Typical due diligence issues

There are no specific due diligence issues in Venezuela as each transaction is unique. However, labor and tax matters should always be reviewed in detail, as well as compliance and anticorruption matters.

Pricing and payment

No special pricing and payment considerations are applicable; parties are free to agree on the manner in which consideration is paid.

Foreign exchange control

Venezuela currently has certain exchange control regulations ("Exchange Regulations") that, in practice, limit the ability of private parties to convert Venezuelan currency (VEF or bolívares) into any foreign currency. As a result, well advised parties to a transaction (buyers and sellers) generally aim to carry out all payments abroad and in a foreign currency. For further information, see the more detailed section below ("Foreign investment restrictions—Are there any foreign exchange controls?").

Signing/closing

A deposit is not required. It is common for the parties to meet and execute the corresponding documents. However, due to political instability, many deals close remotely (e.g., through the exchange of signature pages via email).

Additional considerations for asset sales

Most asset sales are deemed to be a bulk sale (venta de fondo de comercio) and are regulated by the Venezuelan Commercial Code. The seller is required to make certain publications in a newspaper in the case of a bulk sale, as well as register the corresponding asset purchase agreement with the Commercial Registry. Assets must be clearly defined and the purchase price should be allocated between those assets where value-added tax (VAT) is applicable and assets where VAT is not applicable.

If the required publications described in the prior paragraph are not made, the buyer becomes jointly and severally liable for all the seller's liabilities. The responsibilities of the buyer, however, may be limited to those expressly assumed in the asset acquisition agreement, provided that the publications have been made. The buyer will be jointly and severally liable for the pending tax liabilities of the seller as of the date of the transaction. The buyer's joint liability will cease one year after the notification of the bulk sale to the relevant tax authorities. Regardless of the statutory publications, the buyer will be liable for any violations of environmental regulations by the seller that have not been sanctioned prior to the asset transaction.

In general, no government approvals are required to proceed with an M&A transaction.

Foreign investment restrictions

Foreign investments in Venezuela are governed by the Constitutional Law of Productive Foreign Investments ("LCIEP"), published by Official Gazette No. 41,310 dated 29 December 2017, and issued by the National Constituent Assembly. While no governmental prior approval is required for foreign investments in Venezuela, the LCIEP, provides that foreign investments must be registered in order to be recognized by the government. To benefit from the rights set forth in the LCIEP and applicable laws, investors must register their direct foreign investments. As a result, the rights of foreign investors will only become effective after registration. For further information, see the more detailed section on "Foreign investment restrictions".

Antitrust/merger control

Venezuela has a voluntary merger control regime, therefore no timeframe is applicable. There are no filing thresholds or suspensory filing. Consequently, no prior authorization or consent is required from public entities. For further information, see the more detailed section on "Antitrust/merger control".

Other regulatory or government approvals

No special requirements are provided in Venezuelan law to undertake an M&A transaction. However, depending on the specific business of the parties, it is possible that certain issues will have to be reviewed in detail, particularly for banks and insurance entities and other regulated sectors.

Share sales: In the event of a share purchase, the relationship between the entity and its employees is not affected.

Asset sales: In the event of an asset purchase, the buyer becomes the substitute employer of the employees transferred as a result of the transaction. The buyer in this case becomes liable for any vested labor rights accrued before the employer substitution, including, without limitation, any seniority and separation benefits or indemnities that might apply. Within a certain term and certain conditions, an employee may resign following an asset sale and would be entitled to receive the indemnities as if the employment relationship had terminated for reasons not attributable to the employee. The seller will be jointly and severally liable with the substitute employer (the buyer) for all the labor rights that transferred employees have accrued for a term of up to five years as of the date of the change of the employer (or as of the date the respective judgment becomes final in the event of judicial claims). Thereafter, only the substitute employer (the buyer) continues to be liable. In addition, notice of the employer substitution arising from an asset transfer must be provided to the affected employees, the relevant Labor Inspector's Office(s) and union(s), as well as to the Venezuelan Social Security Institute and other institutions in charge of collecting certain employment related contributions.

For asset sales, the applicable tax will depend on whether the transaction is deemed to be a bulk sale. Asset acquisitions are generally unpopular in Venezuela because transactional taxes may be incurred in addition to capital gains taxes, VAT, stamp tax payments and withholding taxes. The relevant asset purchase agreement must also be registered with the Commercial Registry.

Generally, sellers prefer to structure a transaction as a share purchase to provide more latitude for tax minimization. From the buyer's perspective, a share purchase may be attractive if the target company has significant tax losses to carry forward. Such losses continue to be available to offset the income of the target company after the acquisition. The absence of a VAT in the case of a share transaction may also be regarded as an advantage by the buyer. However, the buyer will typically find an asset transaction more advantageous. In structuring a transaction, special care must be taken to avoid gift tax implications.

Due to high levels of inflation, historical cost is significantly lower than market value and an asset purchase at market value may therefore result in significant future tax savings based on inflationary adjustments for tax purposes in the case of ordinary taxpayers engaged in activities other than banking and finance. For fiscal years commencing after 31 December 2015, special taxpayers are excluded from the adjustment for inflation system for tax purposes. Banking and financial institutions were excluded from the adjustment for inflation system in 2014.

OECD's Two Pillar Solution

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting has put forward a so-called Two-Pillar Solution to address the tax challenges arising from the digitalization of the economy. Pillar Two is intended to introduce a global minimum effective rate of tax of 15% for large businesses in each jurisdiction where they operate and will lead to fundamental changes in the international tax system. It is currently being implemented in a large number of jurisdictions.

Groups will need to consider how the Pillar Two rules could impact on the life cycle of M&A transactions from the pre-acquisition phase (including transaction planning (such as the choice of acquisition structure and financing) and due diligence of the target group), the acquisition phase (such as contractual risk allocation around Pillar Two) to the post-acquisition phase and the impact of Pillar Two on any post-acquisition integration.

For information on post-acquisition integration matters, please see our Post-acquisition Integration Handbook.