1. Income Tax
Tax Brackets for Individuals for 2010
1.1.General Aspects
Corporate Income Tax. Corporate income tax is levied on companies domiciled in Ecuador. Companies domiciled in Ecuador include those incorporated in Ecuador and companies incorporated in foreign countries that have been approved as branches by the Superintendence of companies after a legal proceeding. Companies incorporated in Ecuador are subject to tax on their worldwide income. Foreign companies are subject to tax on income derived from activities within Ecuador and from goods and assets located within Ecuador.
1.2. Taxable Base
The base for calculation of Income Tax is composed by the totality of ordinary and extraordinary taxable income, minus devolutions, discounts, costs, expenses and deductions attributable to such income.
Additionally to this taxable base, taxpayers must add non-deductible costs and expenses and subtract the exempt income, in accordance with the Tax Law.
1.3. Rate of Corporate Tax.
The standard rate of corporate income tax is 25%. Companies that reinvest their profits in Ecuador are entitled to a reduction of 10% in the corporate income tax rate on the reinvested amount (which means, the reinvested profits are taxed at 15%) if they retain the reinvested profits until 31 December of the tax year following the tax
year in which the profits are earned. A rate of 44.4% applies to profits derived from oil exploration and exploitation service contracts that are not reinvested.
1.4. Capital Gains.
Capital gains derived from sales of shares are exempt from tax if the sales are "occasional" sales, which are sales that are not made in the ordinary course of business of the company. Losses on sales between related parties are not deductible.
1.5. General Exemptions and Deductions
Taxable income is based on accounting profits with appropriate tax adjustments.
In computing taxable income, a company can deduct all costs and expenses deemed necessary and related to the activity, aimed at attaining, maintaining and improving the taxable and not exempt income Exemptions
For purposes of determination and calculation of income tax, the following income, among others, will be exempt:
a) Dividends and profits calculated after the payment of income tax, distributed, paid or credited by domestic companies to other local and foreign companies, branches of foreign companies and nonresident individuals
b) Exempt income consecrated in international treaties;
c) Income received by non-profit private organizations and by political parties;
d) Interest received by individuals for their savings accounts and deposits, paid by financial institutions of Ecuador;
e) Income received by Government colleges and Universities;
f) Income arising out of non-monetary investments made by entities that maintain oil & gas contracts with the Government;
g) Income earned from the occasional sale of real estate, shares or participations. It shall be considered as occasional sale, the sale that does not correspond to the habitual activities of taxpayer;
h) Income derived from capital gains, profits, benefits or financial yields distributed by investment funds, welfare funds, pension funds and merchant trust funds to their beneficiaries, provided said funds have complied with their obligations as taxpayers;
i) Indemnities received from insurance policies,
j) Thirteen and fourteen salaries,
k) Severance indemnities received by workers and employees, etc.
Deductions
Main deductions are: costs and expenses attributable to the income; Production and manufacturing costs and expenses; Interest and financial costs from foreign suppliers; Interest paid on account of foreign loans, duly registered with the central Bank; provided the foreign loans are Government to Government loans, or loans granted by the World Bank, the CAF, the BID, and other multinational organisms.
In addition in order for interest of foreign loans be deductible, the amount of the foreign loan shall not exceed 300% of the foreign debt-capital stock relation; Net cost of merchandizes or services acquired or utilized; General expenses, being understood as such, administration and sales expenses; Financial expenses and costs; Wages, salaries, fringe benefits, 15% profit-sharing, severances paid to workers and employees; Taxes, surcharges and employer's contributions to the Social Security; Depreciation of fixed assets; amortization of investments; Corporate losses of previous years: their amortization shall be effected within the next five tax years following to the year in which the loss occurred, but only up to 25% of the taxable profit of the current year; the non-amortized balance will not be deducted in the following years and will affect the equity directly; Expenses on account of merges, spin-offs, dissolution and liquidation processes, etc. Individuals can deduct up to 50% of their taxable income, their wives and children, income, not exceeding an amount equivalent to 1.3 times of the exempt portion of income tax (USD 8,910.oo) Deductible items include lease, interest for purchase of homes, education, health, food, and other personal expenses.
