimes governed by other 4.5 Single Member Limited Liability Companies rules. The General Corporations Law recognizes various (SMLLC) types of companies; the most common and widely used This type of company is regulated under a special are the corporations, the Limited Liability Company and regime; it is a legal entity established by decision of an branches of foreign companies, and is also common to individual and for the purpose of conduct a small use joint ventures, consortiums and other business business. The liability of the company is limited to its collaboration contracts and Partnerships. assets. The initial capital of the company is formed by the contributions of the individual. 4.1 Common Corporation (Corp.) In the Corporation, the capital is represented by shares The company bodies are composed by the individual and is constituted by contributions from shareholders, and the Management and its social capital may be who are not personally liable for corporate debts. The constituted in money or movable or Immovable assets. number of shareholders is at least two and no more than 725. No minimum capital is required. 4.6 Branches Local and foreign corporations can freely establish Shares representing the capital must be fully subscribed branches in Peru. The branch must be registered within and paid at least in 25%. The supreme governance Legal Entities Record of the place of operation. body of the Corporation is the General Shareholders Meeting. The branch has no legal individuality; however for tax purposes is considered as an independent taxpayer. The The Common Corporation has in the General branch must have a permanent legal representative Corporations Law three modalities: The ordinary that is with appropriate powers and faculties to develop the which has been described, the private and open. business and activities of its parent.

4.2 Private Corporation (Private Corp.) The legal representative of the branch, must have Used for middle or small businesses with no more than sufﬁcient powers to resolve any matter relating to the 20 shareholders. Shareholders are not personally liable activities of the company, to bind the corporation by for corporate debts. the operations that perform the branch and the general’s procedures representation required by the They must meet the same requirements of Constitution law. which is required for others Corporations regulated in the General Corporations Law, and in case of failure to 4.7 Collaboration Agreements comply with any of the requirements to be considered The objective of Collaboration Agreements is to create as such is you should change of regime and adapt to and regulate the participation and integration of the Common Corporation or Open Corporation. independent corporations or parties in a common business. The agreement does not create an 4.3 Public Corporation (Public Corp.) independent legal entity from its parties and is not Used for business that requires large capital, there is no subject to registration in the Public Record. limit to the number of shareholders s. It is open to the contribution of any person or entity through the The General Corporations Law recognizes three types Securities Market and is under the control of the of Collaboration Agreements: the “Asociacion en Superintendence of Securities Market. Shareholders are Participacion”, the Consortium and the Joint Venture. not personally liable for corporate debts. The resources destined to the contracts mentioned Is liable to control of the Superintendence of Securities above, shall be considered as foreign direct investment Market - SMV and no restrictions on trading or when: transmission of shares he admits. • Be granted to the foreign investor a form of 4.4 Limited Liability Company (LLC) participation in production capacity, without The Limited Liability Company is the alternative to a involving capital contribution. Private Corporation for small and middle businesses. As the Private Corporation, there is a limit of 20 partners. • It corresponds to contractual commercial Partners are not personally liable for company debts. operations through which the foreign investor provides goods or services to the recipient The capital is divided into participations, which may not company in exchange for a share in physical

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volume of production, the overall amount of face temporary increases in production caused sales or in net proﬁts of the mentioned receiving by substantial changes in the market demand. company. This contract may be renewed, not exceeding a total period of ﬁve years. 5. Audit and Accounting • The contract for corporate restructuring: entered to face the variation or increase of the activities developed in the corporation, and in general to face technological changes or the variation of internal procedures. The maximum term is two years.

6.1.2 Contracts of Accidental Nature • The occasional contract: entered in order to face temporary needs not covered by the existing workers. Its maximum term is six months per year.

• The substitution contract: entered in order to temporary replace a stable worker whose employment relationship is suspended by any justified cause under the current legislation or by contractual provisions applicable in the 6. Labor Regime workplace. Its duration depends of the Peruvian labor legislation recognizes different types of circumstances . employment contracts, including fixed-term contracts, contracts for sporadically activities and service • The emergency contract: entered in order to contracts. face disaster or events occurred by force majeure. Its duration depends of the emergency. In relation to working hours, the general labor regime establishes a maximum of 8 hours per day or 48 hours 6.1.3 Construction contracts or Service contracts per week, for people over 18 years old. • The specific contract: entered in order to perform a specific activity or service. They have 6.1 Contracts Subject to Special Conditions an object previously established and a fixed For all labor contract subject to form, should be duration. understood that an employment relationship exists, the mode may be contained in the duration of the • The intermittent contract: entered in order contract, because it can be for definite or indefinite to perform permanent but discontinuous period, so that the employer may determine the time activities. In this contract there are not necessity by which require the employee or, if it were indefinite, of a new celebration or renovation. the worker works for as long as your account and if the conditions for this effect are given, except as may • The seasonal contract: In order to apply legitimately limit the duration of employment or specific needs of the business of the company or termination of specific causes . establishment, in an specific seasonal

requirements Under Article 53 ° of the Labor Law, employment contracts subject to special conditions may be entered 6.1.4 Hiring Foreign Staff in case of market needs or increase of production, both Peruvian companies can hire foreign staff not of them for a ﬁxed term (in accordance with the nature exceeding 20% of total employees. Remunerations of of the activity to be performed). Contracts for the foreign staff may not exceed 30% of the total intermittent or seasonal activities can be permanent payroll of the company.

6.1.1 Contracts of Temporary Nature The contracts of foreign employees must be • The contract for new activities or a new concluded in writing and for a speciﬁed term, for a business: These contracts are caused by the minimum of 12 months and maximum of 3 years start of a new business. The maximum term is renewable successively for similar periods. three years.

• The employer can be exempted of accomplishing the The contract for market needs: Entered to referred limit in case of specialized professionals or 115

P e r u technical staff, as well as in the case of management 8. Peruvian tax system and/or directional employees of a new business. The Peruvian tax system is composed by the following taxes: Employees from any country member of the Andean Community are not subject to the abovementioned 8.1 Taxes for Central Government limits, being considered as local employees. 8.1.1 Income Tax 8.1.2 Value Add Tax 6.2 Employment Beneﬁts 8.1.3 Excise Tax • Public Health Contribution (ESSALUD): in charge 8.1.4 Financial Transaction Tax of the employer and is equivalent to 9% of the 8.1.5 Temporary Tax on Net Assets employee's remuneration. 8.1.6 Custom Duties

• National Pension System (SNP) or Private Pension 8.2 Taxes for Local Governments System (SPP): in charge of the employee and is • Real Estate Transfer Tax equivalent to 13% - 12.75% of the employee’s • Real Estate Tax remuneration. • Tax on Vehicles

• No Sports Public Entertainment Tax • Life Insurance: in charge of the employer and • Tax on Games applicable to employees with more than 4 years. • Tax on Gambling • Compensation for unfair ﬁring: 1 ½

remuneration per worked year with a maximum 8.3. Other taxes of 12 remunerations. • Tax of Garbage Disposal and Maintenance of Parks

• Special Contribution of Public Works • Compensation for Time of Service (CTS): in • charge of the employer and is equivalent to 1 Municipal Taxes • remuneration each year. The employer must Social Security Contributions, if applicable deposit the CTS in an especial bank account • Housing Fund Tax- FONAVI opened on behalf of the employee. • Technical Training– SENATI • Construction Industry (SENCICO) • Vacations: 30 days for each complete year of service. 8.4 Income Tax-General Regime: Applicable on proﬁts originated from the use of capitals, from the • Two (2) legal rewards per year, one in July and work and from business activities . one in December of each year, equivalent to a monthly remuneration. For tax purposes, income is divided into ﬁve categories:

• Distribution of the net income among • First Category: lease or sub lease of goods and employees: equivalent to a percentage that real estate. varies between 5% and 10% of net income, depending on the type of activity they perform. • Second Category: interests, royalties, patents, Companies with fewer than 20 employees are capital gains and others. not required to distribute the net income. • Third Category: Business, industrial, and services The minimum remuneration in Peru is PEN 850 Soles activities. (approximately USD 258). • Fourth Category: fees for the development of 6.3 Outsourcing any profession, science or art. Companies established to perform specialized activities or services, at their own risk, using their own financial, • Fifth Category: remunerations and salaries technical and human resources, being responsible for obtained within a labor relationship. the results of their activities. For jurisdictional purposes, there are two types of 7. Exchange Rate Regime taxpayers, the resident and non-resident. The first ones The Peruvian State guarantees the free possession, use, are taxed on their worldwide income, while the second and disposition of the foreign currency. It also ones, including permanent establishments of foreign guarantees the free convertibility of the national companies, are taxed on their Peruvian source income. currency to a single exchange rate. There is no tax on currency exchange. Residents are required to make monthly advance payments along the fiscal year. The payment performed

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P e r u by a non-resident via withholding is of immediate corporation (CFC) located in a tax-haven jurisdiction or realization. countries when the Income Tax rate is less than 22.5 %. They will be taxed in Peru by passive incomes For the Income Tax purposes, a foreign individual will (dividends, leases, royalties, capital gains and interests) be considered as resident in case he stays in the obtained by CFC, attributing these incomes as their country for more than 183 calendar days during any own. period of 12 months.

8.4.1 Corporate Income Tax In the general regime, the corporate income tax applicable to residents is determined by applying the rate of 28% (2016), and since 2017: 29.5% on net income.

In the case of non-residents, different rates are applicable according to the source of income on gross income.

For services provided by non-resident entities that are classiﬁed as Technical Assistance, the applicable rate is 15% on the gross income and required of a report from an auditing ﬁrm certifying that technical 8.4.3 Mutual Funds and contributions for non- assistance has been provided effectively if the pension consideration for the service is in excess of 140 UIT Since the year 2013, the pension fund management (S/.3,950 for the 2016, and S/. 4,050 for 2017). companies and mutual fund management companies should have witholding the Income Tax when the This report can be elaborate by resident companies participation fees will be sold or redeemed. with current registration in the Audit Company Register in an Public Accountants School or other audit Therefore, the type of investment (shares, sovereign companies empowered according to the country where bonds, corporate bonds, bank interest and others) that are established. performed the mutual fund is not considered to determinate the quality or source income of the sharer. 8.4.2 International Fiscal Transparency System . Since the year 2013, Peruvian Income Tax introduced the International Fiscal Transparency System to avoid 8.4.4 Income Tax on Individuals the reduction of the Income Tax taxable through the The income tax payable by resident individuals is application of international tax planning. determined by applying to the sums of labor net income and the following cumulative progressive scale This new section of the Peruvian Income Tax applies to to the total net income originated from work and Peruvian residents who own a controlled foreign foreign source income:

Sums

UIT: Reference Unit Tax, whose value for 2016 is S/. 3,950 and 2017 is S/. 4,050.

Dividends and other type of proﬁt distribution received from legal entities are subject to withholding tax at a rate of 6.8% (2016) and 5% since 2017, which is a deﬁnitive payment.

In case of non-resident individuals, they will be subject to tax for their Peruvian source income according to the following rates:

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Type of Income Rat 6,8% Dividends and other type of proﬁt distribution, except those listed in paragraph f) of Article 10 of the (2016), Law. 5.0% (2017

Income from the sale of real estate Interests. If the operation is involves related parties or the beneﬁciary is located in a tax haven, the applicable rate is 30%.

Capital gains derived from the sale of securities held abroad.

Other income derived from capital Income from business activities Remunerations and salaries

30%

8.5 The Value Added Tax (VAT) • The first sale of real estate made by the The value added tax is technically structured as a Value construction company. Added Tax, being applied to each stage of the production and commercialization of goods and • The import of goods. services, being the final consumer, who finally takes the From 01st August, 2012 the sale of “future goods” total tax burden, as befits the indirect taxation. and sale transactions subject to a “suspensive condition” (whereby the payment is made prior to the The applicable rate is 16% plus 2% for Municipal existence of the good) have been included as Promotion Tax, both by the total of 18% applicable to transactions subject to VAT. the incomes perceived to operations taxed by the VAT. Likewise, earnest, deposits and guarantees that are This tax applies to the following operations: delivered to the provider as a consequence of a sale, service or construction agreement, will also be subject • The sale of goods located in the country. to VAT if those exceed 3% of the purchase price agreed by the parties in the particular transaction. • The use or rendering of services in the country. The Peruvian VAT Law regulates the non-taxable • Construction contracts. transactions, for example the export of services, whose treatment is summarized in the following chart:

Transaction From 08.01.12 Maintenance and repair of furniture to non-domiciled Managing investment portfolios in the country to non-domiciled Complementary services of international freight in primary zone to non-domiciled

Services part of tour package in favor of the agencies tour operator or non-domiciled.

Data processing services

VAT: 18%

The payable tax will be determined based on the difference between the VAT applicable on purchases and the VAT charged on sales.

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8.6 Financial Transactions Tax (ITF) application of the method of comparable This tax is applicable on any transaction or operation non-controlled regulated price, in item 1), item made within the banking system, in domestic or e), to export or import operations of goods and foreign currency. The rate is 0.005% and is a services whose prices are known in the local or deduction from the Income Tax. destination market including derivative financial instruments. 8.7 Temporary Tax on Net Assets (ITAN) This tax is Applicable to business activities. Is ap- • A new method to be used in the determination plicable on the net assets at the December 31th of last of prices regulated in number 7) of the year and the obligation arises on January 1st from each aforementioned subsection e) is incorporated. year. The tax is equivalent to 0.4% of the value of net This method will be applied, not because of the assets exceeding US 1 million. nature and characteristics of the activities or transactions, it is not appropriate to apply 8.8 Mining Taxation existing methods (provided for in paragraphs 1 The Law 30230 published in July 02 th, 2014 modified to 6 of item e). Its regulation will be established the 82 Article of the General Mining Law. Also, the in the Regulations of the Income Tax Law. 82-A and 83-B Articles were incorporated. • A new subsection i) is added to article 32-A of A relevant modification is the 83-B Article, it was the LIR, regulating the operations of services incorporated by the Law 30230 that determines the between related parties that had "low added extent of tax stability to additional investments when value" according to the characteristics that are they gave for not less than US $ 250 million amount, detailed. By means of regulation, the services among other requirements. that qualify as such and which are not.

