Doing Business In: Bolivia

Aguilar Castillo Love

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Business environment

According to the United Nations Development Program (UNDP), after the economic boom caused by the surge of commodities price globally, Bolivia has struggled to keep growth indicators and the COVID-19 pandemic has caused a recession which is still affecting its citizens and the most vulnerable. However, the country has reported signs of paced recovery and analysts are identifying opportunities that may arise from the crisis.

For example, a recent study by The Economist Intelligence Unit has identified Bolivia among the top performing Latin American countries on resiliency and adaptability to the global economic changes in the environment caused by the Ukraine war. The country has shown resistance to the global inflation thanks to strong policies on currency, and its capacity as a commodity exporter may give Bolivia good prospects for this cycle.

Also, lithium reserves and alternative exports are the best prospects for Bolivia’s growth. Recently, the Government has invited eight companies from the USA, China, Russia and Argentina to perform tests on its salt flats which is a good indication of the openness to do business globally with these resources.

Legal system

The legal system of the Plurinational State of Bolivia is based in civil law. The Political Constitution of the State (the “Constitution”) is the supreme norm, and it must be applied over any other normative provision in the country. Unlike other countries, Bolivia recognizes international treaties on human rights as being within the so-called “constitutional block” and these treaties can be superior in hierarchy to the Constitution, to the extent that they declare more favorable rights.

Its organizational structure is regional, the State has a central, departmental and municipal level. The different regions have executive and legislative powers.

Business structures in Bolivia

People who wish to invest in Bolivia, whether individuals or entities, can do so by buying participation in already established companies, setting up new companies in Bolivia, or registering the branch of a foreign company in Bolivia. Other forms of operating in the country (such as franchises or distribution agreements) are also possible.

Law No. 516, Investment Promotion Law establishes the obligation to register foreign investment. Article 13 of this Law establishes:

“The Central Bank of Bolivia will be in charge of the registration of foreign investment and will grant a certificate of entry of contributions for investment in the Plurinational State of Bolivia, which will certify the entry of foreign resources into the country.

The registration must be carried out in specific formats that guarantee the capture of information referring to the origin, destination, contributions and investment mechanisms, as well as reinvestment, in accordance with the provisions of this Law.”

The Registry of Foreign Investment (“RIOF”) is regulated by the Bolivian Central Bank and covers all investments in equity and debt from foreign companies. Non-compliance with the report of operations may be subject to sanctions from the Business Regulation Authority (“AEMP”) and other regulatory bodies overseeing the area of investment.

What types of companies can be incorporated?

The types of companies that can be incorporated in Bolivia are regulated by the Commercial Code, and are the following:

  1. Sole Proprietorships
  2. Collective society
  3. Limited Partnership
  4. Limited Liability Partnership
  5. Corporation
  6. Joint venture
  7. Mixed economy companies (with participation of the Bolivia Government)

The types of companies most frequently used in Bolivia are Sole Proprietorships, Limited Liability Partnerships (“S.R.L.”) and Corporations (“S.A.”). For foreign investment, the most frequently used investment vehicles are S.R.L. and S.A.. Both types of companies have specific advantages and disadvantages, in terms of the time required for incorporation, ease of transfer of property titles and shares, corporate obligations and internal structure.

Requirements to invest

In general, regardless of the type of company chosen, the following requirements must be met:

  1. Incorporation of the company through execution of a Deed of Incorporation;
  2. Registration of the company in the Registry of Commerce (From 2022 administered by the Registry of Commerce Authority (in Spanish “Servicio Plurinacional del Registro de Comercio – SEPREC”);
  3. Registration in the national registry of taxpayers, in the Taxes Authority (in Spanish “Servicio de Impuestos Nacionales”) to obtain a Tax Identification Number (in Spanish “NIT”);
  4. Request an operating license in the municipality where the company is located;

The companies created can also register in the Chamber that represents their industry and sector (chamber of commerce, chamber of industry, etc.), but registration is not mandatory.

The foreign investor must also take into account the requirements for the legal representative of commercial companies. The legal representative must be Bolivian, or a foreigner legally residing in Bolivia.