1.6 Expenses incurred abroad
are generally deductible, provided appropriate taxes are withheld if the payment constitutes taxable income for the payee. The following payments abroad are deductible within specified limitations:
- Payments for imports, including interest and financing fees, as provided in import licenses;
- Export fees of up to 2% of the export value;
- Interest with respect to foreign loans registered with the central Bank of Ecuador, provided the foreign loans are Government to Government loans, or loans granted by the World Bank, the CAF, the BID, and other multinational organisms. In addition, in order for interest of foreign loans be deductible, the amount of the foreign loan shall not exceed 300% of the foreign debt-capital stock relation.
- Payments on account of international lease of capital goods
- 96% of the insurance or reinsurance premiums paid to foreign companies that do not have a Permanent establishment or representation in Ecuador
Nondeductible expenses include the following:
- Interest on foreign loans, to the extent the interest rate exceeds limits established by the central Bank Board, and interest on foreign loans not registered at the Central Bank of Ecuador; and
- Losses on sales of assets to related parties.
Deduction of costs and expenses incurred abroad and elimination of the tax exemption for reimbursement of costs and expenses remitted abroad.
Amounts that taxpayer remits abroad as reimbursement of costs and expenses incurred abroad, directly related to the activity carried out in ecuador by taxpayer, shall be deductible as expenses for local purposes, but pursuant a change in the law in May 2008, reimbursement of expenses remitted abroad are no longer tax free and are now taxed at a rate of 25% Due to this, the Cost Certificate Report (CCR) issued by foreign audit firms is no longer necessary.
With respect to payments remitted abroad on account of interest on foreign loans contracted by the private sector, the withholding tax rate was initially increased from 0% to 5%, provided foreign loan had been registered with the Central Bank. But this rate applied only until December 31, 2009. Effective January 1st.2010 and on, the withholding tax rate is of 25%
1.7. Tax Depreciation and Amortization
Depreciation is generally computed using the straight-line method. The following are some of the straight-line depreciation rates provided in the tax law:
In general, expenditures to acquire property and other assets that produce revenue must be amortized over 5 years, using a straight-line depreciation rate of 20%.
Intangibles must be amortized over either the term of the relevant contract or a 20-year period.
The tax authorities may approve other methods and annual rates for depreciation and amortization.
Organizational costs may be amortized over a 10-year period. Research and development expenses are generally written off over five years.
Depreciation of fixed assets in excess of their original cost is permitted if business assets are revalued as a result of inflation or increased replacement costs.
1.8. Transfer Pricing Rules
On 31 December 2004, Ecuador incorporated to its legislation several rules regarding the taxability of transactions between related parties, tax havens and the methods to apply the Arm's Length Principle.
In the transactions celebrated between related parties, the price shall be adjusted through the individual or combined application of any of the below described methods, in such a form that the "arm´s Length Principle" is reflected in their result.
The methods are:
- Comparable Uncontrolled Price method.-
- Resale Price method. - (Resale minus). -
- Cost Plus method.
- Profit Split method.-
- Residual analysis Profit Split method.-
- Transactional Profit method or Transactional net margin method.
The Transfer Pricing Annex and Integral Report.
Taxpayers have the obligation to file with the IRS a Transfer Pricing Annex when their transactions with related parties above in a fiscal year exceed USD 1,000,000. oo and a Transfer Pricing Integral Report detailing the transactions carried out with related parties in a fiscal year when their transactions with related parties abroad
exceed USD 5,000,000.oo.Therefore transactions performed with related parties in Ecuador are excluded from this obligation, but the IRS can request information also with regard to transactions carried out with related parties within Ecuador
According to the tax reform enacted 23 December 2009, taxpayers are exempt from the transfer pricing regime, when:
a) The income tax liability exceeds 3% of their taxable income,
b) Do not carry out transactions with parties domiciled in Tax Haven Jurisdictions
c) Do not maintain contracts for the exploration or exploitation of non renewable
resources with the Government
1.9. Tax Losses Carry-forward / Carry-back. Relief for Losses.
Net operating losses may be carried forward and offset against profits in the following five years, provided that the amount offset does not exceed 25% of the year's profits. Loss carrybacks are not permitted.
1.10. Tax-Free Reorganizations
Reorganization of corporations, mergers and Spin-offs are not subject to any tax in Ecuador. Contributions in kind are also exempt from municipal Taxes in these kinds of transactions.
1.11. Payment and Filing of Income Tax
Filing the Withholdings at Source Returns
Withholding at Source Monthly Tax Returns will be effected in the corresponding forms and other means, in the form and conditions established by the IRS.
