Worldwide VAT, GST and Sales Tax Guide
Quito
EY
EY Addvalue Asesores Cía. Ltda.
Inglaterra y Av. Amazonas (esquina)
Edificio Stratta – 11th Floor
Quito
Ecuador
Indirect tax contacts
Javier Salazar
Alex Suárez
Carlos Cazar
Fernanda Checa
Santiago Andrade
Guayaquil
EY
EY Addvalue Asesores Cía. Ltda.
+593 (2) 255 55 53 javier.salazar@ec.ey.com
+593 (9) 6315 5777 alex.suarez@ec.ey.com
+593 (4) 501 0505 carlos.cazar@ec.ey.com
+593 (2) 255 55 53 fernanda.checa@ec.ey.com
+593 (2) 255 55 53 santiago.andrade@ec.ey.com
Ave. Francisco de Orellana y A. Borges
Edificio CENTRUM – 14th Floor
Guayaquil
Ecuador
Indirect tax contacts
Carlos Cazar
Cynthia Yoong
A. At a glance
Name of the tax
Local name
+593 (4) 263-4500 carlos.cazar@ec.ey.com
+593 (4) 263-4500 cynthia.yoong@ec.ey.com
Value-added tax (VAT)
Impuesto al valor agregado (IVA)
Date introduced 31 December 1989
Trading bloc membership Andean Community of Nations
Administered by Ecuadorian Internal Revenue Service (IRS) (http://www.sri.gob.ec)
VAT rates
Standard
13%1 (the rate was 15% between 1 April and 31 December 2024)
-5
Note that a non-established business is not required to be registered for tax purposes in Ecuador unless their activities trigger a permanent establishment. For further details, see the Non-established businesses subsection above. The Simplification and Progressive Taxation Act was published 31 December 2019 and effective since 1 January 2020. Nonetheless, regarding digital VAT tax reforms, the effective day was 16 September 2020. This means that digital services are treated as taxable transactions for VAT purposes and subject to the standard rate of VAT.
“Digital services” are defined as those provided and/or contracted through the internet or any adaptation or application of protocols, platforms or technology used by the internet or other network, 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 consisting in delivery and shipping of tangible movable goods, the tax will be calculated on the commission paid in addition to the value of the good.
The payment of the VAT generated on digital services supply would be assumed by the “importer of the service” (i.e., the Ecuadorian resident).
Tax residents in Ecuador and permanent establishments of nonresidents, in the acquisition of imported digital services, for purposes of supporting costs and expenses for the calculation of income tax, as well as the VAT tax credit, must issue a liquidation of purchase of goods and provision of services. The settlement of goods and services must indicate the value of the imported digital service and the corresponding VAT.
When the digital service provider is not registered with the IRS and there is no intermediary in the payment process, the digital service importer has the quality of a taxable person, and in addition to issuing the liquidation of purchases of goods and provision of services, will retain 100% of the VAT generated.
When the digital service provider is not registered with the IRS and the payment is made through an intermediary, the account statement generated by the company issuing the credit or debit card will constitute the withholding receipt.
The digital services necessary for the development, preproduction, production, postproduction and distribution of national audiovisual content contracted by taxable entities whose economic activity is national, audiovisual production are exempt from VAT. To apply this exemption, in payments made through intermediaries (payment platforms, credit and/or debit cards or other electronic means of payment), the importer of the digital service, prior to payment, must present the respective declaration of VAT-exempt transactions to the intermediary to refrain liquidation and withholding of VAT.
When the payment is made directly, without the use of intermediaries, the importer of the digital service must issue sales and purchases receipts and directly apply the VAT exemption. To determine which digital services will benefit from this exemption, the competent authority, together with the IRS, will prepare and publish a registry.
Online marketplaces and platforms. See the detail above for rules on online marketplaces and platforms (considered a “digital service” by the VAT law definition).
Registration procedures. Private entities must file before the tax authority the following documents:
• Form RUC-01-A signed by the legal representative
• Public deed of the constitution of the company duly registered in the Commercial Registry
• Legal representative’s appointment duly registered in the Commercial Registry
• General data sheet provided by the Superintendence of Companies
• Legal representative’s ID or passport
To register for VAT, the business must register for a tax ID and this must be performed directly in the tax authority’s offices. All documents must be originals and notarized copies. The legal representative must perform the registration directly or file a letter of authorization to the person in charge of this process. The estimated time for this procedure is three hours.
There are additional documents required for a non-established business providing electronically supplied services to customers in Ecuador. See the Non-established businesses subsection above for further detail.
Deregistration. If a person or legal entity ceases its commercial activities in Ecuadorian territory, then a request to cancel the Tax ID must be submitted to the tax authority in order to prevent penalties and new tax obligations.
This process can be done online with the correspondent username and password to use electronic media of the company before the IRS.
Changes to VAT registration details. A taxable person must update its tax ID through Form RUC01-A if there are any changes to its VAT registration details, such as address, business name, among others.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 13% (the rate was 15% between 1 April and 31 December 2024)
• Reduced rate: 8%
• Zero rate: 0%
The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for the zero rate or an exemption.
