November 12, 2021
Ecuadorīs National Assembly to discuss tax reform bill
If enacted, the bill would impose a new tax on corporations with a certain amount of assets, increase the tax rate on capital gains and reduce the income tax rate on income from new investments. Taxpayers should continue to monitor the progress of this bill through the National Assembly.
Ecuador’s National Assembly will discuss the tax reform bill submitted by President Guillermo Lasso, which would modify several tax laws and establish a new tax for certain companies. Once approved, the bill will be sent to the President for his signature. The bill would be enacted once the final version is published in the Ecuadorian Official Gazette. While the National Assembly discusses the bill, it is subject to changes.
New tax on certain companies
The bill would establish a new tax for companies with assets of at least US$5 million as of 31 December 2020. Companies would pay the new tax in 2022 and 2023. The tax will be based on the amount of assets at a rate of 0.8%.
Corporate income tax on share transfers (capital gains tax)
Gains derived from direct or indirect transfers of shares (and other capital representative rights) of Ecuadorian entities are currently subject to an income tax based on a progressive table. Under the bill, a 10% rate would apply to capital gains, regardless of the transferred value.
Income tax for new investments
The bill would reduce the income tax rate by 3 or 5 percentage points for income from new investments, depending on the circumstances.
In Ecuador, the current income tax rate is 25%. Therefore, under the bill, entities would apply a 22% rate to the income derived from new investments. A 20% rate would apply to new investments subject to an investment contract between the investor and the Government.
Currency outflow tax exemptions
The bill would exempt dividend payments from the currency outflow tax if those payments equaled the capital put into new investments.
For new investments subject to investment contracts with the Ecuadorian Government, the exemption would apply to payments for the import of goods and raw material required for the development of the project.
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 America 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