The Ecuadorian Tax Administration increased the maximum amount of income to which benefits under a double taxation treaty (DTT) automatically apply. It also issued new requirements for the automatic application of benefits under a DTT.

Ecuador's Tax Administration established the maximum amount of income to which benefits under a DTT automatically apply, as well as new procedures for applying DTT benefits. The Tax Administration also established the procedure for the automatic qualification of DTT benefits by nonresidents.

Automatic application of benefits

Before January 1, 2019, the maximum amount of income to which a nonresident could automatically apply DTT benefits was US $225,400. Beginning January 1, 2019, nonresidents may apply DTT benefits to a maximum of US $565,500. (For information on how the maximum amount is calculated, see Tax Alert 2016-1711.)

The automatic application applies if a nonresident has a tax residence certificate at the time of the withholding on all cross-border payments and at least one of the following conditions is met:

• The cross-border payment relates to a dividend distribution.
• The payor may not deduct the payment under the DTT for income tax purposes.
• The sum of all payments or credits under a contract does not exceed US $565,500 (for tax year 2019).

Automatic application does not apply if(1) the beneficial owner of the cross-border payment is an Ecuadorian individual or (2) the entity remitting the cross-border payment does not comply with the obligation to report the corporate composition.

Automatic qualification for nonresidents

The nonresident may automatically apply DTT benefits if certain requirements are met. The Tax Administration is expected to issue regulations to implement the procedure for automatic qualification.

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