Law for Simplification and Progressivity of the Tax Regime

progressivity-tax-regime

Below we will analyse the Law for Simplification and Progressivity of the Tax Regime published on December 31, 2019 in the Supplement of the Official Registry 111, amended the Internal Tax Regime Law.

Dividends:

Dividends distributed to individuals with tax residence in Ecuador and entities and individuals located abroad are subject to income tax. Only dividends distributed to entities with tax residence in Ecuador or permanent establishments located in Ecuador are exempted from income tax.

The taxable income is equal to 40% of the dividend effectively distributed. The concept of global dividend is eliminated (dividend distributed plus taxes paid by the company) and consequently the tax credit for taxes paid by the company.

Dividends distributed to individuals with tax residence in Ecuador are subject to up to 25% withholding. The Tax Authority will issue a regulation establishing the withholding percentage applicable, according to the amount of the dividend.

Dividends distributed to entities and individuals residing abroad will be subject to 25% withholding tax. However, if the Ecuadorian entity that distributes the dividends fails to report its corporate structure, the withholding percentage applicable to the dividend paid abroad will be 35%.

It is ratified that the capital increase with retained earnings (stock dividend) will not be taxed.

Interest Expense:

In the case of interest paid by banks, insurance companies and entities of the financial sector of the Popular and Solidarity Economy:

Interest that exceeds the interest rate established by the Monetary and Financial Policy and Regulation Board will not be deductible.

The total amount of the loans granted abroad -directly or indirectly- by related parties, may not be greater than 300% of the entity equity. Interest paid or accrued with respect to credits that exceed this percentage will not be deductible.

In the case of interest paid by entities or individuals, the total amount of the net interest paid on loans granted by related parties must not exceed 20% of the entity´s profit before labor participation, plus interest, depreciation and amortization corresponding to the respective fiscal year. Interest paid or accrued that exceed this percentage will not be deductible.

Creation a temporary tax to be paid:

  • How much should be paid? 

Entities that perform economic activities and whose taxable income in fiscal year 2018 are equal to or exceeded one million dollars.

  • How much should be paid?

The amount to be paid must be calculated according to the following chart:

Gross taxable income
from (US$) 

Gross taxable income up
to
 (US$)

Rate
1.000.000 5.000.000 0,10%
5.000.001 10.000.000 0,15%
10.000.001 Onwards 0,20%

The amount of the tax shall not exceed 25% of the income tax generated in the fiscal year 2018.

  • When should the tax be paid?
When should the tax be paid? The tax shall be paid annually during the fiscal years 2020, 2021 and 2022, until March 31st of each year. Failure to submit the tax form within the deadline will be sanctioned with a fine equal to US$1,500.00 for each month or fraction of a month. The fine will not exceed 100% of the contribution.

Important reforms

  • VAT on digital services:

Digital services are subject to 12% VAT. The taxable event occurs when: In the case of import of digital services, the taxable event occurs when the importer of the service -an entity or permanent establishment located in Ecuador- pays the service provider. In the case of delivery of goods, the taxable event occurs when the importer pays for the delivery services of such goods. The VAT will be applicable over the amount of such delivery services.

The VAT on digital services will be applicable starting July 2020.

Web domain services, hosting and cloud computing services are subject to 0% VAT.

  • Foreign Exchange Control Tax:

The exemptions of foreign exchange control tax were amended as follows:

  1. Investments from abroad made in the Ecuador stock market. These investments may be made in equity securities or in fixed income securities.
  2. Dividends: Dividends paid to entities or individuals residing in tax havens is exempted. This exemption is not applicable if the dividends are distributed to foreign entities which shareholder –directly or indirectly- are individuals or entities with tax residence in Ecuador which are shareholders of the entity that distributed the dividend.
  3. Payments made abroad for financial returns, and capital gains derived form:
    • Investments from abroad made in the Ecuador stock market. These investments may be made in equity securities or in fixed income securities.
    • Securities issued by entities domiciled in Ecuador, that were acquired abroad, destined to finance housing, microcredit or productive investments.
    • Fixed-term deposits or investments made with resources from abroad in local financial institutions.

This exemption does not apply if the payment is made between related parties.

CORRALROSALES

The use of cannabis has been approved in Ecuador

cannabis-regulatory-approved

In the 1st Supplement of the Official Gazette No. 107 of December 24, 2019, the Reform of the Criminal Law was published, which will enter into force in June 21, 2020.

Included among the reforms, is the decriminalization of possession of drugs that contain cannabis or derivatives as their active ingredient for therapeutic, palliative or medicinal ends, or for the practice of alternative medicine. In addition, the Law of  Control and  Prevention of the use of  Drugs   has been amended, excluding non-psychoactive or hemp cannabis from control, extended to the cannabis plant or any part of the plant, whose delta-9-tetrahydrocannabinol (THC) content is less than 1%.

The Ministry of Agriculture will have 120 days from the entry into force of this law to issue the regulations to control the import, planting, cultivation, harvest, sale, industrialization and exportation of industrial hemp. Furthermore, shortly the National Assembly must approve the Health Law, in which cannabis and its derivatives for medicinal and therapeutic use will be regulated.