The Executive has consider that that amount is not • Regarding the informational affidavit of Transfer appropriate since in trying to predict with certainty the Pricing provided for in subparagraph g) of article amount of additional investment after initial 32-A of the LIR, the obligatory compliance with investment; and also are associated with the the presentation of the affidavit of transfer investment project, it would be ignoring a large pricing information by the subjects is mandatory. number of additional investments for smaller amounts Obligors, according to the amount of income that are essential for the development of the mining accrued during the year. activity in the country. Thus, it is planned to present two types of informative For this reasons, it was agreed to change the minimum statements: amount of the additional investment of US $ 250 million to US $ 25 million. In the Eight Complementary Subjects whose income exceeds 2300 ITU: Provision the Law establishes the resignation of the They are obliged to submit the Transactional companies that had signed stability agreements, they Affidavit of Transfer Prices - Local Report and will require the resignation of the contracts or must consider transactions that generate taxable agreements that they had signed their shareholders or income and / or deductible costs or expenses. By investors for investments in companies that choose to Resolution of the Superintendence SUNAT may give up to the stability to benefit from the provisions require the presentation of said statement identified. regarding transactions exempted, unaffected and non-deductible costs or expenses for 9. Transfer Pricing determining the IR. The presentation of this type In order to adapt the existing national legislation to of declaration will be obligatory from the year international standards and recommendations issued 2017. by the Organization for Economic Co-operation and Development (OECD), regarding the exchange of Subjects belonging to an economic group information for tax purposes, international taxation, and whose income accrued in the taxable erosion of tax bases, transfer pricing and the fight year exceeds 20,000 ITU: They are obliged against tax evasion was published on December 31, to present the Affidavit Transfer Pricing - Master 2016, Legislative Decree No. 1312, effective since Report and should detail the organizational 01.01.2017, in order to amend article 32-A of the structure, business or business description and Income Tax Law, in whose text establishes the Transfer pricing policies on intangibles, group guidelines for determining the market value of financing, financial position, and taxation. The transactions between related parties. presentation will be annual as indicated in the regulations. The presentation of this type of • New guidelines are established for the declaration will be obligatory from the year

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2018. declaration will be obligatory from the year 2018. Subjects that are part of a multinational group: They are obliged to submit the The information provided through these declarations Transfer Pricing Afﬁdavit - Country Report by will be used by SUNAT in the exercise of its functions Country and must report the global distribution and for the exchange of information according to the of income, taxes paid and business activities of international treaties or decisions of the Andean each entity Belonging to the multinational group Community, being bound to the rules of conﬁdentiality that develop their activity in a country or and information security indicated in the same. territory. The presentation of this type of

1. Income Tax 1. Income Tax

5. Financial Transaction Tax 5. Financial Transaction Tax (ITF) (ITF) Real State Tax Temporary Tax on Net Assets Real State Tax

Municipal Taxes Municipal Taxes

10. Agreements to avoid double taxation 11. Legal and Tax Stability Now, there are agreements to avoid double taxation Through the subscription of a contract, the State may signed with Chile, Canada, Brazil, México, Portugal, grant legal and tax stability. Switzerland and Korea. Also, the agreement signed with Spain is in the process of ratiﬁcation by the There is a system of general legal stability, including Congress. stability of the regime of income tax, which is accessible for investors, both domestic and foreign, and domestic In addition, for investments performed between companies receiving investments. countries member of the Andean Community, it is applicable the agreement to avoid double taxation In order to promote the development of productive contained in Decision No. 578. investments, there are other promotional regimes that include tax stability, such as mining, hydrocarbons and petrochemicals.

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1. Contact Information Moore Stephens ULA, SRL

1.1 Address Avenida Pedro H. Ureña Núm. 150 Torre Diandy XIX, tercer piso La Esperilla, Santo Domingo, R.D.

2. Professionals

Lic. Pedro Urrutia Executive Director [email protected]

Licda. Joseina Liriano Managing Partner the House of Representatives. [email protected] • The Executive: The Constitution establishes that Lic. Lazaro Arias the Executive Power is exercised by the President Outsourcing Partner of the country, elected every four years by direct [email protected] vote. The President may opt for a second consecutive single constitutional term. 3. Country Proﬁle The Dominican Republic is located in the center of the • The Judiciary: The third power of the state is, Caribbean, sharing with Haiti the island of Hispaniola, according to the Constitution and laws, the with an area of 48,442 km². It is the second largest institution responsible for managing justice nation in the Caribbean, occupying two thirds of the through special committees called “Supreme island. Court”. Its function is to ensure the protection or guardianship rights that have been established in Thanks to its geographical position, it enjoys a the norms or laws. The set of all these courts competitive advantage because of its easy access for constitute the Judicial Branch. North and South America, the Caribbean and the European continent. It's an independent and sovereign 4. Investments country, committed to the sustainable development of Dominican Republic is a country with excellent its people and its resources, geared toward investment opportunities due to political and social globalization. stability, offering multiple business opportunities. Statistics show that it is a country with a steady growth Santo Domingo is the capital of the country, founded in in the various business areas. Economic indicators show 1496. Dominican Republic is a country of young people that growth is sustained by the dynamics of the discovered by the Spanish. Declared its independence Dominican economy. on February 27th, 1844 and in 1966 began the process of democratic consolidation. As of this date, the The Dominican Republic has developed a physical country has carried out thirteen electoral periods, infrastructure for the requirements of a company alternating power between the three main political focused on the production and marketing of goods and parties. services:

3.1 State Powers • Roads that link all destinations within the country. The structure of the government system of the • 8 international airports. Dominican Republic is composed of three main state • 11 ports, in which the DP World Caucedo is powers: located, world class terminal, located in Punta Caucedo, 25 kilometers from the city of Santo • The Legislature: Within the constitutional Domingo, capital of the Dominican Republic. hierarchy, the legislature power is the ﬁrst power • Telecommunications systems provided by private of the state. It is represented by the Senate and suppliers, ranked among the most advanced and

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efficient worldwide. • Tourism. • Agriculture. 4.1 National Investment Regulations • Mining. For the past years, some laws have been revised or • Construction. approved, as well as some institutions have been • Electricity. created to promote foreign investment and national competitiveness, under a favorable legal environment, 4.2 Procurement including: Ley de Contratación Pública (Public Procurement Law) is to establish the general principles and rules governing • Centro de Exportaciones e Inversión (Export and public procurement, related to the goods, works, Investment Center ~ CEI-RD), whose mission is to services and concessions from the State, as well as promote the attraction of foreign capital by detailed rules within each specialty that can be strengthening the overall investment atmosphere. considered. The Sistema de Contratación Pública (Public Procurement System) consists of these principles, • Consejo Nacional de la Competitividad (National standards, and governing bodies used by government Council of Competitiveness), whose mission is to agencies to purchase goods and services, hire public formulate, implement, and develop the competitive works, and giving concessions with public funds. strategies of the main productive sectors of the economy. They are subject to regulations provided under this Law and its rules, public sector agencies that comprise the • Adoption of the Law on Prácticas Desleales del following institutional aggregates: the Central Comercio y Medidas de Salvaguardas (Unfair Trade Government; the autonomous decentralized institutions Practices and Safeguard Measures), which financial and non-financial; the public institutions of the establishes the rules of behavior of economic social security; the municipalities and the National agents to promote free competition and prevent District; the non-financial and financial public distortions caused by unfair trade practices. enterprises, and any other entity that hires the acquisition of goods, services, works and grants from • A law, which declares national priority to the public funds. sectors belonging to the textile, clothing and accessories chain; skins and leather footwear 4.3 Corporate Regime manufacturing, creating a national regulatory The Ley General de Sociedades Comerciales y Empresas regime for these industries. Individuales de Responsabilidad Limitada (Corporations and Individual Limited Liability Companies General Law) • Adoption of the Ley General de Defensa de la number 479-08 which came into force on December Competencia (General Law on Protection for 11, 2008 modernizing the corporate regime of the Competition), which confirms and recognizes the Dominican Republic mainly because it introduces three constitutional right for free enterprises, trade and new vehicles in order to conduct business in the industry, supporting the economic efficiency, country: effective competition, and good commercial faith. • Sociedades en nombre colectivo, General partnership; • Ley de la Competitividad e Innovación Industrial • Sociedades en comandita simple, Limited (Competitiveness and Industrial Innovation Law), Liability partnership; enacted in order to create a new institutional • Sociedades en comandita por acciones, Limited framework allowing the competitive development partnership by shares of the manufacturing industry, proposing policies • Sociedades de responsabilidad limitada (S.R.L.) and support programs that encourage the renewal Limited Liability Companies”; and industrial innovation. • Sociedades anónimas (S.A.), Corporation incorporated • Ley de Sociedades Comerciales y Empresas • Sociedades anónimas simplificadas (S.A.S) Individuales de Responsabilidad Limitada Simplified Corporations; (Corporations and Individual Limited Liability And: Companies Law), proposing a modernization of the • Sociedad accidental o en participación, Joint regulation on corporate matters in the country. venture; • Among the main investment areas are: Empresa individual de responsabilidad limitada (E.I.R.L.) Individual Limited Liability Companies. • Telecommunications. • Banking. This legislation incorporates corporate practices of new • Insurance. corporate figures and enterprise outline, which makes it • Duty-Free Zones. 122

Dominican Republic ideal tool for the organization and operation of companies (partnerships) to appeal to public resources business in the Dominican Republic, focused on proper for training or in order to increase capital. It is worth estate planning and adequate development within the mentioning that almost all societies of the Dominican market. Republic were organized as Corporations Incorporated (S.A.) or companies for shares in the old legal regime, General partnership (Sociedades en nombre but since a few of them had a capital of thirty million colectivo): entities with two (2) or more partners pesos (RD$30,000,000.00) or unwilling to submit to a liable for the obligation of the partnership to a limited much stricter regulation and meet additional extent, supportive and subsidiary. requirements, many have had to go through a process of transformation into Limited Liability Companies The company creditors may only pursue the payment of (SRL). social debts against an associate after putting in arrears to society by extrajudicial act. Simplified Corporations (Sociedades anónimas simplificadas): made-up of two (2) or more people, Limited partnership (Sociedad en comandita liable only for the amount of their contributions having simple): It is the one that exists under a corporate full legal rights. This type of company is designed for name and consists of one or more general partners large companies that do not capture public resources. who respond subsidiary, unlimited and joint social Its share capital shall be fixed by the statutes, which obligations, and each one or more limited partners who shall not be less than RD $ 3,000,000.00. The capital are only required to pay their contributions. will be divided into negotiable securities denominated shares, which must be paid in cash or contributions, Limited partnership by shares (Sociedad en and will have a expressed in domestic or foreign freely comandita por acciones): this society is made up of convertible currency value. various classes and series of one or more general partners, who respond in a shares may be created, including but not limited or supportive, unlimited, and subsidiary way to social preferred shares with or without voting rights. obligations, and three (3) or more limited partners, who have the quality of actions and as such, should only Accidental or venture companies (Sociedades withstand the losses in the proportion of their accidentales o en participación): They constitute a contributions. contract by which two or more individuals who have the quality of traders take interest in one or more Limited Liability Company (Sociedades de specific and transitional trade operations, which must Responsabilidad Limitada): It is formed by two or run one of them in his name alone and under his more individuals under a corporate name, with personal credit, charged to account and stakeholders contributions from all partners (called social quotas), divide their gains or losses in the agreed proportion. who are not personally liable for the debts and whose These companies lack the name, address and social liability for losses is limited to the contributions of heritage. They are not subject to formal requirements partners. It requires less capital in comparison with or registration and may be approved by all means. Corporations (the minimum capital of the SRL is one hundred thousand Dominican pesos (RD$100,000.00)), Individual Limited Liability Companies (Empresas they have a more flexible and simple corporate regime, individuales de responsabilidad limitada and are the vehicles of preference for the vast majority (E.I.R.L): It is an individual limited liability of businesses and commercial activities taking place company owned by an individual and is possessing its inside the country, especially recommended for family own self entity, with the capacity to have rights and businesses, employees and freelancers for any business obligations, which form an independent heritage and that has a single organizational structure. separate from other property of the individual owner of such company. You can perform all kinds of civil and Corporation incorporated (Sociedades Anónimas): commercial operations, services, industrial and It is formed by two or more individuals under a commercial activities. corporate name and consists exclusively of partners whose liability for losses is limited to the contributions 4.4 Foreign Companies of partners. Its capital will be represented by negotiable These are companies incorporated under the laws of a securities primarily denominated shares, which must be jurisdiction other than the Dominican Republic. Among fully subscribed and paid before issuance. The type of the provisions of the Ley General de Sociedades corporate governance defined by law is oriented Comerciales y Empresas Individuales de Responsabilidad towards transparency of financial information, with the Limitada (General Law of Corporations and Individual idea of boosting the stock market. Limited Liability Companies) Number 479-08 dated December 11, 2008 (Law 479-08) that have generated These are the vehicle recommended for large major controversies are those contained in Article 11, investments and businesses and its mandatory for which states that any foreign companies performing

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Dominican Republic legal acts or operates businesses in the Dominican rules set forth above and International Standards on Republic is obliged to make their entries in both the Auditing. This function is carried out by specialized Registro Nacional de Contribuyentes (National firms that are registered and licensed to operate as Taxpayers Registry) within the Dirección General de such by the Institute of Public Accountants of the Impuestos Internos (General Directorate of Internal Dominican Republic. Revenue – DGII) as well as in the Registro Mercantil (Commercial Register) at the Cámara de Comercio y 6. Employment system Producción (Chamber of Commerce and Production) The employment relations in the Dominican Republic corresponding. are governed by the Law number 16-92 dated May 29, 1992, commonly known as the Código de Trabajo de la 5. Audit and Accounting República Dominicana (Labor Code of the Dominican Law 479-08 "Law of Corporations and Limited Liability Republic), and its amendments, as well as its Companies Singles” provides that the operations of ‘Reglamento de Aplicación’ (Regulation commercial companies should be settled in accounting Implementations) number 258 -93. The ‘Ministerio de records in accordance with accounting principles Trabajo’ (Labor Ministry) is the agency responsible for generally accepted nationally and internationally, in implementing the labor standards. accordance with national regulations and therefore should generate information to enable the preparation 6.1 Employment Contract of financial statements reflect the financial position, Generally, any relation to a person obliging to provide a results of operations, changes in equity and cash flows personal service to another, under the authority and and disclosures to be contained in the notes to the immediate direction or delegation to this one, in financial statements. exchange of a remuneration, is considered to be an employment contract (Article 1 in the Labor Code). Not The Act also provides that any commercial company mattering if the relation is done by writing or as the that uses credit financial intermediaries, or issue any product of a purely verbal agreement. The existence of obligations or have higher gross annual income an employment contract is presumed from the fact of hundred (100) minimum wages in the public sector will service provision (Article 15). have to audit its financial statements in accordance with law and standards recognized by national Either part of an employment contract may require to regulations. It is expressly understood that the the other for the oral contract to be formalized in reference to statements audited by law, shall apply only writing (Article 19). The existence of a written when under this section a company is required to make agreement requires any changes to be made in writing their financial statements audited, although the Tax (Article. 20), in order to establish clear rules governing Code does not discriminate, indicating that any tax the workplace. It is always recommendable to establish returns must be accompanied by their respective written contracts. Audited Financial Statements. 6.2 Benefits The Institute of Public Accountants of the Dominican • Christmas Salary: The employer must pay the Republic, is the entity that law regulates the accounting employee during the month of December, the profession in the country, which has instituted the use twelfth part of the ordinary salary earned by the of International Financial Reporting Standards (IFRS), employee during the calendar year, subject to the IFRS-SME, the NIC-SP and the Clarity Auditing customs and practices of the company. Standards. Companies according to their size and sector policy must choose to use. • Vacations: Employers are required to give all workers a vacation period of fourteen days, The public interest companies regulated by: La annually, including a salary scaled as follows: Superintendencia de Valores (SIV); La Superintendencia Starting from the first to five years of service, de Bancos (SIB); La Superintendencia de Seguros (SS); fourteen days of ordinary salary, after five years La Superintendencia de Salud y Riesgos Laborales or more, eighteen days. The employee obtains (SISALRIL); La Superintendencia de Pensiones (SIPEN) the right of take vacations each time a period of are allowed to register their operations in accordance one year is accomplished regarding any with the regulations issued by the agencies said. interruption inside the company. The vacations may not be divided into periods less than one Shall additionally comply with guidelines, resolutions, week and should not be replaced by additional regulations, and procedures required by these payments of salary. organisms. One of the applicable requirements of these institutions is the submission of Audited Financial • Sharing the Benefits of the Company with Statements as of each fiscal period. The issuance of the the Employees: It is mandatory for every audited financial statements is conducted under the company to grant a share equal to ten percent

