Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

December 6, 2023
2023-2008

Ecuadorian President proposes new tax bill, expected to be effective by year-end

  • The recently elected Ecuadorian President has introduced a tax reform bill with implications for international taxation and foreign investment.
  • The bill aims to promote foreign investment by making certain tax changes.
  • The legislature will debate, approve, modify or deny the bill by the end of December; it will became effective once it is summited to the Official Public Registry. The bill is expected to be in force this month (December 2023) such that the new tax regime will begin in 2024.

The tax reform bill (Bill) proposed by recently elected Ecuadorian President Daniel Noboa aims to promote foreign investment by granting tax stability, income tax exemptions, abatements for Free Trade Zones, among other changes. Highlights of the Bill follow.

Income Tax

Tax stability

Taxpayers who increase their effective income tax rate by 2% will not be affected by any future tax reforms for up to five years, providing tax stability. This stability can be waived if a more favorable law is subsequently created, but the taxpayer will not be entitled to a refund of the amount paid in previous tax periods.

Tax exemption for renewable energy

New investments in renewable energy projects will be exempt of income tax for 10 years.

Tax residency for investments

Currently, the local regulation does not establish temporary tax residency for foreign investors. The Bill establishes that investors who make productive investments of at least USD$150,000 and have monthly income of USD$2,500 may obtain temporary tax residency during the first 120 days of their entry to this regime.

New taxable income

Income received by companies and individuals in the purchase and sale of virtual and/or digital assets will be identified as income subject to the income tax.

Self-withholding for big taxpayers

"Big taxpayers" are individuals and/or companies that together account for at least 50% of tax revenues. In addition, they have the highest volume and relevance of transactions.

Companies in this category must withhold income tax monthly on their total taxable income. The withholding amount may not exceed 3% and the withholding will be tax credit for annual income tax.

Withholding for the production and/or commercialization of minerals

The production and/or commercialization of minerals coming from a mining concession will be subject to income tax withholding of up to 5% of the gross amount of each transaction.

Taxable customs base

The taxable basis of customs taxes shall include freight in addition to the customs value of the imported goods.

Free trade zone

Special Economic Development Zones will be replaced by Free Trade Zones. These will be a delimited geographic area within the national territory that is subject to special regimes regarding foreign trade, customs, tax and financial matters where industrial, logistics, commercial, and similar activities are carried out.

Under the Bill, Free Trade Zones will have the following tax regime:

  • Operator users or users of the Free Trade Zones will enjoy 0% income tax rate for five years, after which they will enjoy a 15% rate for the remaining time of their declaration.
  • Transactions occurring in Free Trade Zones will be exempt from VAT, Remittance Tax, taxes on foreign trade and any other that may be created, even if express exemption is required. Provincial and municipal taxes may also be exempt.
  • A refund of VAT may be requested on purchases from suppliers located in the national territory.
  • There will be tax stability during the Free Trade Zone delimitation period.

The legislature will debate, approve, modify or deny the bill by the end of December, and it will became effective once it is summited to the Official Public Registry. The bill is expected to be in force this month (December 2023) such that the new tax regime will begin in 2024.

———————————————

For additional information with respect to this Alert, please contact the following:

EY Addvalue Asesores Cia. Ltda., Quito

EY Addvalue Asesores Cia. Ltda., Guayaquil

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

 


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


Yes, I accept         Find out more