Even in the case when a withholding agent does not perform withholdings at source during one or more monthly periods, he shall be however obliged to file the tax returns corresponding to those months. This obligation shall not apply to those employers that only have workers who do not reach the minimum annual taxable income
Withholding agents shall provide to the IRS the complete information regarding withholdings at source effected by them, including the RUC number, sale voucher number, authorization number, amount of tax levied, name and identification of supplier and the date of transaction, in the means and in the manner instructed by the IRS.
Terms for filing and paying
Withholding agents will file the return with the declaration of the amounts withheld and these will be paid in the following month in the date corresponding to the ninth digit of the RUC number:
If the return contains mistakes or errors, it can be replaced by a new declaration containing all the pertinent information, but only provided the new declaration implies a bigger amount to be paid to the IRS.
Rules Regarding Filing and Payment of Income Tax.
Terms for filing Income Tax Returns shall be filed annually in the places and dates determined in the General Regulation to the Tax Law Rules Regarding advanced Filing of Income Tax Return in cases of Termination of activities, mergers and Spin-offs of corporations
In the case of termination of activities before the end of the fiscal year, taxpayer will file an anticipated income tax return. Only when this anticipated return has been filed, the proceedings for the cancellation of the RUC, or the authorization for cease of operations, will be allowed to start. This rule will also apply for individuals that must leave Ecuador for a period exceeding the end of the tax year.
Payment of Income Tax and "Anticipated Payment of Income Tax"
Taxpayers must pay their income tax, in accordance with the following rules:
1) The balance due on account of income tax corresponding to the preceding fiscal year, must be paid by depositing said balance with the financial institutions legally authorized to collect levies on behalf of the Government.
2) Individuals and inheritance trusts, not obliged to keep accounting books, and the enterprises that maintain contracts for the exploration and exploitation of oil & gas in any modality and public enterprises subject to payment of income tax will pay as anticipated payment of income tax, a sum equal to 50% of the tax liability determined in the preceding year, minus the amounts withheld on account of income tax performed in the same preceding tax year;
3) Individuals and inheritance trusts, obliged to keep accounting books and corporations, will pay "anticipated payment of income tax", according to the following rules:
An amount equivalent to the mathematical sum of the following items:
0.2% of the total equity,
0.2% of the total deductible costs and expenses for income tax purposes,
0.4% of the total assets,
0.4% of the total taxable income for income tax purposes
4) Companies undergoing processes of liquidation that have not generated taxableincome in the preceding tax year, shall not be obliged to pay any sum in advance in the fiscal year in which the liquidation process begun. Companies undergoing processes of dissolution that are later reactivated, will have the obligation to pay advanced payment of income tax, since the date the reactivation was accorded.
5) Should taxpayer fail in self determining the amount of advanced income tax to be paid during the current fiscal year, the IRS will proceed on determining it and will then issue the corresponding tax assessment and warrant for collection, including the applicable interest and penalties.
6) Taxpayers shall be entitled to request the IRS a reduction or the exemption of advanced payment of income tax when proven that the taxable income for the current fiscal year will be inferior than the prior year's taxable income or that the amounts of taxes withheld to them will suffice to cover the amount of income tax due for the same fiscal year.
Corporations and individuals obliged to keep accounting records will be granted the right to file the corresponding claim for undue payment or payment in excess, in the following manner:
a) For the total of amounts withheld that have been effected to them, if no tax liability is due in the current year, or if the tax due is lesser than the advanced payment of income tax effectively paid,
b) For the amounts withheld that have been effected to them, in the portion not applied to the payment of income tax, in the event that the tax due is larger than the advanced payment of income tax effectively paid, The IRS will order the refund to the taxpayer of amounts undue paid or the amounts paid in excess, through the issuance of a credit note, cheque or other mean of payment.
Prior express request of taxpayer, the IRS can concede the reduction of the amount of the anticipated payment of income tax, in conformity with the terms and other requirements set forth in the Regulation to the Tax Law
Notwithstanding the above, the IRS may order the refund of the amount paid on account of advanced payment of income tax, of any given year, elapsed in a three year period, when due to causes of force majeure or acts of God, the economic activity of taxpayer has been severely affected in any given current year.
To this extent, taxpayer must file his application accordingly, duly justified and the IRS will conduct the appropriated verifications. This amount paid on account of advanced payment of income tax, in case it is not credited to the income tax due, or in case the authorization for reimbursement is denied, shall be regarded as definitive payment of income tax, and the right to use it as a tax credit forfeited
Installments and Terms for the payment of the anticipated Income Tax. The amount self determined by taxpayer on account of anticipated income tax, shall be paid in two equal installments, one in July and one in September.
1.12. Penalties on Unpaid Taxes, Late filing and Interest
Sanctions: Penalties and Interest
Penalties.
The penalty for late filing shall be equal to 3% of the tax levied, for each month or fraction of a month, up to a maximum of 100% of the tax levied. In the case of late filings by withholding or perception agents, the penalty shall be imposed on the tax due, which is, after deducting the corresponding tax credit.
Interest.
Tax obligation which is not declared and paid in the term set forth in the Tax Law will result in an annual interest equal to 1.5 times the referential active interest rate for ninety days established by the central Bank of ecuador, to be calculated since the date the tax obligation became due until it is fulfilled. Fraction of a month will be considered a complete month
1.13. Withholding Taxes
Withholdings at Source. All juridical persons, public or private, corporations, enterprises, or individuals that are obliged to keep accounting records, or that make payments or credit into account of any type of income, considered taxable income for the beneficiary, shall act as Income Tax withholding agents.
The IRS periodically will release the withholding percentages that in no case will exceed 10% of the payment or credit into account.
Local Tax Credit. The amount withheld will constitute tax credit for taxpayer whose income was subject to withholding tax and he will be enabled to offset the amount withheld to the tax liability in his annual return.
In the case that the amounts withheld and/or the amount paid as anticipated income tax exceed the annual total tax liability, taxpayer will have the right to choose between filing a refund claim for the portion of taxes paid in excess or to offset it with future tax liabilities of next fiscal years. In the event that taxpayer chooses the second option, he must inform this decision to the tax authorities in a timely fashion.
Tax Credit for taxes paid abroad. Regardless the provisions set forth in international treaties, Ecuadorian resident individuals and Ecuadorian corporations that receive income from abroad, subject to income tax in the country of origin, will be allowed to deduct from the Ecuadorian tax liability, the taxes paid abroad on account of the same income, provided the tax credit does not exceed the local tax liability attributable to the same amount of income in Ecuador.
Moment of withholding. -Withholding shall become mandatory at the time of payment or credit into account, whichever occurs first. It shall be understood that the withholding has been effected in the term of five days since the date the sales voucher was presented.
Obligation to withhold. -The obligation to withhold becomes mandatory in all payment or credit into account exceeding US$ 50.oo (Fifty dollars) unless otherwise stated in the law. However, when the payment or credit into account is made on behalf of a permanent supplier, there will be the obligation to withhold, no matter what the amount of the transaction is.
Dividends. Ecuador does not tax distribution of dividends to domestic or branches of foreign corporations, nor dividends remitted abroad to foreign companies or foreign shareholders non residents of Ecuador, provided income tax has been paid by the company at the corporate Level. Profits remitted abroad to Head office of a Branch of foreign company established in ecuador are not taxed either, provided the corporate Tax has been paid by the Branch in ecuador.
Royalties. Royalties paid or remitted abroad to non-treaty countries are taxed at the flat final rate of 25%
Technical Services, Technical Assistance and Consulting Services. Technical Services, Technical assistance and Consulting Services paid or remitted abroad to non-treaty countries are taxed at the flat final rate of 25%
Other Services. all other services paid or remitted abroad to non-treaty countries are also taxed at the flat final rate of 25%
Interest and Leasing Payments. Lease payments remitted abroad are taxed at the flat final rate of 25%. Effective 1 January 2010, payment of interest on account of foreign loans, are subject to a 25% withholding tax rate provided loan agreement has been properly registered with the Ecuadorian central Bank and the interest rate does not exceed the rates approved by the Ecuadorian central Bank.
Equity Reimbursements. Equity reimbursements are not taxed in ecuador.
2. VALUE ADDED TAX (IVA)
2.1. Value-Added Tax (IVA)
IVA is levied on the transfer of goods, imports and services provided. The general rate is 12%, but there are transfers, imports and services levied with "0" rate.
The following transactions are exempt from IVA:
- Contributions in kind to corporations
- Awards arising from inheritances and liquidation of companies
- Sale of businesses in which the assets and liabilities are transferred
- Merges, spin-offs and transformation of corporations
- Donations to public entities and charities
- Transfer of shares, participations and other securities
2.2. Transfers levied with "0" rate:
a) Food Products of agricultural, aviculture, cattle, apiculture, cuniculture, aquaculture and forest nature; meats and fish in natural estate; b) milks in natural estate, pasteurized, homogenized, powdered. maternity milks, child protein milks; c) bread, sugar, brown sugar, salt, grease, margarine, oats, cornstarch, noodles, flours for human consumption, canned tuna, mackerel, sardines, trouts, and oils for human consumption, except olive oil; d) certified seeds, bulbs, plants, live roots. Fish flour, balanced foods, fertilizers, insecticides, pesticides, herbicides and veterinarian products; e) tractors with tires up to 200 HP, drill plows, harvest and crop machinery, bombs for irrigation.; f) medicines and drugs for human consumption, as well as raw material to produce them. Vases and labels for medicines; g) paper and books printed in paper; h) goods to be exported; i) goods imported to Ecuador by: Foreign Diplomats and officers of International organisms, provided they are exempt from custom duties, Passengers entering the country, Donations on behalf of Government entities, Goods imported under the Temporary Import Regime, while they are not nationalized , Imports of capital goods made by Government entities, Andean Development corporation, Interamerican Development Bank and World Bank
2.3. Services levied with "0" rate:
1. - Fluvial, maritime and Terrestrial passengers and cargo transportation as well as international aerial cargo transportation, 2. - Health Services, 3. - Lease and rent of real estate destined exclusively for housing, 4. - Public Services of electricity, potable water, sewer and trash collection, 5. - Education Services, 6. – Kindergarten, child care and elderly care homes services, 7. Religious services, 8. - Book printing services, 9. - Funeral services, 10. - Some administrative services provided by the Government, 11. - Public shows and spectacles, 12. - Exchange, Stock market and Financial Services provided by the entities duly authorized by the law and the Government, 13. - Transfer of securities, 14. - Services for export, including inland tourism, 15.- Services provided by Professionals up to an amount of US$ 800.oo for each case, 16. - Toll for the use of roads and highways, 17. - Lottery conducted by Junta de Beneficencia and Fe y Alegria (charity entities), 18. - Aerial fumigation 19. – Services rendered by artisans, 20. - Refrigeration and freezing services for maintenance of food, -21.- Services provided to Government entities that receive tax exempt income. 22 .- Life insurance and reinsurance, medical assistance and personal accidents Services According to the tax reform of 23 December 2009, importation of services is now levied with 12 % IVA and it must be calculated and paid in the monthly IVA tax return made by taxpayer. The acquirer of the service provided from abroad must withhold and pay 100% of the IVA levied in the contracting of service. It shall be regarded as importation of services, those provided by a non resident corporation or individual on behalf of an individual or corporation resident or domiciled in Ecuador, provided the utilization of the service is made completely in Ecuador, even if the service is rendered from abroad.
2.4. General Taxable Base
The taxable base for IVA is the total amount of the movable goods of corporal nature that are being transferred or of the services provided, calculated upon their sale prices or of the price of the providing services, which includes taxes, surcharges and other expenses legally attributable to the price.
2.5. Taxable base on imported goods
IVA taxable base on imports is the result of adding to the CIF value the taxes, custom duties, surcharges, fees and other expenses as declared in the import permit and other relevant documents.
2.6. Rate
The general rate for IVA is 12%
2.7. IVA Tax Credit
As a mandatory general rule, IVA tax credit will be granted on IVA paid in the purchase and utilization of goods and services levied with this tax, provided such goods and services are destined to the production and merchandising of other goods and services levied with 12 % rate. There will be no IVA tax credit in the local purchase and import of goods or in the utilization of services made by taxpayers to be used in the production or sale of goods, or in the providing of services, totally levied with "0" rate; and the purchase or import of fixed assets to be used in the production of goods and services totally levied with "0" rate.
2.8. IVA Refund on export activities
Individuals and corporations that have paid IVA in the local purchase or import of goods, used in the manufacturing of goods to be exported, will be granted a refund for the tax paid, without interest, in a period of time not exceeding ninety days. If the refund is made after this term, interest will apply.
Notwithstanding the above rule, this will not apply to oil & gas exports, due to the fact that oil & gas are not manufactured, but rater extracted from the soil.
