January 26, 2018 Ecuador amends its tax law The new law includes many tax rate changes, including an increase to the corporate income tax rate. Taxpayers should review the new provisions to ensure they are in compliance. Ecuador has enacted a new law (the Law), published in Official Gazette No. 150 on November 29, 2017, that reforms various laws, including the tax law. All changes are effective as of January 1, 2018. Corporate income tax The Law increases the corporate income tax rate from 22% to 25%. The Law also increases the general income tax withholding rate from 22% to 25%. For local taxpayers with shareholders or beneficiaries that are residents in tax havens or lower tax jurisdictions, the corporate income tax rate increases from 25% to 28%. The Law allows a 10% reduction in the corporate income tax rate for producers of goods and tourism promotion companies. Incentives for micro and small companies The Law establishes incentives for micro and small companies,1 including an income tax exemption. This exemption may be granted for a three-year period beginning with the period in which a company has operational income. To qualify for the exemption, a company must generate hiring and meet other requirements. Tax stability The Law grants tax stability to companies that enter into investment agreements regarding mining for metal at large and medium scale mines. Tax stability also applies to investments that contribute to improving the Ecuadorian productive industry (i.e., strategic sectors in Ecuador). Tax stability is granted through the signing of an investment agreement with the Ecuadorian Government. The stability ensures that the tax laws and rules will remain unchanged for the investor. Advance payment refund Under certain special circumstances, the Ecuadorian IRS may order a refund of the advance payment of the income tax. For the advance payment to be refunded, there must be a "severe affectation" to the taxpayer's activity, the advance payment of the income tax must exceed the tax and the taxpayer must maintain a certain number of employees. Financial institutions The Law allows financial institutions to manage electronic money; previously, only the Ecuadorian Central Bank administered this payment mechanism. In Ecuador, individuals and companies may open an electronic money account to make or receive payments. Under the Law, an individual is able to deposit cash in a financial institution and request that the cash amount be credited to an electronic money account. The Law also allows a refund equal to 1% of the value added tax paid in an electronic money transaction in which the individual pays with a debit or credit card issued by a local financial entity. Disclosure for assets abroad The Law imposes a fine on taxpayers that do not disclose all of the information regarding assets abroad. The fine is 1% of the total assets or total income of the last fiscal year (whichever is higher). The fine cannot exceed 5% of the assets or income. Other provisions The Law: — Establishes a tax exemption from the special consumption tax imposed on domestically produced alcohol, exported goods and orthopedic and non-orthopedic cars used for transporting people with disabilities ———————————————
——————————————— 1 According to the Law, a micro company is an entity with 1 to 9 employees and gross income up to USD $ 300,000; a small company is an entity with 10 to 49 people and a gross income between USD $ 300,000.01 and USD$ 1,000,000. | |||||||||||||||||||||||
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