Exchange Agreement 1

The Exchange Agreement will eliminate the restrictions in exchange operations and allow free convertibility of Bolivar in all the country.

In Official Gazette of the Bolivarian Republic of Venezuela No. 6.405 dated September 7, 2018, the Central Bank of Venezuela (“BCV”) and the Ministry of the Popular Power of Economy and Finance jointly published the Exchange Agreement 1 (the “Exchange Agreement”).

The Exchange Agreement intends to restore the free convertibility of the Bolivar throughout the territory of the Republic, eliminating the restrictions of previous exchange operations.

By the foregoing, the provisions of the Exchange Agreement govern the participation of natural and legal persons in the exchange market, which sets the following:

1.    Transactions in foreign currency

a.    Exchange Market System

Natural and legal persons may participate in the exchange market through the Exchange Market System, which will be regulated and administered by the BCV.

Buyers and sellers may present bids of offer and demand of foreign currency in the Exchange Market System, in which both buyers and sellers may participate without any restriction other than the rules for the operation of the Exchange Market System, which the BCV will issue.

Buyers and sellers must make foreign currency purchase and sale operations at the fluctuating exchange rate resulting from the offer and demand made through the Foreign Exchange System. This exchange rate will be used as a market benchmark for all obligations expressed in foreign currency.

In order to participate in the Exchange Market System, individuals and legal entities must maintain bank accounts of foreign currency in Venezuelan banking institutions to credit the balance resulting from the participation in the Exchange Market System.

Natural and legal persons will participate in the Foreign Exchange System by presenting their bids of offer and demand in any foreign currency. The BCV will determine the minimum amounts by bid that the persons must present.

Once they present the bids, the authorized foreign exchange operators shall pre-emptively block the funds to guarantee the availability of the funds. At the closing of the transaction, the Exchange Market System will cross the registered bids of offer and demand and will inform foreign exchange operators to settle the results of the bids.

Institutions of the banking, insurance and stock market sectors will not be able to make bids through the Exchange Market System, without the prior authorization of the BCV Board of Directors, as long as the foreign currency are destined to pay commitments or investments essential for the fulfillment of its corporate purpose.

b.    Retail exchange operations

Exchange operations for amounts equal to or less than € 8,500.00 or its equivalent in any other foreign currency (retail); made in banknotes, traveler’s checks, encrypted checks, transfers, account credits or electronic order services, may be performed through authorized foreign exchange operators.

Only legal entities and individuals over 18 years of age may carry out foreign exchange operations at retail. They shall declare the lawful origin and destination of the funds and comply with all the regulations issued for retail operations.

In this case, the applicable exchange rate of the retail operation will be the rate of the day immediately before with an increase of 1% of its value.

Foreign exchange operators authorized to perform foreign exchange operations are universal banks and money exchange offices. The latter may carry out retail exchange operations for the amounts determined by the Ministry with competence of finance and the BCV, through official notice.

Foreign exchange operators may retain 25% of the foreign currencies obtained through the retail operations sold to international tourists and visitors, in order to resold such currencies to them, upon leaving the country. It is mandatory to sell the rest of the currency to the BCV.

Likewise, the foreign exchange operators may credit, in cash or in prepaid cards, the balances of retail operations to international tourists and visitors, at their choice. They may use these cards at ATMs and for the payment of consumptions at points of sale.

c.    Securities operations issued by the private sector

Brokerage companies and stock market agencies are authorized to negotiate securities issued by domestic or international private entities listed on the regulated markets and that are of public offering through the Stock Exchanges, duly authorized by the National Superintendence of Securities (“SUNAVAL”).

SUNAVAL shall issue the operating rules for performing transactions with securities issued by the private sector by brokerage companies and stock market agencies. Such rules must be subsequently approve by the Ministry with competence in finance and the BCV.

The liquidation of the balances in foreign currency  to the users of the operations with securities issued by the private sector will be credited in the foreign currency accounts maintained by users in the national financial system.

The referential exchange rate to be used in the sale of securities issued by the private sector will be the result of the Exchange Market System; for the case of purchase operations, it will be reduced by 0.25% of the value of the negotiated title.

Institutions of the banking, insurance and security markets sectors; savings banks and funds; trust funds; and companies and reciprocal guarantee and venture capital funds, cannot obtain balances in foreign currency by participating in operations with securities issued by the private sector.

2.    Agreements in foreign currency

Payments in foreign currency will be mandatory when the parties exclusively and expressly determine the payment in foreign currency, even if they entered into the agreement during the exchange control restrictions.

If the agreement does not determine the exclusivity of the payment in foreign currency, the debtor may release from its obligation by paying its equivalent in Bolivars at the exchange rate in effect on the date of payment.

In the case of restrictive covenants in foreign currency made prior to the currency exchange restrictions (year 2003), the debtor may pay in Bolivars if they demonstrate the impossibility of paying in the agreed currency.

3.    Foreign Exchange Operators

Universal banks are authorized as Foreign Exchange Operators of the Exchange Market System. The BCV Board of Directors may authorize other banking institutions as such.

Money exchange offices and universal banks are also authorized as Foreign Exchange Operators to carry out retail exchange operations, which they must register in the BCV’s technological platform.

