Ecuador Worldwide Taxes

8/3/2019 Ecuador Worldwide Taxes

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EcuadorKey tax points

Ecuadorian resident companies and individuals are subject to income taxes ontheir non-exempt worldwide income (subject to the exemption systemmentioned below). Non-residents are taxed on income sourced in Ecuador.Taxable profits are subject to a general tax rate of 25%, except profitsreinvested ('capitalised') which are taxed at 15%.Certain payments for merchandise and services are subject to withholdingtaxes at rates ranging from 1% to 8%. Dividends and royalties paid tonon-residents are subject to a 25% withholding tax.VAT at 12% applies to the supply of goods and services and imports (a zerorate applies in some cases).A general corporate and personal income tax exemption was introduced from30 December 2007 onwards in respect of income derived abroad that hasbeen subject to income tax in another state.

A. Taxes payableFederal taxes and levies

Company taxCompany tax is payable by Ecuadorian resident companies on non-exemptincome derived from all sources. Non-resident companies are required to paytax on income sourced in Ecuador.Resident companies are those that are incorporated in Ecuador, or carry onbusiness in Ecuador and have either central management and control inEcuador or voting power controlled by shareholders who are Ecuadorianresidents.The company tax rate is 25%. Capitalised profits have a 15% tax rate. The taxyear runs from 1 January to 31 December. Tax is payable from 2-28 April,depending on the tax identification number. However, the first year's taxesobligate the company to pay 50% of that first year's taxes in two equal quotas:30 July and 30 September of the second year. The remaining balance isexpected to be paid before the deadline in the third year, included in theliquidation of the second year's exercise.

r The tax rate tables for the year 2007 are:

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Ecuador

T ax abl e i nc ome(US$)Up to 7,8507,851 to 15,70015,701 to 31,40031,401 to 47,10047,100 to 62,800Over 62,800

Fixed tax on lower limit(US$)oo3931,9634,3187,458

Marginal rate on excessPercentage0%5%10%15%20%25%

All payments or register of purchase of merchandise and service are subject towithholding tax at the following rates: 1% - interest in financial loans, electricity and private transport ofpassengers and freight; 2% - merchandise, construction materials (except oil products),freights and transportation of people, payments by credit card com-panies to their merchants; 8% - capital gains, commissions, royalties, professional sportsmen,coaches, fees, rents paid by individuals.

The amounts paid become credits available for income tax purposes at the endof the period.1% Interest and commissions in respect of financial operations be-tween institutions of the financial system; payments for freight andpassenger transport; and payments related to electrical power;2% Payments related to purchase of tangible movable property (exceptfuels); immovable property building activities; labour services per-formed for individuals; payments by credit card companies to theirmerchants; interest and similar payments; payments to Ecuadorianinsurance companies and branches of foreign companies (2% on10% of the premium invoiced); payments to Ecuadorian leasing

compan~es; and payments for media services or made to marketingcompallles;8% Fees, commissions and other payments to professionals or otherpersons that are present in Ecuador for more than 6 months forservices that are predominantly intellectual or for sport or artisticservices; royalties paid to resident individuals or Ecuadorianbranches of non-residents; payments for letting of immovableproperty;25% Payments to non-resident foreign individuals for subject-to-tax ser-vices occasionally performed in Ecuador and other payments otherthan dividends or profit distributions; and2% Any other payments.

Interest paid to financial institutions is not subject to withholding tax.Employment income is subject to a specific withholding regime.Capital gains taxIn general, capital gains are taxed as ordinary income.WT-164 Please check binder 1 for new developments SDTS. Issue 0

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Determination of taxable incomeBranch profits taxThere is no specific income tax for branches. Income made by branches istaxed according to general income tax rules. A very important exception is thetreatment of foreign oil companies involved in state contracts.Sales tax/value added tax (VAT)There is a 12% value added tax applied to all transactions including imports.There is a 0% rate on food items, agricultural inputs, medical goods, booksand government purchases, and some professional services.This tax is payable one month following the transaction from the 6th to the28th depending on the firm's tax identification numbers.Fringe benefits taxNo fringe benefits are deductible as expenses in income tax liquidation. Theonly exception is that the company is allowed to pay and expense its employeeincome tax and social security contribution, if the company has contracted todo so.Local taxes .There are many and diverse taxes, which are applied at local or regional levels.These include: urban property, rain water drainage, fire insurance, individualand corporate net worth, state university funds, fire department, transfer ofproperty, etc. Nominally, there are no stamp duties.Other taxesOther taxes imposed by the Ecuadorian Government include excise duties andoil and gas resources revenue taxes.Likewise, the Superintendence of Companies, the Superintendence of Banks,Financial Institutions and Insurance Companies charge annual fees to thecompanies they supervise.