Licenses and permits

The State does not grant specific licenses and permits for foreign investment (beyond the obligation to register foreign investment under Law 516 “Investment Promotion Law” developed in points 2.1 and 2.2).
Regarding the operation of companies in Bolivia, all of them need an operating license, issued by the Autonomous Municipal Governments.
On the other hand, depending on the specific industries of the investment, special permits will be needed, such as environmental licenses, certifications for imports and/or exports, etc.

Is it necessary to create a local company?

It is not strictly necessary. The Commercial Code allows for the opening of branches of foreign companies in Bolivia. If a foreign company intends to expand to Bolivia, it can legalize the corporate documents issued in its home country, and register these documents in Bolivia to open a branch.

Alternatively, the foreign company may establish a subsidiary in Bolivia, that is, it will incorporate a local company, which will have the foreign company as its main shareholder.

The possibility of carrying out one or another strategy could be limited by the objectives that the investor intends. For example, in public bidding processes carried out by the Bolivian Government, the option of presenting a bid through a subsidiary is commonly rejected, leaving the opening of a branch as the only alternative.

Requirements for opening a branch in Bolivia

Following article 416 of the Commercial Code, the requirements are the following:

  • Notarization of the company’s incorporation deed, modifications, statutes and regulations;
  • Resolution of the competent administrative body of the company, establishing a branch or permanent representation in the country;
  • Appointment of the legal representative of the company, and power of attorney;
  • Declaring a domicile in the country;
  • Prove that the assets allocated for the operations of the company in Bolivia have been fully covered.

Other requirement and guarantees are also necessary for certain types of activities and operations in specific industries.

The process of registering a branch in Bolivia depends considerably on the time required by the foreign company to gather and legalize all the necessary corporate documents. The procedure in Bolivia, including notarization of documents, takes approximately 10 days, while registration in the National Taxpayer Registry takes one day.

Foreign investment restrictions

The Constitution provides guarantees to foreigners who invest in the country. Article 14 of the Constitution establishes that foreigners have the same rights and duties as Bolivian citizens. Bolivian laws apply to all persons, natural or legal entities, whether from Bolivian or foreigners, within Bolivian territory.
However, article 320 of the Constitution establishes the following rules on foreign investment:

  1. Bolivian investment is prioritized over foreign investment.
  2. All foreign investment will be subject to Bolivian jurisdiction, laws and authorities, and no one may invoke a situation of exception, or appeal to diplomatic claims to obtain more favorable treatment.
  3. States or foreign companies may not be granted more beneficial conditions than those established for Bolivians.

In aspects related to investments in natural resources and oil & gas, article 366 of the Constitution establishes limitations to arbitration forums:

“All foreign companies that carry out activities in the hydrocarbon production chain in the name and on behalf of the State will be subject to the sovereignty of the State, to the dependence of the laws and the authorities of the State. No foreign court or jurisdiction will be recognized in any case and they will not be able to invoke any exceptional situation of international arbitration, nor resort to diplomatic claims.”

Article 262.I of the Constitution establishes the following restriction on property rights of foreigners in the borders of the country:

“Fifty kilometers from the border line constitutes a border security zone. No foreign person, individually or in partnership, may acquire property in this space, directly or indirectly, nor possess water, soil or subsoil under any title; except in the case of state necessity declared by express law approved by two thirds of the Plurinational Legislative Assembly.”

Law No. 516 “Investment Promotion Law” regulating foreign investment, establishes the following parameters:

“An investment is considered foreign when the company or the investor has been abroad for no less than two years.

Investments may be made through commercial companies (companies); public enterprises; mixed capital companies where the State has a majority shareholding; contracts or other joint investment instruments and must be subject to the constitutional precepts and current trade or related regulations.

Investment contributions may be made through freely convertible national or foreign currency, movable or immovable property, reinvested profits, intellectual property rights, technological contributions, and rights over intangible assets, acquisition of shares – registered or listed on the Bolivian Stock Exchange – of companies that operate in the country, industrial plants, new or reconditioned machinery or equipment, spare parts, raw material and intermediate products among others.

