Organizational Questions
Legal form Feature
Enrolment before the control authority
All trade partnerships mentioned above are required to apply for registration of their social contract and bylaws with the “Superintendencia de Compañías Valores y Seguros (SCVS)”.
No public deed is required for the formation of any of the mentioned companies; it can also be completed online through the SCVS website.
With the exception of the Simplified Joint Stock Company, they must enroll with the “Registro Mercantil” of the city where they intend to carry out their activities.
Register with the Tax Authorities
Foreign partners
All natural and legal persons, entities without legal personality, both national and foreign, who initiate or carry out economic activities in the country on a permanent or occasional basis, must register with the “Registro Único de Contribuyentes”, before the national tax authority.
They must also register for the payment of the patent in the canton where they carry out economic activities.
If a foreign company wishes to be a partner in any of these companies, it must appoint an agent or legal representative in Ecuador and provide proof that it is legally constituted in accordance with the laws of the country in which it is organized.
It will be required to submit annually: a certificate of legal existence from the foreign country of origin, as well as the names of the foreign shareholders up to the ultimate beneficial owners (natural persons).
Opening a Branch To settle a branch in Ecuador, the foreign society will need the following documents:
1. Provide proof that it is legally constituted in accordance with the law of the country in which it is organized.
2. Ensure that, in accordance with said law and its by-laws, it may agree to the creation of branches and has the power to negotiate abroad.
3. To have permanently in Ecuador, at least one representative with broad powers to carry out all the legal acts and businesses that are to be celebrated and to have effects in the national territory, and especially to be able to answer any questions that may arise and especially to be able to answer the demands and comply with the contracted obligations.
4. To allocate capital to the activity to be developed, which cannot be less than USD 2000.
These documents must be submitted within a petition to operate as a foreign company in Ecuador to the SCVS under a public deed, which includes the documents described before.
If the legal representative is not Ecuadorian, he must obtain a resident visa.
Branches may not be rearranged nor converted into a subsidiary. The license to operate in Ecuador granted to a branch must be cancelled before creating a new company.
Instead of opening a branch for a Company that only requires a legal representative in Ecuador, it’s preferable to open a representative office.
Bank Account To open a bank account, individuals from Ecuador need a valid identification document or passport. It is not necessary to be registered with the Tax Authority Register or to obtain a tax identification number.
Companies require the articles of association or bylaws, the appointment of a legal representative, a basic services payroll, a shareholders list, a tax identification number, and a letter requesting the opening of the account once it is registered in the Public Mercantile Register (except for S.A.S.).
Transfer of Capital Ecuadorian companies can freely move capital in and out of the country without restrictions, but they are required to inform the authorities about such transfers. For transfers exceeding USD 1,200, companies must pay the Currency Exit Tax (ISD), which is currently set at a 5% rate.
Visa and Residence permit
Reforms to Control Money Laundering and Financial Crimes
To act as the legal representative of a company, foreigners will need any type of visa, except for the 12-IX visa (Visa 12-IX: Tourism-Sports-Health-StudiesScience-Art-Commercial Acts).
Superintendence of Companies, Securities, and Insurance (SCVS) introduced significant reforms to strengthen the control and prevention of money laundering, financing of terrorism, and other financial crimes in the corporate sector. These changes were implemented through two key resolutions:
Resolution No. SCVS-INC-DNCDN-2024-006: Issued on March 25, 2024,This resolution expanded the scope of entities subject to anti-money laundering regulations. It included new categories such as legal entities providing accounting, legal, or corporate services. The resolution also clarified criteria for hiring external auditors and established prohibitions for compliance officers.
Resolution No. SCVS-INC-DNCDN-2024-0013: Published on October 3, 2024, this resolution introduced additional measures to manage risks associated with money laundering and terrorism financing. It outlined specific reporting obligations for various sectors, including jewelry traders, vehicle dealers, real estate companies, and courier services.
Employment
Legal form Feature
Law on Equal Pay for Men and Women In January 2024, Ecuador enacted a groundbreaking law to address the persistent gender wage gap. The Law on Equal Pay for Men and Women, published in the Official Register on January 19, 2024, mandates equal remuneration for equal work, regardless of gender.