B. Determinationof taxable incomeDepreciationBusiness assets are subject to depreciation.Costs are recovered in accordance of the goods involved based on their usefullife and accounting techniques. In general, it is taken over fiveto twenty years.Stock/inventoryInventories are valued at cost in accordance with general accounting principlesand standards established in regulations to the law.Capital gains and losses .Net capital gains and losses generally are included in the determination ofassessable income.SDTS . Issue 0 Please check binder 1 for newdevelopments WT-165

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Ecuador--- ~- -------- ---DividendsDividends received by resident companies from other resident companies aretax free. Dividends received from non-resident companies are tax free.Interest deductionsInterest is deductible.The deduction of interest and the cost of foreign financing are allowed only ifthe loan has been registered with the Central Bank of Ecuador.The following payments abroad are specifically deductible and are not subjectto income tax in Ecuador. interest and commissions on financing granted by a foreign supplier forthe amount appearing in the import permit; and interest and commissions on foreign credit authorized by, and registeredwith the Central Bank.LossesCompanies which have sustained operating losses in a ta~ year may carry suchlosses forward to subsequent tax years and set them off over five years at therate of 20% per annum, provided that not more than 25% of the profitsobtained in each fiscal year are allotted for such purposes. The carry back oflosses is not permitted.Foreign sourced incomeDomestic corporations are subject to taxes on their worldwide income withtax credits allowed for income taxes paid abroad.IncentivesSpecific write-offs are provided for the mining and oil primary productionindustries. Expenditure on research and development also qualifies for specialtreatment.

C. Foreign tax reliefA general income tax exemption was introduced as from 30 December 2007in respect of income derived abroad that has been subject to income tax inanother state and, accordingly, the ordinary tax credit method has beenterminated.

D. Corporate groupsNo provisions exist for filing consolidated returns or relieving losses within agroup.WT-166 Please check binder 1 for new developments SDTS . Issue 0

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Personal tax

E. Relatedparty transactionsPrior to administrative service fees being deductible when paid to foreignaffiliates the appropriate government authority must grant approval. Suchpayments are exempt from withholding tax. Other payments to foreignaffiliates will only be deductible where income tax at 25% has been withheld.

F. Withholding tax/""" Dividends paid to non residents are subject to a 25% withholding tax with atax credit for company tax paid (ordinarily at 25%) being allowed against thiswithholding tax.

Royalties, service and rental fees attract the same 25% withholding tax.However, interest payments are exempt from such a withholding tax (see'Interest Deductions' in Section B above).

G. Exchange controlLimited control is exercised. Direct foreign loans generally must be registered.

H. Personal taxIncome tax is payable by Ecuadorian resident individuals on non-exemptincome derived from all sources. Non-resident individuals are required only topay tax on Ecuadorian-source income. Residence is determined by reference tocommon law or to domicile or where the individual has spent more thanone-half of the relevant income year in Ecuador unless, he or she has a usualplace of abode outside Ecuador and does not intend to take up residence inEcuador.Income tax is payable on assessable income less allowable deductions.Assessable income includes business income, employment income, certaincapital gains, rent and interest. Allowable deductions include interest andcertain other outgoings paid in gaining the assessable income and gifts tospecified bodies.Most individual taxpayers have tax instalments deducted from each salary andwage payment made by their employers. Self-employed individuals and thosewith non-salary and wage income ordinarily pay a provisional tax which is aninterim payment during the year in anticipation of the assessment of tax afterthe end of the income year.Resident Individuals

Individual income tax (lIT)Real estate tax

Progressive from 5% to 25%.From 0.025% to 0.3% for rural property and 0.025% to0.5% for urban property; surtaxes and surcharges apply.10% tax.nheritance/gift tax

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Ecuador -----

-....I. Treaty and non-treaty withholding tax ratesDecisions 40 and 169 of the Cartagena Agreement have been adopted byEcuador. What this means is broadly that relief from double taxation isprovided for natural and juridical persons located in any of the Andean Pactcountries. Ecuador has similar tax treaties with Belgium, Brazil, Peru, Colom-bia, Chile, Venezuela, Bolivia, Mexico, France, Germany, Italy, Spain, Roma-nia, Switzerland and Canada. '"The final status of the Sweden tax treaty was uncertain at the time of writing.

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Documents

Ecuador Worldwide Taxes