CORRALROSALES

Revista Ekos – Between lawyer and woman: María Cecilia Romoleroux

woman-lawyer-maria-cecilia-romoleroux

DETAILS

DATE: 3-01-2020

CORRALROSALES IN THE NEWS: 

-María Cecilia Romoleroux

MEDIA: Revista Ekos

María Cecilia Romoleroux is a career lawyer and has excelled in various fields at a national and international level. Her passion for the law has allowed her to be a pioneer in areas where women were not easily accepted.

Her career is marked by gender inequality, but this was not an impediment to being the first Ecuadorian woman to be part of the board of directors of the International Trademark Association (INTA) or of the Programming Committee of the International Association for Protection of Intellectual Property (AIPPI).

In an interview with Ekos Magazine, María Cecilia shared her experiences on the empowerment of women and the work that must be done in Ecuador to achieve gender parity. Her history began in the classrooms of the Pontifical Catholic University of Ecuador where only a small group of women could complete their studies, one by one they started to drop out due to various circumstances.

“For two years I worked in a free clinic for abused women. A situation that humanizes you and allows you to understand the need to empower women”, said Maria Cecilia, who stressed that no person should be an “appendix ”of anyone.

Thus, she decided to enter a more technical niche; the world of intellectual property. After a successful performance she joined a local association where she became vice president. However, when she was ready to be promoted to the presidency, they closed the doors for her because “they were not ready for a woman to be president much less on such a specific field”

“They took me out of the local sphere but I started working internationally. I joined various associations and tried to make a name of myself”, she said.

Some time later, María Cecilia joined CorralRosales as a partner and also has had an extensive career as a mediator and judge / judicial assistant. She is one of the few professionals who holds a partnership in a national law firm. According to Romoleroux, this is due to the fact that “women do not give themselves the opportunity to go far. It is necessary to work from dawn to dusk, travel and possibly miss many family-related activities.”

“You have to combine the roles between mother and lawyer.”

“Many times society does not help professional woman reach high positions”, says Maria Cecilia; an issue that was ratified by the Ekos Group Research Unit who conducted a survey to find out the number of women who hold CEO and management positions. The result shows that only 37.3% of women have such positions in contrast to that of men 62.7%.

“This reality is not very far from the realm of law. In such sexist communities it is difficult to be a mother, wife and professional at the same time”, said the expert. That is why there are countries – like Italy – that have limited spaces for women to be partners or directors of consortia or legal groups. On the other hand, factors such as the Ecuadorian work environment causes men to have an advantage above women at time of selection or hiring for new positions.

In spite of all the social obstacles, last year María Cecilia was recognized as “Women Chambers in Law 2018 for Ecuador” in the annual awards ceremony for Chambers and Partners Legal Directory within the Diversity and Inclusion Awards category, where her career, achievements and especially her legacy were analyzed; that is, the projects she is taking on to leave a mark or a way forward in the country.

Finally, María Cecilia Romoleroux shared what her motivation to dedicate herself to this legal field was and her answer was a simple: “life gave me this”.

Education:

1990: Doctor of Jurisprudence at the Catholic University of Ecuador

1991: Paralegal program at Georgetown University, United States of America

1993: International Relations – Ship for the World Youth, Japan

1997: Master Lucentinus in Copyright at the University of Alicante

Experience:

2000-2014: Mediator of the Ecuadorian-American Chamber

2002-present: Partner in intellectual property and regulation, CorralRosales

1999-2000: Secretary of the Ecuadorian Association of Industrial Property Agents

2001-2003: Vice President of the Ecuadorian Association of Industrial Property Agents

2003-2019: International Intellectual Property mediator for International Trademark Association

2009-2012: Judicial Assistant of the Administrative Contentious Court

2012-present: Mediator and arbitrator for ASIPI

2017-2019: INTA board member

2019-2021: Member of the Programming Committee at the Association Internationale pour la Protection de la Propriété intellectualle

2019-2021: ASIPI President of the Committee of Counterfeiting

Achievements:

2017: President of the first Latin American INTA conference in Cartagena

2018: Winner of the Chambers “Lawyer of the Year” award

2019: Nominated International Program Leader for INTA Boston

2020: Chairman of the Host Committee for ASIPI Quito

If you want to read the interview in spanish, press here

Teleamazonas – Annual and/or monthly taxes apply from January 1st

teleamazonas-andrea-moya-tax-reform

DETAILS

FECHA: 2-01-2020

CORRALROSALES IN THE NEWS:: 

-Andrea Moya

DATE: Teleamazonas

Our Partner, Andrea Moya, has been interviewed by the Teleamazonas news to explain the tax amendments introduced by the “Tax Simplification and Progressivity Law” and the date on which the amendments come into force.

“When taxes must be paid on an annual or monthly basis, the amendments entry into force from the first day of the following month. All amendments, in general, are effective as of January 1, with certain exceptions. The first exception is the distribution of dividends. This amendments entry into force on December 31,” Andrea Moya said in the interview.

Another of the points analyzed by our Partner was the amendment to the sub capitalization limit. “Previously, in credits between related parties you had a sub capitalization rule. Now this limit for interest expense changed to 20% of the profit. This should only affect contracts signed as of this date,” she explained. However, this has not been clarified in the law.

Another of the reforms that will come into force in 180 days, is the VAT for digital services, such as Uber or Netflix. “All the concepts that the law does not regulate specifically, the Tax Authority will have to issue a regulation” Andrea Moya points out during her interview.

All these changes could mean an amount of 600 million US dollars in revenue for the Government.

If you want to watch the video, press here