New provisions of the Ministry of Labor

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On September 9th, the Ministry of Labor (“MdT”) issued the following provisions on labor matters:

1. Agreement MDT-2020-171: Exemptions on the application of Chapter III of Humanitarian Organic Law to support and combat the health crisis arising from Covid-19

  • Employers may not reduce the salary of the disabled or their substitutes by the implementation of agreements to preserve labor sources or working-day emergent reduction.
  • Disabled or substitutes employees must inform to the employer their condition within 7 days from the dated they were notified with the application of such measures. If the employee does not comply to inform, then he/she will not benefit from these exceptions.
  • Agreements to preserve labor sources or working-day emergent reduction applied to disabled or substitutes employees before September 9th, are no longer enforceable.
  • From the next salary payment, disabled or substitutes employees shall receive their full salary. This provision has no retroactive effect.

2. Agreement MDT-2020-174: Reform to Ministerial Agreement No.MDT-2020-077

  • In the event of force majeure or unforeseen circumstances, the employer may apply the emergent reduction, modification or suspension of the working-day provided within the Ministerial Agreement No.MDT-2020-077.
  • Emergent reduction, modification or suspension of the working-day ends by:
    • Mutual agreement between the parties.
    • Completion of the emergent working-day reduction term provided for in the Labor Code, article 47.1 (up to 12 months);
    • Completion of the emergent working-day modification term; or;
    • Ceasing of the cause that justified the emergent working-day suspension (Labor Code, article 60).

 

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Employee Leave of Absence in Ecuador

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According to Ecuadorian law employees are entitle to 8 legal leaves of absence, as detailed below:

LEAVE OF ABSENCE REASON DURATION Maternity Birth of a child (general rule) 12 weeks Multiple birth 10 additional days Child with disability or serious congenital diseases. 3 additional months Paternity Birth of a child 10 days Multiple birth or cesarean section 15 days Premature children or in conditions of special care 8days additional Birth of a child with a disease: degenerative, terminal, irreversible or with severe disability (75% or more) 25 days In the event of the mother’s death during childbirth or while on maternity leave, the father is entitled to enjoy all, or as appropriate, the remaining part of the period of leave corresponding to the mother Up to 12 weeks Unpaid leave for childcare After maternity or paternity leave employee may request a unpaid leave to care for the newborn 9 months in addition to maternity or paternity leave Adoption Adoptive parents are entitled to a leave from the date the child is legally delivered to them. 15 days Illness Medical rest for common or occupational illness Indeterminate Child Illness Care for  hospitalized child or with  degenerative disease 25 days (annually) Family leave for death Death of the spouse, common-law partner, relatives up to 2nd degree of consanguinity or affinity to the worker 3 days Education Employees with more than 5 years in the company that obtain a scholarship for studies abroad, in fields related to work activity, will be entitle to a leave of absence.

* Applies to employers with 15 or more employees and the number of scholarship holders does not exceed 2%. Up to 1 year, entitled to payment for 6 months.

Maternity and sick leave are subsidized by IESS, under the following conditions:

  • In case of maternity leave, IESS requires that the affiliate maintain at least 12 continuous contributions prior to childbirth and that the employer has not registered arrears during the mentioned period. In these cases,  IESS will pay the employee a cash allowance of 75% of the average remuneration the last 3 contributions paid to IESS, for the period of 12 weeks (the remaining 25% must be covered by the employer).
  • To access sickness allowance, according to the rest ordered by the physician, the affiliate must maintain at least 6 continuous contributions prior to the month in which the disability occurred and the employer must not register arrears during that period. If these conditions are met, as of the 4th day of disability, IESS will pay the employee a cash allowance for a period of up to 6 months, in the following proportions: (i) the first 70 days, employee will receive 75% of the average of the 3 last contributions; and, (ii) in the remaining period, 66% of the same average. The employer is only obliged to pay 50% of the remuneration during the first 3 days of disability.

The Labor Code also provides leave for domestic calamity or force majeure. Although the norm is not clear in which situations these types of leave should be granted, it gives the employer the power to qualify and authorize them. In this case, the worker maintains the right to receive his/her remuneration – or a percentage of it – for the duration of the leave.

