The Constitutional Court, by means of a judgment in Case 51-23-IN, dated November 9, 2023, notified on November 17, 2023, declared Presidential Decree 754 unconstitutional, considering that it violates the constitutional rule of reserve of law.

The effects of the ruling will be deferred until the National Assembly issues the corresponding law. Therefore, Decree 754 may be applied to carry out the Citizen Participation Processes for Environmental Consultation, provided that the guidelines and standards determined by the Court in paragraphs 196 to 205 of the decision are applied in such processes.

Among the guidelines and standards, the following stand out:

Regarding the subjects consulted, Decree 754 determines that they are the community or communities, regardless of their ethnicity, whose environment may be affected by any decision or permit in environmental matters, which will be determined according to the area of direct social influence of the decision or permit. Those people who can demonstrate, in a technical and/or legal manner, the environmental impact that could be caused to them, may also be considered as consulted subjects. The subject consulted must be determined in a broad and representative manner, so that any person who considers, in a substantiated manner, that the measure affects them must be included in the process.  The direct impact analysis should not demand technical requirements that are difficult to comply with for a community to be considered potentially affected.

With respect to financing, although Decree 754 determines that the costs or values demanded by the citizen participation process for the environmental consultation will be assumed by the operator of the project, work or activity, and that the latter will provide the necessary facilities and resources for the execution of such process, the Court determines that the State may not delegate the environmental consultation process, in any aspect (i.e. provision of inputs or financing) to the operator of the project, work or activity to be carried out.

The Ombudsman’s Office is obliged to promote the bills on environmental consultation that it has presented and that are being processed in the Assembly or, failing that, to draft a bill regulating the matter. It also establishes that the National Assembly must approve, within a period of one year, counted as of the moment of the impulse or presentation of the new project.

Finally, the Court emphasizes that the process of environmental consultation should not be confused with that of prior, free, and informed consultation, and therefore the content of Decree 754 should not be applied to communes, communities, indigenous people, and nationalities.

Carlos Torres, Senior Associate at CorralRosales
ctorres@corralrosales.com
+593 2 2544144

On January 12th, 2020, the Constitutional Court of Ecuador issued the ruling 58-11-IN/22, by which the Law for Environmental Promotion and Optimization of State Revenue was declared unconstitutional for infringing the unity of subject matter principle.

The Constitutional Court ordered the delay of the effects derived from the ruling until December 31, 2023, aiming to avoid the creation of a severe regulatory gap related to tax matters and to guarantee legal certainty. However, neither the Executive, nor the National Assembly submitted to the Constitutional Court any information regarding the progress of the amendments needed to avoid such legal void.

Therefore, the Constitutional Court issued the verification order 58-11-IN/23 on November 1st, 2023, by which it extended the enforcement deadline for the Law of Environmental Promotion and Optimization of State Revenues until December 31, 2024. The deadline extension is only applicable to those norms that have not been amended, repealed, or replaced by other laws.

Among the articles that remain enforceable, we highlight the following:

1. Article 10, clause 18 of the Internal Tax Regimen Law which regulates the deduction of expenses related to the acquisition, use or ownership of vehicles engaged in revenue-generating commercial activities.
2. Unnumbered article added below the article 162 of the Equity Tax Law which regulates the right to use as tax credit for the payment of income tax, the Outflow Tax (ISD) paid on imports of raw material, supplies and goods employed in productive processes.

 

Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

On November 6, 2023, the President of the Republic signed the Executive Decree 904, through which the Regulation of the Law on Personal Data Protection is issued (hereinafter the “Regulation“).

Below, we highlight the key points:

I. Definitions:

The Regulation includes relevant definitions for the application of the Law on Personal Data Protection (hereinafter “LOPDP“). One of the most important definitions is the term “large-scale processing” which includes the processing of data affecting a large number of data subjects. To determine “large-scale processing” the following factors must be considered: the number of data subjects, volume and variety of data, duration or permanence of the processing activities, and the geographical scope.

Specifically, the Regulation considers the following as “large-scale processing”:

1. 1. Patient data from hospitals and healthcare institutions.
   2. Data on the movement of individuals using public transportation.
   3. Real-time geolocation data.
   4. Data from customers from insurance companies or financial institutions.
   5. Data for behavioral advertising by a search engine.
   6. Data of content, traffic, and location data by telecommunications or internet service providers.

