Category Archives: Bulletin

Through Resolution No. JPRM-2024-029-M (“Resolution“), issued on December 31, 2024, the Monetary Policy and Regulatory Board (“JPRM“) reformed the “Regulation governing payment methods, systems and fintech activities in Ecuador” contained in Resolution No. JPRM-2024-018-M.

The Resolution aims to guide the financial environment towards the interoperability of payment systems for real-time electronic money transfers (“Interoperability“).

Below, we highlight the key aspects that have been amended and introduced by the Resolution:

I. Concepts

The Resolution defines the following:

1. 1. 1. Payment Network Administrators: These entities pertain to auxiliary payment system operators qualified to provide clearing services, including the processing of payment transfers. This includes the Central Bank of Ecuador, which oversees the payment network facilitating money transfers among its members.

1. 1. 1. QR Code: a type of two-dimensional information encoding with specific and standardized fields defined by the Central Bank to facilitate payment transactions.

1. 1. 1. Distributed Directories: a data structure and operational model managed by Payment Networks, designed to store and manage keys along with all relevant information associated with customers.

1. 1. 1. Payment Network Members: these include private banks; public banks engaged in intermediation and receiving funds from the general public; credit unions; mutual savings and loan associations for housing; central funds; neobanks; Specialized Electronic Deposit and Payment Companies (SEDPES); participants in the Auxiliary Payment System duly authorized to provide “electronic payment processing services” on behalf of one or more financial entities; and the Central Bank of Ecuador.

1. 1. 1. Key: a unique and public identifier that enables the client to link their payment credentials with personal information, such as their identification number, mobile phone number, or personal email address, to make or receive payments.

1. 1. 1. Payment Networks: technological infrastructure with procedures and services designed to channel electronic money transfers for real-time payments.

1. 1. 1. Central Key Management Service: an operational model managed by the Central Bank, designed to manage the necessary customer information, facilitating payment interoperability through keys.

1. 1. 1. Payment Integration System: a technological infrastructure managed by the Central Bank, comprising procedures and services to manage key operations, process and clear inter-network payment transfers, and transmit the required information for settlement.

The concept of clearing is also redefined, establishing it as the process performed to determine the net position, whether favorable or unfavorable, of the Payment Network Members, which must be settled through adjustments to their accounts at the Central Bank.

II. Principles and Use Cases for Interoperability

Interoperability will be governed by principles such as accessibility, high service standards, scalability, neutrality, non-discrimination and fair access, as well as transparency.

The use cases to be considered for the implementation of Interoperability include: (i) Person-to-Merchant, (ii) Merchant-to-Person, (iii) Person-to-Person, (iv) Person-to-Public Institution; and (v) Public Institution-to-Person.

III. Obligations Related to Interoperability

The Payment Network Administrators and their Members are required to ensure Interoperability between their platforms and with existing infrastructures within the payment system to process real-time payments. To achieve this, Payment Networks must be connected to the Payment Integration System managed by the Central Bank.

Entities such as private banks, public banks, credit unions, mutual savings and loan associations for housing, Specialized Electronic Deposit and Payment Companies (SEDPES), and participants of the Auxiliary Payment System authorized to provide electronic payment services, along with others conducting electronic money transfers for payments, are obligated to guarantee interoperability and offer their clients payment services using keys. These entities must necessarily connect to any Payment Network to fulfill this requirement.

The members of Payment Networks have several obligations to ensure the system’s operationality and security. They must implement robust controls to prevent fraud and protect personal data, guarantee the availability of services 24 hours a day, 365 days a year, and inform clients about fees, transfer times, and service conditions before each transaction. Additionally, they must establish effective mechanisms to resolve complaints, errors, and claims, thereby protecting the rights of users. Furthermore, they have specific obligations related to the management and administration of keys.

Payment Network Administrators are responsible for processing intra-network operations with adequate security standards, validating keys and credentials, and ensuring the technological integration of their participants. They must also comply strictly with the operational and security regulations issued by the Central Bank, ensuring the reliability and efficiency of the system. In its role as the administrator of the Instant Payment Network, the Central Bank is also bound to fulfill these obligations.

Each payment network must maintain a Distributed Directory to validate access rules and execute key resolution. For this purpose, Payment Network Administrators must adhere to the regulations issued by the Central Bank.

IV. Access Technologies for Initiating Payments

Keys and QR codes are mechanisms and technologies used to initiate payments.

With respect to keys, the members of Payment Networks must establish processes for registration, modification, suspension, cancellation, portability, and ensure their updating in their Distributed Directories. Similarly, QR codes must comply with the technical standard issued by the Central Bank.

Transactions conducted using these technologies may not exceed the amount of one statutory wage.

V. Payment Integration System

The Payment Integration System will be created and managed by the Central Bank to facilitate real-time electronic money transfers. The Payment Integration System will process the various payments and key operations required by all participants interconnected with the Central Bank.

VI. Compensation and Settlement

Inter-network operations shall be cleared by the Central Bank, while intra-network operations shall be cleared by each respective Payment Network.

The settlement of both types of operations shall take place in the account that each member must maintain with the Central Bank.

VII. Information, Monitoring and Supervision

The members of the Payment Network and its Administrators must submit the information required by the Central Bank.

Actions that limit interoperability will be investigated and sanctioned by the Central Bank in accordance with the provisions of the Monetary and Financial Code.

VII. Implementation

Within ninety (90) days from the issuance of the Resolution, the Central Bank must determine compliance dates, integration criteria, and timelines for implementing the standards introduced by the Resolution.

The Payment Integration System must be developed by the Central Bank within eighteen (18) months. Upon its implementation, payment network administrators, participants, and members of payment networks subject to reserve requirements must, within the timelines established in the Resolution, make the necessary technological and operational adjustments to ensure interoperability and connect to the Payment Integration System.

The Central Bank must issue the “Regulation on QR Code Standards,” and all participants using QR codes for payments must adapt and comply with this regulation within six (6) months of its issuance.

 

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

 

Below, we summarize regulations applicable to Outflow Tax (ISD):

1. Circular NAC-DGECCGC24-00000010 issued by the Internal Revenue Service

The reform of Ecuador’s National Tariff due to the implementation of the VII Amendment to the Harmonized System affected several tariff subheadings included in Resolution CPT-03-2012 and its subsequent reforms. This resolution establishes the subheadings which importation generated ISD tax credit for income tax payment purposes until December 31, 2024.

Through Circular NAC-DGECCGC24-00000010, the Internal Revenue Service communicated that the tax credit benefit remains valid until December 31, 2024, for goods affected by the VII Amendment. To identify the affected subheadings, the Interinstitutional Technical Committee issued report CPT-CTI-2024-001-I, which detailed the alignment of subheadings from the VI to the VII Amendment.

Therefore, the ISD paid on the importation of goods listed in Resolution CPT-03-2012 and its reforms retains its tax credit status, as per the alignment performed by the Interinstitutional Technical Committee. This information can be consulted at the following link:  CIRCULAR NAC-DGECCGC24-00000010

1. Ministerial Agreement 047 Issued by the Ministry of Economy and Finance

In accordance with Executive Decree 468, the Ministry of Economy and Finance (MEF) established the tariff subheadings subject to reduced ISD rates starting January 1, 2025.

The ISD rate will be 0% for January, February, and March 2025.  Beginning April 2025, certain subheadings will be subject to a 0% rate (pharmaceutical sector), while others will be subject to a 2.5% rate (other sectors). The detailed list can be consulted at the following link: ISD – Registro Oficial-9-70

Tariff subheadings not listed in the Ministerial Agreement will be subject to the 5% ISD rate.

 

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

Through Executive Decree No. 487 issued on December 19, 2024, the President of the Republic of Ecuador amended the Regulations for the Application of the Internal Tax Regime Law and revised the rules governing the Single Income Tax for Sports Betting Operators. Below is a summary of the key points:

 

1. License to Operate

 

Both resident and non-resident operators in Ecuador must obtain a License to Operate Sports Betting (LOPD). This license will be granted by the Ministry of Sports, which must issue the regulations and conditions for obtaining it within three months.