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(10%) of the annual net profits or benefits to all the remaining 30%. The employer must fund employees (Article 223). However, this 100% of the labor risk insurance and 0.4% of participation should not exceed the equivalent of the wages to contribute to the Fondo de 45 days' wages for workers who have served for Solidaridad Social (Social Solidarity Funds). less than three years, and 60 days of salary for employees with more than three years. The ones • INFOTEP: All employers must contribute 1% exempt from this participation are: a) agricultural of their monthly payroll to the Instituto de entities, industrials, forestry and mining, for the Formación Técnico Profesional (Technical and first three years of operation, b) agricultural com- Vocational Training Institute - INFOTEP), which panies whose capital doesn’t exceed one million aims at the technical training of all Dominican pesos, and c) the duty-free zone companies. employees. In the event that the employee receives the payment of the participation in the • Work Periods: The normal workweek is of 44 profits of the company, he or she must provide hours, with a normal eight-hour a day work the one percent of such payment. schedule. Common practice is to work from Monday to Friday and, in some companies, on 7. Exchange Regulations Saturday. The work hours of part-time employees The Exchange Regulation has been implemented under cannot exceed 29 hours. the provisions of the Monetary and Financial Law, in order to establish "rules, policies and procedures" 6.3 Other labor aspects governing foreign exchange transactions in our 6.3.1 Terminación Contratos de Trabajo de country, in order to maintain an environment of Empleados (Termination of Labor Contract): "competitiveness and efficiency" and to preserve price The employment contract may be terminated, among stability. This document defines the entities authorized other reasons, in which is not necessary to plead a to conduct foreign exchange operations and the rules cause; layoff, when there is a reasonable cause and by and laws to be followed by them. In addition, the mutual consent. During the first three months of work, following are highlighted notes: employees can be laid off without having to pay some sort of compensation. After this period, the employee is • For statistical, countable and similar purposes, the entitled severance depending on seniority. In case of dollar is the countable unit used to express all dismissal for a cause in accordance with the causes and foreign currencies. procedures under the Código de Trabajo (Labor Code), the employer does not have to pay any compensation • The Banco Central (Central Bank) will publish a to the worker, if the dismissal is declared unjustified; reference exchange rate of a purchase and a sale workers are entitled to compensation corresponding to prince based on the weighted average number of the termination of the contract. The employer must daily transactions by exchange intermediaries and give an advance notice of layoff to the worker in financial institutions. This resulting type of accordance with the deadlines established, in which reference exchange rate shall be applied for they can be ignored almost always the employer pays accounting, legal, and reporting purposes. to the worker the corresponding salary. These payments are not subject to tax on income. • All foreign exchange transactions must be channeled through the exchange intermediaries 6.3.2 Withholdings and Taxes and authorized financial institutions. • Income Tax: The employer has the obligation to act as a withholding agent of the income tax • The purchase of financial services by individuals and pay said amount to the tax authorities. or legal entities located in Dominican territory to Currently, the employer should only act as financial service providers from abroad, shall be withholding agent for workers who earn higher subject to the foreign exchange regulations wages than RD$399,923.00 per year or adopted or maintained by the Junta Monetaria RD$33,326.92 per month, as these are the (Monetary Board) under the current legislation. minimum wages to pay income tax. (Source: Exchange Regulation: General • Social Security: The Law number 87-01 on Provisions. Banco Central de la República Social Security requires employers and employees Dominicana). to contribute to the insurance scheme established by the Law, which provides for three types of 8. Dominican Republic’s Tax System assistance: a) health insurance, b) old-age Taxes in the Dominican Republic are governed by the insurance, disability and survival (Pension Funds), Código Tributatio (Tax Code) (Law #11-92) and its and c) insurance against labor hazards. The amendments, by implementing regulations (Decree 50- employer must finance 70% of the cost of all 13, 293-11 and 79-03), and its amendments, tax health pensions, while each employee must pay reforms (253-12, 288-04, 557-05 and 495-06), and its

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Dominican Republic amendments, and the rules issued by the Dirección • 5% on payments made by the state to General de Impuestos Internos (General Directorate of individuals and legal entities. Internal Revenue – DGII), an independent body • 10% on other income. responsible for the collection and administration of • 2% on other Withholding tax. (Norm 07-2007). taxes (Article 3 Law #227-06). • 1% on capital gain when companies or entities acquire shares and stocks. 8.1 Income taxes on individuals • 27% on donations (norm 7-10). Gravel labor income as employees or liberal exercise of • 1% of the interest paid to legal entities profession or trade, business or ﬁnancial gains and (companies) by ﬁnancial institutions (norm 13- investments abroad. A progressive tax scale of 15%, 11). 20% or 25% of the value of the income earned during the year applies. 8.5 Additional Compensations or Supplementary

Remunerations 8.2 Income taxes of companies or entities Taxes are applied to all compensation or individualized Gravel net taxable income in a given ﬁscal period. beneﬁts that an employer gives to their employees in

addition to their salaries in cash. Within the − 28% corporate tax compensation or payments made by companies that − 27% corporate tax for 2015 are subject to the payment of supplementary

remuneration are: 8.3 Advanced income tax Must be paid by individuals subject to the annual • affidavit income tax, and those presenting commercial Education coverage. • activities in their annual income tax affidavit. Life insurance, health, and pensions in addition to those stipulated by Law. • The calculation of the advanced payments for Housing allocation. individuals or entities is determined from the effective • Food subsidy. tax rate (TET= tax paid ÷ gross income). If the TET is • Special discounts and bonuses on goods or greater than 1.5%, the liquidated tax is taken as a services acquired in the same company. base; and if less than or equal to 1.5% the result of • Vehicle allocations and fuel consumption. applying the 1.5% is taken as a base for the reported • Maintenance staff. A 29% rate is applied on the income in the fiscal year. For individuals, single business value of the supplementary remuneration. owners, and undivided, the calculation of the advance payment is made from the liquidated tax paid in the 8.6 Tax on assets income tax affidavit. The resulting amount must be Taxes on the total value of assets, including properties paid in twelve equal and consecutive fees, which are a listed on the balance sheet, not adjusted by inflation deductible tax credit of the tax paid in the next fiscal and applied after the deduction for depreciation, period. amortization and provisions for uncollectible accounts; as well as net fixed assets for financial intermediaries, 8.4 Withholding Income Tax among others. Entities that act like withholding agents are public entities, commercial companies and other institutions When the value of calculated income tax (27% on net mandated by the Law, which shall deduct from the taxable income) is less than 1% of assets, the company amount payable to individuals and undivided must pay the difference as completive your annual tax successions, the amount of the appropriate tax, return. delivering to the Tax Administration within the prescribed period. Services subject to withholding tax Starting in 2015 it should be reduced to 0.5% and and tax rates are : eliminated by the year 2016, as long as the indicators and targets of the Law 01-12 National Development • 27% on remittances abroad. Strategy are met. Once eliminated this tax, the payment • 10% from foreign lending institutions. of the Real Property Tax will be applied to the legal • 10% on dividends paid in cash. entity, only will pay for 1% of real estate assets that • 10% on fees, commissions, and rents paid to have the company but in addition to income tax. individuals not performing as an employee. • 5% on awards from RD $100,001.00 to 8.7 Impuesto sobre las Transferencias de Bienes RD$500,000.00. Industrializados y Servicios (Tax on Industrialized • 10% on awards from RD$500,001.00 to Transferences of Goods and Services– ITBIS) RD$1,000,000.00. It is a general consumption tax rate, serving as an added value concept in the shape and manner • 25% on awards from RD$1,000.001.00 on- prescribed by the Law, to the following operations: wards.

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• The transfer of industrialized properties. 8.8 Real estate tax, urban housing and solar • The import of manufactured properties. sumptuary not edified (IPI / VSS). • The provision and location of services. • Taxed homes and commercial establishments in Entering into force, Law 253-12, the rate applied is urban or rural and urban areas unbuilt plots 18%, which will remain until the year 2014, it also owned by individuals. provides decreasing it to a 16% for year 2015. The Tax • A tax of 1% of total property assets which Administration may designate, as withholding agents, exceeds RD$6,752,200.00 recipients of certain services or purchasers of certain goods, accurately identifying those services and goods. 8.9 Selective Consumption Tax (ISC) It is the tax on transfers of some domestically produced Retention of 100% of the “ITBIS” is set and charged goods manufacturing level, and their importation; tele- for the following services: communication services, insurance and payments by check. • Services offered by individuals. • Rental of real estate and securities billed by This tax is paid with varying rates depending on the individuals. good or service to which it applies, among which we • Commission paid by airlines to the travel agents quote: from the sale of airline tickets. • Alcohol products: Specific amounts depending The 100% withholding tax is established for the on the amount of liters of alcohol. following services: • Snuff products: Specific amounts depending on cigarette packs and 130% for cigars • Commission paid by hotels to the travel agents, • Telecommunications services: 10% brokers, and others, when they are billed for • Checks and Electronic Transfers: 1.5 mil (0.0015) lodging, accommodations. • Insurance services in general: 18% • Other assets established by Law: Specific • Commission paid by insurance companies in amounts as good. favor of brokers, insurance agents and others, when they are billed for service brokerage. 8.10 Successions and Donations Any transfer of real or personal property by inheritance • Companies engaged in providing security or donation is taxed. A rate of 3% is applied on the services. successors’ amount and 27% on donations. The law increases by a 50% rate when the heirs are foreign or • Property or services billed by companies that Dominicans living abroad, which means that this type operate under the PST (method which helps with of heirs pays 4.5% on the inherited wealth if they have the tax compliance of the medium and small this condition. taxpayers, whether legal or natural, that can help settle the income tax based on purchases and/or income and pay the tax on the transfer of goods 9. Other taxes managed by the Dirección and services (ITBIS) based on the added gross General de Impuestos Internos (General value). Directorate of Internal Revenue – DGII) • Tax on Company Incorporations. Companies of any nature are instituted as ITBIS • Tax on casinos. withholder agents when they pay the liberal • Tax on lottery banks. professional services to other companies or non-profit • Tax on sport betting banks. societies. The applicable withholding tax for these • Tax on slot machines. services will be 30% of the billed ITBIS. Among the • Tax on telephone games. services in which the withholding taxes apply are the • following: Tax on online games. • Tax on Duty-Free Zones. • • Engineering services in all its branches, Tax on Commercial Banks, Savings and Loan architecture, accounting, auditing, law, Associations, Savings Banks and Credit and computing, management, design, consultancy Corporate Credit. • and general consultancy. Tax on motor vehicle. • • Rental on property goods. Tax on real estate transfers. • Ad-valorem tax on fossil fuels and petroleum. • Tourist Card.

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10. International Treaties, Bilateral Investment The documentation and information forming part of Agreements the declaration will contain the details of each International trade plays an important role in the transaction and the identiﬁcation of the related parties, Dominican economy. For this reason the government according to the established format. In addition, a and the private sector have made efforts to strengthen report must be submitted on the assessment process of it through regional integration, bilateral and multilateral the transfer prices agreed on with their related agreements with various countries. companies.

• Free Trade Agreement between the United If after applying the methods to determine the market States, Central America and the Dominican price that ﬁts the reported transaction, the price or Republic (DR-CAFTA). amount declared or established differs from the market price, will be by either over-or undervaluation, the • Lomé and Cotonou for EU cooperation with the Dirección General de Impuestos Internos (DGII) shall Dominican Republic, through the ACP countries proceed to challenge it, making the settlement for the (Africa, Caribbean and Paciﬁc). acquirer and the transferor.

• Letter of intent for FTA with Taiwan. 11. Special Regimes With the entry of the Law 253-12, several benefits • Economic Partnership Agreement between the were eliminated under incentive laws. CARIFORUM States and the European Union and its member states. • Law No. 158-01, eliminates the benefits established by this law granted to individuals or • Bilateral Investment Promotion and Protection of legal persons who invest directly with promoters the Kingdom of Spain, Ecuador, France, Republic or developers. of China, Argentina, Chile, CARICOM and Central America. • Law No. 108-10 encourages Film and ]Cinematography activities, it is also established 11. International Agreements that the tax credit provided in this law, shall not • Agreement between the Government of the be transferable and must be used exclusively by Dominican Republic and the Government of the the producer. United States of America, for the exchange of tax information. • Law 57-07 on Renewable Energy incentives, eliminates income tax exemptions to renewable • Agreement between the Dominican Republic and energy generators. It reduces the tax credit from Canada to avoid double taxation and prevention a 75% to a 40% over the cost of investment in of fiscal evasion with respect to taxes on income equipment to auto-producers. and capital. • For Duty-Free Zones under Law 8-90, it is • Agreement between the Dominican Republic and established a rate of 3.5% on its gross sales in the Kingdom of Spain for the avoidance of the local market. double taxation and prevention of fiscal evasion (pending approval by the Senate of the • For Trade Zones under the Law 397 as modified Dominican Republic). by the law 315, establishes a rate of 5% on gross sales. 10. Transfer Price Starting the fiscal year 2011, taxpayers reporting • Classification of Special Zones are suspended income taxes by operating with related or affiliated according to the law 8-90. companies, must submit to the Dirección General de Impuestos Internos (DGII) an informative declaration of • The refund of tax to the goods producers that enabled operations with related or affiliated parties. are exempt, are eliminated.

