By Executive Decree 1109 issued on July 27, 2020, the President ordered the advance payment of income tax for the year 2020, to finance the expenses associated with the health emergency.
The individuals, companies, and permanent establishments that comply with the following conditions are required to pay the advance income tax:
- Generate taxable income, except income derived from a labor relationship.
- In the year 2019 received gross income equal to or greater than US$5,000,000.00; and,
- During the period from January to June 2020, generated profits, with the exceptions of income and expenses derived from a labor relationship.
Taxpayers who do not meet these three conditions are able to pay the advance income tax voluntarily.
The following taxpayers are not required to pay the advance income tax:
- Micro, small, or medium size companies.
- Taxpayers that are exempt from paying income tax on the fiscal year 2020.
- Taxpayers that have registered the province of Galapagos as their tax address.
- Taxpayers that are regular exporters of goods, or that 50% of their income derives from the export of goods; or,
- Taxpayers with one of the following economic activities:
- The operation of airlines.
- The provision of accommodation and/or food services.
- Activities of the agricultural sector.
- Activities of the aquaculture sector.
I order to calculate the advance payment the following formula must be applied:
IR = (85% of UC * 25%) – RFIR20
IR = Advance income tax.
UC = The profit derived from the result of operations carried out from January 1 to June 30, 2020, in accordance with the financial statements and accounting and financial regulations.
RFIR20 = Income tax withholdings made to the taxpayer from January 1st to June 30th, 2020, that the taxpayer is able to use as tax credit.
Taxpayers are able to pay a higher value than the result of the formula. Likewise, if the taxpayer made voluntary income tax advance payments prior to the date the decree was issued, these payments will be attributable to the value of the advance income tax.
Taxpayers are able to pay the full amount of the advance income tax until August 14, 2020 or, in three equal installments until the 14th of the months of August, September and November 2020. The late payment will generate interest and penalties.
The advance income tax will be regarded as tax credit for the payment of 2020 income tax.
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