Upon agreement of the parties, the employer may grant unpaid leave to cover different needs of the employee (e.g. studies abroad).

The main characteristic of this kind of leave is that the employment relationship continues and the employee does not lose his seniority in the company. Since the employee will not be receiving income during the leave, the obligation to make contributions to  IESS is not generated. Therefore, an exit notice must be filed in the Institution’s platform.

 

Marta Villagómez
Senior Associate at CorralRosales
mvillagomez@corralrosales.com

Income tax – Advance payment regulations

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Regulation NAC-DGERCGC20-00000054 issued by the General Director of the Internal Revenue Service on September 4, 2020 regulates the advance payment of income tax for the year 2020, ordered by Executive Decree 1137 of September 2, 2020.

The regulation confirms the content of Executive Decree 1137 y adds the following:

1. Amount of the advance payment:

In order to calculate the advance payment, the following formula must be applied:

IR = (85% of UC * 25%) – RFIR20

Where:

IR = Advance income tax.

UC = The profit derived from the result of operations carried out from January 1 to July 31, 2020, in accordance with the financial statements and accounting and financial regulations. In order to calculate the profit, the employees profit sharing must not be deducted.

RFIR20 = Income tax withholdings made to the taxpayer from January 1 to July 31, 2020, that the taxpayer is able to use as tax credit.

In order to calculate the advance payment, the taxpayer must issue the financial statements as of the closing of July 31, 2020.

2. Settlement the advance payment:

The settlement of the advance payment will be made through the Income Tax Advance Payment Form (form 115).

Taxpayers whose 2019 taxable income was higher than US$5,000,000.00, must file the return until September 11, 2020, even if: (i) the taxpayer does not generate an amount to be paid; or, (ii) if the taxpayer income in 2020 is considered exempt for income tax purposes.

If the taxpayer files the return once the term has expired, it would be required to pay a fine equal to 3% for each month or fraction of a month of delay. The fine will be calculated over the total of the advance tax or, over its profit if an advance payment is not generated.

The advance tax must be paid until September 11, 2020 through debit from the taxpayer bank account. If the payment is not made until this date, the taxpayer will be required to pay interests.

3. Tax credit:

The advance income tax will be regarded as tax credit for the payment of 2020 income tax.

If the value of the advance payment is higher than the income tax generated, the taxpayer may request the reimbursement or may use the excess as credit tax for the payment of income tax for the three following fiscal years.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Income tax – Advance payment

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By Executive Decree 1137 issued on September 2, 2020, the President ordered the advance payment of income tax for the year 2020, to finance the expenses associated with the health emergency.

The previous Executive Decree 1109 issued on July 27, 2020 that established the same tax was not applied since it was declared unconstitutional by the Court.

The individuals, companies, and permanent establishments that comply with the following conditions are required to pay the advance income tax:

  1. Generate taxable income, except income derived from a labor relationship.
  2. In the year 2019 received gross income equal to or greater than US$5,000,000.00; and,
  3. During the period from January to July 2020, generated profits, with the exceptions of income and expenses derived from a labor relationship.

Taxpayers who are not included in the assumptions previously described 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 and aquaculture sector.

In order to calculate the advance payment, the following formula must be applied:

IR = (85% of UC * 25%) – RFIR20

Where:IR = Advance income tax.

UC = The profit derived from the result of operations carried out from January 1 to July 31, 2020, in accordance with the financial statements and accounting and financial regulations.

RFIR20 = Income tax withholdings made to the taxpayer from January 1st to July 31, 2020, that the taxpayer is able to use as tax credit.

Taxpayers are able to pay the full amount of the advance income tax until September 11, 2020 and will not be able to request payment facilities. 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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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Bloomberg – Ecuador: Should You Register as a Nonresident Digital Service Provider?

