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Quito GMT -5

Inglaterra y Amazonas esq.

Edificio Stratta

11th Floor

P.O. Box 170507

Quito Ecuador

Principal Tax Contact

 Javier Salazar

+593 (9) 6315-5777

Mobile: +593 (9) 9978-2007

Email: javier.salazar@ec.ey.com

International Tax and Transaction Services – International Corporate Tax Advisory

Carlos Cazar

+593 (9) 6315-5777

Mobile: +593 (9) 9815-5662

Email: carlos.cazar@ec.ey.com

Guayaquil GMT -5

Av. Francisco de Orellana

+593 (4) 263-4500

Fax: +593 (4) 263-4351 y Av. Alfredo Borges

CENTRUM Building – 14th Floor

Guayaquil

Ecuador

Business Tax Advisory, Indirect Tax and Global Trade

Carlos Cazar

+593 (4) 501-5505

Mobile: +593 (9) 9815-5662

Email: carlos.cazar@ec.ey.com

Because of the frequent changes to the tax law in Ecuador in recent years, readers should obtain updated information before engaging in transactions.

A. At a glance

B. Taxes on corporate income and gains

Corporate income tax. Corporate income tax is levied on companies domiciled in Ecuador and on foreign companies. Companies domiciled in Ecuador include those incorporated in Ecuador and companies incorporated in foreign countries that have been approved as branches by the Superintendence of Companies after a legal proceeding. Companies incorporated in Ecuador are subject to tax on their worldwide income. Foreign companies are subject to tax on income derived from activities within Ecuador and from goods and assets located within Ecuador.

Rate of corporate tax. The standard rate of corporate income tax is 25%.

The corporate income tax rate is increased to 28% if either of the following conditions is met:

• The local entity has not reported the corporate structure (until the last individual ultimate beneficial owner) or partially reported it.

• An entity domiciled in a tax haven, low-tax jurisdiction or in a preferential-regime jurisdiction is in the corporate structure of the local taxpayer and its beneficial owner is an individual resident in Ecuador.

The 28% rate is applied to the tax base in proportion to the ownership affected by one of the events listed above. If this ownership is equal to or exceeds 50% of the local entity corporate capital, the 28% rate applies to the entire tax base.

Income tax rate reduction. Companies that reinvest their profits in disabilities, sports, scientific research or technological development projects benefit from an income tax reduction according to the following conditions:

• The corporate income tax rate is decreased to 15% if there is an investment in programs or projects qualified as a priority by government.

• The corporate income tax rate is decreased to 17% if there is an investment in other programs or projects that are not qualified as a priority by government.

Capital gains. Capital gains tax on sales of tangible assets is not imposed in Ecuador.

Gains derived from direct or indirect transfers of shares (and other capital representative rights) of Ecuadorian entities are subject to tax at a flat single income tax rate of 10%.

Indirect transfers are taxable if both of the following conditions are met:

• At any time during the tax year in which the transfer is performed, the real value of the shares of the Ecuadorian entity or permanent establishment represents directly or indirectly 20% or more of the real value of the nonresident company’s shares.

• In the same fiscal year or 12 months before the transaction, the transfer of shares of the nonresident company by the same seller directly or indirectly corresponds to an aggregate amount exceeding 300 basic fractions of income tax for individuals (USD3,570,600 for the 2024 fiscal year). This amount is

increased to 1,000 basic fractions of income tax for individuals (USD11,902,000 for the 2024 fiscal year) if the transaction does not exceed the 10% of the total share capital.

Under the above rule, the Ecuadorian entity whose shares were negotiated or transferred is considered the substitute for the taxpayer and, consequently, is responsible for the income tax payment.

This tax does not apply in the case of corporate restructures, mergers or spin-offs, provided that the beneficial owners of the shares do not change before and after the procedure and they keep the same percentages of participation.

In the case of indirect alienations, the Ecuadorian entity whose shares have been transferred acts as a substitute for the taxpayer and must comply with the capital gains tax payment and updating the correspondent corporate composition. Losses on transfers of shares between related parties are not deductible.