If the investments are made in strategic sectors (hydrocarbons, mining, tourism, textiles, agro-industry and others considered in the economic and social development planning of the country) they will be preferential and will have fiscal or financial incentives of 1 to 20 years upon request to the Ministry of Development Planning, attaching the identification and justification study, which includes the indicators that will measure the economic effects in the country.”

Article 56 of the Constitution declares that the State recognizes, on the one hand, that “every person has the right to individual or collective private property, provided that it fulfills a social function” and, it also “guarantees private property provided that the use make it not detrimental to the collective interest”. Nevertheless, the Bolivian Government has powers of expropriation.

Article 57 of the Constitution establishes: “The expropriation will be imposed due to necessity or public utility, qualified in accordance with the law and prior fair compensation. Urban real estate is not subject to reversion”.

The Plurinational State of Bolivia denounced the Convention of the International Center for Settlement of Disputes (ICSID) in 2007, and also denounced the bilateral investment treaties it had signed. Law No. 708 on Conciliation and Arbitration establishes that the voluntary will and the agreement of the parties for alternative dispute resolutions are respected. Its article 54.II establishes the following:

“If the parties agree in the arbitration clause or arbitration agreement, that the arbitration has a venue other than that of the Plurinational State of Bolivia, it will be considered as international arbitration subject to the regulations agreed upon by the parties, as long as they do not violate the Political Constitution. of the State and the Law”.

Tax Regime

Applicable tax principles

Bolivia applies the principle of source in tax matters. It establishes that all income that is considered to come from a Bolivian source is subject to taxes in Bolivia. Bolivian source income is understood as all the profits that come from goods that are located or used economically in Bolivia, as well as all the profits that are generated in Bolivia through any act or activity that is likely to produce profits within its limits.

In addition, the Bolivian tax code determines several principles applicable to the tax regime, including the principle of legality or reservation of law. This specifies that only the law has the power to create, modify and suppress taxes, define the triggering events which generate the tax obligation, set the tax base and the rate, as well as its maximum limits, and determining the obligated subject. Other relevant principles are the following: orality, economic capacity, equality, progressiveness, proportionality, transparency, among others.

What are the applicable taxes in Bolivia?

The applicable taxes in Bolivia are the following:

I. Value Added Tax: The Value Added Tax or VAT (In Spanish “Impuesto al Valor Agregado – IVA”) is applied to sales of movable goods located or placed in Bolivian territory, carried out by individuals who habitually sell movable property, persons who carry out definitive importation of goods, rent movable and/or immovable property, among others. Likewise, the tax is applicable to contracts and the provision of services, whatever its nature, carried out in the national territory. The single general rate applicable to this tax is 13% (thirteen percent).

II. Value Added Tax – Supplementary System: (in Spanish “Régimen Complementario al Impuesto al Valor Agregado RC-IVA”) This is a supplementary system to the value added tax, in which the taxing is applied to wages and salaries of the employees, overtime, bonuses, diets, etc. and travel expenses according to scale. The subjects to this tax are employees in the public or private sector that are withheld through their employer. The fixed rate is 13% on the difference of income and allowable deductions.

III. Corporate Income Tax: The Corporate Income Tax (In Spanish “Impuesto a la Utilidad de las Empresas – IUE”) is applicable to the profits resulting from the financial statements of companies at the close of each fiscal year. All companies, both public and private, are subject to the tax, regardless of their legal nature or business structure. The rate of this tax is applicable to the net taxable profits obtained by companies, and the rate is of 25% (twenty-five percent).

IV. Transaction Tax: The transaction tax (in Spanish “Impuesto a las Transacciones – IT”) is applicable to the exercise of commerce, industry, profession, trade, business, rental of goods, works and services or any other lucrative activity or not, regardless of the nature of the subject that provides it in Bolivian territory. It is also applicable to gratuitous acts that involve the transfer of ownership of movable and immovable property and rights. The rate of this tax is 3% (three percent).