II. Obligations of data controllers and processors located outside of Ecuador:

Controllers and processors of personal data not established in Ecuador but processing data of residents in Ecuador must appoint a special representative in the country.

III. Impact assessment of personal data processing:

LOPDP establishes the obligation to evaluate the impact of personal data processing when it is identified that such processing may generate a high risk to the rights and freedoms of the data subject.

The Regulation describes an impact assessment as a preventive analysis in which the data controller evaluates the actual impact of the data processing.

The impact assessment must be submitted to the Data Protection Authority and should include the following elements:

1. 1. Description of the operations and purposes of processing.
   2. Reasoning for the necessity to carry out the processing.
   3. Risk assessment to the rights of the data subjects; and,
   4. Security measures to address the risks.

IV. Record of Processing Activities:

The following are required to maintain a Record of Processing Activities: Controllers of personal data processing with 100 or more employees, controllers processing special categories of personal data, and any processors if the controller has the obligation to maintain such record.

The Record must include:

1. 1. Name and contact details of the controller,
   2. Purposes of the processing,
   3. Categories of recipients to whom the data has been communicated,
   4. Categories of personal data of the subjects,
   5. Use of profiles,
   6. International transfers,
   7. Legitimating basis;
   8. Data retention periods, and
   9. General description of technical, legal, administrative, and organizational measures.

V. Data Protection Officer:

Individuals with a third-level degree in Law, Information Systems, Communication, or Technologies, and a minimum of 5 years of professional experience, may be appointed as Data Protection Officers (hereinafter “DPO“).

The DPO may perform other data protection-related activities that do not conflict with the inherent responsibilities of their role.

The DPO can be hired as an employee or through a service provision contract.

Controllers or processor that are not required to appoint a DPO may do so voluntarily as a good practice and proof of compliance with the principle of proactive responsibility.

VI. Joint Responsibility:

Controllers jointly responsible for data processing with the same purposes and means will be considered as joint controllers. These joint controllers will establish their tasks and responsibilities regarding data protection through a contract, which data subjects can access if required.

VII. International Data Transfers:

The Data Protection Authority will establish the countries or organizations with an adequate level of data protection for international data transfers.

If the country or organization to which the international data transfer is made has not been qualified by the Authority, the transfer will only be permissible if certain legal instruments support the transfer.

The Regulation establishes the following criteria to establish if a country or organization has an adequate level of data protection:

1. 1. Legislation and sectoral regulations in the country on data protection.
   2. Subsequent regulations on personal data by authorities.
   3. Judicial rulings on data protection.
   4. Recognition of rights and mechanisms for their exercise in favor of data subjects.
   5. Establishment of rights and duties of data controllers and processors.
   6. Independent and autonomous authority.
   7. International commitments assumed by the country or organization regarding personal data protection.
   8. Legislation related to national security, public security, and any laws pertaining to the defense and security of the State.

The National Data Protection Registry will record:

1. 1. The country where the data recipient is located.
   2. The categories subject to the transfer.
   3. The purposes of the transfer.
   4. The identification data of the recipient.
   5. The authorization mechanism or exemption criteria for the transfer.

VIII. Security Breaches:

The Regulation establishes that security breaches must be reported to the Data Protection Authority and the Telecommunications Regulation and Control Agency in the following cases:

1. 1. When personal data has been destroyed, no longer exists, or is no longer available to the data controller,
   2. When personal data has been altered, corrupted, or is no longer intact,
   3. When the data controller has lost control or access, or personal data is no longer in their possession,
   4. When the processing has not been authorized or is unlawful, including unauthorized disclosure or access by recipients.

The Regulation will enter into force upon its publication in the Official Registry.