 

The LOPD will be valid for five years. However, operators must pay an annual fee equivalent to 655 unified basic salaries (USD 307,850 for the year 2025).

 

1. Tax Modifications

 

• All entities engaging in sports betting activities will be subject to this tax, even if they are established as non-profit organizations, with the exception of the Guayaquil Charity Board (Junta de Beneficencia de Guayaquil) and the Fe y Alegría Foundation.

 

• The definition of “prize” has been modified for the purposes of calculating the withholding tax applicable to players and the taxable base for the operator’s tax. A player will be considered to have received a prize if, within a monthly period, the amount received from correct predictions exceeds the amount wagered.

 

• Bonuses freely available to the player will also be included in the amount received from correct predictions.

 

• The invoice and monthly withholding certificate for each player must be issued by the fifth business day of the following month.

 

• Operators have three months to adjust their systems and implement the necessary mechanisms to comply with these obligations.

Andrea Moya, Socia en CorralRosales
amoya@corralrosales.com
+593 2 2544144

The President of the Republic, by means of Executive Decrees No. 474 and 482 issued on December 6th and December 13th, 2024, respectively, ordered the mandatory and non-recoverable suspension of the working day of January 2nd and 3rd, 2025, for both the public and private sectors. With this decision, the New Year holiday will be extended from the 1st to the 5th of that month.

In our opinion, if the employer requires employees to work on these days and the employees give their consent, the work may be performed, provided that a 100% overtime surcharge is paid, as these are considered mandatory rest days.

 

Edmundo Ramos, Partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

 

María Victoria Beltrán, Senior Associate at CorralRosales
mbeltran@corralrosales.com
+593 2 2544144

 

By Resolution NAC-DGERCGC24-00000040, the Internal Revenue Service (SRI) has established the conditions for applying the additional deductions set forth in subparagraphs 9.1, 9.2, and 9.3 of Article 10 of the Internal Tax Regime Law (LRTI).

A. Net Increase in Job Positions: To determine the jobs net increase, subtract from the total number of employees under a labor relationship as of December 31 of the year the deduction applies, the number of employees as of December 31 of the prior year.

For calculating the net increase in young workers, subtract from the number of young workers as of December 31 of the year the deduction applies, the number of young workers as of December 31 of the prior year.

B. Amounts Applicable for the Benefit: The additional deduction is calculated exclusively over salaries and wages subject to social security contributions, as determined by law. It does not include social benefits or other compensation not subject to social security contributions, nor the employer’s social security contributions.

C. Duration of the Benefit: The employer may apply the additional deduction for up to 12 months from the start of the employment relationship. This period does not apply to the benefit for contracting women, which timeframe is determined in the LRTI and its regulations.

If the new worker’s employment ends before December 31 of the fiscal year, the benefit may continue if the position is filled the following month.

D. Additional Deduction Percentages: The additional deduction percentages are as follows:

Worker

Additional Deduction (%)

• Individuals aged 18 to 29 years.
• Individuals required to pay alimony
• Individuals previously detained without a final guilty verdict

50%

• Individuals aged 18 to 29, who are graduates or have completed studies at public universities, technical or technological institutes, pedagogical or arts institutes, conservatories, or public or municipal institutes.
• Individuals of any age, provided the employer’s primary economic activity is in construction or agriculture.
• Individuals who have served a prison sentence exceeding one year, as well as their spouses or partners in a legally recognized union.

75%

E. Individual Requirements: Workers must meet the following conditions:

1. Youth Employment: Workers must be aged between 18 and 28 years. The benefit applies until the worker turns 29.
2. Graduates from Public Educational Institutions: This must be verified with corresponding degrees, certificates, or records.
3. Alimony Payers: This must be proven by a court decision or settlement agreement.
4. Formerly Detained Individuals: The position must be held by someone who served over one year in prison, is in semi-open conditions, or had measures that substituted detention. Verification must come from documents issued by the National Service for Comprehensive Attention to Persons Deprived of Liberty (SNAI).

F. Document Retention: Employers must retain supporting documents for seven years.

G. Construction and Agriculture Sectors: For the construction sector, the employer must register a principal activity under Section F “Construction” of the International Standard Industrial Classification (ISIC).

