Temporary Tax

temporary-tax

Regulation NAC-DGERCGC 20-00000004 issued by the Internal Revenue Service and published on January 29, 2020 in the Supplement of the Official Registry 131 establishes the procedure for filing the tax return and paying the temporary tax.

The Regulation establishes that the temporary tax that must be paid on an annual basis on the fiscal years 2020, 2021 and 2022.

The taxable base is equal to the income obtained on the fiscal year 2018 -as registered in the income tax return or as established by the Tax Administration within an assessment procedure- less the exempt income and income not subject to income tax. To this amount the taxpayer should add or deduct, as appropriate, the adjustments for deferred taxes registered in the same fiscal year.

The following rates must be applied to the taxable base:

Taxable income from 

Taxable income until

Tax rate
US$1.000.000,00 US$5.000.000,00 0,10%
US$5.000.001,00 US$10.000.000,00 0,15%
US$10.000.001,00 Forward 0,20%

The value of annual each contribution cannot exceed 25% of the income tax generated in the fiscal year 2018.

Those taxpayers who did not generate income tax in the fiscal year 2018 are not required to file and pay the temporary tax return. The advanced income tax shall not be considered if the amount was higher than the income tax generated.

If the amount of the taxable income or the amount of the income tax declared in the income tax return filed for the fiscal year 2018 changes, a substitute tax return must be submitted.

If the entity is liquidated before the date on which the temporary tax return must be filed, the tax must be paid in advance with respect to the fiscal year in which the liquidation takes place. Entities liquidated until December 31, 2019 are not required to pay the temporary tax.

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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

Solidarity Bike Race

solidarity-bike-race

Last Sunday, the CorralRosales team participated in the Niños de María foundation solidarity bicycle race.

As it has already become a tradition, on November 24 the Niños de María foundation organized its eleventh cycling race. Under the name “Record Niños de María, pedaleando por la educación de 300 niños”, hundreds of participants gathered to raise funds to pay for food and education of 300 children.

The Niños de María foundation, created in 1994 as a non-profit Catholic foundation, welcomes the most vulnerable children in our society into their schools and programs such as: the sewing project “Hilando Futuro”, choir, symphonic orchestra or folkloric dance.

CorralRosales is very committed to social causes. Therefore, we wanted to support this great solidarity initiative taking part in it, since all the money raised from the race registration will be used to support the Niños de María foundation school and projects.

“We decided to participate in this event not only because it allows us to put in our grain of sand and contribute to a better society, but also because it helps us strengthen ties between coworkers in a healthy environment,” says Verónica Fernández, Director of Human Resources of the firm.

The CorralRosales team, who wore a specially designed shirt for the occasion and competed under the business category of the race, was made up of both partners and administrative staff of the firm, and their families. The race route was 21-kilometer long and took place in the Chaquiñán de Cumbayá.

After the race, the team met again and was able to share some of the experiences and anecdotes of the day. Despite the fatigue from the race, everyone agreed with the words of one of the Partners of the firm, Francisco Gallegos: “It has been a pleasure to be able to enjoy an activity with family along with coworkers. Without a doubt an incredible experience that we recommend and that, of course, we are looking forward to repeating”.

solidarity-bike-race

solidarity-bike-race

solidarity-bike-race

solidarity-bike-race

solidarity-bike-race

Should filing a claim and not the summon interrupt the statute of limitation?

claim-summon-interrupt-statue-limitation

The amendment to the General Organic Code of Processes (COGEP), which entered into force on June 26, 2019, modified article 64(4) substantially modifying the interruption of the statute of limitations. Thus, before the reform, COGEP established that: “The effects of citations are… 4. Interruption the statute of limitations.” While after the amendment, it establishes that: “The effects of citations are… 4. Interruption of the statute limitations. If the lawsuit is summoned within six months of being filed, the interruption of the statute of limitations will be rolled back to the date in which the lawsuit was filed.”[1] Due to the amendment in reference, ¿is the right to legal certainty compromised?

Historically, the regulations governing civil procedures in Ecuador contemplated that the statute of limitations was interrupted only through citation. Since the first Civil Code enacted in 1869, until the last amendment to the COGEP entered into force, the citation of the lawsuit had been a concrete and verifiable date, that interrupted the statute of limitations. With the amendment, the interruption is rolled back to the date the lawsuit was filed, which is an unknown fact until the citation is made-, solely if the citation occurs within 6 months after the filing of the lawsuit. Keep in mind that the citation of the lawsuit is a fundamental factor, since only once it is achieved the litigation between the parties in conflict is locked and any legal terms begin to apply.