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The Republic of Suriname

1. Identiﬁcation of the contact ﬁrm Moore Stephens – Lutchman & Co.

1.1 Ofﬁce, address, telephone Dr. J.F. Nassylaan 25 PO Box 2457 Paramaribo, Suriname Tel.: +597 47 47 54 Fax: +597 42 57 67 E-mail: ofﬁ[email protected]

2. Professionals

Drs Michael Lutchman RA International Liason and Managing Partner [email protected]

Vice-president is chosen by a simple majority. As a head Derick de Keyzer BEd AA/CA of the government, the President appoints the cabinet Audit Technical Partner of Ministers. Suriname is divided in ten districts and [email protected] subdivided into 62 resorts. Each district is headed by a

district commissioner appointed by the President. Sharla Ramdhiansing LLM

Tax Advisory Specialist Suriname is from the cultural side considered to be a [email protected] Caribbean country and is a member of the Caribbean

Community (CARICOM). 3. Country proﬁle

Suriname, ofﬁcially known as the Republic of Suriname, The currency of Suriname is the Surinamese Dollar is a sovereign state on the northeastern Atlantic coast (SRD). However, the US Dollar and Euro are also of South America. It is bordered by Guyana to the west, frequently applied on foreign transactions. French Guyana to the east and Brazil to the south. The capital of Suriname is the city of Paramaribo. 4. Foreign Investment Regime – Types of

Companies As of January 1, 2016 the population of Suriname was The types of business entities mostly used by foreign estimated to be 545.672. As a result of the investors are the (Public) Limited Companies by Shares implemented colonial labor policy the population has a (Ltd.) and branches of foreign companies. Both the civil large ethnic diversity. The ethnic composition is as legislation (Civil Code) and the commercial legislation follows: Indians (27%), Maroons (21%), Creoles (15%), (Code of Commerce), as well as the different speciﬁc Javanese (14%) and other (Chinese, Brazilians, laws, must be taken into consideration when a Europeans etc.). Suriname is also known as a country company is established in Suriname. where various religions (Christianity, Hinduism, Islam, and Judaism) are being practiced in harmony. The following types of companies are being recognized

by the Chamber of Commerce and Industry: In 1954 Suriname became one of the constituent countries of the Kingdom of the Netherlands. On • Sole Proprietorship; November 25, 1975 Suriname became an independent • state: the Republic of Suriname. Nevertheless, Suriname General Partnership; • maintained most of the legal policies and principles of Limited partnership; the Netherlands. The official language is Dutch. • (Public) Limited Company by Shares (Ltd); • Foundation; The Republic of Suriname is a parliamentary democracy. • (Cooperative) Association; The legislative power consists of a 51-member • Branch of a foreign company. unicameral National Assembly, simultaneously and popularly elected for a five-year period. The President of Suriname is also elected for a five-year period by a two-third majority of the National Assembly; the 129

The Republic of Suriname

According to the Trade Register Act, every company The limited partnership can be established by a mutual established in Suriname must be registered in the Trade agreement. The limited partnership must also be register at the Chamber of Commerce and Industry. The registered in the Trade register at the Chamber of following companies are not obligated to register in the Commerce and Industry. Trade register: bodies governed by public law, companies belonging to minors (who are not married General partners are jointly and severally liable for the and do not have a release of pledge) and companies obligations of the limited partnership. As mentioned who are exclusively conducting activities in agriculture, above, limited partners are in principle only liable for horticulture, ﬁshery or hunting (unless the activities are their contribution to the limited partnership. The limited conducted through a corporation, foundation or partner can be held jointly and severally liable anyway association). in case he acts on behalf of the company and/or Interferes with the conduction of the business activities. 4.1 Sole proprietorship A sole proprietorship is a company that is conducted by 4.4 (Public) Limited Company by Shares (Ltd.) a (resident) natural person who is also the owner of the The (Public) Limited Company by Shares (Ltd.) is a company. The sole proprietorship is not regulated by law company with a capital divided in shares, held by its and therefore has no legal personality. shareholders. The Ltd. has legal personality.

Only a resident of Suriname can establish a sole According to the amended Civil Code it is as of August proprietorship. It is not compulsory to establish a sole 18, 2016 no longer mandatory to establish a Ltd. by proprietorship by notarial deed. The (resident) sole multilateral legal action by notarial deed; the Ltd. can proprietor can start its business activities when the be established by one person using the standard deed business permit has been granted and the company has of establishment as determined by the Ministry of Trade been registered in the Trade register at the Chamber of and Industry. The Ltd. must be registered in the Trade Commerce and Industry. The sole proprietor holds the register at the Chamber of Commerce and Industry. rights of and is liable for the obligations of the company Various documents (such as articles of association) must with all his assets; creditors can recover their claims on be filed at the Chamber. both private and company assets. With the implementation of the amended Civil Code 4.2 General partnership there are no longer mandatory minimum requirements The general partnership is a partnership for the with regard to issued and/or paid capital. conduction of business activities under a common name. The general partnership has no legal personality. As the Ltd. has legal personality, the Ltd. itself holds the rights and is liable for the obligations arisen from the The purpose of a general partnership is to gain collective activities conducted by the company. In case of financial benefits by a collaboration of two or more mismanagement the management of the Ltd. can also persons. be held liable by both shareholders and third parties; in The general partnership can be established trough a case of bankruptcy the burden of proof can be reversed cooperation/partnership agreement between two or to the management. Shareholders are in principle only more persons. The general partnership must also be liable for their paid-in capital in the Ltd., but according registered in the Trade register at the Chamber of to the amended Civil Code shareholders can also Commerce and Industry. conclude additional conditions and/or obligations in the articles of association and/or in a shareholder The partners of the general partnership can act on agreement. behalf of the company as long as the actions are in line with the purpose of the company. The partners are 4.5 Foundation jointly and severally liable for the obligations of the The foundation is a legal entity that is established by general partnership. notarial deed or will, in order to accomplish a certain purpose. The purpose is often social, cultural, 4.3 Limited partnership charitable, scientific or for a general benefit. The The limited partnership is a partnership between one or purpose of the foundation cannot consist of the more general partners and limited partners. Limited distribution of profit to its founders, directors or other partners participate in the limited partnership by a persons connected with the foundation. contribution in cash and/or kind; in principle they do not act on behalf of the company and they are in principle The foundation must be registered in the Public only liable for their contribution. The limited Foundation register at the Chamber of Commerce and partnership has no legal personality. Industry. The articles of association must also be filed at the Chamber. In case the foundation is conducting economic business activities, the foundation must also

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The Republic of Suriname be filed at the Chamber. In case the foundation is accounts consist of a balance sheet, a profit and loss conducting economic business activities, the account and the notes to the accounts. The general foundation must also be registered in the Trade register meeting of shareholders should provide an approval of at the Chamber of Commerce and Industry. the annual accounts within 8 months after the end of the company’s book year. If certain criteria are met the The foundation has legal personality and therefore the annual accounts should be registered at the Chamber foundation itself holds the rights and is liable for the of Commerce and Industry within 8 days after the obligations arisen from the activities conducted by the before mentioned approval of the annual accounts has foundation. The directors are only acting on behalf of been provided. the foundation to the extent of their authority and in accordance with the articles of association. There is currently no local act on annual accounts of enterprises stipulating General Accepted Accounting The directors of the foundation are only jointly and Principles (“GAAP”). In practice, US GAAP, Dutch severally liable for consequences related to the GAAP, International Financial Reporting Standards negligence of the registration requirements. (“IFRS”) or a combination of these are followed. The enactment of a local law on annual accounts is 4.6 (Cooperative) Association expected in the near future. The association is established by a multilateral legal action (by notarial deed). The association is a legal 6. Labour Regulations entity where the parties/ members/founders cooperate In the Labour Act the general rights and obligations in order to accomplish a certain purpose. There are two with regard to employers and employees are types of associations: cooperative associations/mutual determined. associations and all other associations. The purpose of the latter type of associations cannot be the 6.1 The Labour Agreement distribution of profit. According to the Civil Code there are three essential elements which define a labour agreement: The association must be registered at the Chamber of Commerce and Industry; the articles of association • There should be a relationship of authority must also be filed at the Chamber. between the employer and the employee; The members of an association are not personally liable • The employee is performing labour; for the actions of the association. The association itself • The employer is paying the employee a salary in is liable for its obligations arisen from the activities return. conducted by the association. The labour agreement can be determined for a defined 4.7 Branch of a foreign company period or for an indefinite period. In general there is a In general a branch of a foreign company is conducting trial period of maximum two months before the labour activities in Suriname under the name of the foreign agreement becomes enforceable. parent company. A branch has no legal personality. It is prohibited to let the employee perform labour for The foreign parent company must be established in longer than 8.5 hours per day or 48 hours per week. accordance with the legal regulations of the foreign country and the branch must be registered in the Trade For certain types of jobs (such as security) a higher register at the Chamber of Commerce and Industry in maximum of working hours can be applied. For Suriname. The articles of association, the extract of overtime to be performed by employees, the employer/ registration of the foreign parent company and the company must have a permit. Furthermore, it is letter of employment of the branch manager must also mandatory by law that the employee who worked more be filed at the Chamber of Commerce and Industry. than five hours should get a break for at least half an hour. The branch is subject to the legal regulations of Suriname and is also tax liable in Suriname. The branch 6.2 Payment manager is in charge of the activities conducted by the Starting from January 1, 2015 the Minimum Hourly branch. The foreign parent company holds the rights of Wage Law has been implemented. According to this and is liable for the obligations of the branch. Law the minimum hourly wage is SRD 5,22 in 2016. For certain types of companies (such as security companies) 5. Audit and Accounting there is higher minimum hourly wage. The minimum According to the Commercial Code, the management hourly wage is raised every calendar year. of a Public Limited Company is responsible for the preparation of annual accounts within 8 months after For overtime 1.5 times the wage must be paid in case the end of the company’s book year. The annual the overtime was performed on working days. In case

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The Republic of Suriname the overtime was performed on Sundays and/or wages by the employer and accordingly remitted to the holidays, 2 times the wage must be paid to the Government. Residents of Suriname with a Surinamese employee and in case the employee is not compensated nationality are entitled to the Old Age Premium when with other rest days in replace for the days worked on the retirement age of 60 years has been reached. Sundays and/or holidays, the employer is obligated to Residents of Suriname with a foreign nationality are pay 3 times the wage to the employee. entitled to the Old Age payment when the retirement age of 60 years has been reached and they contributed There is no obligation by law to pay an annual bonus. for at least 10 years to the Old Age Fund.

6.3 Vacations Employers are also obligated to insure their employees According to the Vacation Law the employee is entitled for accidents related to labour. The premium for the to a minimum of twelve vacation days per calendar year accident insurance is determined based on the day (one day for each month worked) with preservation of salary of the employees and the function (office/ the wages. In each subsequent year the number of fieldworkers etc.). vacation days will be raised with two days per calendar year with a “maximum” of 18 vacation days. Employers 6.5 Unions can provide more vacation days than prescribed by law. The Collective Labour Agreement Act states that only labour unions and employers can conclude a collective The employee who is entitled to vacation days is also labour agreement. In the collective labour agreement entitled to vacation allowance. The vacation allowance additional rights and obligations can be determined for is minimal 50% of the wages over the period of the the employees. vacation days. 7. Exchange Controls 6.4 Social security and insurances A foreign exchange commission is in charge of the In general social security premiums are shared by the foreign exchange control. In principle, permission from employees and the employer. the foreign exchange commission (“FEC”) is needed for the transfer abroad of capital (such as dividend According to the Health Care Law every resident of distributions and interest payments on loans) and for Suriname is obligated to have a health insurance. In providing loans by a resident to a non-resident and vice case of employment the employer is obligated to versa. For the import of capital, no permission is contribute a minimum of 50% of the health insurance needed from the FEC. Payments abroad to foreign premium. The other 50% of the health insurance suppliers on goods, services etc. should take place premium is withheld by the employer on the wages of through the commercial banks. Although certain the employees and accordingly remitted to a health conditions (administrative) should be met, no specific insurance company. Foreign employees who can be permission is needed from the FEC. As a result of the considered to be residents of Suriname (such as expats) various stipulations with regard to the prohibition of are also subject to the stipulations of the Health Care discriminatory restrictions under the CARICOM treaty, Law. certain restrictions on the movement of capital in the CARICOM have been waived by Public Decree by the According to the General Pension Law every working FEC. resident of Suriname is obligated to participate in an approved Pension Plan in accordance with the The foregoing is not an exhaustive treatment of the stipulations of the General Pension Law. The employer foreign exchange control regulations, but deals with is obligated to contribute a minimum of 50% of the some relevant provisions. Because of the complexity of pension premium. The other 50% must be withheld the foreign exchange control provisions, a more from the wages of the employees by the employer. The detailed outline of the relevant foreign exchange total pension premium must accordingly be remitted by control regulations can be provided, if needed. the employer to a pension insurance company. Foreign employees working in Suriname who can be considered 8. Tax System to be residents of Suriname are also subject to the In Suriname the following taxes are currently stipulations of the General Pension Law. The (foreign) applicable: employee who reached the retirement age of 60 years and who contributed to the Pension Plan for at least 5 • Corporate Income tax years is entitled to the pension payment. • Personal Income tax • Wage withholding tax Besides the pension premium of the General Pension • Net wealth tax Law there is also an obligatory Old Age Premium (4% • Turnover tax of the wages) due by the employee who is a resident of • Import, export and excise duty Suriname. The Old Age Premium is withheld from the • Stamp duty 132

The Republic of Suriname

• Stamp duty (such as labour performed in Suriname and rental • Rental value tax income derived from real estate in Suriname). No • Various gambling taxes (raised corporate income municipal or other local taxes are imposed on income. tax, lottery tax, casino tax) A non-resident tax payer is according to formal Surinamese Tax Law as of day one liable for Surinamese 8.1 Corporate Income tax individual income tax purposes. Companies resident in Suriname are subject to corporate income tax which is levied on their Individual tax payers are also obligated to file annual worldwide income after deduction of business expenses provisional and final personal income tax return. The and possible tax losses. The basis for assessment of a provisional income tax return must be filed within 2.5 resident company’s corporate tax liability is the amount month of the current tax year and the final income tax of profit remaining after certain deductions and a return within 4 months after the end of the tax year. possible relief for tax losses. Surinamese Tax Law defines “profit” as “all the benefits derived from the The tax rate for the individual tax payer is a progressive carrying on of an enterprise, regardless of the name or rate from 0 – 38% divided in the following brackets. form of the benefits”. Profit includes income from all Taxable income in SRD Tax rate sources, domestic and foreign (such as profit derived From To from a foreign permanent establishment and dividends received from a foreign subsidiary). 0 2,646 0% 2,646 14,002.80 8% Non-resident companies are taxable only on income 14,002.80 21,919.80 18% derived from a permanent establishment (branch of a foreign company), income from immovable property 21,919.80 32,839.80 28% located in Suriname and certain other types of Above 32,839.80 38% Surinamese source income such as interest received on loans secured by a mortgage of real estate located in In the calculation of the taxable income of a resident Suriname. The Surinamese Tax Law also has stipulations individual tax payer a tax free amount of SRD 2,646 with regard to deemed profit derived from a applies. In addition there is a maximum deductible of permanent establishment for instance for exploring and SRD 125 per month (SRD 1,500 per year) applicable in exploiting natural resources in Suriname. calculating the income tax. A fixed deduction can be Companies who are conducting business activities in applied for general work expenses equal to 4% of the Suriname are obligated to file annual provisional and gross salary payments with a maximum of SRD 1,200 final corporate income tax return for respectively the per year both for a resident and a non-resident tax current tax year and the past tax year. Within 2.5 payer. In case the employer can substantiate that the months of the pending tax year a provisional corporate actual work expenses of the employee are higher than income tax return should be filed based on an estimate the fixed deduction, the actual work expenses can be of the company’s/branch’ taxable profit of the current year. deducted from the gross salary. The corporate income tax due on this estimated profit should be paid in 4 equal installments during the 8.3 Wage Withholding tax current year. A final corporate income tax return should In general, personal income tax in respect of be filed within 6 months after the end of the employment income is withheld from wages and salary company’s/branch’ tax year accompanied with a payments. All employers in Suriname (including balance sheet and profit & loss account. branches of foreign companies) should deduct wage The corporate income tax rate for resident companies tax from wages, salaries and other taxable and Surinamese branches of foreign companies consists remunerations paid to both resident and non-resident of one flat rate of 36%. employees. The withheld wage tax must accordingly be remitted at the tax authorities on (normally) a monthly If certain conditions are met, a Surinamese company or basis as determined by the employer. Therefore, a permanent establishment can request to report its withholding, filing and payment liability exist for the annual tax accounts and results in another currency than the Surinamese Dollar. employer with regard to wage withholding tax.

8.2 Personal Income tax The wage withholding tax return should be ﬁled Resident individual tax payers are taxed on their ultimately on the 7th working day after the end of the worldwide income while non-resident tax payers are month the wage period is ended. taxed only on speciﬁc sources on income in Suriname

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The payment of wage withholding tax should also take Taxable performance Tax rate place ultimately on the same date. Delivery of goods 10%

The applicable wage withholding tax rates are equal to Speciﬁc rendered taxable services 8% the personal income tax rates (0 - 38%) and the Importation of goods 10% deductions also apply accordingly. Exportation of goods 0%

8.4 Dividend withholding tax Note: the deliveries of certain basic necessities are subject to a Dividends distributed by a Surinamese company to its zero rate and the importation of certain luxury goods are (foreign) parent company are subject to 25% dividend subject to a raised rate of 25%. withholding tax. This tax is like the wage withholding tax also an advanced levy to personal income tax. A If a foreign company performs taxable services in withholding, ﬁling and payment liability exist for the Suriname to a Surinamese company, the turnover tax is distributing company. Under tax treaties this rate is not due by the foreign company but by the Surinamese normally reduced to a lower level. company (reversed charge mechanism).

If certain conditions are met a participation exemption The turnover tax return must be filed and accordingly is applicable; dividends received by a Surinamese paid before the 15th following the tax month. resident company from a resident company are then not subject to dividend withholding tax. The current government has the intention to implement a Value Added Tax (VAT). At first the new VAT Interest, royalties, management fees, fees for technical legislation was supposed to be introduced as of January assistance etc. paid by a Surinamese company to a 2014 but the implementation was postponed until company abroad are according to the current further notice. According to the latest information the applicable laws not subject to withholding taxes. intention is to implement the new VAT legislation as of January 2018. The new VAT legislation is supposed to No withholding tax is imposed on profit distributions by replace the current applicable turnover tax legislation. a branch in Suriname. 8.7 Import, export and excise duties 8.5 Net wealth tax Import duties are imposed on most imported goods In addition to personal income tax, individuals resident and materials at rates varying from 5 to 45% of the cif in Suriname are subject to tax on the value of their net value. Import duties on machinery, spare parts, raw wealth as of January 1 of each year. Taxable wealth for materials etc. are in most cases 5% of the cif value. this purpose is the total value of the tax payer’s net assets except for certain items such as life insurance Apart from the import duties, two special duties known policies and cash value of pensions. Non-resident as the “statistics” duty (0.5%) and the “consent” duty individuals are only subject to the net wealth on certain (1.5% on import and 0.1 on export) are imposed on assets situated in Suriname such as immovable import and export of goods and material. property. The rate of the net wealth on both residents and non-residents is 3 promille of taxable wealth. There An excise duty is charged on local distillates at varying are certain exemptions for single persons and for rates. A turnover tax is imposed at varying rates on the married individuals. sale of beer, soft drinks, tobacco, cigarettes and motor gasoline. 8.6 Turnover Tax Currently a turnover tax is applicable in Suriname. The 8.8 Stamp duty turnover tax is levied on: Among others, the transfer of movable goods by written documents and immovable goods are subject • Goods produced and delivered by entrepreneurs to stamp duty at varying rates. within the scope of their business; 8.9 Rental value tax • Specific listed taxable services (Shedule I of the A rental value tax is levied on the imputed rental value Turnover Tax Act) rendered by entrepreneurs of buildings. The applicable rate is 6% of the imputed within the scope of their business; rental value. A tax exempt amount of SRD 50,000 • The importation of goods. applies. The rental value tax is payable by the owner of

the building (the person who has the legal right of the The turnover tax rates are as follows. property). Certain buildings such as school buildings

and factories are tax exempt.

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8.10 Various gambling taxes granted by the competent authorities upon written In Suriname various gambling taxes are being levied. application.

For generated income derived from casino activities a The Investment Act 1960 also has various non-tax corporate income tax rate of 50% is applied. incentives that can be applied (for instance the granting Casino’s are also subject to casino tax on the gambling of working permits for expats) in case an investment tables and gambling machines in operation. incentive already has been granted.

There is also a lottery tax for lotteries held by holders of 10. Tax Treaties a lottery permit. In the case of the taxation of foreign income this will For generated income derived from casino activities a normally result in double taxation. Surinamese Tax Law corporate income tax rate of 50% is applied. contains a provision for the granting of unilateral relief Casino’s are also subject to casino tax on the gambling for foreign tax by the issue of a decree. Up to now such tables and gambling machines in operation. a decree has never been issued.

There is also a lottery tax for lotteries held by holders of Suriname has a tax treaty with The Netherlands and a lottery permit. Indonesia for the avoidance of double taxation. In the tax treaties the allocation of taxing rights has been de- 9. Investment Incentives termined and various reduced tax rates are applicable The Investment Act 1960 provides special tax incentives (for example for dividend, interest and royalties). for the following: Suriname is also a member of the CARICOM. With the • Tax holiday for a number of years; Treaty of Chaguaramas the idea of a common market • Free and accelerated depreciation; CARICOM transformed into the CARICOM single • Special facilities (reduces tax rate etc.) For market and economy. The CARICOM also concluded holding, investment, shipping and air transport various (tax) treaties with other non-CARICOM companies; countries. The agreement among the Governments of • Full and partial import duty exemption. the CARICOM member states for the avoidance of double taxation has not yet been ratiﬁed by the For every special tax incentive various qualifying Government of the Republic of Suriname. conditions are applicable. The special tax incentives are

135

Ur u g u a y

Oriental Republic of Uruguay Updated to December 31,2015

1. Identiﬁcation of the contact ﬁrm Moore Stephens – Posadas, Posadas & Vecino

1.1 Ofﬁce, address, telephone Juncal 1305 21st ﬂoor,11000, Montevideo - Uruguay

1.2 Professional specialists

Cr. Francisco Obes Managing Partner [email protected]

Cra. Ximena Furtado Auditing Partner [email protected] generic incentives.

Cr. Daniel González Cotelo 2.2. The framework of the economic policy Taxation Partner There are no restrictions on the free entry and exit of [email protected] foreign currency in Uruguay. Foreign currency can be freely exchanged and all foreign currencies are legal 2. Country proﬁle tender (this allows the awarding of contracts in any With a geographic area of 176,215 sq. km and a currency). Local and foreign investors are considered population of 3.3 million inhabitants, Uruguay is one of equal under the law. the smallest countries of South America. Its economic annual growth is around 5.0%. 2.3. International trade agreements In 1991, Argentina, Brazil, Paraguay and Uruguay Uruguay has a legal system based on written laws signed the MERCOSUR Treaty, which creates a single approved by the Parliament and promulgated by the free trade market with a common external tariff, which Executive branch. The country is politically organized as varies between 0% and 23%. The Treaty establishes a presidential system divided into three independent free movement of goods, services, people and capital branches: Executive, Judicial, and Legislative. between member States, eliminating customs duties.

Uruguay is politically divided into 19 departments, each Taxes within MERCOSUR countries are almost 0% for with its own Departmental Government which is com- most products (there are exceptions) provided that posed of a Mayor and a Departmental Board, both products from those countries comply with origin reelected by democratic vote. quirements. Bolivia and Chile have partially subscribed to MERCOSUR and have preferences regarding interna- 2.1 Foreign investment tional trade. The Government promotes investments and has a specific policy to attract foreign investment. The countries that subscribed the MERCOSUR have also signed agreements with other parties such as Israel, The general regime is fully open and, from a fiscal tax India and the Andean Community. Uruguay also has a point of view, it does not discriminate between foreign free trade agreement with Mexico that provides import and local investors. Foreign investors are entitled to the and export tax benefits. same incentives as local investors. Uruguay has recently signed an agreement on No authorizations are required for foreign investment in economic cooperation, trade and technology with the Uruguay. State of Qatar.

The incentives available to foreign and local investors 3. Commercial entities are focused on the creation of jobs, the establishment Commercial companies are regulated by law Nº 16.060. of high-tech industries and the increase in exports. According to regulations, companies may carry out Tax exemptions for certain investments are the most activities under different legal forms, among which are

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Ur u g u a y corporations and branches of foreign companies. Social capital shares are nominative.

3.1. Corporations SRL’s are managed and represented by one or more Corporations must be incorporated by at least two individuals, partners or not, and appointed in the incor- founders (national or foreign). The incorporation poration minutes. In general, resolutions from partner includes the approval of its bylaws by the Government; meetings are adopted by those who possess the majori- their inscription in the Public Trade Registry and publica- ty of the social contributions of capital, in cases where tion in the Ofﬁcial Journal and another private newspa- there are less than 20 partners. If there are 20 or more per. partners, resolutions, in general, are adopted by simple majority of votes of the present partners, computed After the incorporation process is complete, the share with a vote by contribution (in this case the system is capital may be owned by a single shareholder and may identical to that of Corporations). be issued in registered or bearer shares. In this regard, under new legal obligations, those who choose to incor- 3.3 Branches of Foreign Companies porate with bearer shares must communicate to the Uru- Branches of foreign companies may carry out business guayan Central Bank (BCU) certain information relating in Uruguay subject to the bylaws of their headquarters. to the Directors, the company capital and shareholders, They must be registered in the Public Trade Registry along with other information relating to the corporate and its incorporation must be published in the Ofﬁcial standing; failure to comply with this obligation would Journal and another private newspaper. They must also lead to sanctions. be registered with the Tax Authority and the Social Welfare Bank. The company has three corporate bodies: the Board, the Shareholders Meetings (ordinary – AGOA and extraordi- 4. Taxation of legal persons nary - AGEA) and the Fiscal Commission or the Trustee In general, different taxes are applied only on the (optional in the case of "closed" corporations, which are activities carried out within the country, the tenure of the companies that do not offer their shares to the pub- property located within the country and the revenues lic). generated by them.

The AGOA must take place at least once a year at the 4.1. Corporate Income Tax (“Impuesto a las Rentas corporation’s domicile, to approve the year-end de las Actividades Económicas – IRAE”) ﬁnancial statements, discuss the performance of the IRAE levies Uruguayan net income of economic Board and appoint its members and the trustee of the activities of any nature (industrial, commercial, company if it were the case. agricultural and services), obtained by national companies and foreign legal persons with permanent The board may have one or more members, both establishment in the country, at an annual rate of 25%. individuals and/or legal persons, of any nationality and, domicile or residence. Company shareholders may be Uruguayan sourced income is deﬁned as all income appointed to the board and the meetings are not re- generated in activities carried out, goods located or quired to be carried out in the country. rights used economically in Uruguay, regardless of the nationality, domicile or residence of those involved in Shareholders are forced to attend the meeting and to the transactions, and the place of celebration of the vote personally or represented by an attorney in fact. legal business.

With respect to the share capital, at least 25% of the The taxable amount is determined by the difference contractual capital must be integrated at the time of between gross income and the expenses required to incorporation, there not being a minimum or maximum obtain it, which are duly documented (income and ex- capital requirement with regards to the contractual capi- penses based on the accrual regime). tal. Furthermore, only those expenses which constitute for Corporations must additionally comply with obligations the counterparty an income taxed by IRAE, IRPF, IRNR, to carry company’s books and prepare tax returns, well or by an effective taxation on foreign income, may be as with the payment of the applicable taxes. deducted.

3.2 Limited liability Companies (SRL) In the case of expenses which the counterparty SRL’s require a minimum of two capital quota holders considers taxed income at a rate lower than IRAE’s, the (partners). deduction is limited by the difference in rates.

The obligations of the partners are limited to their capital To recognize the result from exposure to inﬂation, our contributions, except regarding IRAE and wage debts. tax system sets a simpliﬁed global system that involves

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Ur u g u a y the application of the Consumer Price Index (IPC) on The exemption applies when the referred goods not the equity of the taxpayer at the beginning of the fi- have as origin or destination the national territory and nancial period, duly adjusted according to the rules also are not destined to such territory. governing IRAE. This adjustment should be recognized only in the event that inflation of the year exceeds The exemption will also apply when the goods have as 10%. their destination the national territory, but such operations do not exceed in the year a 5% of total sale of Tax losses may be deducted over a period of five years, goods in transit or stored at customs areas carried out updated by the IPPN. in this period. In that case the importer shall apply the transfer pricing regime. The existing regime of transfer prices is in line with those of other countries in the region, with the excep- If this limit is exceeded, the exemption will only apply to tion of Brazil, and is also in accordance with the guide- transactions with goods not destined for national terri- lines of the OECD. tory.

Forestry 4.2 Tax on Sale of Agricultural Property/Goods The sale of wood is exempted from Corporate Income (“Impuesto a la Enajenación de Bienes Tax if: Agropecuarios – IMEBA”) a) The forest was planted before July 2007 in forestry priority areas; or It is an indirect tax which levies the first sale of b) The forest was planted after July, 2007. In this agricultural products, carried out by producers to case the wood should accomplish certain buyers who pay IRAE, Public Entities and exporters. standards of quality. All agricultural producers must pay IMEBA, but those To be included in b), the forest must be subject to who must mandatorily contribute IRAE, will management systems with pruning and thinning that compensate their IMEBA payments against their IRAE ensure the production of wood free of knots and with obligations. In the case of small producers, IMEBA takes specific measures. The Forestry Department of the Agri- the place of IRAE as final tax. culture Ministry must qualify the forest and issue a certificate exempting the sale of each forest from Corpo- Agricultural producers who must pay IRAE as their final rate Income Tax. tax obligation (without option), are, among others, corporations and permanent branches of non-resident Off shore internacional trading companies as well as those taxpayers whose income Companies doing international trading of goods or exceeds an amount predetermined by the Executive services may determine Uruguayan source income Branch and those who obtain income from the sale of taxed by IRAE as 3% of the difference between the assets for agriculture but which are not included in IME- sale and the purchase price of those goods or services. BA.