Working Hours Issued on 22 October 2024 by the Ministry of Labour, this agreement establishes a procedure for the modification and temporary registration of working hours in response to the national electricity sector emergency. It allows employers and workers to agree on working hours different from those stipulated in the contracts, as long as the limit of 40 hours per week is not exceeded. The new working hours can be, for example, from 7:00 a.m. to 5:00 p.m. from Monday to Thursday, or from Thursday to Sunday.
Additional Payments The Labor Code recognizes the following benefits to which every worker is entitled:
• Thirteenth Salary: The thirteenth salary is the equivalent of one month’s salary or one-twelfth of the annual income for employees who have been with the company for less than one year. This payment must be made by December 24th, or it will be prorated monthly.
• Fourteenth Salary: The fourteenth salary corresponds to a unified basic monthly salary, which for 2025 is set at $470. This bonus must be paid monthly or as a single annual payment by March 15th in the Costa and Galapagos regions, and by August 15th in the Amazon and Sierra regions.
• Reserve Funds: After completing one year of service, employees gain access to their annual reserve funds, equal to 8.33% of their monthly salaries. Employees may choose to receive this reserve either monthly or annually.
• Participation in Company Profits: Employers are required to distribute 15% of the net profits among their employees annually. Of this, 10% is distributed equally among all employees, with proportional shares for those who have worked for less than a year. The remaining 5% is distributed to employees with family responsibilities, including children under 18, disabled children of any age, and spouses or partners recognized by law.
• Living Wage: Companies generating profits must pay the difference between the basic salary and the living wage, which is $447.02, for employees earning less than this amount.
• Retirement Pension: Employees who have worked continuously for 25 years or more are entitled to a retirement pension. This right can also be acquired by employees dismissed after 20 years of work. The pension amount is determined by an actuarial calculation based on the employee’s payments received during their employment.
Vacations Annual vacations: Any employee who has completed one year of service with the same employer is entitled to an uninterrupted period of 15 calendar days of paid vacation.
Foreign citizen hiring A foreign citizen who is not Ecuadorian and who wants to work and reside in Ecuador must apply for a visa at the Consulate of Ecuador in their home country before entering Ecuador, or during the 90 days on entrance to Ecuador.
Social Security Employees are required to make monthly contributions to the IESS social security system, equivalent to 9.45% of the salary they receive. On the other hand, the employer is obliged to make contributions of 11.15% of the worker’s salary.
Health and Security employees regulations
Committee for Safety and Health at Work
Health and Safety Unit
The Labor Code mandates that employers must submit internal regulations to the Ministry of Labor if their workplace employs more than ten workers. On May 9, 2024, the Ecuadorian government issued Decree 255, which established new regulations for workplace safety and health. The regulation, published in the Official Register, aims to create safer and healthier work environments.
It is the responsibility of workplaces with more than fifteen workers to establish a Committee for Safety and Health at Work. This committee must consist of an equal number of three employee representatives and three employer representatives, along with their respective alternates, elected for a one-year term.
As per the Regulations for Safety and Health of Workers and Environmental Improvement Work, companies with one hundred or more permanent workers are required to establish a Health and Safety Unit. This unit must be led by a qualified individual knowledgeable in health and safety matters.
Special exemptions Operator users or users of qualified Free Trade Zones will enjoy a 0% Income Tax rate for the first 5 years of declaration from the first year in which income is generated. Subsequently, they will enjoy a fixed rate of 15% Income Tax for the remaining time of their declaration.
New productive investments to be made in projects projects focused on the transition to the generation of non-conventional renewable energies and the production, industrialization, transportation, supply, commercialization and and the production, industrialization, transport, supply and commercialization of natural gas or green hydrogen in the natural gas or green hydrogen in Ecuador, will be entitled to income tax exoneration for 10 years, counted from the date of for 10 years, counted from the first year in which income directly and solely attributable to the new investment is generated.