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DETAILS

DATE: 28-08-2020

CORRALROSALES IN THE NEWS:

-Andrea Moya

MEDIA: Bloomberg

Our partner specialized in Tax, Andrea Moya, published an article in Bloomberg where she explains that starting September 16, 2020, digital services will be subject to 12% VAT due to an amendment made to the Internal Tax Regime Law. Additionally, she analyses some of the matters to be considered by the nonresident digital service providers.

Our partner explains “If the entity registers in Ecuador as a nonresident digital service provider, the entity will be required to collect the VAT from the consumer and pay the VAT to the tax authority. If the entity does not register in Ecuador as a nonresident digital service provider, and the payment is made through an intermediary, for example through a credit or debit card, the credit card issuer will be required to withhold the VAT from the consumer and pay the VAT to the tax authority. If the payment is not made through an intermediary, the consumer will be required to liquidate and pay the VAT to the tax authority.”

Moya point out that, in the case of sharing economy business models, the VAT taxable base is equal to the commission charged by the platform, however, in general, the VAT taxable base is equal to the price of the service.

Our partner explains “The process for registering as a nonresident digital service provider and to file the VAT returns must be regulated by the tax authority. Therefore, one of the challenges of the authority when issuing the regulations will be to establish a simplified process that enables the nonresident provider to comply with its obligations, whether directly or through third-party service providers”.

If you want to read the complete article, click here

Renewal – Tax benefits to new investments

Through Executive Decree 1130 issued on August 19, 2020, the President of the Republic resolved to extend the term for applying the tax benefits for new investments established in the Law for Productive Development, Attraction of Investments and Employment Generation for an additional 24 months, that is, until August 21, 2022.
Therefore, new investments made until August 21, 2022 will be eligible for the following benefits:
  1. New investments made in prioritized sectors will be exempt from paying income tax according to the following:
    • Investments made in the urban areas of Quito and Guayaquil will be entitled to an income tax exemption for 8 years.
    • Investments made outside the urban areas of Quito and Guayaquil will be entitled to an income tax exemption for 12 years.
    • Productive investments in industrial, agro-industrial, and agro-associative sectors, made in border jurisdictions will be entitled to an income tax exemption for 15 years.

In the case of existing companies, the exemption will be applied proportionally according to the following alternatives:

  • If the company is able to divide its assets, liabilities, income, costs, expenses, profits, and labor participation attributable to the new investment, the exemption may be applied by cost center.
  • The company is able to apply the benefit proportionally according to the following formula:

tax-benefits-new-investments-lawyers-ecuador

The reduction in the income tax rate may not be greater than 10 percentage points, unless the Strategic Committee for the Promotion and Attraction of Investments (CEPAI) authorizes a higheer reduction.

  1. Companies that make productive investments in any sector of the economy, and that enter into an investment contract with the Government, will be exempted from paying Foreign Exchange Tax (ISD) over the following payments:
    • Import of capital goods and raw materials necessary for the development of the project, up to the amounts and terms established in the investment contract.
    • Dividends distributed individuals with tax residence in Ecuador as long as the resources come from abroad and the investor demonstrates the entry of such resources in the country.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

VAT – Digital services

Regulation NAC-DGERCGC20-00000053 issued on August 22, 2020, the Director of the Internal Revenue Service established the provision for withholding Value Added Tax (VAT) on the import of digital services.

In general, the import of services is subject to the payment of VAT. The amendment to the Internal Tax Regime Law issued on December 31, 2019, established that the import of digital services will be subject to the payment of VAT starting September 16, 2020.

 

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

El Universo – How to protect from data thieves?

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DETALLES

DATE: 26-08-2020

CORRALROSALES IN THE NEWS:

-Rafael Serrano

MEDIA: El Universo

The Ecuadorian newspaper “El Universo”  has published  in its magazine an article by Rafael Serrano Barona who is an associate of CorralRosales. He participates as an interviewee on how to protect from data theft, which is becoming increasingly common on the internet. It is not difficult to find someone -or even yourself- who has suffered a virtual attack called phishing, a term used to refer to one of the most used methods in the digital age to scam internet users to obtain confidential information, such as a password or something even more serious like bank information.