This regime is applicable when goods have not origin IMEBA rates range from 0.1% to 2.5% of sales or or destination the national territory and the services are export prices, depending on the kind of product in utilized exclusively abroad. question.

These companies could determine the taxable amount 4.3 Net Worth Tax (“Impuesto al on a real basis or choose to pay by this ﬁctitious re- Patrimonio – IPAT”) gime. In that latest case, the only cost that could be deducted is the cost of purchasing of goods and ser- 4.3.1 Agricultural Net Worth Tax (Impuesto al vices. Any additional expenses associated to this activity Patrimonio agropecuario”) cannot be deducted. Annual tax that levies the agricultural net worth of local or foreign companies or individuals located in the coun- The application of this regime reduces the effective rate try, adjusted according to tax regulations, on the clos- of corporate income tax to 0.75%. ing date of the ﬁscal year. In order to determine the Surcharge applicable rate or, International trading trough Uruguay customs eventually, an exemption of Agricultural IPAT, it will be areas Income derived from the purchase and sale exclusively considered the rural real estate seat of the of goods of foreign origin manifested in transit or business, the movables and livestock of same (Affected stored at the Uruguayan customs area, port customs Assets). area, customs warehouses and free zones are exempt from IRAE. For such purpose, real estate must be calculated by the value set by the Dirección de Catastro (Cadastral Value).

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The movable and livestock is estimated by applying 3.100.000); and 40% on the mentioned Cadastral Value and it should − 1.5% when Affected Assets exceeds such be considered both by owners of the rural properties – amount even though they do not manage the enterprise- as − To determine the IPAT rate it must be well as by those who manage the enterprise without considered the Affected Assets individually even being the owners. when the taxpayer constitute an EAU with others taxpayers. 4.3.1.1 Taxpayer’s classification For IPAT and Surcharge purposes, taxpayers are 4.3.1.5 Valuation rules classified in two groups. Group A) taxpayers must use IRAE valuation rules for assets and liabilities. From this classification depends the possibility of be exempted from IPAT and will also determine the appli- The only exception is the rural real state that must be cable Surcharge rate. valued by the highest value resulting from comparing the Cadastral Value at 2012 actualized by the IPAGCS Each group of taxpayers has particular valuations rules with the value arising from the application of the regu- for assets and liabilities. lations of the Corporate Income Tax (IRAE).

Group A) composed by: Group B) taxpayers must use individual’s rules of a) Foreign entities; and valuation (see 4.2). b) Uruguayan companies with capital expressed in bearer or nominative titles on behalf of legal Personal companies included in Group A), under some persons. circumstances, could use valuations rules of Group B).

Group B) composed by the remaining taxpayers: 4.3.1.6 Forestry a) Individuals (residents and non-residents); and Planted areas in forestry priority zones as well as the b) Uruguayan entities with capital expressed in land affected to them are exempt from IPAT. nominative titles on behalf of natural persons. 4.3.1.7 Economic Administrative Unit 4.3.1.2 Exemption Each taxpayer must determine the value of the Affected Only taxpayers of Group B) with an amount of Affected Assets individually, and together with other taxpayers if Assets lower than 12 million of Indexed Units at the it is veriﬁed that they both integrate an Economic Ad- closing date, are exempted from IPAT. ministrative Unit (EAU).

To this end, the sum of the Affected Assets must be The EAU is a group of entities that respond to a made individually for each taxpayer or jointly with the common interest with respect to agricultural activities. rest of the members of the EAU, as appropriate. Common interest is verified when a company has or is 4.3.1.3 Affected Assets under control or significant influence of some owners The amount of Affected Assets is composed by rural on others or of the same owners. real state destined to the agricultural activity plus the movable and livestock. In the event that the sum of the Affected Assets belonging to the EAU exceeds the limit mentioned For such purpose, real estate must be calculated by the above, all of its members shall apply the rate value set by the Dirección de Catastro (Cadastral Value) determined by the EAU to calculate their Tax. for the year 2012, and actualized by the Agricultural Index (IPGCS) to the closing date. 4.3.2 Surcharge of Agricultural Net Worth Tax (“Sobretasa”) The movable and livestock is estimated by applying The Surcharge levies the agricultural net worth at the 40% on the mentioned Cadastral Value and it should closing date of fiscal year. The taxable amount is deter- be considered both by owners of the rural properties – mined by the difference between assets and deductible even though they do not manage the enterprise- as liabilities (valuated according 3.3.1.5). well as by those who manage the enterprise without being the owners. Rural real state must be valued by the Cadastral Value at 2012 actualized by the IPAGCS. 4.3.1.4 Rates The applicable rates are: The applicable Surcharge rate depends of the taxpayer − 0.75% when Affected Assets are lower than 30 classification and the amount of Affected Assets million of Indexed Units (approximately USD (considered individually or jointly with all EAU´s members). 139

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4.3.2.1 Forestry activity For Surcharge purposes, the forests value is considered as included in the rural real estate value.

The following table shows the applicable Agricultural IPAT and Surcharge rates depending of the amount of the affected assets involved and the taxpayer:

Affected assets Agricultural IPAT Surcharge From (USD) To (USD) Group A Group B Group A Group B

- 1.247.306 0,75% Exempted Exempted Exempted

1.247.306 3.118.266 0,75% 0,75% 0,70% Exempted

3.118.266 6.236.532 1,50% 1,50% 1% 1%

6.236.532 15.591.330 1,50% 1,50% 1,30% 1,30% 15.591.330 - 1,50% 1,50% 1,50% 1,50%

4.3.3 Net Worth Tax for others, non-agricultural basic rate is 22% and is applicable to most of the taxed activities goods and services in national territory. It is an annual tax that levies the net worth of Uruguayan or foreign companies located in the country The minimum rate is 10% and is applied to some basic at the rate of 1.5%, adjusted according to tax regula- food, drugs, and some hotel services. It is also applications, on the closing date of the company’s fiscal year. ble to the first sale of real estate made by IRAE contributors. Included in this latter concept is the first sale of Assets abroad and some local assets such as real estate with certain repairs. governments bond, negotiable debt securities and shares or capital of companies which are taxpayers of The tax to be paid is determined by the difference this tax are not included towards the liquidation of this between VAT invoiced and VAT purchase. tax. The latter is constituted by the VAT paid to local The taxable amount of IPAT is basically determined by suppliers of goods and services and the VAT paid in the difference between: assets located in Uruguay, opportunity of the introduction of goods into the coun- which should be valued according to fiscal regulations, try (imports). and deductible liabilities. Purchase VAT deduction is conditioned on the fact that The followings constitute deductible liabilities for IPAT the goods and services referred to are direct or indirect- purposes: The amount of the average monthly debts ly linked to taxable transactions. loans with local banks, commercial debts with suppliers of goods and services of all kinds (except debts origi- Exports of goods are not levied by this tribute. In nates on imports and debts with Public Entities who are relation to services, they are not levied by VAT only if not contributors), debts from non-due taxes (except the they are qualified as an export of services strictly men- debts for IPAT) and debts documented in bonds or de- tioned by the law. bentures with stock exchange quotation if certain conditions are met. The concept of export of services includes, among others, services provided in customs areas, provisioning of ships, as well as services provided from When the company has assets abroad, assets exempted Uruguay to companies or people domiciled abroad to from IPAT or non-included assets for IPAT purposes be used exclusively abroad. ("Non-Liable Assets"), only the deduction of Deducti- bles Liabilities exceeding the value of Non-Liable Assets The exporter of good or services retrieves the VAT is admitted. included in the purchase of goods and services that constitutes a direct or indirect cost of the exported 4.4 Value Added Tax (“Impuesto al Valor goods or services, through credit certificates issued by Agregado – IVA”) the Tax Authority. VAT levies the domestic circulation of goods, the rendering of services within the national territory, the There are certain transactions that the law has introduction of goods into the country and the value exempted from VAT, such as the movement of foreign added originated in the construction of buildings. It is a currency and securities, transfer of credits, transactions

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Ur u g u a y related to fuel, books and educational materials, water (b) Health Insurance and supply; passenger transportation services, real estate rental and interests of public securities. (c) Labour Reconversion Fund.

The agricultural products sold are not taxed by VAT. The three kinds of contributions mentioned levy both, the employer and the employees. They are also subdi- Moreover, most of the supplies and materials these vided in contributions paid by the company (Employer companies need for their production are not taxed by Contributions) and contributions payable by employees VAT. (Personnel Contributions). Personnel Contributions are deducted from the wages of the employee and deposit- However, when the goods and services purchased are ed by the company into the Social Security System. taxed by VAT at the rate of 22%, such VAT paid to suppliers can be used by the company to pay its IRAE, In general, Employer Contributions are calculated on IPAT or Surcharge. the nominal value of the wages paid to the employee, with the exception of agricultural activities, which con- If the amount of VAT paid to suppliers exceeds the tribute according to the managed hectares. amount of sales VAT, the difference can be recovered through a special mechanism in which the Uruguayan The Rates applicable on the different wage items are as fiscal authority issues certificates that can be used to follows: pay other taxes, payroll taxes and VAT invoiced by the suppliers. 4.8 Tax incentives for investments The benefits are classified into three groups: 4.5 Excise Tax (“Impuesto Específico Interno – (a) Benefits obtained automatically through the IMESI”) acquisition of certain assets, This tax levies the first sale in the country and the (b) Non-automatic benefits that depend on that a importation of certain products (vehicles, beverages, particular activity is declared of national interest tobacco and cigarettes, fuel and lubricants, etc.). Ex- by the Uruguayan Government, and ports are not levied. (c) Benefits that can be obtained by submitting an investment project approved by the Uruguayan In most cases the taxable amount is equal to the public Government. selling price of the levied assets. In other cases (drinks, cigarettes, lubricants, etc.), estimated prices on which 4.8.1 Automatic Benefits tax rates are applied, are periodically set by the Execu- Exemption from IRAE: the law allows for deductions in tive Power. the following cases:

Rates vary depending on the product concerned. The (a) 40% of the investment made in several assets, such highest correspond to vehicles, cigarettes and alcoholic as machinery, equipment for data processing and com- beverages. munications, hotel moveable assets, etc.; and

4.6 Corporations Control Tax (“Impuesto de (b) 20% of investments in the construction or Control de las Sociedades Anóminas – ICOSA”) expansion of buildings destined to industrial or hotel Corporations must pay an annual tax that is calculated activity. by applying a proportional 0.75% on a value set annually by the Executive Power. The tax to be paid for the Income exempted by these concepts cannot exceed business years ended in 2016 is approximately USD 40% of net income of the ﬁnancial year, once the ex- 450. emptions for other provisions have been deducted. Payments made with respect to this tribute are charged as payment towards IPAT generated in the business This beneﬁt can be applied only for taxpayers whose year. income in the immediately preceding year do not exceed approximately USD 1.100.000 and professional 4.7 Social Security Contributions (“Contribuciones cargo transportation companies duly registered without Especiales a la Seguridad Social – CESS”) limitation income. Companies must make social security contributions on all salary related wages paid to their employees based Exemption of IPAT, VAT and IMESI: the most important in Uruguay. investments that are exempt from (a) IPAT, (b) VAT and IMESI on imports and (c) VAT on domestic purchases There are three kinds of CESS: are: machinery and industrial installations, agricultural machinery and utility vehicles. (a) Pension Contribution, 141

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4.8.2 Activities declared promoted by the of movable fixed assets which are not Executive Branch competitive with the national industry; and d. Return of VAT for the acquisition in the domestic Within the framework of the sector promotion of the market of materials and services for civil works. investment law, activities such as those developed by public works concessionaires, tourism projects and ac- The projects are evaluated by the Application tivities developed by Call Centres have been promoted Commission, dependent of the Ministry of under certain conditions. Economy, based on the following activity indicators: Contributions Employer Employee 7,5% up to Employment generation; Geographical a max.of 15% up to a max.of decentralization; Increase in exports; Use of clean tech- Retirement USD 320 USD 640 nologies; Increase in Research and Development and Innovation (I+D+I) and sector indicators. Health insurance 5% from 3% to 8% Labour reconversion 0,125% 0,125% 5. Taxation on Individuals In this chapter we will present a brief description of: In the case of public works concessionaires, benefits of auto channelling of savings, IPAT exemption for fixed (a) Taxation applicable to natural persons not engaged and intangible assets and VAT exemption on imports or in business activities in our country; and VAT credit on domestic purchases of machinery and (b) Incomes and assets not affected to the business equipment, have been granted. activity by natural persons who carry out business activity. Furthermore, tourism projects have been granted benefits of VAT exemption or VAT credit on 5.1. Income Tax on Individuals (“Impuesto a las domestic purchases, as well as the benefit of Rentas de las Personas Físicas – IRPF”) accelerated depreciation for goods and services It is an annual tax applicable on individuals with tax destined to construction, improvement or expansion of residence in the country. projects and IPAT exemption for investments in infrastructure, civil works and fixed assets. An individual is considered a tax resident when he stays for more than 183 days in the calendar year in national The Government has also promoted the activity of territory or when he places on national territory the energy generation trough non-traditional renewable core of his activities or vital economic interests. sources such as wind, solar thermal energy, biomass, etc., and the domestic manufacturing of It shall be presumed, unless there is evidence to the equipments intended for their production. contrary, that the taxpayer has tax residence in Uruguay when the spouse and their underage Such activities have significant exemption with regards children’s usual place of residence is in our country. to IRAE, as well as in what concerns Net Worth Tax on certain fixed assets and a VAT exemption on the import Within the source of this tax are included of certain goods ands services related with the civil (a) the income from capital and the equity increases set work. by the law and (b) the labour income derived within or outside the dependency relationship. Finally, the Government has added to the list of promoted activities the introduction of natural gas in The Law classifies the mentioned income in two the energy matrix of Uruguay and Shared Services Cen- categories: ter. Category I: Capital Income. This category comprises 4.8.3 Benefits of Projects approved by the income derived from capital, equity increases and in- Government come of a similar nature. IRAE taxpayers can get important tax benefits by submitting an investment project to the Executive Category II: Work Income. This category includes Branch: income derived from work within or outside a relationship of dependency, with the exception of those a. IRAE exemption. The amount and term to have incomes levied by IRAE. the benefit depend on the rating of the project based on the activity indicators; b. Exemption of IPAT on movable property and civil 5.1.1 Category I Income (Income from capital) works; This category includes: a) Real estate capital income: c. Exemption of rates and taxes on the importation leases, subleases, rights of use, etc. of Uruguayan

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source; (b) Interest and dividends from Uruguayan ceeds a non taxable minimum (MNI), which currently and foreign sources; and c) income from equity in- amounts to approximately USD 107,000 and double creases of Uruguayan source. this amount for family groups.