New productive investments, which are made in projects focused on tourism, will be entitled to income tax exemption for 7 years, counted from the first year in which income is generated in projects focused on tourism, will be entitled to income tax exemption for 7 years, counted from the first year in which income directly and solely attributable to the new investment is generated.
System for Large Taxpayers
One of the most notable reforms introduced in 2024 is the autorretención system, targeting the 500 largest taxpayers in Ecuador. This system requires these entities to self-retain 3% of their total income as part of their tax obligations. The measure aims to streamline tax collection and ensure compliance among major contributors to the national budget.
Deductions 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.
The following payments abroad are deductible within specified limitations:
• Costs and expenses attributable to income, supported by sales receipts.
• Interest on debts incurred in the course of business. In order for interest paid or accrued by banks, insurance companies and entities of the financial sector of the Popular and Solidarity Economy for external credits granted directly or indirectly by related parties to be deductible, the total amount of such interest cannot exceed 300% of equity. In the case of other companies or individuals, the total amount of net interest in operations with related parties must not exceed 20% of the profit before labor participation, plus interest, depreciation and amortization of the fiscal year, except for interest payments for loans destined to finance delegated management and public projects of common interest, qualified by the competent public authority. The regulation of the law will establish the conditions and terms for the application of this regulation.
• Interest paid or accrued on the excess of the indicated ratios will not be deductible. In addition, interest and financial costs of external credits not registered with the Central Bank of Ecuador will not be deductible.
• Taxes, fees, contributions and contributions to the mandatory social security system.
• Insurance premiums accrued in the tax year covering personal risks of workers and assets related to the activity generating the taxable income.
• Proven losses due to acts of God, force majeure or crimes that economically affect the assets of the activity generating the income.
• Travel and living expenses necessary to generate income and indirect expenses allocated from abroad to companies domiciled in Ecuador by related parties, up to a maximum of 5% of the taxable income tax base plus the value of such expenses.
• Depreciation and amortization.
• Amortization of losses.
• Wages, salaries, remunerations, social benefits, employee profit sharing, indemnifications and legal bonuses. Additional deduction of up to one hundred and forty percent (140%) for the creation of new jobs for the hiring of women; additional deduction of between 50% and 75% for hiring young people between 18 and 29 years; additional deduction of between 50% and 75% for hiring persons who have served a prison sentence of more than one year, or their spouses or domestic partners.
• Values allocated by insurance and reinsurance companies to form mathematical and other reserves to cover current risks.
• Provisions for bad debts.
Deductions
Continuation
Deduction of foreign payments
• Assumed income tax and personal social security contributions for employees hired on a net salary basis.
• Expenses accrued and pending payment at the end of the fiscal year.
• Expenditures in kind or services for directors, officers, employees and workers, provided that withholding tax has been withheld at source on the totality of these expenditures.
• Expenses related to the acquisition, use or ownership of vehicles used in income-generating economic activity
• Costs and expenses for promotion and advertising with exceptions (not applicable for prepared foods with ultra-processed content).
• An additional deduction of 150% is allowed for advertising, promotion, sponsorship and/or sponsorship expenses incurred in favor of:
• Athletes; low-income students in third or fourth level dual training; non-profit entities that have activities of: eradication of chronic child malnutrition and care for pregnant and nursing mothers, care for people with disabilities, care for catastrophic, orphan or rare diseases, or comprehensive cancer care, animal protection, care, defense and protection of children and adolescents, construction of emergency housing solutions for families or communities in situations of poverty or extreme poverty, as well as in cases of natural emergency; donations of equipment and supplies to the National Police.
• Additional deduction of up to 150% for expenses for organization and sponsorship of artistic and cultural events and production of cinematographic works.
• Expenses for private contributions for the promotion of arts, cinema and innovation in culture, with an additional deduction of up to 150%.
• Additional deduction of up to 10% for the purchase of goods or services from organizations of the popular and solidarity economy, including artisans, which are micro-enterprises.
• Resources and/or donations for undergraduate and graduate careers related to Education Sciences in legally recognized Higher Education Institutions, deductible up to 1% of the taxable income.