   

Rafael Serrano, associate at CorralRosales
rserrano@corralrosales.com
+593 2 2544144

By Resolution No. SCVS-INC-DNCDN-2023-0022 dated October 26, 2023, published in the First Supplement of the Official Gazette No. 428 of October 31, 2023, the Superintendent of Companies, Securities and Insurance ordered the repeal of Resolution No. SCVS-INC-DNCDN-2023-0019 dated August 29, 2023, which established the “Guidelines of probity and civil capacity of companies or individuals which act as legal representatives or officers of companies subject to the control and supervision of the Superintendence of Companies, Securities and Insurance”: Therefore the following documents will NO longer be required for the recordation of appointments in the Commercial Registry or the Superintendence of Companies, as the case may be, and on an annual basis before said entity:

1. The certificate of not appearing in the Database of Persons with Convicted Ruling, issued by the Financial and Economic Analysis Unit (UAFE),
2. Proof of not appearing on the following public international lists: (i) Office of Foreign Assets Control (OFAC); and (ii) United Nation’s Security Council.

The repeal is based on the fact that the Financial and Economic Analysis Unit (UAFE), and not the Superintendence of Companies, Securities and Insurance, is in charge of elaborating policies and strategies on prevention of money laundering and crime financing, as well as requiring information from the regulated entities or individuals.

     

Sofía Rosales, associate at CorralRosales
srosales@corralrosales.com
+593 2 2544144

Through Resolution JPRF-F-2023-076 (hereinafter “Resolution“), issued on September 11, 2023, and published in the Second Supplement to the Official Gazette 402 of September 22, 2023, the Board of Financial Policy and Regulation (hereinafter “JPRF“) enacted “Regulations for Fintech Entities”.

This Regulation aims to articulate the application of Ecuador’s Law for the Development, Regulation, and Control of Technological Financial Services (“Fintech Law”).

All entities that offer financial services or products centered on technology are required to:

1. Comply with money laundering prevention regulations issued by the JPRF and the Banking Superintendency.

 

1. Designate a primary and alternate compliance officer, both of whom shall carry out their duties at least on a part-time basis.

Particularly, this Resolution regulates digital credit-granting entities which encompass those institutions exclusively providing credit through electronic platforms.

Digital credit-granting entities shall refrain from soliciting funds for the purpose of intermediation and are obligated to establish provisions for the diverse credit segments they service in accordance with the percentages stipulated in the Resolution.

Additionally, digital credit-granting entities must consider and comply with the following provisions for their operation:

i.    Establish themselves with a minimum capital of two hundred thousand United States dollars (USD 200,000).

ii.    Prior to the beginning of their operation they must qualify as digital credit-granting entities before the Banking Superintendency.  Qualification requirements are yet to be defined, but they will encompass assessment criteria centered on risk management, cybersecurity, and information security.

iii.    Subject themselves to the oversight and regulation of the Banking Superintendency.

iv.    Provide direct credit, including credit cards, to all credit segments recognized in applicable regulations.

v.    Implement a thorough customer creditworthiness assessment process for which digital credit-granting entities must access the customer’s credit history.

vi.    Effect disbursements by means of transfers from accounts that the entity holds in the national financial system.

vii.    Ensure the rights and protection of financial consumers in accordance with the standards outlined in the Resolution and additional applicable legislation.

viii.    Adhere to regulations established for financial institutions with regards to portfolio classification, novation, refinancing, restructuring, and the write-off of obligations.

ix.    Establish a Risk Management Committee that will oversight and implement the necessary measures to ensure effective risk management.

x.    Designate a Chief Information Security Officer who must oversee the formulation of policies, objectives, and procedures aimed at preserving the security of the institution’s information.

Until Novembre 22, 2023 Ecuador´s Banking Superintendency must issue the requirements for the qualification of digital credit-granting entities.

                                                                                                               

Juan Fernando Riera, associate at CorralRosales
jriera@corralrosales.com
+593 2 2544144

 

Through Resolution SENAE-SENAE-2023-0080-RE, issued on September 27, 2023, and published in the Second Supplement to the Official Gazette 412 of October 6, 2023, the National Customs Service of Ecuador made more flexible the deadlines for requesting the regularization of inventories due to shortages of goods identified after the import customs declaration (DAI) has been transmitted and the release has been carried out.

The importer is allowed to reduce the quantities declared in the DAI subject to compensation when it has been identified that the goods are not physically present. For this purpose, the importer must submit a request for regularization of inventories attaching the following documents:

1. A sworn statement detailing the goods that did not arrive in the country; and,
2. Documents justifying the cause of the shortage.

The request for regularization may be filed at the following times:

1. Within 15 non-extendable days counted from the date of release of the goods. The Customs Authority will request the payment of taxes and resolve the regularization.