The foreign currency obtained by the authorized Foreign Exchange Operators through retail operations, must be allocated to meet the demand of foreign currency of their customers.

Foreign Exchange Operators are required to keep records of all transactions made in foreign currency, as well as to provide such information when required by the BCV. Such records must be kept for 10 years.

Providers of tourist accommodation services categorized with four stars or higher, or those located in areas of tourist interest, regardless of their categorization, and those belonging to the hotel network of Venezolana de Turismo, S.A. (“VENETUR”) may enter into correspondent agreements with foreign exchange operators to conduct retail operations with international tourists and visitors.

Foreign exchange operators, as well as brokerage companies, stock market agencies and authorized touristic service providers, must make public, through visible notices in their offices, the exchange rate of the day, as well as the percentage or amounts applicable to the commissions for the operations they perform.

4.    Foreign currency accounts in the national financial system

Universal and microfinance banks may open and maintain bank accounts in foreign currency to natural persons of legal age and legal entities domiciled or not in Venezuela. Such persons may deposit cash in these accounts, as well as deposits coming from abroad or from other national bank accounts.

Accounts can be used through wire transfers, checks drawn on correspondent-banks abroad and debit instructions made with cards abroad. The withdrawal of cash made by cards will be made according to the rules issued by the BCV.

To open accounts in foreign currency in the national financial system, authorized banks cannot request additional requirements to those requested to open accounts in Bolivars. Nor can they request minimum amounts to open such accounts.

Authorized banks to hold accounts in foreign currency must report monthly to the BCV and the Superintendence of Banking Institutions, detailed information on the funds held in foreign currency, in accordance with the rules and instructions issued by the BCV. Such information shall be kept for a period of 10 years.

5.    Transactions in foreign currency by international organizations and their officials, and by diplomatic and consular representations and its officials

International Organizations that have executed international agreements or conventions with Venezuela, may perform exchange operations directly with the BCV; provided that clauses regarding the maintenance of the value of the national currency have been included in the agreements or conventions.

In case of necessary adjustments due to clauses of maintenance of the value of the national currency, such will be instrumented with promissory notes issued by Venezuela or by the BCV, which will not be negotiable or accrue interest.

Officials of International Organizations and diplomatic and consular representations and officials may perform exchange operations with the BCV through the foreign exchange operators, at the exchange rate resulting from the Exchange Market System.

Likewise, the officials of International Organizations, representations and diplomatic and consular officials may participate in the Exchange Market System.

6.    Exchange regime applicable to the public sector

a.    Regime applicable to the public oil sector

Petróleos de Venezuela, S.A. (“PDVSA”) and its subsidiary companies must sell to the BCV the foreign currency obtained from exports within the following 72 hours after its obtaining. They will only be able to retain the foreign currency with the favorable opinion of the Board of the BCV, in case these are destined to comply with fiscal contributions payable in foreign currency or for the payment of foreign financial commitments, operative and investment expenses, other allowed payments by law, and compliance with contractual obligations. In the case of currency maintenance and fulfillment of its contractual obligations, PDVSA and its subsidiaries are obliged to monthly inform the BCV about the use and destination of the currencies.

The companies created under the association agreements executed by PDVSA and Mixed Companies of liquid and gaseous hydrocarbons, may keep foreign currency in national or foreign bank accounts to make payments of their obligations abroad. The rest of the currencies must be sold to the BCV.

 In the case of companies that have obtained licenses from the Ministry with jurisdiction over gaseous hydrocarbons for the exploration and exploitation of non-associated hydrocarbons, may keep the foreign currencies obtained in bank accounts for their investment or reinvestment in the projects approved by the Ministry with competence in gaseous hydrocarbons, or for the payment of their international obligations.

In no case may the subsidiaries of PDVSA, or the other companies engaged in hydrocarbons, obtain foreign currency from the BCV to fulfill obligations and payments in foreign currency. PDVSA may acquire foreign currency from the BCV to replace the funds destined to fulfill its obligations in foreign currency. The exchange rate will be the result of the Exchange Market System.

The provisions referring to foreign exchange operations of PDVSA will apply, in equal measure, to Petroquímica de Venezuela, S.A. (“PEQUIVEN”).

b.    Applicable regime to the non-oil public sector

The Republic must sell to the BCV all foreign currency obtained from public credit operations or through any other operation, unless the foreign currency is destined to pay imports of goods and services. Likewise, the Republic may maintain accounts in foreign currency in the BCV when the foreign currency comes from loan agreements subscribed by the Republic with multilateral or international organizations. Public sector entities regulated by the Organic Law of the Financial Administration of the Public Sector, except for PDVSA and its subsidiaries, must mandatorily sell the foreign currency to the BCV, except for foreign currency obtained by public credit operations to pay imports of goods and services. In any case, deposits in foreign currency can only be maintained if authorized by the National Executive and the Board of the BCV.

Public companies domiciled outside Venezuela and whose purpose is different from the oil sector, must comply with the regulations issued by the BCV in coordination with the Ministry with competence in finance.