• Deduction of an additional 100% for donations, investments and/or sponsorships destined to programs, funds and projects of prevention, protection, conservation, bio-enterprises, restoration and environmental repair, up to a maximum of 10% of the gross annual income.
• Deduction of expenses in works for the construction of new electric power distribution networks and infrastructure to supply commercial and/or industrial customers isolated from the distribution network, provided that they have the approval of the electric distribution companies in the area of influence and are intended for operation and control.
Expenses incurred abroad are deductible, provided that the withholding at source has been made, if what was paid constitutes for the beneficiary an Ecuadorian source income.
The following are deductible without the need of withholding at the source:
Payments for the importation of goods;
Payments for external financing to foreign financial institutions, legally established
Commissions for exports included in the contract and those paid for the promotion of inbound tourism, not exceeding two percent (2%).
Expenses necessarily incurred abroad by maritime or air transport companies
Payments for cession or reinsurance premiums, subject to conditions
payments made by international press agencies
payments for international commercial leasing of capital goods,
payments for promotion of receptive tourism
Special rules The agricultural and banana sector has a special regime and a reduced rate of income tax is applied, ranging from 0% to 2% for local sales and from 1.30% to 3% for export.
RIMPE: Simplified regime for businesses with annual revenues up to US$300,000.
General Exemptions
1. Payments made abroad for the financial income, capital gains and capital of those investments coming from abroad that have exclusively entered the Ecuadorian securities market to carry out this transaction and that have remained in the country for at least the indicated period By the Tax Policy Committee, which may not be less than 360 calendar days, made by natural or legal persons domiciled abroad, through the Stock Exchange legally constituted in the country or the Special Stock Exchange Register;
2. Foreign payments arising from financial income, capital gains and capital from investments abroad, in securities issued by legal entities domiciled in Ecuador, which had been acquired in international markets, and provided that the resources generated for such investment have entered the country and have remained at least the period indicated by the Tax Policy Committee, which may not be less than 360 calendar days, intended for housing financing, microcredit or productive investments. This exemption does not apply when payment is made directly or indirectly to natural persons or companies resident or domiciled in Ecuador, or between related parties.
3. Payments made abroad in respect of financial income, capital gains and capital of those fixed-term deposits made with resources from abroad, in institutions of the national financial system, and whose minimum term will be that indicated by the Tax Policy Committee, Carried out by natural or legal persons as of the date of publication of this Law.
4. Those who study abroad in educational institutions recognized by the competent national authority in Ecuador, may carry or transfer up to an amount equivalent to the costs related and charged directly by the educational institution. For which they must carry out the processing of prior exoneration, in accordance with the conditions and procedures established by the Tax Local Authority. In cases in which the tax is paid, it can be requested to return of it by fulfilling the same conditions established for the exemption. In addition, persons who leave the country for study purposes to educational institutions duly recognized by the competent national authority in Ecuador and for reasons of catastrophic illnesses recognized as such by the State, may carry up to 50% of a basic fraction encumbered with zero rate of income tax, in accordance with the conditions and procedures established by the Tax Local Authority. Exemptions in the Execution of Public Projects in Public-Private Partnership.
Foreign payments made by companies that are created or structured for the development and execution of public projects in a public-private partnership are exempt from the tax on foreign exchange, which comply with the requirements established in the law that regulates the application of The incentives of PPPs, whatever the domicile of the recipient of the payment:
1. In the importation of goods for the execution of the public project, whatever the import regime used.
2. In the acquisition of services for the execution of the public project.
3. Payments made by the company to the public project financiers, including capital, interest and commissions, provided that the agreed interest rate does not exceed the reference rate at the credit registration date. The benefit is extended to the subordinated credits, provided that the borrowing company is not in a situation of undercapitalization according to the general regime.
4. Payments made by the company for distribution of dividends or profits to its beneficiaries, without prejudice to where they have their fiscal domicile.
5. Payments made by any person or company in connection with the acquisition of shares, rights or interests of the structured company for the execution of a public project in the form of public-private partnership or for transactions involving securities representing bonds issued for The financing of the public project.