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August 10, 2020
Ecuador issues regulations on VAT on digital services
On 4 August 2020, Ecuador published Executive Decree No. 1114 with regulations on the Value Added Tax (VAT) on digital services. The regulations take effect 16 September 2020.
Digital services subject to VAT
The regulations define digital services to include services provided and/or contracted through the internet or any adaptation or application of protocols, platforms or technology used over the internet or other network through which similar services are provided. The regulations further specify that digital services, by their nature, are automated and require minimal human intervention, regardless of the device used for downloading, viewing or use.
Digital services include:
VAT withholding and payment
Foreign suppliers not registered in Ecuador
If the foreign supplier is not registered in Ecuador, the responsibility for the withholding and payment of VAT on importation of digital services depends on whether the transaction is business-to-consumer (B2C) or business-to-business (B2B).
For B2C, the VAT will be withheld by the intermediary (the bank if the payment is made via credit or debit card) to the Ecuadorian customer. In this case, the bank statement will be considered as the withholding receipt.
For B2B, the responsibility for the VAT will be assumed by the “importer of the service” through a “self-assessment”. In this case, the Ecuadorian resident should issue a local document denominated “liquidación de compra de bienes y servicios” adding the VAT to the service billed by the nonresident and then issue the withholding receipt for the 100% VAT. The VAT should be paid to the Tax Authority on a monthly basis through the VAT tax return.
Foreign suppliers registered in Ecuador
If the foreign supplier is registered in Ecuador, it should act as a collector agent of the VAT and then pay the tax to the Tax Authority. The registration will not constitute a permanent establishment for the nonresident. Recently the Tax Authority published on its website the procedure and forms to complete this registration. Due to COVID-19 emergency, the request may be done by e-mail.
Digital services corresponding to delivery of goods
For digital services corresponding to the delivery of goods that include a commission and are paid via credit or debit card, the bank performing the VAT withholding should withhold 10% of the total payment when the charge does not differentiate the value of the goods/services from the commission. If it is possible to differentiate the commission, the VAT applies only to the value of the commission.
Digital services subject to 0% VAT
The regulations specify that the following services are subject to a 0% VAT:
For additional information with respect to this Alert, please contact the following:
EY Addvalue Asesores Cia. Ltda., Quito
EY Addvalue Asesores Cia. Ltda., Guayaquil
Ernst & Young LLP (United States), Latin American Business Center, New York
Ernst & Young Abogados, Latin America Business Center, Madrid
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific