globaltaxnews.ey.comSign up for tax alert emailsForwardPrintDownload |
26 January 2018 Ecuador amends its tax law Ecuador has enacted a new law (the Law), published in Official Gazette No. 150 on 29 November 2017, that reforms various laws, including the tax law. All changes are effective as of 1 January 2018. The Law increases the corporate income tax rate from 22% to 25%. The Law also increases the general income tax withholding rate from 22% to 25%. For local taxpayers with shareholders or beneficiaries that are residents in tax havens or lower tax jurisdictions, the corporate income tax rate increases from 25% to 28%. The Law allows a 10% reduction in the corporate income tax rate for frequent exporters, producers of goods and tourism promotion companies. The Law establishes incentives for micro and small companies,1 including an income tax exemption. This exemption may be granted for a three-year period beginning with the period in which a company has operational income. To qualify for the exemption, a company must generate hiring and meet other requirements. The Law grants tax stability to companies that enter into investment agreements regarding mining for metal at large and medium scale mines. Tax stability also applies to investments that contribute to improving the Ecuadorian productive industry (i.e., strategic sectors in Ecuador). Tax stability is granted through the signing of an investment agreement with the Ecuadorian Government. The stability ensures that the tax laws and rules will remain unchanged for the investor. Under certain special circumstances, the Ecuadorian Internal Revenue Service may order a refund of the advance payment of the income tax. For the advance payment to be refunded, there must be a "severe affectation" to the taxpayer's activity, the advance payment of the income tax must exceed the tax and the taxpayer must maintain a certain number of employees. The Law allows financial institutions to manage electronic money; previously, only the Ecuadorian Central Bank administered this payment mechanism. In Ecuador, individuals and companies may open an electronic money account to make or receive payments. Under the Law, an individual is able to deposit cash in a financial institution and request that the cash amount be credited to an electronic money account. The Law also allows a refund equal to 1% of the value added tax paid in an electronic money transaction in which the individual pays with a debit or credit card issued by a local financial entity. The Law imposes a fine on taxpayers that do not disclose all of the information regarding assets abroad. The fine is 1% of the total assets or total income of the last fiscal year (whichever is higher). The fine cannot exceed 5% of the assets or income.
1 According to the Law, a micro company is an entity with 1 to 9 employees and gross income up to US$300,000; a small company is an entity with 10 to 49 people and a gross income between US$300,000.01 and US$1,000,000.
Document ID: 2018-5203 |
