Vessel registration under the Venezuelan Law for Reactivation

ON June 26, 2000, the Law for Reactivation of the National Merchant Marine (Law for Reactivation) was published in Venezuela. This short piece of legislation is having a great impact on domestic shipping business. Its provisions complement the changes made in 1998 to the Law for Navigation, as well as to the Law for the Protection and Development of the Merchant Marine, allowing 100 per cent foreign participation in national-flag vessels and the inclusion in the national registry of vessels under bareboat charter or leasing agreements.

The Law for Reactivation is of paramount importance to the maritime sector. However, it would be naive to think that this legal instrument alone will ensure the development of a national fleet in the short term

Following the 1998 reforms, vessels operated under bareboat charter and leasing agreements are now eligible for registration under the national flag and are allowed to be engaged not only in international trade but also in cabotage operations.

Another important advance introduced is that a foreign company may hold 100 per cent of the shares in a national shipping company, something that used to be restricted to just twenty per cent of the capital stock.

Incentives for vessel registration

Under the old rules, the estimate for vessel registration costs in Venezuela was in the order of 25 per cent of the value of the vessel. This situation radically changed with the enactment of the new legislation. In this context, Articles 4 and 5 of the Law for Reactivation deserve particular attention, since the importation of ships (including tugboats) is declared exempt from the payment of customs taxes and import duties, including tax on added value (IVA).

Investments in the shipping sector are entitled to a rebate on income tax equivalent to 75 per cent of the amount assigned to new investment for the acquisition or leasing of new ships (including tugs) or accessories for navigation for a period up to three years. These benefits apply equally to barges, including drilling platforms. Therefore, vessel registration is only subject to the payment of a relatively small registration fee to the maritime administration (Dirección General de Transporte Acuático at the Ministry of Infrastructure), together with the cost of the vessel’s certificates.

On the other hand, cabotage and transhipment operations involving the movement of nationalised and non-nationalised (transit) cargo between domestic ports have been restricted only to national-flag vessels by virtue of Article 2 of the Law for Reactivation.

Until very recently, transhipment operations made by foreign vessels at domestic ports could be carried out by means of an authorisation granted by the SENIAT (customs authority). This was possible due to the fact that customs legislation stated that all transhipment operations at Venezuelan ports, in connection with commodities in interna­tional transit, had to be carried out in ships of national flag unless authorisation from the SENIAT was obtained. Even after the 1978 Organic Customs Law was repealed by that of 1998, the practice was for foreign shipping lines to request the said authorisations through their Caracas agents. Nevertheless, this practice has ceased following enactment of the new legislation.

Review of tax and customs regulations to facilitate registration

The 1998 amendments to the Law for Navigation and the Law for the Protection and Development of the Merchant Marine were intended to open up the national flag to foreign investors, by lifting foreign participation restrictions allowing the flagging of bareboat-chartered vessels and those under leasing agreements, and obviating the need to pay VAT and other taxes and duties.

Unfortunately, in practice, there was no growth in the national flag registry between 1998 and 2000. In fact, the VAT exoneration prescribed by the Law for Navigation in the event of inclusion in the national-flag registry was useless. In the drafting of this amendment, the SENIAT’s opinion was not taken into account by the law drafters, with the result that the customs procedures operated against the registry of vessels.

Nevertheless, there is reason to believe that, this time at least, the incentives prescribed by the law will help foster the growth of national tonnage. This time the Bill on the Law of Reactivation was comprehensively discussed with the SENIAT, whose attention was drawn attention to the importance of implementing the incentives.

On the other hand, the SENIAT reviewed the criteria to be applied from the customs standpoint in the case of the registration of vessels under bareboat or leasing agreements. In the event of registration of bareboat-chartered vessels, or those under leasing agreements, the applicable customs regime will be that of temporal admission, whereby import duties will be suspended for up to two years. This means that a vessel under a bareboat charter or leasing agreement, intended to be registered under Venezuelan flag, can be brought to the country to ask for temporal admission to the customs office, before registration at the Merchant Marine Registry.

Towards a new maritime legal framework

The Law for Reactivation is undoubtedly of paramount importance to the maritime sector. It would be naive to think that this legal instrument will ensure the development of a national fleet in the short term. But it is a good first step, since it has made all the players within the maritime sector realise the importance of the topic, and of moving together in one direction to develop the merchant marine.

Nevertheless, the Law for Reactivation needs to be accompanied by a set of clear government policies, the pursuit of specific objectives, and updating of legislation, particularly employment law. If the schedule published by the vice-president of the Republic of Venezuela is not delayed, the new maritime legal framework should be in force by the middle of 2001.

Implementation of the new regulations will not be an easy task. But with the right long-term policies, the government could encourage the private sector to take the lead in ports and shipping.