The organs and entities of the public sector may acquire foreign currency directly from the BCV only to fulfill obligations and payments that they have assumed in foreign currency, related to:

1. Payments for urgent supply in agro-food and health;
2. Productive activities considered of interest by the National Executive;

• Payments and remittances indispensable and inherent to the foreign service of the Republic and to the representation of the constituted powers, including the National Constituent Assembly;

1. Payments related to both citizen and national security;
2. Payment of the external public debt of the Republic and other subjects regulated by the Organic Law of the Financial Administration of the Public Sector;
3. Expenses that the Republic owes under treaties and international agreements;

• Travel expenses for public officials traveling on official missions;
• Payments required by the Republic for the management of National Treasury stock through accounts held at the BCV.

7.    Particular regime applied to the private sector

a.    Applicable regime to Foreign Investors

International investors subject to the Foreign Investment Productive Law may repatriate the profits and dividends and the monetary income obtained in accordance with the provisions established in said law.

b.    Applicable regime to exporters of goods and services

Natural and legal persons dedicated to the export of goods and services are obliged to sell to the BCV 20% of the foreign currency that they receive for export activities, and they must declare to the BCV the exporting activity they carry out.

Foreign exchange operators must inform the BCV when the exporters liquidate the mandatory percentage of the sale to the BCV due to the export activity.

c.    Applicable regime to providers of tourism services

All tourism operators, regardless of the particular applicable regime, must supply, monthly, to the Ministry with tourism competence the information related to the operations carried out in foreign currency, according to the rules published jointly with the BCV.

i.             Tourist accommodation operators

Tourist accommodation operators shall receive the payment of international visitors and tourists only in foreign currency, through payment by debit or credit cards or wire transfers to the account in foreign currency opened in the national financial system. In these cases, tourism operators will be able to retain 80% of the currency obtained for accommodations, having to sell the remaining 20% to the BCV.

ii.            Tourist transport operators

Providers of tourist transport services shall receive payments from international visitors and tourists only in foreign currency through debit or credit cards and wire transfers.

The BCV may authorize reception of these payments in cash when deemed appropriate. National transport tourist services may retain 80% of the foreign currency obtained and must sell the remaining 20% to the BCV. In case of the sale of international air tickets, the providers of tourist transport services may retain 100% of the obtained foreign currency.

Providers of tourist transport services must, monthly, inform the BCV about the relation of the income obtained in foreign currency.

iii.          Travel agencies and tourism

Travel and tourism agencies may charge in foreign currency, only to international tourists and visitors, the total cost of the packages and services they sell. Payments made for these items must be made by debit or credit cards or wire transfers made to foreign currency accounts maintained by travel and tourism agencies in the national financial system.

The payments that the travel and tourism agencies owe to the providers of tourist accommodation and transportation services by virtue of the packages and services that they sell to international tourists and visitors, must be made with the foreign currency obtained from the sale of the package or service sold.

Travel and tourism agencies may retain 10% of the remaining balance paid by international tourists and visitors of packages and services sold; the rest will be mandatorily sold to the BCV.

iv.          Tax-free warehouses (duty-free)

Tax-free warehouses may charge Venezuelan residents in Bolivars or in foreign currency, in cash, debit or credit cards. International tourists and visitors will be charged only in foreign currency.

National producers will have the right to receive full or partial payment of goods in foreign currency from the tax-free warehouses, subject to the provisions related to exports of goods and services and other rules published by the BCV for this purpose.

The tax-free warehouses will be able to retain 80% of the foreign currency obtained because of the sales made, being obliged to sell the remaining 20% to the BCV.

8.    Formal obligations

Foreign currency transactions made with debit or credit cards at points of sale or cash advance operations will be processed at the exchange rate resulting from the Exchange Market System, reduced by 0.25%. The liabilities in foreign currency will be recorded and valued at the exchange rate at which the obligations were agreed.

Accounting valuation and recording of foreign exchange obligations associated with foreign currency acquisition authorizations processed under the mechanisms of the previous exchange regime will be maintained at the exchange rate reflected in said authorizations.

The tax obligations will be reflected at the exchange rate resulting from the Exchange Market System at the time of the tax settlement. In the case of customs and tax penalties, the applicable exchange rate will be that resulting from the Exchange Market System at the time the sanction is determined.

Tax obligations, fees, commissions, surcharges and public prices expressed in foreign currency will be paid alternatively in the currency established in the regulations available, in its equivalent in another foreign currency or its equivalent in Bolivars.

9.    Repeal and entry into force

With the publication of the Exchange Agreement, all the provisions that regulated the exchange regime are repealed, i.e., the exchange agreements nos. 1, 4, 5, 6, 9, 10, 11, 13, 18, 20, 23, 26, 27, 28, 30, 31, 34, 36, 37 and 39. Also, all provisions that contravene the Exchange Agreement are repealed. The Exchange Agreement enters into force as of its publication in the Official Gazette of the Bolivarian Republic of Venezuela.

This Legal Report presents a general description of relevant aspects of the Exchange Agreement and does not constitute a legal opinion aimed at addressing a specific situation. In the case of any doubt, comment, or to obtain further information, please contact us through our website www.interjuris.com