Accountancy in Ecuador

>> Taxation in Ecuador

In accordance with the Constitution of the Republic of Ecuador, the tax regime is based on the principles of equality, and generality. The taxation laws have been designed to stimulate investment, reinvestment, and savings, which should be used for national development.

Internal Revenue Service IRS is the tax central authority.

Corporate income tax

In general, the taxable base is constituted by the entirety of the ordinary revenues and others incomes burdened with the tax, less the refunds, discounts, costs, expenses and deductions, attributable to such revenue.

Corporations organized in Ecuador, as well as Branches of foreign companies domiciled in the country that obtain taxable income, will be subject to an income tax on the rate of 25%, unless, by specific legal economic activities, they have a preferential tax rate of 15% of the profit reinvested.

The tax rate increases to 28% the proportion of taxable income corresponding to the direct or indirect involvement of partners, shareholders, beneficiaries or the like, which are resident in tax havens or lower tax regimes.

Advance on income tax paid in two instalments, according to its share in July and September next year. Advance tax credit is, when the tax paid is less than the advance, the latter minimum tax is determined as final.

Transfer pricing

According to the Law, tax authorities may regulate prices on the transfer of goods in the following cases:

  • If local sales are done at cost or a value below cost.
  • If prices paid on exports are below current International prices.
  • If prices paid on imports are higher than the International market prices.

Actually, in Ecuador, the tax laws require an annexe of transactions with related parties equal to or greater US$3,000,000 and study transfer price of these transactions equal to or greater US$15,000,000.

Personal income tax

Foreigners are subject to the same treatment if they are considered as a resident for tax purposes. A resident, for tax purposes, is an individual who has carried out activities in Ecuador for more than 183 days in two calendar years.

Non-residents personal income tax: If the individual carries out activities for less than 183 days, he/she will not be liable for filing and paying income tax in Ecuador. However, payment to this individual will be subject to a 25% income tax withholding, to be performed by the payer (local company).

Value-added tax

All transfers of goods and services are taxed with a 12% VAT, unless they are exempted by the Internal Tax Law. Certain services and transfers are levied with a 0% VAT. A 12% value-added tax (VAT) is levied on all sales and commercial transactions, with the exception of the sale of unprocessed food products, drugs and veterinary products, material, machinery and equipment imported for agricultural use, as well as other items established by law.

As a general rule, the taxable base for this tax is the purchase price, of any discount recognized in the invoice. On the other hand, simple reimbursement procedures are established for the VAT paid by companies, which mainly export their products, except for oil exports. With regard to imports, the VAT settlement will be done in the corresponding bill of lading, and payment must be done prior to the customs withdrawal.

Customs duties

Taxable base on imports is the CIF value of goods. Effective tax rate depends on the type of goods imported. Safeguard clause, this has been adopted as a special and transitory measure to protect foreign trade balance. This rate is levied in addition to the ad-valorem custom duty tariff.

Latest version updated 11th April 2019

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