The new platform—referred to as “SICAD 2”—provides companies the ability to buy public bonds and to exchange them for foreign currency at a fluctuating exchange rate, essentially reviving a system that was repealed in 2010.
Accordingly, U.S. multinationals with Venezuelan subsidiaries may now find it easier to access foreign currency, albeit at market rates (which are expected to be higher than the current foreign exchange rates). While the creation of this new (third) platform can facilitate the opportunity for companies to obtain foreign currency, this also may have tax consequences. However, if the tax considerations are addressed early, areas of risks and of opportunities can be identified.
In 2003, a presidential decree created the first platform to access foreign currency. Generally, those seeking foreign currency had to obtain authorization from the Currency Administration Commission (Comisión de Administración de Divisas—CADIVI) to purchase foreign currency for transfers, remittances or payments for imports of goods and services, and to make capital and interest payments on duly registered private external debts at the official exchange rate (currently, the official exchange rate is BsF$6.3 to U.S. $1).
A second route to securing foreign currency—Sistema Complementario de Divisas (SICAD 1)—is administered by the Banco Central de Venezuela.
- The SICAD 1 platform is a bi-weekly private, sealed, foreign exchange auction system meant to help satisfy private-sector demand for non- essential goods.
- In 2010, SICAD 1 repealed and replaced the Sistema de Transacciones con Títulos en Moneda Extranjera (SITME)—a bond-swap platform that had allowed bonds to be bought for domestic currency and immediately sold for foreign currency.
Some believed that SICAD 1 has not been an effective system, given the fact that the bi-weekly auctions have occurred only sporadically since its launch. The implicit foreign exchange rate has been roughly BsF$11.3 to U.S. $1.
SICAD 2 trading platform
On 19 February 2014, the Venezuelan government issued Decree-Law 798 modified the foreign exchange law, and paving the way for the creation of an additional currency exchange platform.
On 10 March 2014, the Venezuela Central Bank and the Minister of Finance issued Convenio Cambiario 27 (Regulation 27) to regulate and establish the conditions and parameters for access to the new foreign currency platform (SICAD 2). In general—
- SICAD 2 aims at further loosening the restrictions to access foreign currency.
- SICAD 2 will operate as a trading platform operated by the Venezuelan Central Bank.
- The Ministry of Finance and the Central Bank will have oversight and regulatory powers over the SICAD 2 platform and its participants.
- The Central Bank may also participate in the SICAD 2 market.
SICAD 2 transactions - Foreign exchange transactions may be effectuated with cash or U.S. dollar-denominated securities issued by Petróleos de Venezuela, S.A. (PDVSA) or the Bolivarian Republic of Venezuela.
Exchange reference rate - The Central Bank will publish a daily foreign exchange reference rate. This reference rate will be calculated as a weighted average of the total number of trades on a given day.
Persons eligible to purchase foreign currency in SICAD 2 - The following persons are eligible to purchase foreign currency through SICAD 2: (1) individuals and legal entities domiciled or residing in Venezuela; and (2) legal entities of the private sector domiciled in Venezuela.
Persons eligible to sell foreign currency in SICAD 2 - The following persons are eligible to sell foreign currency in SICAD 2: (1) PDVSA, (2) the Venezuelan Central Bank, (3) individuals and legal entities, regardless of whether they are domiciled or residing in Venezuela, (4) legal entities of the public sector authorized by the Ministry of Finance, and (5) legal entities or individuals that have foreign currency-denominated bank accounts with Venezuelan banks. Those persons eligible to sell foreign currency in SICAD 2 must comply with certain requirements.
Use of proceeds from foreign exchange transactions - Foreign exchange purchasers must inform the Central Bank, through dealers, of the use and the nature of the transaction for which they will purchase foreign currency.
The creation and use of this platform may facilitate opportunities for getting foreign currency out of Venezuela. However, use of this foreign exchange platform by U.S. multinationals may result in tax considerations that may need to be addressed both in Venezuela and the United States. A proactive approach could allow companies to assess areas of risks and of opportunities.
For more information, contact a tax professional with KPMG’s Latin America Markets, Tax:
202 533 5681
305 913 2789
305 341 6424