The Ecuadorian newspaper “El Universo”  has published  in its magazine an article by Rafael Serrano Barona who is an associate of CorralRosales. He participates as an interviewee on how to protect from data theft, which is becoming increasingly common on the internet. It is not difficult to find someone -or even yourself- who has suffered a virtual attack called phishing, a term used to refer to one of the most used methods in the digital age to scam internet users to obtain confidential information, such as a password or something even more serious like bank information.

Another issue to monitor is the domain to which the web page we are going to access belongs. If it is made up of numbers, it has a greater chance of being a hoax and we should not access it under any circumstances. The same happens with links that do not contain words related to the information that is going to be found in it.

Special care must also be taken with the attached files. Mostly directly executable file formats such as “ .exe ” , ” .bat ” or ” .cmd ” are especially dangerous. You should also be careful with Office format files (.docx, .xlsx or .pptx), which may contain macros.

Our associate Rafael Serrano, who is also the Vice President of the Ecuadorian Association for Data Protection, explains in this article what happens with data protection in Ecuador, since in this country there is no Data Protection Law that regulates these activities; this makes things easier for data thieves to act.

“Currently a bill is being discussed in the National Assembly that is being analyzed by the Commission for Sovereignty, Integration, International Relations and Integral Security. The Bill was presented by the President of the Republic Lenín Moreno. The Bill is quite complete. It follows the guidelines of the European General Data Protection Regulation, which in turn is the most important regulation on the matter ”, Rafael adds.

When asking Serrano about the need for a law of these characteristics, he details the importance of having such legislation since recent cases of data leaks by Ecuadorians have demonstrated the lack of control and regulation in this matter. Additionally, the Constitution approved in 2008 recognizes the autonomous right to data protection (art. 66 # 19). To date, we do not have a regulation that adequately regulates and develops the exercise of said right.

For now, we just have to wait.

If you want to read the full article, click here 

LexLatin – It is now possible to cancel commercial names due to lack of use in Ecuador

DETAILS

DATE: 20-08-2020

CORRALROSALES IN THE NEWS: 

-Katherine González

MEDIA: Lex Latin

The LexLatin communication medium publishes an article by our associate Katherine González detailing the modification regarding the possibility of canceling commercial names due to lack of use in Ecuador. Previously, the National Service for Intellectual Rights (also known as SENADI) did not process this type of cancellation request since “the authority considered that the rights were acquired with their use.”

After having studied the possibility of carrying it out, the Court of Justice of the Andean Community has determined that trade names may be canceled if they have ceased to be used at a certain time and provided that a series of requirements are met.

Before this new ruling was published, if you applied for a trademark similar to a registered trade name but in disuse, the owner of said trademark had to oppose this fact. Likewise, having filed an opposition or not, the refusal of the trademark was considered due to the similarity to one already registered and, therefore, there was no option to register this new trademark.

As our associate explains, before taking any action it is necessary to bear in mind “that trade names are independent of the business name or determination of the companies and may be the same or different”.

“One of the solutions provided by the users to counteract this type of inconvenience was the presentation of cancellation actions for lack of use against registered trade names. For these matters, SENADI had no maintained a uniform criterion, in most cases these actions were inadmissible because it considered that the registration of a commercial name loses its validity and effectiveness as soon as use ceases, therefore, the cancellation was not legally appropriate, ”González points out.

Now, the criteria have changed and trade names may be canceled due to lack of use in Ecuador.

Ahora, los criterios han cambiado y se podrán cancelar nombres comerciales por falta de uso en Ecuador.

If you want to read the full article, click here

Unconstitutionality of income tax advance payment

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Through Judgment 3-20EE / 20A published on August 10, 2020, the Constitutional Court issued an unfavorable judgement regarding Executive Decree 1109 issued by the President of the Republic on July 27, 2020 and declare its unconstitutionality.

Executive Decree 1109 ordered the advance payment of income tax of the fiscal year 2020. Therefore, taxpayers are no longer required to make the advance payment. If the taxpayers paid the advanced income tax, it will be regarded as tax credit or the taxpayers are able to request a refund.

 

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES