Taxpayers should review the changes to the requirements of the shareholders' annex to ensure that they have complied. Failure to file the annex could result in an increased tax rate.

Ecuador's Internal Revenue Service has modified Resolution No. NAC-DGERCGC15-00003236, which established the requirements for completing the shareholders' annex. (For more information on the resolution, see Tax Alert 2016-127.)

Generally, all branches, permanent establishments and societies defined in Article 98 of the Internal Tax Law must submit the shareholders' annex. Companies must submit the following information about their shareholders, directors and administrators:

a) Corporate name or individual name

b) Tax ID number or ID number for individuals

c) Whether the shareholder, director or administrator is an individual or an entity and whether the entity is a limited liability company, corporation, etc.

d) For individuals, the origin country

e) The country and the jurisdiction of the tax residence

f) The percent of the participation in the corporate capital

g) Whether the shareholders, directors or administrators are related parties of the company

The information must be submitted for all shareholders, directors and administrators through individuals, unless one of the beneficiaries is a non-resident foreign company permanent establishment, a government institution, a public entity, a foreign institution, a mission or international organization.

If the taxpayer is a foundation, it must report only the information of its founders, directors and administrators. If the taxpayer or its beneficiaries sells its shares in the stock exchange market, the company must report the information only for the amount that is not offered in the stock exchange market.

If the taxpayer is a trust, it must submit information about its administrators, beneficiaries and constituents. If the taxpayer is an investment fund, it must submit information about its administrators and beneficiaries who owned more than US$ 21,600 for 2015.

The information that must be reported corresponds solely to direct shareholders unless they were related parties.¹ If the beneficiaries are domiciled in tax havens or lower-tax jurisdictions, the company must report the information for all shareholders, directors and administrators through to individuals.

The following entities are not obligated to submit the shareholders' annex:

a) Undivided inheritances

b) Government institutions

c) Public entities

d) Missions and international organizations recognized by the Ecuadorian government

e) Non-financing institutions if their capital is lower than 18 non-taxable bases for income tax purposes

The IRS may require additional information. The shareholder annex must be submitted through the IRS webpage.

The information contained in the report is through December 31st, and must be submitted during April depending on the 9th digit of the entity's Tax ID:

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ENDNOTES

¹ For tax purposes, related parties are entities or individuals domiciled in Ecuador or another country, if they participate directly or indirectly in the company's direction, administration or capital; or participate in the direction, administration or capital of two companies.