The Civil Code defines the statute of limitations as a way of acquiring goods or extinguishing rights for not having exercising those rights within the period determined by law[2]. Thus, a legal proceeding may be initiated within the time frame established in the law. If there were no statute of limitations, the right to legal certainty would be violated. It is the responsibility of citizens to initiate proceedings in due time and form or, to plead statute of limitation when having been sued and summoned once the legal term is exceeded.

Legal certainty implies, among other things, that the parties shall know the applicable rules when a process starts. The Constitutional Court has determined that “…the right to legal certainty is understood as the certainty in the application of the law that derives from the obligation of public authorities to respect the Constitution as a supreme law, and the rest of the legal system.” This right to know with certainty the enforcement of the existing norms in the legal system is violated the amendment since, rolling back the date for interrupting the statute of limitation to the moment the lawsuit was filed exclusively if the citation took place within six months, causes the defendant uncertainty.

For example, before the amendment, in a moral damage proceeding, were the statute of limitations ends 4 years after the perpetration of the act, the law allowed the defendant to know the legal framework for his defense. That is, the plaintiff was certain of the time frame stated in the law to exercise his right and initiate a proceeding. The amendment to the COGEP allows the interruption of the statute of limitation to take place not on the date the lawsuit is summoned, but on the date on which it was filed, undermining the defendant´s right to legal certainty.

To a greater extent, in the previous example, before the amendment, if the plaintiff filed a lawsuit for moral damage on the last day, that is, 3 years and 365 days, the statute of limitation would have ended. While with the amendment, if the lawsuit is filed on that same day, the statute of limitation would not have ended as long as the defendant is summoned within the following 6 months. That is to say, in the proceeding for moral damage, the plaintiff would have 4 years and six months for the lawsuit to be summoned and still rightfully exercise the respective proceeding, while before the amendment there were exactly 4 years to summon the defendant.

With the amendment of the article 64(4) of the COGEP, the legislator has allowed the lawsuit citation to interrupt the statute of limitation of the proceeding as long as the defendant is summoned within the following 6 months after the lawsuit is filed, which, in our criterion violates the constitutional right of the defendants for legal certainty.

Mateo Zavala
Associate at CorralRosales
mzavala@corralrosales.com


[1] COGEP, art. 64: “Art. 64.- Effects. The effects of the citation are: […]
4.” Interrupt the statute of limitations. If the lawsuit is summoned within six months of filing, the interruption of the statute of limitations will be rolled back to the date when the lawsuit was filed.”
[2] Art. 2392.- Statute of limitations is a way of acquiring things of others, or of extinguishing the actions and rights of others, for having possessed the things, or not having exercised said actions and rights, for a certain time, and concurring with the other legal requirements.

Gestión Digital – Draft Law for Fiscal Transparency

fiscal-transparency-gestion-digital-Andrea-Moya

DETAILS

DATE: 7-11-19

CORRALROSALES IN THE NEWS: 

-Andrea Moya

The following is a summary of the main amendments proposed in the draft of the “Draft Law for Fiscal Transparency, Optimization of Tax Expenditure, Encouragement of Job Creation, Strengthening of the Monetary and Financial Systems and Responsible Management of Public Finance”

Income tax

Dividends:

  • The taxable income will be 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.
  • The exemption for dividends paid to companies and for individuals residing abroad is eliminated. The applicable withholding percentage will be 25%.
  • In the case of dividends distributed in favor of individuals residing in Ecuador, the Tax Authority will establish the withholding percentage.
  • If the company 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.

Deductions:

  • Interest paid on loans granted by related or independent parties may not exceed 20% of the entity’s profit. Interest paid in excess of this ratio will be considered non-deductible.
  • Indirect expenses allocated from abroad by related parties will be considered non-deductible expenses.
  • The following additional deductions are reduced from 100 to 50%: (i) net increase in employment, (ii) medical insurance and / or prepaid medicine expenses granted to employees; (iii) depreciation of assets that reduce the environmental impact; and, (iv) certain expenses incurred by micro, small and medium businesses, such as: research and development expenses, expenses to improve productivity, and travel and promotion expenses for accessing international markets.
  • The deductibility of advertising and promotion costs and expenses will not be limited.