The general tax rate is 12%; however the following Rates vary from 0.7% to 1.5%, depending on the level exceptions exist: of wealth as from the aforementioned MNI. The first table shows the amount of assets and rates applicable to non-resident IPAT taxpayers who do not • 3% interest on deposits in local currency or pay IRNR. The second table shows the amount of assets indexed units in financial institutions, on a and rates for other taxpayers. one-year term; interests of other investments (bonds, debentures, etc.) on a three-year term; The taxable amount is determined by the fiscal value of income of participation certificates issued by fi- the goods located in the country (with some excep- nancial trusts through IPO and listed on the Stock tions), less certain liabilities. Some of these exceptions Exchange of national entities with more than are: three-year terms. • 5% interest on deposits (local currency without • Real estate is valued by the Cadastral value; adjustment index) in financial institutions, for the • The value for motor vehicles is annually term of one year. determined by the Executive Branch; • 7% for dividends or profits paid by IRAE • The building to be used as dwelling is computed by taxpayers (except dividends or profits paid by 50% of its fiscal value. IRAE taxpayers to Uruguayan residents • The household furnishings and furniture of the originating from interest or dividends obtained dwelling are estimated by applying a percentage of abroad which are taxed at 12%); income from 10% or 20% on the value of the remaining assets. author rights on literary, artistic or scientific works. Furthermore, only liability debts with local banks and companies allowed to grant loans on a regular basis The following income among others, are exempted: that exceed the value of the assets located abroad are interest on Public Debt Titles; dividends and profits dis- admitted as deductible. tributed by IRAE taxpayers derived from results exempted from the tax; profits distributed by personal compa- 6. Taxation on non-residents nies earning less than a certain amount set by the Exec- 6.1 Non-Residents Income Tax (“Impuesto a las utive Power and the lenders of personal services outside Rentas de los No Residentes – IRNR”) the relationship of dependence that pay IRAE; increases It is a tax that levies Uruguayan sourced income of any in equity originating from rescues in the equity of enti- nature obtained by non-resident persons. The tax legis- ties contributing IRAE and IMEBA and entities exempt- lation considers non-resident any person who is not ed from such taxes in accordance with constitutional established permanently in Uruguay. regulations; income from the sale of shares to the bearer, and other social participations represented in titles In substance, there is a permanent establishment of a to the bearer, of IRAE contributing entities and entities non-resident when his activity is carried out through a exempted from such tax under constitutional regula- fixed place of business in Uruguay. tions. Income from activities carried out, property situated or 5.1.2 Category II Income (Personal Work income) rights used economically in Uruguay, regardless of the This category includes income obtained from: nationality, domicile or residence of those involved in the operations and legal business venue are considered (a) personal services in dependency relationship; and Uruguayan source.

(b) the provision of personal services outside the Also, income obtained for technical services and adver- dependency relationship. tising servies carried out from abroad to taxpayers resident in Uruguay, whenever services are affected by Rates are progressive between 10% and 30% as from whoever receives them to obtaining income included in a non-taxable minimum IRAE, are considered Uruguayan source.

5.2 Net Worth Tax on Individuals (“Impuesto al The legislation classiﬁes income in the following Patrimonio de las Personas Físicas – IPPF”) categories: Individuals and undivided estates pay this tribute when their assets calculated according to ﬁscal criteria, ex- a) business income;

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b) work income; individuals.

c) capital income; and Foreign legal persons that do not constitute a permanent establishment pay Net worth Tax at the rate of d) capital increases. 1.5% on their net worth based in our country, valued according to the rules applicable to resident entities. In the case of revenues identiﬁed in paragraphs a) and b), the taxable amount is equivalent to all of the 7. Free-Trade Zone Corporations (ZF) proceeds from these concepts. Commercial companies who obtain the capacity of users of a Free-Trade Zone are exempted from all IRNR regulations apply to the other incomes. Positive national taxes, with the exception of the CESS. and negative results cannot be offset between the incomes of the different paragraphs. ZF companies may carry out commercial, industrial, services and ﬁnancial activities and the entry and exit of The general rate is 12% however, there are the goods to and from the ZF, all the while being exempted following exceptions : from any tribute.

Individuals Family groups ZF companies must employ at least 25% Uruguayan Taxable amount Taxable amount staff, although the Authorities have been known to From To Rate From To Rate grant certain exceptions to this obligation in particular cases where said exceptions are requested in a justiﬁed 214.9 0,70 manner. 1 107.485 0,70% 1 71 % As to the CESS, expatriates under a dependency regime 107.4 859.8 1,00 may choose to tribute IRNR and give up Uruguayan 85 429.941 1,00% 214.971 83 % Social Security beneﬁts, in which case social security contributions shall not be applicable to their salaries. 429.9 1,50 41 - 1,50% 859.883 - % In this case, foreign personnel would pay IRNR at the rate of 12% instead of IRPF (progressive rates between Individuals Family groups 10% and 30%). Taxable

Taxable amount amount The payment of dividends by ZF companies is not From To Rate From To Rate subject to taxation.

107.4 214.9 1 85 0,70% 1 71 0,70% 8. Treaties for Avoiding Double Taxation As part of the compliance with international standards 214.9 and trying to improve investment conditions, our coun- 107.485 - 1,00% 71 - 1,00% try has begun working on several agreements to avoid double taxation (CDI) and to exchange tax information: • 3% interest on deposits (local currency or indexed CDIs currently in force: Germany, Argentina (tax credit units) in financial institutions for a period of one clause to avoid double taxation), Republic of South year; Interests from other investments (bonds, obli- Korea, Ecuador, Spain, Finland, Hungary, India, Liech- gations, etc.) for a period of three years; income tenstein, Malta, Mexico, Portugal, Switzerland and Ro- from participation certificates issued by financial mania. trusts through public offering and listing on the stock exchange in national institutions, with terms Information exchange treaties in force: Argentina, longer than three-year. Denmark, France, Iceland, Norway, Australia, Canada, Greenland, Feroe Island and Sweden. • 5% interest on deposits (local currency without

adjustment index) in financial institutions for less Information exchange treaties signed but not yet in than a year. • 7% for dividends or profits paid by IRAE taxpayers force: Brasil to non-residents and profits derived from copyrights of literary, artistic or scientific work. 9. Free Trade and Free Competition Preservation The Nº 18.159 law that promotes free trade, under the 6.2 Net worth Tax of Non-Residents (“Impuesto al understanding that the preservation of free competition Patrimonio de los No Residentes – IPNR”) protects the welfare of present and future consumers, Non-resident natural persons pay Net worth Tax on promoting economic efficiency and equal access of their assets located in the country the same as resident companies and products to the general market.

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This law forbids: (a) the abuse of dominant position, the "permanent" and "temporary" residents may carry and (b) the promotion of practices, behavior or recom- out their work activity as dependent or on their own. mendations, either individual or concerted, that seek or whose purpose is to restrict, limit, obstruct, distort or Non-residents may not carry out any work other than that inhibit present or future free competition in the rele- which is expressly authorized by the National Immigration vant market. Administration, usually granted when such activity does not exceed the period of six months. 10. Immigration Any person who has entered the country legally may request a permanent or temporary residence permit. Both

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Bolivarian Republic of Venezuela

1. Identiﬁcation of the ﬁrm to contact Cifuentes, Lemus & Asociados, S.C.

1.1 Ofﬁce, address, telephone Caracas: Av. La Salle con Calle Lima, Torre Phelps, Piso 26, Plaza Venezuela. Caracas, Venezuela T: (Master) (58-212) 781.88.66, 793.88.98 F: (58-212) 781.29.32

1.2 Specialized Professionals

Maffalda Lemus from the moment in which to grant the Registration of Tax Partner Foreign Investment. The constitutive value foreign [email protected] investment should be represented in assets that are in the country composed of equipment, supplies, or other Zaidet Cotoret goods or tangible assets required for the initiation of Tax Partner productive operations in at least seventy-ﬁve percent [email protected] (75%) of the total amount of the investment.

2. Country’s Profile In order to obtain the registration of a foreign Venezuela has a population of 27,150,095 inhabitants, investment, contributions must be constituted at the according to the last census performed in 2011. The official rate exchange in effect for a minimum amount official language is Spanish, but the aboriginal of one million dollars from the United States of America languages are of official use for ethic groups. There is (USD 1.000.000,00) or its equivalent in currency. The freedom of religion with predominance of the catholic CENCOEX may establish a minimum amount for the religion. The legal time corresponds to the Greenwich constitution of foreign investment which may not be Meridian, decreased by 4.5 hours. The legal less than ten percent (10%) of the estimated quantity, measurement unit system is the International Unit according to sectoral interest, promotion of small and System (SI), adopted by the General Conference of medium industry, and other organizational ways of Weights and Measures. The currency is the Bolivar and productive economic character. for the year 2015, the inflation rate was 180.9%, according to the accumulated variation of the National Foreign investment must remain in the territory of the Consumer Price Index. Republic for a minimum period of five (5) years, from the date that registration has been granted. Completed It is a Social Democratic State of Law and Justice. The this period, investor may, upon payment of taxes and government is democratic, participatory, voted in other liabilities that have place, make remittances elections, alternate, responsible, pluralistic and of abroad by concept of the capital originally invested, revocable governing periods. National Public Power is recorded and updated. divided into Legislative, Executive, Judicial, Citizen, and Electoral. The Constitution is the supreme law and the Foreign investor shall be entitled to remit abroad foundation for the national legal system. annually and from the close of the first fiscal year, up to eighty percent (80%) of the profits or proven dividends 3. Foreign Investment System arising from its foreign investment, registered, and According to the Decree with Rank, Value and Force of updated in freely convertible currency, prior compliance Foreign Investment Law there is a system in place to with the object of the investment; in case of partial record foreign investments, essential for the protection remission, the difference can be accumulated with the of such investments and for guaranteeing the profits obtained, only in the following annual exercise subsequent repatriation of capital equity and dividends. for the purposes of its referral abroad. This system requires the compliance with a series of procedures before the National Center of Foreign Foreign investors are entitled to reinvest total or trade (CENCOEX). partially the profits obtained in national currency for the purpose of being considered as foreign investment. Any The rights to foreign investors will have their effects reinvestment must be notified to the CENCOEX who

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V e n e z u e l a within sixty days following the dated of its presenta- 6. Labor System tion may make observations. 6.1 Different Kinds of Employment Agreements and Terms 4. Different Kinds of Companies Employment agreements must be in writing. These can 4.1 General Partnership be for undetermined periods or for determined jobs. Responsibility that is unlimited, joint and severally, for all Unless there are causes justifying the termination of the the partners, having partners’ names or some of the work relationship, labor stability is guaranteed for: partners’ names as the name of the company. • Workers contracted for undetermined periods, as of 4.2 Silent Partnership: the ﬁrst month in which service is rendered (ﬁrst day Three or more partners, in which at least one shall be after the second month in which uninterrupted the general partner (responsibility that is unlimited, services are rendered); joint and severally) and the rest shall be partners in commendam (responsibility that is limited to the • Workers contracted for determined periods until amount of capital contributed). expiration of employment agreement, and;

4.3 Limited Liability Company • Workers contracted for a particular job, until The capital stock is divided into parts and the completing the tasks for which contracted. responsibility of the partners circumscribes exclusively to the capital contributed individually (it should not be Employees holding directive positions are the only ones exceeding Bs. 2,000). excluded from the absolute stability system of employment. 4.4 Stock Company Participation in capital stock through bonds or shares There is labor immobility (job freeze) in certain cases set that are distinctive due to their different nominal value forth in the Organic Labor Law, The Workers, and or due to the different privileges associated to such other Special Law, among which the following can be bonds or shares. Responsibility is limited to the capital highlighted: contributed. • Pregnant workers (and their partners), from 4.5 Personal Signature beginning of pregnancy up to 2 years after giving It has only one participant, no other signature or birth; commercial name can be used other than the participant’s last name with or without a first name. • Workers that adopt children under 3 years of age, for a term of 2 years as of adoption date; 4.6 Cooperative Associations Groups of at least five partners, which operate for the • Workers with handicapped children or with illnesses equal benefit of all its members, without contributing that make them dependant of others; yields to external investors. The Cooperative Association Law regulates these associations. • Workers during any suspension of the work relationship. 4.7 Joint Ventures Joint ventures are considered as consortiums formed by Work schedule has daily and weekly limits on the companies with the objective of carrying out a specific amount of hours, for day, night, or mixed shifts. economic activity in a joint manner. In the cases of Minimum salary is adjusted every year by mandate equity participation agreements, the associating from the National Executive Government. member and the associates should calculate their corresponding parts in the periodic results of the A 30% salary plus is added to the night shift, having to operations relating to the equity account, within their notify the corresponding Work Inspection Office respective annual economic periods. thereof; if not, these extra hours must be paid at a 100% salary plus. 5. Auditing and Accounting Generally accepted accounting principles are For employers of 10 or more workers, workers of constituted by International Financial Reporting foreign nationality cannot be over 50% of the total Standards (IFRS) adopted: VEN-NIF GE (big companies) count of employees and their salaries cannot exceed and VEN-NIF PYME (small and medium companies). 20% of total payroll paid. Also adopted were International Auditing Standards (IAS), issued by the International Federation of 6.2 Participation in employees’ profit sharing

Accountants (IFAC). Employees’ proﬁt sharing is distributed at no less than 15% of the liquid incomes obtained at the closing of

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6.3 Vacations At least 15 remunerated working days must be granted to workers (plus 1 additional day for every cumulative year of service, up to a ceiling of 15 days).

A vacation bonus is due that corresponds to at least, 15 days of salary (plus 1 day for every year of permanence on the job up to a maximum of 30 days).

6.4 Payment of Social Benefits Upon termination of the work relationship, the worker shall receive for the concept of social benefits, the higher amount of that deposited for social benefit guarantee and the equivalent to the social benefits as computed at job withdrawal date.