For agriculture, the employer must register any of the following principal activities under ISIC:

– A011: Growing non-perennial crops

– A012: Growing perennial crops

– A013: Propagation of plants

– A015: Mixed farming of crops and livestock

If additional activities are performed, the employer must differentiate payrolls by activity and calculate the net increase in employment only for workers engaged in construction or agriculture. If differentiation is not possible, the benefit will apply proportionally to income.

H. Benefit Restrictions: The benefit is not applicable if new employees were previously employed by the same employer, their relatives up to the fourth degree of consanguinity or second degree of affinity, shareholders, legal representatives, or related parties, within the 3 fiscal years preceding their hiring.

I. Compliance Obligations: To access the benefit, employers must be up to date with obligations to the Internal Revenue Service, Ecuadorian Social Security Institute (IESS), and the Ministry of Labor as of the date of submission of the income tax return.

 

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

Organic Law for Financial Relief and Economic Strengthening of Generations in Ecuador was published in Official Gazette No. 699, Fifth Supplement, on December 9, 2024.

Below is a summary of the most relevant provisions:

1. Tax credit for employers:

Employers who did not terminate their workers during October, November, and December 2024 and who maintain them under the same or better working conditions may claim a percentage of the employer’s contribution to social security paid during this quarter as a tax credit for 2024 income tax. The percentage will be calculated according to the following chart:

Type of institution Benefit Large companies with gross income in 2023 higher than in 2022.

Medium-sized banks with gross income higher from October 2023 to October 2024. 5% Large companies with gross income in 2023 similar to 2022.

Medium-sized banks with lower gross income from October 2023 to October 2024. 10% Large companies with gross income in 2023 lower than in 2022.

Small banks with higher gross income from October 2023 to October 2024 15% Medium-sized companies with gross income in 2023 higher than in 2022.

Small banks with lower gross income from October 2023 to October 2024 20% Medium-sized companies with gross income in 2023 similar to 2022

All other financial institutions. 25% Medium-sized companies with gross income in 2023 lower than in 2022 30% Small and microenterprises with gross income in 2023 higher than in 2022 35% Small and microenterprises with gross income in 2023 similar to 2022 40% Small and microenterprises with gross income in 2023 lower than in 2022 45%

Large banks are not eligible for this benefit. The credit amount cannot exceed the tax liability for the 2024 fiscal year.

1. Exceptional payment plan:

The Internal Revenue Service (SRI) may accept payment plans of up to 12 installments for withheld or collected taxes outstanding as of October 31, 2024. Applications must be submitted by February 7, 2025.

1. Extinction of Tax Obligations:

The SRI Director General and, optionally, sectional tax administrations will declare extinguished any tax obligations with a total value (including tax, interest, and penalties) that does not exceed $460 per taxpayer. This applies if the obligation has been outstanding for at least one year and the tax administration has initiated collection proceedings.

1. Income Tax Waiver:

Income tax payments for the 2022 and 2023 fiscal years are waived for taxpayers under the RIMPE-Popular Business Regime.

1. Income from occasional property sale:

Income from the occasional sale of real estate by individuals or entities will be considered exempt from income tax, provided it does not exceed two property sales per year.

1. Social security:

• The Ecuadorian Institute of Social Security (IESS) will not initiate collection proceedings until February 28, 2025. Ongoing processes will also be suspended until that date.
• Social security contributions corresponding to November and December 2024 will not generate employer liability if paid within 90 days of becoming overdue and upon the employer’s request.

1. Public procurement:

Public sector contracting entities may grant exceptional extensions to contractual deadlines for the delivery of goods or services, provided the contracts were signed during the period of the electricity crisis.

 

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

Through Executive Decree 468 issued on December 1, 2024, the President of the Republic has reduced the ISD tax rate for importation of goods classified under certain tariff subheadings:

Sectors ISD tax rate from January to March 2025 ISD tax rate from April 2025 Tariff subheadings of the pharmaceutical sector 0% 0% Tariff subheadings of other productive sectors 0% 2,5%

The lists of tariff subheadings subject to these rates will be issued by the Ministry of Economy and Finance.