Others:

  • Payment of the advance income tax is no longer mandatory.
  • The reduction of the income tax rate for exporting entities that reinvest their profits goes from 10 to 8 percentage points.
  • Income obtained abroad that has been subject to tax in the country of origin will no longer be exempted from paying income tax in Ecuador. The tax paid abroad will be considered as tax credit.

Value Added Tax (VAT)

  1. The following goods will be subject to 0%VAT:
    • Flowers.
    • Test strips for glucose.
    • Newsprint.
  1. Digital services:

Digital services will be subject to 12% VAT. Digital services are those provided and / or contracted through the Internet that are automated and require minimal human intervention.

In the case of import of digital services, VAT will be paid by the importer of the service. Credit card issuing entities will withhold the VAT when the digital service provider is not registered in Ecuador.

Excise Tax

  1. Taxable base: The presumptive minimum profit margin to be applied on the ex-customs or ex-factory price is increased from 25 to 30% based.
  2. Taxed goods: The following goods are taxed at the rates described below:
    • Liquids containing nicotine to be administered through nicotine administration systems (electronic cigarettes): 50%
    • Soft drinks with sugar content less than or equal to 25 grams per liter and energy drinks: 11%
    • Soft drinks with sugar content greater than 25 grams per liter: US$0.20 per 100 grams of sugar.
    • Vehicles: the calculation formula is modified according to the sale price of the vehicle to avoid leaps in the rates.
    • Post-paid mobile phone service provided to individuals: 10%
    • Craft beer: The rate is reduced from US $ 2.00 per liter to US $ 1.5 per liter.
    • Industrial beer: The rate is increased according to market share.
    • Plastic bags: US$ 0.10 per bag

Currency Exit Tax

Exemptions:

  • Loans granted abroad: (i) there is no longer required that term of the credit is at least 360 days, and, (ii) the loan may be used to invest in shares issued by Ecuadorian entites.
  • Dividends: Dividends paid to entities or individuals residing in tax havens is exempted.

The tax rate applicable to the import of raw materials and capital goods, is reduced from 5 to 2.5%; however, the right to tax credit for such imports is eliminated.

Single and Temporary Tax

Who are obliged to pay? Companies whose gross income in fiscal year 2018 exceeded one million dollars.

How much should be paid? The amount to be paid is shown in the following table. The amount shall not exceed 25% of the generated, declared or determined income tax of fiscal year 2018.

Gross taxable income from (USD $) Gross taxable income up to (USD $) Rate
1,000,000 5,000,000 0.10%
5,000,001 10,000,000 0.15%
10,000,001 Onwards 0.20%

When should it be paid? Until March 31 of fiscal years 2020, 2021 and 2022.

Capital Repatriation Regime

The tax residents of Ecuador can benefit from this regime if as of December 31, 2018:

  • They have maintained abroad revenues subject to income tax in Ecuador or, have made monetary transactions subject to outflow tax (ISD), which have not been declared or if the tax has not been paid.
  • Have kept assets abroad which have been acquired with these revenues and, that have not been registered in the equity declaration.

If taxpayers decide to repatriate and invest the income in Ecuador, they will be subject to the following rules:

  • If the income is declared until March 31, 2020, it will be subject to pay a tax rate equal to 1%;
  • If the income is declared from April 1, 2020 until June 30, 2020, it will be subject to pay a tax rate equal to 2%; and
  • If the income is declared from July 1, 2020 until December 31, 2020, it will be subject to pay a tax rate equal to 4%
  • If taxpayers decide to declare their income, assets or investments abroad, but not repatriate and reinvest in Ecuador, it will be subject to pay a tax rate equal to 8%.

The income will be regarded as invested in Ecuador if it remains in Ecuador for a minimum period of 12 consecutive months counted from the date on which the investment is made and if it’s purpose is one of those established in the law, such as: investments and financial products provided by financial institutions, stock exchanges and stock brokerage houses, acquisition of real estate and other assets necessary to carry out economic activities in the country or, investments destined to research and development of technology.

If you want to read de article in Gestión Digital, click here