3. TAX ON SPECIAL CONSUMPTIONS (ICE)
3.1. Object of ICE
ICE applies to the consumption of cigarettes, beers, soft drinks, and luxury or sumptuary articles, national or imported.
3.2. Taxable base
Taxable base of products subject to ICE locally manufactured, shall be determined adding the "ex-factory" price, costs and commercialization margins, minus IVA and the own ICE. The rates established in the law shall be applied to this taxable base.
For imports subject to ICE, the taxable base will be established increasing to the "Ex-Custom Price" an additional 25 % on account of costs and expected commercialization margins.
3.3. RATES OF ICE
ICE is levied on the following products
According to the 23 December 2009 Tax Reform, alcohol destined to the pharmaceutical industry, alcohol destined to the production of perfumes and similar products; alcohol, syrups, essences or concentrates to be used in the production of alcoholic drinks or beverages, alcohol, remains and other sub products resulting from the industrial or artisan process of rectification and distillation of alcohol are now exempt from ICE (Tax on Special Consumption or Excise Tax)
4. CAPITAL FLIGHT TAX (ISD)
Tax Rate: 2% (Increased from 1% to 2% on 23 December 2009) on all moneys, funds, currencies remitted abroad, with or without the intervention of Financial Institutions It includes the transfer or conveyance of currency abroad, in cash, in checks, credit cards, through wire transfer, withdraws or payment of any nature remitted abroad, with or without the intervention of the institutions of the banking and financial system. All these transactions shall be subject to a 2% tax on the amount remitted, transferred or carried outside ecuador Taxpayers subject to this tax:
a) Ecuadorians and foreign individuals residents of ecuador
b) Undivided inheritances
c) Private national corporations
d) Branches of foreign companies and permanent establishments domiciled in ecuador
e) Importers of goods, either individual, national or foreign corporations or permanent establishments of foreign companies
For the case of consumption or cash advances made with credit or debit cards, the issuer, administrator or financial institution, will withhold the tax on the total amount, in the date of the accounting registry of the transaction, chargeable to the account of the cardholder or client.
Moment of the payment in case of imports: In the case that the payment for imports is made through transfer or conveyance of currency, withholding agents will withhold the tax at the time of transfer or conveyance. If the payment of the import was made from abroad, in any manner, the capital Flight Tax shall be declared and paid at the time of nationalization of the goods; to such purpose all importers must file with the customs authorities, the corresponding form to the extent that the CAE (custom authority) can accurately identify the transaction and collect the tax whenever applicable.
According to the December 2009 Tax Reform, Ecuadorian and Foreign citizens abandoning the country carrying in cash an amount equivalent of up to the exempt portion of the personal income tax (USD 8,910.oo), shall be exempt from this tax.
In the excess will be subject to the tax.. Transfers remitted abroad of up to USD 1,000.oo will equally be exempt from the ISD, and the tax will be levied on the excess. This exemption will not apply in the consumptions and purchases made outside Ecuador with Credit Cards.
Payment of ISD can be used as a tax credit to be applied to offset the income tax liability in the current fiscal year in the cases the payments on account of ISD have been done to import raw materials, capital goods and other goods to be used in the production, and provided that at the time of filing the custom declaration for nationalization, these goods are subject to AD VALOREM ZERO RATE CUSTOM DUTIES in the import legislation in force at such time.
5. TAX ON ASSETS AND INVESTMENTS MAINTAINED ABROAD
Assets levied with the tax: available funds and investments maintained outside Ecuador by private entities controlled by the Superintendence of Banks and Insurance and by entities controlled by Stock Intendencies of the Superintendence of Companies. This tax encompasses the ownership or possession of monetary assets maintained outside Ecuadorian territory, either in the form of accounts, checking accounts, time deposits, investment funds, portfolio investments, investment trusts or any other financial instrument.
Taxable base: The taxable base will be the simply monthly average balance of the daily balance of the funds available in a foreign institution, domiciled or not in Ecuador and of investments issued by issuers domiciled outside ecuador. In the case of ownership or possession of several investment documents abroad, the taxable base will be calculated by adding the monthly average balances obtained by each one.
Rate: The rate of the tax on assets maintained abroad is of 0.084% monthly, applied on the consolidated taxable base
6. TAX ON TOTAL ASSETS
6.1. Rate
The rate is 0.15% on the amount of total assets located in a specific municipality. The beneficiaries of this tax are the municipalities of ecuador.