6.4.1 Guarantee of Social Benefits This is related to a fund, the purpose of which is to guarantee payments of social benefits to the workers, which is calculated during the course of the work relationship, as follows: • Quarterly guarantee: 15 days of salary for every quarter calculated based on the last salary earned in said quarter. Limits to amounts to be Employer’s Worker’s Concept contributed for each work- Contribution Contribution er Social Security 5 Minimum Salaries 9%-10%-11% 4.00% Employment Benefit System 10 Minimum Salaries 2% 0.50% Compulsory Public Housing Savings Trust No limit 2.00% 1.00% (FAOV) INCES No limit 2.00% 0.50% Food Program No limit Tickets or Food Not applicable Up to 40% Children’s Day Care Program 5 Minimum Salaries enrollment fee and Not applicable school registration fees

• Additional days: after the first year of 6.6 Other Labor Aspects of Interest service, 2 additional days per year are added, • Maternity: leave of 6 weeks prenatal and 20 cumulative up to 30 days. weeks postnatal; job freeze during pregnancy and up to 2 years after giving birth. In both cases, the basis for calculation shall be the worker’s whole salary. • Paternity: License for 14 consecutive days as of birth. Job freeze up to 2 years after birth. 6.4.2 Severance Indemnities When a work relationship is ended regardless of the • Special job freeze: general system ordered by cause, the social benefits shall be calculated at the rate decree from the National Executive Government. of 30 days of whole salary per year or fraction of a year Workers protected cannot be dismissed without a over 6 months. qualified justified cause by work authority.

If a work relationship is terminated due to causes • System for workplace safety, conditions, and beyond worker’s will, or in such cases of unjustified environment related to health, hygiene, security, dismissal, if the worker involved expresses his/her and wellbeing. desire to not file the proceeding to request re-contracting, the employer must pay, in addition, an 7. Exchange Control amount for indemnity that is equivalent to the amount The National Center for Foreign Trade (CENCOEX) is the corresponding to such worker for social benefits. organ responsible for the administration of official foreign exchange and establishes the criteria for the 6.5 Social Security Corporación Venezolana de Comercio Exterior The social security system includes a series of (Venezuelan Foreign Trade Corporation) that qualify contributions that are calculated based on the workers’ who can be part of the register of natural and legal salaries:

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V e n e z u e l a persons that request access to the official foreign 8. Tax System exchange. 8.1 General Tax Unit (U.T. due to its acronym in Spanish) is the The special exchange rate denominated as “protected” measure of value created for tax purposes, and it is by the government (DIPRO acronyms in Spanish) of Bs updated every year by the National Assembly. The cur- 9,975 per 1,00 US$ for purchase and Bs. 10,00 per rent value is Bs. 177,00. 1,00 US$ for sale, is solely applicable to import goods (Bs. 300 ,00 since February 24th, 2017). included in a list of products related to food and health industries as well as raw materials and supplies required 8.2 Taxes on Incomes of Companies for their production, specifically authorized for the 8.2.1 Kind of System respective Ministers and subject to previous approval of World income system; taxation on annual incomes, net CENCOEX. and available, obtained in money or kind, originating from economic activities performed in Venezuela or In addition, there is another type of exchange rate from properties located in the country. All residing which fluctuates according to market conditions, individuals and domiciled companies must pay taxes on denominated as DICOM (acronyms in Spanish). This their incomes regardless of origin, and regardless of DICOM exchange rate is applicable to foreign whether the cause of source of income is located in or currencies transactions processed through others and outside the country. regulated mechanisms but included within the Exchange Control Regime and exchange regulations. 8.2.2 Tax Period The calendar year or the period of 12 months Natural persons or legal private (companies) dedicated chosen. Once the period is chosen, it cannot be to the export of goods and services, may retain and changed without the authorization from the Tax manage up to 60% of the income they receive in Administration Bureau. The final income tax return is exchange (80% since February 23, 2017), because of presented within 3 months after closing the exports made, to cover the costs incurred under the period. export activity, other than financial debt. The rest of foreign exchange earnings will be sold to the BCV, who 8.2.3 Taxpayers shall acquire them at the exchange rate of reference All companies are taxpayers, including irregular ones; DICOM, that applies to the acquisition date. associations, funds, corporations, and other juridical or

economic entities; permanentestablishments, centers or As part of the regulations on foreign exchange is the ﬁxed bases located in the country. Companies of Against Illegal Foreign Exchange Law, which sets individuals, communities, and joint ventures are liable monetary and criminal penalties for violations of this for taxes applicable to the partners, associate members, rule. or joint ventures.

8.2.4 Rates

Rate No. 2 Segments Rate 2 Reductions From 0 U.T. Up to 2,000 U.T. 15 % - 0 - From 2,001 U.T. Up to 3.000 U.T. 22 % 140 U.T. From 3.000 U.T. And over 34 % 500 U.T.

Rate N° 3-A: Royalties for exploitation of mines: 50%. Rate Nº 3-B: Exploitation of hydrocarbons, reﬁning and transportation, or the purchase or sale of hydrocarbon and derivatives for exports: 60%. Special Rate: Banking, ﬁnancial, insurance and reinsurance activities: 40%.

8.2.5 Incomes liable for taxes Increases in equity resulting from subtracting costs and deductions allowed by law from gross profits, plus or minus the effect of the tax adjustment for inflation. (taxpayers involved in banking, financial, insurance and reinsurance activities and the taxpayers qualified as special taxpayers are excluded of the adjustment by inflation system).

8.2.6 Carrying forward losses • Non-offset net losses from exploitation: up to 3 years, but only imputing to 25% enrichment in each year where moves • Losses from adjustment for inﬂation: cannot be transferred. • Losses from foreign source: these can only be offset by incomes of foreign source.

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8.2.7 Withholdings on local payments Payments of remunerations for different concepts are subject to income tax withholding at the source of 5%, in the case of agreements for work projects and service rendering is 2%, and for freight transportation, it is 3%.

8.2.8 Withholdings on payments to abroad Principal withholding rates at the source for payments made to non-domiciled companies: Concepts paid Tax Base Withholding Concepts paid Tax Base Withholding Professional service fees 90% Rate 2 Technical assistance 30% Rate 2

Commissions 100% 5% Technological services 50% Rate 2 Premiums from insurance and Interest ﬁnancial institutions 100% 4,95% 30% 10% re-assurance Execution of project works/ Interest other 95% Rate 2 service rendering in 100% Rate 2 non-domiciled companies Venezuela Freights for transportation 5% Rate 2 Leasing of movable property 100% 5% Venezuela-Abroad Freights for transportation Publicity, propaganda and 10% Rate 2 100% 5% only in Venezuela. spaces Exhibition of movies and 25% Rate 2 Purchase of shares of similar items Venezuelan companies 100% 5% Royalties and similar 90% Rate 2 outside of stock market participations Rate 2 is always applied in a cumulative manner: the amounts paid at previous dates are added to the amount paid at each date, within the same economic period; Rate 2 is applied; the total amount withheld at previous dates are subtracted from the resulting amount, within the same economic period.

8.3 Income taxes of individuals 8.3.1 Tax Period Calendar year. The ﬁnal income tax return is presented within 3 months following the closing of the economic period.

8.3.2 Liable for taxes: The following are considered domiciled in the Bolivarian Republic of Venezuela for tax purposes: • Individuals having stayed in the country for a period consecutive or interrupted of 183 days in one calendar year, or in the previous year. • Individuals having their residence or place of abode in the country, unless having stayed in another country for a period consecutive or interrupted of more than 183 days, and they prove having acquired residence in that other country for tax purposes. • Fixed bases in the country of individuals residing abroad by means of which freelance personal services are rendered (any place where independent personal services of a scientiﬁc, literary, artistic, pedagogical educational nature, among other, are rendered besides the independent professions).

8.3.3 Rates Rate No. 1: Only for residing individuals: from 6% to 34% (progressive rate, with deductions).

Proportional tax: Only for non-residing individuals: 34%.

8.3.4 Incomes liable for taxes The same rules set forth for companies apply.

8.3.5 General Principles for Costs and Expenses The same rules set forth for companies are applicable, except for the effect of adjustment for inﬂation. In the case of purchases of no monetary assets, special adjustment for inﬂation can be imputed. Individuals have the right to make deductions (being able to choose one sole amount without supporting document or one variable amount subject to restrictions and supporting documents).

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8.3.6 Withholdings on Local Payments racing tracks: 16%. Payments of remunerations for different concepts are object of income tax withholdings at the source of 3%; • Dividends in general: 34% in proportion with in the case of agreements for project works and service the net book income exceeding net taxed fiscal in- rendering, 1%. come and not originating from exempted or exoner- ate incomes. For dividends originating from foreign 8.3.7 Withholdings on Payments to Abroad companies 34% is applied. Payments of remunerations for different concepts are object of income tax withholding at the source of 34%; • Dividends originating from exploitation of the same tax bases set forth for non-domiciled hydrocarbons and related activities: 50%. companies are applied. In the case of salaries and similar items, the tax basis is 100%. • Dividends originated from royalties for exploitation of mines: 60%. 8.4 Incentives 8.4.1 Income Tax Deductions due to Activities and • Dividends in shares: 1% advance (this can be Investments, calculated based on the amount of credited to the tax when such shares are sold). such New Investments • Rendering of tourist services: 75% (checking for • Presumed dividends: there are suppositions for special legal requirements). the case of branches of foreign companies and for withdrawals of stockholders. • Deductions for shipping investments: 75% (checking for special legal requirements). • Purchase of shares in domiciled Stock Market: 1% of gross income. 8.5 Anti-evasion Rules 8.5.1 Transfer Pricing 8.8 Taxes on successions and donations All taxpayers carrying out operations with foreign This tax is applied to gratuitous transmissions of rights, related parties are required to present an movable property, immovable property, or shares informative declaration and to document a transfer located in the country, caused by death or by acts pricing analysis. This system is based on the Arm’s between living individuals. The tax base is computed Length Principle. based on the market value of the property. Exemptions and exonerations are included. The rate varies from 8.5.2 Thin Capitalization 25% (first degree of relationship) up to 50% (no The deduction of interest paid directly or indirectly to relationship). related parties depends on whether the amount of debts held direct or indirectly with related parties, 8.9 Value Added Tax added to the amount of debts held with 8.9.1 Taxed operations independent parties do not exceed the taxpayer’s net Liable for this tax are the sale, importing, and equity. The amount of debts considered as exporting of movable property; also, the rendering and excessive shall be treated as net equity. Two importing of services and it is managed over a system of procedures are established: objective method with a tax debits and credits. fixed ratio of Debt/Capital 1:1 and a subjective method based on market conditions. 8.9.2 Rates

The general rate can vary from 8% to 16.5%. 8.5.3 Tax Transparence Currently, the general rate is 12%. There is a An electronic informative declaration is required of reduced rate of 8% for certain special operations. taxpayers related direct or indirectly with countries of Besides, an additional between 15% and 20% rate is low ﬁscal taxation carrying out activities or having any applied that is added to the general rate for goods kind of investment in said territories, in which any such classiﬁed as luxury items. Exports are taxed with 0%. investments must be reported. The Law includes exempted goods and services and the

National Executive Government may grant 8.6 Equity Tax exonerations. There is a withholding system at the Not applicable concerning taxes on income, however, source for Value Added Tax (IVA due to its acronym in there are state revenue stamps that tax capital stock Spanish), of 75% or 100%. upon incorporating companies or if subsequent capital increases are made. 8.10 State Taxes

The states are entitled to create taxes for the use of 8.7 Taxes on Capital Gains their property and services, as well as to collect ﬁscal • Games: Gains obtained from games are taxed revenues (ofﬁcial seal-printed paper, revenue stamps). at 34% and prizes from lotteries and from horse

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8.11 Municipal Taxes intermediation of the financial system for the The main tax applies to Economic Activities of Industry, payment or other species. Commerce, Services, or of a similar nature (where variable rates are applied according to the activity and 9. Other Laws or Regulations of High Impact on municipality, on gross incomes received). Other taxes Businesses are Urban Real Estate Tax, Tax on Propaganda and Fair Pricing Law: since 2012 the government has Publicity, Tax on Public Shows and Tax on Vehicles. paid special attention to the pricing on the products of the basic basket, creating different mechanisms and 8.12 Other National Taxes regulations designed at this. During the second half of Other national taxes are applied by sector, such as: on 2013, with the goal of slowing the rate of national betting and gaming activities; on alcohol and alcoholic inflation, began inspections, audits and measures beverages; on cigarettes and manufacture of tobacco; forced occupation of companies and establishment by on the industry and commerce of hydrocarbons; on the setting their sales prices to an "profit margin" without exploitation of mines; on telecommunications; on idle that had to date no specific regulations to regulate the lands. profit margin.

There are also rates for public acts; public recording, Thus, as in 2014 the Government promulgated a revenue stamps, court costs. decree law in order to establish fair prices for goods and services, by analyzing cost structures, setting the There are also certain contributions, such as; for the maximum percentage of gain and effective control of broadcasting of images and sounds within the national economic activity and commercial. Because of this new territory; for the rendering of tourist services; on the regulation, the companies feel the need to review its agro-industrial producers; on the national cost structure and accounting records thereof, since cinematographic activities. that date, registered accounting costs will be the main basis for calculating their income source. Also Special contributions stand out in the following currencies that are assigned by the competent authority matters: under the foreign exchange administration rules will be strictly monitored and controlled to ensure that the • Prevention of Drugs: applicable to companies object and purpose for which they were requested and employing 50 or more workers (1%) or granted. manufacturers of alcoholic beverages, tobacco and their blends (2%), calculated based on the profit in In order to be able to carry out economic and operations for the year. commercial activities in the country, it is prerequisite for the subjects of application of this Law, the registration • Sports: applicable to companies carrying out and updating of data in the National Register of People economic activities within the country (1%), who Develop Economic Activities (RUPDAE). calculated based on the net income in excess of 20,000 TU. The maximum profit margin will be established annually, following scientific criteria, by the National • Science, Technology and Innovation (LOCTI due Superintendency for the Defense of Socio Economic to its acronym in Spanish): Applicable to Rights (SUNDDE), taking into consideration the companies incorporated or domiciled in the country, recommendations of the Ministry of Popular Power a percentage calculated based on the gross incomes competent in matters of Commerce, Industries and for the previous year in excess of 100,000 T.U.: Finance. In any case, the profit margin of each actor in stake games sectors and gambling, alcohol the supply chain exceed 30 percentage points of the beverages and tobacco (2%); Mining and cost structure of the good or service. hydrocarbons (1%); and big companies from other sectors producing goods and services (0.5%). In case of violations of the rules under this Law, the National Executive may initiate the expropriation • Tax on Large Financial Transactions: applicable proceeding. In cases of expropriation, it can to entities qualified as special taxpayers and entities compensate and reduce the amount of compensation related thereto, with a rate of 0.75 % levied on for fines, penalties and damages caused, without bank debits and debt cancellation made without prejudice of what established other laws.

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Double Tax Treaties

*RIIF: Tax Information Exchange Regime (*) To avoid doble taxation in international transport matters (**) For tax criminal matters (***) Maritime and air companies (****) Double taxation agreement 153

Double Tax Treaties

*RIIF: Tax Information Exchange Regime (*) To avoid doble taxation in international transport matters *The agreement between the members of the CARICOM (**) For tax criminal matters for the avoidance of double taxation has been signed by Suriname, (***) Maritime and air companies but has not yet been ratiﬁed. (****) Double taxation agreement 154

MOORE STEPHENS

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