 

1. Outside the term of 15 days, but within the period of permanence of the goods subject to the customs regime. The Customs Authority will request the payment of taxes, resolve the regularization, and impose a fine according to article 193(d) of the Code of Production, Commerce, and Investment.

 

1. Outside of the period of permanence of the goods subject to the customs regime. The Customs Authority will request the payment of taxes, resolve the regularization, and impose a fine for non-compliance with the permanence terms.

If the Customs Authority identifies that the importer included false information in the sworn declaration, it will initiate the corresponding criminal actions against the importer in accordance with the Criminal Code.

Finally, the Seventh Transitory Provision allows importers whose regularization requests have been rejected to submit a new regularization request under the provisions of Resolution SENAE-SENAE-2023-0080-RE within 60 days from its issuance.

In the following link you can review the complete text of the Resolution:
SENAE-SENAE-2023-0080-RE

       

Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

               Fernanda Inga, senior associate at CorralRosales
finga@corralrosales.com
+593 2 2544144

By Decree 876 dated September 15, 2023, and published in the Supplement of the Official Gazette 401 of September 21, 2023, the President of the Republic issued the Regulations of the Decree-Law for Strengthening the Family Economy. The following is a summary of the most relevant changes:

1. Income Tax rebate for personal expenses.

The value of the Basic Family Basket corresponding to the month of January of the fiscal year in which the tax is liquidated must be considered for the calculation of the rebate. Before it was established that the value corresponding to the month of December of the previous year had to be considered.

The expenses corresponding to health, food, education, and clothing may include those incurred for the taxpayer’s pets.

The sales receipts supporting the expense may be issued in the name of the taxpayer or his dependents registered for the calculation of the rebate. Only those individuals whose personal expenses are “practically” covered by the taxpayer within the fiscal year may be registered as dependents.

For the registration of parents as family dependents, their express consent will be required. Children who are not disabled may be considered as dependents until the fiscal year in which they reach 21 years.

1. Income tax withholding over income from labor relationships.

For calculating the income tax withholding, the employer must apply the seniority or disability benefits provided by law.

The value of the tax to be withheld must be divided for 11 months, since in January the employer must not withhold income tax.

If the value of the Basic Family Basket corresponding to the month of January of the fiscal year in which the withholding is made has not been published until February, the employer must apply the value corresponding to the month of December of the previous year and subsequently make the applicable adjustments.

When projecting their personal expenses, the employee must include the number of dependents and the differentiated calculation for catastrophic diseases, if applicable.

1. Reduction of the Income Tax rate.

The regulations establish the conditions for the reduction of the Income Tax rate for reinvestment of profits in sports, cultural, responsible scientific research, or technological development projects.

The taxpayer must reinvest its profits in its own or third-party projects to be executed in the following fiscal year to the one in which the profits were obtained. The benefit is applicable in the fiscal year in which the investment is made.

The reinvestment of profits may be used for:

1. In the case of projects executed by the taxpayer, the resources may be used to acquire goods and services necessary for such project.
2. In the case of projects executed by third parties, the resources may be used to acquire shares of the entity executing the project.

 

1. Simplified Regime for Entrepreneurs and Popular Businesses (RIMPE)

The Internal Revenue Service will register the taxpayers in the RIMPE regime when obtaining or updating the Taxpayers Registry (RUC).

The IRS may include, recategorize or exclude taxpayers from the RIMPE regime at any time. These modifications must be notified to the taxpayer and the formal duties derived from the change will be applicable from the month following the notification.

Taxpayers qualified as Popular Businesses may issue sales notes or invoices in the transfer of goods or services.

For calculating the income tax, taxpayers subject to the RIMPE regime will be able to deduct the applicable tax credits, but not the rebate for personal expenses.

1. Single Income Tax for Sports Betting Operators

For the applying the “Single Income Tax for Sports Betting Operators”, sports betting activities shall be understood as those that allow the user to obtain a prize for predicting the result of a sports activity based on his personal estimation and not only by chance.

It is clarified that sports betting operators cannot carry out games of chance such as casinos, bingos, lotteries, or bets in general, prohibited by the 2011 referendum.

The decree does not regulate how the “Single Income Tax for Sports Betting Operators” will be withheld, declared, and paid.

 

 

Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144