6.2. Taxpayers
Taxpayers of this tax are the individuals, juridical persons, companies, and businesses of all kinds, which maintain a domicile in the respective municipal jurisdiction, habitual y carrying out commercial, industrial, and other financial activities in said jurisdiction
6.3. Deductions
For purposes of the calculation of this tax, obligations of up to one year owed by taxpayers and contingent liabilities will be allowed as deductions.
7 . MUNICIPAL TAXES
7.1 Tax on urban real estate
Real estate located within the limits of a particular municipality shall be subject to municipal Taxes, which are paid annually. The tax is levied depending on the amount of the appraisal of the property assessed by the respective municipality. Each municipality will update the appraisals every 5 years, splitting separately the commercial value of the land and the constructions.
Taxable base for this tax is the commercial value of the real estate, as appraised by the municipality, minus 40% of said value, which is the general reduction authorized by the law. On the taxable base, a progressive scale of taxes will be imposed. A fixed amount of tax is applied to the basic portion and on the excess rates range from 0.3% to 0.16%
7.2. Tax on rural real estate
This applies to real estate situated out of the urban limits. As in the above case, this tax is collected depending upon the commercial value and the rates are slightly lower than those applied to the real estate located within urban limits
7.3. Alcabala Tax
This tax is collected on transfer of real estate and ships. The taxable base for the calculation of this tax is the commercial value of the real estate and the vessel or the value declared in the sale/purchase deed, whichever bigger. Depending on the taxable amount, the rates of this tax range from 4% to 8%
7.4. Capital Gains on Sale of Real Estate (Plusvalue tax)
It applies only to real estate located within the urban limits of a municipality. The taxable base is the difference between the price in which the real estate was acquired and the price in which it is sold. There is a fixed amount of tax imposed in the basic portion of the taxable base and a percentage rate on the excess, which ranges from 10% to 42 %
8. UNIVERSITY OF GUAYAQUIL TAX
8.1. Beneficiary This tax was created for the benefit of the Hospital of the University of Guayaquil and taxpayers of this levy are individuals and corporations engaged in commercial, industrial and financial activities within the city of Guayaquil.
8.2. Rate and Taxable Base
The annual rate is 0.20% calculated on the amount of own capital stock declared by taxpayers in their respective commercial and industrial registries. Payment must be made within the first quarter of each calendar year in the Treasury Department of the University of Guayaquil
9. SUPERINTENDENCE OF COMPANIES TAX
9.1. Taxpayers
Domestic companies and branches of foreign companies that are under the surveillance and control of the Superintendence of companies will pay this annual tax to the Government entity. The amount of the tax shall be issued annually by the Superintendence of companies.
9.2. Taxable base
The annual amount of this tax shall be established and paid based upon the amount of real assets of each company, as shown in the general balance or financial statements of the preceding fiscal year.
9.3. Rate
The annual tax to the Superintendence of companies shall not exceed 0.10% of the real assets of a company. For years 2008 and 2009 the rate has been set in 0.10%.
9.4. Terms for payment
Taxpayers will be allowed to pay this annual tax in two installments, provided at least 50% of the tax is paid until September 30 of each year and provided there are no amounts owed for past years. The remaining 50% can be paid until 31 December of same year
10. TAXES ON IMPORTS
10.1. Custom Duties
Custom Duties can be "ad-valórem" (according to the value), specific (on weight or measure units) or combined . In ecuador, custom duties are generally "ad valórem" and are calculated on CIF value of the merchandises. Tariffs range from 5% (bottom) to 20% (ceiling)
10.2. Value Added Tax (IVA)
The rate is 12% and the taxable base is the result of adding to the CIF value all taxes, custom duties, surcharges, fees and other charges that appear in the DUI (Unique Document of Importation)
11. TAX ON VEHICLES
11.1. Object of the tax
This tax is levied on private, or for public services, motor vehicles for land transportation of passengers and cargo. Taxpayers of this tax are owners of the vehicles
11.2. Taxable base
The taxable base will be the value of the vehicle, according to the appraisal made by the IRS.
11.3. Rates The following rates shall be imposed on the taxable base
12 . TEMPORARY IMPORT REGIME
12.1. Concept
Temporary Import Regime is a special custom regime whereby payment of import taxes and custom duties are suspended while merchandises are entered into Ecuador to be utilized in a determined purpose, during a certain period of time, and later re-exported without further modification.