V. Tax on Financial Transactions: The tax on financial transactions (in Spanish “Impuesto a las Transacciones Financieras – ITF”) is applicable to all operations carried out in foreign currency and in national currency with maintenance of value with respect to any foreign currency. The tax is applicable for credits and debits in current accounts and savings accounts, opened in Bolivian banks, payments, transfers of money abroad or within the country, made through a Bolivian bank. The validity of this tax is until December 31, 2023 (however, an extension of the tax is possible). The rate applicable to this tax is 0.30% (zero point thirty percent).

VI. Corporate Income Tax – Withholding for Beneficiaries Abroad: (in Spanish “Impuesto a las Utilidades de las Empresas, Beneficiarios Extranjeros – IUE-BE”): The tax on profits of beneficiary companies abroad (IUE-BE) is applicable to profits, dividends and other income from Bolivian sources that are paid and remitted by Bolivian companies to beneficiaries abroad. The withholding of income remittances abroad may be reduced in the event that there are agreements to avoid double taxation or international taxation. The rate applicable to this tax is 12.5% (twelve point five percent).

Are there treaties on double taxation?

Yes, Bolivia has executed the following double taxation treaties:

  • Agreement with Argentina of 1980.
  • Agreement with Germany of 1991.
  • Agreement with the Andean Community of Nations (CAN), which provides for the system to avoid double taxation and prevent tax evasion in the member countries.
  • Agreement with Spain of 1999.
  • Agreement with France of 1997.
  • Agreement with the United Kingdom of 1996.
  • Agreement with Sweden of 1996.

Labour Issues

Workers Compensation.

I. Minimum Wage. – is dictated by the Government, and no one can be hired as a worker for a lower amount in the country. On May 1, 2022, the National Minimum Wage is fixed to Bs. 2,250 (approximately USD 323 monthly) and is mandatory for all employers.

II. Basic Salary. – It is the remuneration set by the employer for a specific job according to the salary scale, which by law must not be less than the “national minimum wage”. The basic salary does not include any type of additional payment such as seniority, bonus and others, and does not include discounts. In the salary negotiation between an employer and a worker, the amount that is negotiated is generally the Basic Salary (that is, the amount without counting additional payments and discounts).

III. Christmas Bonus. – According to Supreme Decree 229, of December 21st 1944, every commercial or industrial company is obliged to reward its employees and workers with one month’s salary, as a Christmas bonus, before December 25, every year. Under Supreme Decree 1802, of November 20th 2013, a second bonus is instituted when the annual growth of the country’s Gross Domestic Product (GDP) exceeds 4.5%. Therefore, when GDP growth exceeds that percentage, the Christmas bonus is doubled.

IV. Five-year bonus. – It is an indemnity paid to the worker for the services given at work for 5 uninterrupted years. When the worker completes 5 years at the company, he can request this right through a written request to the employer, which by law must pay the average of the last three salaries within 30 calendar days. If this right is not complied with, the employer will pay the updated five-year amount, plus a fine for the benefit of the worker consisting of 30% of the total amount due.

V. Seniority Bonus. – Under Supreme Decree 21060, of August 29, 1985, workers in any sector, whether public or private, can obtain a higher percentage of salary depending on the years they have worked in the company. This bonus begins to run after two years of uninterrupted work. This payment is made based on the calculation of three national minimum wages and the percentage scale detailed in the following box:

YearsPercentage
2-45%
5-711%
8-1018%
11-1426%
15-1934%
20-2442%
25 plus50%

VI. Extraordinary Hours.– Art. 50 of the General Labor Law determines that, upon request to the Labor Inspection, the Employer may grant overtime permits up to a maximum of 2 hours per day. If the worker occupies the extra hours to correct errors, these would not be taken into account as extraordinary hours. According to art. 55 of the General Labor Law, overtime is paid with a 100% surcharge, that is, twice the value of normal hours.

Employment agreements.

The relevant types of employment contracts are the following:

I. Contract for an indefinite period.– It is the ordinary contract of individual labor law, which has the peculiarity of being open ended (not having a term). The worker performs tasks that correspond to the normal and ordinary functions of the company. This contract includes a 3-month trial period for the employee.