Administration. The fiscal year runs from 1 January to 31 December. No other closing dates are permitted, regardless of the date a business begins operations. Returns must be filed between 10 April and 28 April.

Companies have the option to make an advance payment equal to 50% of income tax from the preceding year, subtracting the withholdings made with respect to the taxpayer in that preceding year.

As a result, if no tax is payable for a fiscal year or the tax payable is lower than the advance payment, it is possible to file a refund petition for the income tax overpaid.

The penalty for late filing is 3% of the income tax due for each month or fraction of a month of the delay, up to a maximum of 100% of the tax due. Interest at the maximum legal rate, which floats, is levied on all increases in tax assessments from the date the tax was originally due to the date of payment.

Withholding taxes. A 25% withholding tax is generally imposed on the following payments abroad:

• Interest, royalties and payments for technical assistance to nondomiciled companies and nonresident individuals

• Payments to nonresident individuals for services rendered

• Payments to non-domiciled companies for professional services rendered abroad or occasional services rendered in Ecuador

Income tax withholding at a rate of 25% applies to all reimbursements of expenses abroad.

Income tax withholding at a rate of 37% applies to cross-border payments made to recipients in tax havens, low-taxation jurisdictions or preferential tax regimes.

Penalties are imposed for failures to comply with the withholding requirements. Withholding agents who deliberately fail to provide taxpayers, totally or partially, with tax withholding receipts are subject to imprisonment and fines.

Income tax self-withholding. A self-withholding is imposed on major taxpayers. Every year, the Internal Revenue Service (IRS) publishes a list with the companies that are considered major

Nature of tax

the COVID-19 pandemic; for VAT purposes, digital services are those provided and/or contracted through the internet or any adaptation or application of protocols, platforms or technology used by the internet or other networks, through which similar services are provided that, by their nature, are automated and require minimal human intervention, regardless of the device used for downloading, viewing or use; for digital services relating to the delivery and shipping of tangible movable goods, the tax is calculated on the commission paid in addition to the value of the goods; the payment of VAT generated on digital services supply is assumed by the Ecuadorian resident importer of the services

General rate

(The 13% rate can be increased to 15% by Presidential Decree.)

Local transactions of construction materials 5 Remittance Tax (RT); imposed on all cross-border payments or money transactions abroad, with or without the intervention of financial institutions, and money deposited abroad through bank transfers, RT also applies to any form of termination of obligations and checks or wire transfers; tax is withheld at source; foreign banks operating in Ecuador must pay the tax monthly; the tax law provides that RT applies to payments made from foreign bank accounts of Ecuadorian entities if RT was not levied on the cash when it was initially transferred to the foreign bank account and to exports of goods and services if the cash does not enter Ecuador within six months after the goods arrive at their destination or the services begin to be rendered; RT paid on imports of raw materials, supplies and capital goods may be used as a tax credit for income tax purposes for the following five years if such goods are used in production processes and listed in a resolution issued by the IRS of Ecuador; for the 2023 fiscal year, there will be a progressive reduction of the RT rate 5 (For the 2024 fiscal year, the 5% rate could be decreased for certain sectors or by the disposition of the President.)

Temporal Contribution for Security (TCS) or Contribución Temporal de Seguridad (CTS) in Spanish; imposed to address the non-international armed conflict in Ecuador; the collected revenue of TCS will be used to strengthen police and armed forces capabilities; TCS is levied on companies domiciled in Ecuador that were subject to corporate income

or companies in any of the member jurisdictions can access those benefits.

(a) Only 40% of distributed dividends (if paid from profits taxed at the corporate level) is taxable under Ecuadorian domestic law.

(b) A 25% withholding tax is imposed on the payment of interest abroad unless the interest is paid on loans granted by financial institutions, specialized nonfinancial entities qualified by the control authorities in Ecuador or multilateral institutions.

(d) Tax on income derived from the sale of industrial, commercial or scientific equipment may not exceed 10%.

(e) The rate of tax on the total amount of the interest with respect to the sale of industrial equipment, the sale of goods from one company to another and the financing of construction works may not exceed 5%.