Examples of goods and services taxable at 0%
• Unprocessed food
• Dairy products
• Machinery such as tractors used in the agricultural sector
• Agricultural goods (such as certified seeds, plants and roots) and equipment
• Drugs and veterinary products
• Paper, newspapers, magazines, books and publishing services
• Exported goods and services
• Transport of persons and materials and air cargo transport
• Education
• Health services
• Public supply of electricity, drinking water and sewerage services
• Rent for housing purposes
• Financial securities exchanges
• Electric kitchens with induction systems for domestic use
• Solar panels and plants for wastewater treatment
• Electric vehicle chargers
• Electricity generators
Examples of goods and services taxable at 8%
• Tourism activities that can only be applied on certain dates in the year, which may correspond to public holidays or weekends, and the total period cannot exceed 12 days in one calendar year
deducted. If they are used for both taxable and exempt transactions, then the pro rata method should be applied.
Refunds. If the amount of input tax (credit VAT) recoverable in a month exceeds the amount of output tax (debit VAT) payable, the excess credit may be carried forward to offset output tax in the following tax period. As such, the recovery may be achieved through the offsetting of VAT receivable against VAT payable or through a claim to the tax authorities.
Pre-registration costs. For input tax incurred on pre-registration costs, the sales receipt must be issued in the name of the company, with its respective tax ID. However, usually these types of costs are not able to be recovered since there are no invoices or receipts issued in the name of the taxable person at the stage of pre-registration.
Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad debts) cannot be recovered in Ecuador.
Noneconomic activities. Input tax incurred upon purchases that are used for noneconomic activities is not recoverable in Ecuador.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses that are not registered for VAT in Ecuador is not recoverable.
H. Invoicing
VAT invoices. In general, a VAT taxable person must issue an invoice for all taxable transactions performed, including exports. Such invoices are necessary to support a tax credit. A full VAT invoice is only required for supplies greater than USD50.
Credit notes. Credit notes are documents that are issued to cancel operations, accept returns and grant discounts or bonuses. The credit notes must record the denomination, series and number of the sales receipts to which they refer. The acquirer, or who in its name receives the credit note, must enter in its original and copy the name of the acquirer, its tax ID or passport ID, and date of receipt. Additionally, the credit notes must comply with the general requirements established for VAT invoices.
Electronic invoicing. Electronic invoicing is mandatory in Ecuador, for certain taxable persons.
Scope of electronic invoicing. For B2B, B2C and business-to-government (B2G) supplies, electronic invoicing is mandatory for certain taxable persons in Ecuador.
It is allowed but not mandatory for certain small businesses under the simplified regime (RIMPE “popular business”). This includes special taxable persons, exporters, internet-based sellers, issuers and administrators of credit cards, financial institutions and entities that develop television and communication activities. Nevertheless, any taxable person can apply to the tax authority to issue electronic invoices.
“Special taxable persons” are defined as companies or individuals subject to a special tax regime that includes regulations that are not applicable to all taxable persons. A taxable person will be considered as a “special taxable person” if the Ecuadorian IRS decides it through an official resolution. The taxable person must be considered as “special” regarding the volume of its transactions and strategic interest for the IRS.
Within the simplified regime, for those classified as “popular business” (i.e., entities with annual gross revenues of up to USD20,000), they are not obliged to issue any type of invoice (i.e.,
electronic or conventional), but are obligated to issue “sales notes”, therefore, they are not subject to VAT. For individuals not obliged to keep accounting and popular business, it is expected the IRS to issue a resolution establishing the thresholds to start issuing electronic invoices.
Taxable persons must issue electronic invoices for the supply of the goods and services. The electronic invoices must be forwarded to the Ecuadorian IRS and the purchaser, when issued. The noncompliance with the latter may cause the imposition of sanctions to the provider such as the closing of facilities.
To issue electronic invoices, the taxable person must comply with the following requirements:
1) Electronic signature
2) Software that generates electronic receipts
3) Internet connection
4) Access credentials to the online IRS system
Taxable persons are not obligated to request a previous authorization from the IRS to issue electronic invoices, as the IRS authorizes ex officio all taxable persons. With the authorization issued by the IRS ex officio, the following environments are enabled:
1) Testing environment: the taxable person can review the operation of the electronic invoice process, adjust the system and correct possible errors. The invoices issued in this environment do not have tax validity.
2) Production environment: the taxable person may begin issuing electronic invoices in this environment. All electronic receipts authorized in the Production Environment have tax validity.
Simplified VAT invoices. Simplified VAT invoicing is not allowed in Ecuador. As such, full VAT invoices are required.
Self-billing. Self-billing is allowed in Ecuador. It applies to self-consumption or donation transactions and for imported services (see the Reverse-charge services subsection above, under Section E. Time of Supply). For self-consumption or donation, the legal requirements applicable are the same as for a normal sales invoice. For imported services, the local entities must issue a sales and purchase receipt in order to charge the VAT over the services billed from abroad.
Proof of exports. Ecuadorian VAT is not chargeable on supplies of exported goods or services. However, to qualify as zero-rated, exports must be supported by customs documents evidencing that the goods have left Ecuador. Specifically, the following four parameters must be met:
1) Provider of the services must be an Ecuadorian tax resident
2) User or beneficiary of the services must not be domiciled or be resident in Ecuador
3) Use or exploitation of the services by the user or beneficiary must take place fully abroad, although the rendering of the services is performed in the country
4) Payment for the services is not charged back as a cost or expense of local companies or individuals in Ecuador
Foreign currency invoices. Invoices related to supplies made in Ecuador must be issued in the domestic currency, which is the United States dollar (USD).
Supplies to nontaxable persons. A full VAT invoice is not required to be issued for supplies less than USD50.
Records. In Ecuador, examples of what records must be held for VAT purposes include sales receipts, supporting documents and withholding receipts. In Ecuador, VAT books and records must be held within the country.
Record retention period. Taxable persons must store tax records for at least seven years.