II. Fixed-term contract.– This contract must necessarily be made in writing and for a certain fixed term, based on a cause or reason that gives rise to it. This contract does not have a trial period (unlike indefinite-term contracts). Its duration cannot exceed one (1) year and the worker and the employer are only allowed to sign two fixed-term contracts consecutively. Violation of this provision converts the fixed-term contract into a contract for an indefinite period.

III. Temporary contract.– It is the contract provided to cover a job in exceptional circumstances, when the contract cannot be established with a specific term in advance, even if the term is determinable.

IV. Seasonal work contract.– It is the contract for a specific and discontinuous period of time that is repeated in the future due to the nature of that activity, that is, the activities are carried out at certain times of the year, such as: the work of the sugar cane harvest, the cotton harvest; cutting wood at sawmills in the countryside, etc.

V. Collective Contracts.– It is an agreement entered into in writing and registered with the Labor Inspector, between one or more employers and a union, federation or confederation of labor unions.

Foreign employees.

According to article 3 of the General Labor Law, in no company may the number of foreign workers exceed 15% of the total and shall exclusively include technicians. Also, foreigners cannot perform the functions of Director, Administrator, Counselor and Representative in State institutions and in private ones when the activity is related to the interests of the State, particularly in economic and financial sectors.

Based on Law 370 of Migration of May 8th 2013, foreign workers must obtain a work visa, which can grant different kinds of permanency authorizations.

Social Security for employees.

The affiliation of the employer and his dependents to the Short-Term Social Security is mandatory and its omission implies a series of administrative and pecuniary sanctions according to the regulations of the Short-Term Social Security Supervisory Authority (in Spanish “Autoridad de Supervisión de la Seguridad Social de Corto Plazo – ASSUS”). Newly incorporated companies must carry out the procedures for affiliation within five (5) business days of starting their activities. In case of not complying with this obligation within the indicated period, they lose the right to choose the Management Entity (Health Care Provider), and ASSUS will assign a Management Entity to the company within a period of 15 business days.

Both the worker and the employer will make contributions to the Social Security, calculated over the total amount earned by the workers, as follows:

Employer Contributions.

  • Managing Entity.- 10%.
  • Pro-housing.- 2%.
  • Professional Risk.- 1.71%.
  • Solidarity Fund.- Since 2010 with the new Pension Law 065, this fund was created to help workers, which also establishes the retirement age of 58 years. The percentage for this fund is 3%.

All percentages are calculated based on the total earned by workers.

In total, the employer contribution is 16.71% of the basic salary.

Worker Contributions.

  • Common risk.- 1.71%.
  • Retirement.- 10%.
  • Solidarity Fund.- 0.5%.
  • Pension Fund Commission.- 0.5%.

The worker’s total contribution is 12.71% of the basic salary.

Termination of the work relation.

Article 9 of the General Labor Law states the following grounds for dismissal without compensation:

  • Intentional material damage caused to machines, products or merchandise.
  • Disclosure of industrial secrets.
  • Abuse of trust, robbery or theft by the employee.
  • Insults or immoral conduct at work.
  • Mass abandonment of work, provided that the employees do not obey the notice of the competent authority.

In cases of dismissal without fault and voluntary retirement of the worker, article 8 of the Regulations of the Labor Law provides that the employer must compulsorily comply with the payment of compensation, which is the payment of 3 months of salary, plus compensation for the years of service, with the sum equivalent to one month’s salary for each year of continuous work.

The worker can demand reincorporation to work and restoration of working conditions in the following cases:

  • Direct or indirect dismissal without legal justification and without consent.
  • A threat of dismissal.
  • A reduction in salary that has not been agreed upon.

This is due to a constitutional guarantee that the worker has, reflected in article 46 of the Constitution, which declares the right to work and job stability.

Collective Labor rights.

This right is contained in articles 51 and 52 of the Constitution, granting all workers the right to join unions, which must be of a permanent nature and have constituted their legal status; Likewise, it recognizes and guarantees the right to free business association.