12.2. Nationalization and payment of duties
If the merchandises that entered into ecuador under the Temporary Import Regime are nationalized, the payment of import taxes and custom duties will be effected at the current rates and exchange rate in force at the time of filing the import to local consumption petition.
12.3. Re- exportation
At the time of re-exporting merchandises that were entered into ecuador under the Temporary Import regime for the construction of works or for the providing of services, the proportional part of the custom duties that were suspended will be levied.
13. TAX EXEMPTIONS ON MARITIME ACTIVITIES
These exceptions are contained in the "LAW FOR THE STREGHTEN AND DEVELOPMENT OF THE AQUATIC TRANSPORTATION". The objectives of this law are to promote the modernization, reactivation and development of aquatic transportation, naval construction and related activities.
13.1. IVA exemptions
The law establishes that it will levied IVA Zero Rate to ships and vessels with less than ten years of construction, as far as imports, transfer of title, lease and providing of services is concerned.
13.2. Exemptions on Custom Duties
The law also establishes that the import of ships, vessels and all kind of watercrafts for commercial operations, dredging services, equipment, fishing gear, outboard motors, machinery, spare parts, navigation equipment (communication equipment, radars, ecosondas, depth sounders, radio buoys and electronic devices for naval use) made by navy enterprises, national shipyards and dockyards, individuals, fishing associations and cooperatives legally incorporated and duly qualified, on their own account and/or through commercial enterprises, destined exclusively for the operation of their embarkations, shall be custom duties exempt, however excepting leisure ships for private use and floating platforms.
14. PAYRROLL TAXES AND PROFIT-SHARING
14.1. Social Security Contributions
Employer must pay a monthly contribution to the Social Security equal to 11.15% of the employee's monthly salary. Additionally he must pay 0.5% for SECAP (Ecuadorian Services for Professional Training) and another 0.5% for IECE (Ecuadorian Institute for Educational Credit)
The Reserve Fund is a fringe benefit that employer must pay to the Social Security on behalf of employees. It is an annual contribution and is equal to the employee's one month salary.
14.2. Profit-Sharing
Ecuador imposes a pre-tax 15% Profit-Sharing to employers. The beneficiaries of this tax are the employees.
15. MISCELLANEOUS MATTERS
15.1. Foreign-Exchange Controls
Ecuador does not have exchange controls. All transactions in Ecuador must be conducted in U.S. dollars, which replaced the "Sucre" and is the official currency of ecuador since January 2002.
15.2. Foreign Investment:
Ecuador does not impose any limitation or pre-requisites to foreign investors. A foreign individual or corporation can own 100% of a local corporation. Tax and Legal treatment, in general, is equal for Ecuadorians and foreigners. Repatriation of profits and capital invested has no limitation whatsoever.
15.3. Tax Stability
The Tax Stability consists in granting to foreign and local investors the maintenance, for a fixed period of time, of the applicable income tax rate in force at the time of making the investment.
15.4 Declaration of Personal Equity
The Government on 30 December 2008, enacted a law whereby all individuals, nationals or foreigners, residents of ecuador that own assets in excess of USD 200,000.oo at January 1st. each year, must file their Declaration of Personal Equity listing all the assets they own. In the case of matrimonies, they must declare jointly (husband and wife) if their common assets included in their matrimonial Property Regime exceed USD 400,000.oo.
If husband or wife own assets out of the matrimonial Property Regimen (i.e. a Pre-nuptial agreement) the declaration must be individual if the assets owned in the matrimonial Property Regime and the assets not included therein, exceed USD 200,000.oo The assets to be declared are: Real Estate: Land and buildings, movable goods: cash, cash in banking accounts and other deposits in financial institutions, other deposits, investments, stock, participations, portfolio, credits and receivables, motor vehicles, planes, boats, movable goods, and home furniture, machineries and equipments, merchandises and raw materials, animals. The only exemptions are library collections and music collections owned by declarer. jewelry, paintings, precious metals, art works, etc. rights: usufruct, rights of use and housing, authorship rights, inheritance rights, etc.
The IRS alleges that this Declaration of equity has the purpose to compare the increase in the equity of an individual versus the income declared in the Income Tax Return, and that there is no intention to create a tax on equity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