This measure aims to mitigate the impact of the elimination of the ISD tax credit for income tax purposes.

 

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

On October 27, 2024, the Electricity Regulation and Control Agency (ARCONEL) issued Resolution No. ARCONEL-010/2024 (the “Resolution”). The Resolution amended and codified Regulation No. ARCONEL-005/24, which includes the “Regulatory Framework for Distributed Generation Systems for Self-Supply by Regulated Electricity Consumers.”

The Resolution was published in Official Gazette No. 689 on November 22, 2024.

Below is a summary of the amendments to the Regulation:

1. Distributors with multiple business units
   • Previous rule: For distributors with multiple business units, the regulated consumer and the distributed generation system for self-supply (“SGDA”) were required to be within the same business unit (e.g., both had to be within CNEL Guayaquil).
   • Current rule: It is now sufficient for the regulated consumer and the SGDA to be within the same service area of the distributor, even if they belong to different business units (e.g., the regulated consumer may be in CNEL Guayaquil, and the SGDA in CNEL Esmeraldas).

    

2. Contract between the SGDA owner and the regulated consumer
   • Previous rule: If the SGDA was owned by a third party, it was mandatory to submit a lease agreement between the owner and the regulated consumer to the distributor before starting SGDA operations.
   • Current rule: Submitting a lease agreement is no longer mandatory. Any “legal document” agreed upon by the parties is sufficient. The prohibition against selling the energy produced by the SGDA to the regulated consumer remains in effect.

    

   Carlos Torres, Senior Associate at CorralRosales
   ctorres@corralrosales.com
   +593 2 2567676

   Mario Fernández, Associate at CorralRosales
   mfernandez@corralrosales.com
   +593 2 2544144 

   © CORRALROSALES 2024
   NOTA: The above text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused by actions taken or not taken based on the information contained in this document. Any specific situation requires the specific opinion and advice of the firm.

   CORRALROSALES

Through Resolution No. BCE-GG-024-2024, published in the Official Gazette No. 678 on November 7, 2024, the Central Bank of Ecuador (“BCE“) complied with the first transitional provision of Resolution No. JPRM-2024-018-M, issued by the Monetary Policy and Regulation Board (“JPRM“) on September 4, 2024, and enacted the Regulation for the Authorization, Oversight, and Supervision of Participants in the Auxiliary Payment Systems (hereinafter, the “BCE Resolution“).

The BCE Resolution repealed Resolution No. BCE-GG-018-2023, issued by the Central Bank on September 29, 2023, which previously governed this matter.

This regulatory update amends the criteria that entities must meet to be qualified by the Central Bank as participants in the Auxiliary Payment Systems (“Participants“).

The BCE Resolution strengthens the qualification process by imposing more rigorous requirements for entities seeking to obtain such status. Notable among the new requirements are:

1. ISO 27001 Certification on Information Security Management Systems or the implementation of policies, processes, procedures, and methodologies for information security aligned with international standards.
2. ISO 22301 Certification for Business Continuity Management or a business continuity plan that adheres to recognized international standards and practices.
3. ISO 31000 Certification on Risk Management or a methodology for managing operational risks.
4. A liquidity risk management methodology, integrating operational and analytical tools for identifying, measuring, controlling, and monitoring such risks.
5. A Corporate Governance Manual tailored to the administrative structure of the Participant.
6. A Customer Service Manual.
7. A Personal Data Protection Policy aligned with the Data Protection Law and its Regulations.
8. Certificate of compliance issued by the Financial and Economic Analysis Unit – UAFE.

Additionally, the BCE Resolution imposes periodic reporting obligations requiring Participants to submit information in structures established by the Central Bank.

The BCE Resolution mandates that, within a maximum of four (4) months, the BCE will require currently authorized Participants in the Auxiliary Payment Systems to submit the additional documents and requirements specified in the BCE Resolution.

The BCE will also have to update the registry of Participants in the Auxiliary Payment Systems to ensure that services listed for each Participant comply with the provisions of Resolution No. JPRM-2024-018-M.

 

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