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January 20, 2022
Ecuador modifies cross-border transaction rules
Nonresidents may now claim 100% of benefits available under double tax treaties with Ecuador, rather than paying Ecuadorian withholding tax on income over US$560,600 and applying for refunds based on the applicable treaty. The President also issued a decree that progressively reduces the remittance outflow tax rate to 4%.
Ecuador has modified two cross-border transaction rules by allowing nonresidents to claim 100% of benefits available under double tax treaties with Ecuador and reducing the remittance outflow tax.
Claiming 100% of benefits under double tax treaties
Before the tax reform in 2021, nonresidents were automatically exempt from withholding tax under double tax treaties in Ecuador, up to US$560,600. Once that threshold was exceeded, Ecuadorian withholding tax applied, requiring nonresidents to request a refund from the Ecuadorian tax authority for the difference between the tax collected and the tax owed under the applicable treaty.
Effective 29 November 2021, the limit on automatic application of treat benefits is eliminated. Therefore, nonresidents may claim 100% of available benefits under all double tax treaties into which Ecuador entered, eliminating the need to request a refund.
Progressive reduction of remittance outflow tax rate
The President issued a decree that progressively reduces the remittance outflow tax from 5% (tax year 2021) to 4%. The tax rate will decrease by 0.25 percentage points in each quarter of tax year 2022 as follows:
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