Regulations on the administrative visto bueno process

On March 21, 2024, the Ministry of Labor issued Ministerial Agreement No. MDT-2024-041, published in Official Registry No. 526 of March 26, 2024, which regulates the administrative visto bueno process, of which we highlight the following:

– The parties may appear personally, or through their representative or procurator, accompanied by their legal counsel.

– The work suspension must be justified by the employer and approved by the labor inspector. If the suspension is granted, the employer will have a 48-hour period to consign.

– If the inspector denies the suspension, the employer must grant the employee a paid leave to exercise the right of defense.

– The labor inspector may request clarification of the notification place in person up to 2 times. With the notification, the defendant has 2 days to reply.

– If it is not possible to notify the employee in person, the employer must notify via a single press publication including an extract of the visto bueno that must be posted in several places in the workplace.

– Within 3 days of the visto bueno hearing, the inspector in charge will issue a duly reasoned decision.

– Provided that one of the parties is affected, they could appeal the decision within 3 days before the labor inspector. Once the appeal is lodged, the regional director of labor and public services must resolve the appeal within 10 days.

– The action to request a visto bueno by the employer against the employee is time-barred within 1 month.

– The procedure expires in 30 days, if it has not been resolved in the first instance, counted from the notification of the request for the visto bueno.

– Regarding cases of lack of probity and immoral conduct of the employee, as well as harassment at work, the period is calculated from the date on which the employer or his representative became aware of the facts that gave rise to the visto bueno.

– The lodging of a complaint or labor lawsuit, before or after the visto bueno has been submitted, is not a reason for the labor inspector to refrain from processing the visto bueno.

Edmundo Ramos

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

 

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

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Appointment of Data Protection Authority

On March 28, 2024, the Council of Citizen Participation and Social Control (CPCCS) appointed Fabrizio Roberto Peralta Díaz as the Data Protection Authority for 2024-2029.

During the presentation of his work plan, Mr. Peralta highlighted his experience in data protection and proposed the following:

i.    Implement an educational vision in the Authority.

ii.    Generate inter-institutional relations by creating awareness of administrative, legal, and technical security measures related to data protection.

iii.    Create technical dependencies responsible for registration, policy planning, and sanctions.

iv.    Promote prevention, protection, and transparency as fundamental principles.

v.    Ensure the appropriate use of resources under the Transparency and Access to Information Law.

The CPCCS must submit the resolution designating the Data Protection Authority to the Legislative for his possession.

 

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

VAT – List of construction supplies

Through Resolution NAC-DGERCGC24-000000013 issued on March 28, 2024, the Tax Authority established the following list of construction supplies that are subject to a 5% Value Added Tax rate, if transferred locally:

Category Subcategory Reinforcement steel bar Reinforced corrugated AS42 steel rods with diameters of 8mm, 10mm, and 12mm. Construction aggregates Clay
Sand
Lime
Limestone
Aggregates Concrete Ready-mix concrete Binder material Cement and its derivatives
Cement residue Recyclable metallic materials Ferrous scrap Mortar Mortar Cement precursors Clinker
Pozzolan
Gypsum Prefabricated concrete and clay products Paving Stone
Block
Bricks
Prefabricated concrete products

The VAT paid on the local acquisition or importation of goods or services for the production and/or commercialization of construction materials subject to a 5% VAT rate, and which has not been offset, may be recorded as a deductible expense in the fiscal year in which the VAT payment was made.

 

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Reduction of working hours in the turism sector

On February 29, 2024, the Ministry of Labor, through Ministerial Agreement No. MDT-2024-030 published in the Official Gazette of March 14, 2024, issued the guidelines for the application of Article 47.1 of the Labor Code, regarding the reduction of working hours in the tourism sector:

  •  Decrease in working hours:

Employers in the tourism sector; register as such; prior agreement between employer and worker, may request authorization to decrease the working hours, for a period that may not exceed 6 months, whether this is consecutive or up to two separate periods.

Authorization will be granted in in the following cases:

  1. Force majeure.
  2. Reduction of income.
  3. Verification of losses.
  • Procedure:

To obtain approval on the reduction of working hours, the following documents must be submitted:

  1. Petition, addressed to the regional director of labor and public service, including the reasons justifying the reduction.
  2. Working day reduction agreement signed with the employees.
  3. Austerity plan.
  4. List of the employees and their salaries.
  5. Copies of the RUC and certificate of compliance of social security obligations.
  6. Certificate of tourism registration.
  • Remuneration and registration:

Employees’ wages will be calculated in proportion to the effective working hours. Dividends may only be distributed to the shareholders if the employees are previously paid for the reduced hours.

Social security contributions will be paid on the full 8-hour workday.

The employer shall be responsible for registering in the SUT within 15 days, the reduction in working hours and the period of application.

  • Termination of the labor relationship and indemnities:

If the employer terminates the relationship, prior to the expiration of the term agreed in the contract, unilaterally, during the period of suspension of the working day, the employee will be entitled to the payment of the indemnity provided in art. 188 of the Labor Code. The bonuses and indemnities shall be calculated on the last remuneration received by the employee prior to the reduction of the working day.

 

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Amendments to the Law of the National Public Procurement System Regulations

Through Executive Decree 206 of March 21, 2024 (“Presidential Decree”), published in the Third Supplement of the Official Registry 524 of March 22, 2024, the President amended the Law of the National Public Procurement System Regulations (“Regulations”).

The key amendments to the Regulations are summarized below:

  1. It regulates infrastructure projects contracted under engineering, procurement, and construction mechanisms.
  2. A confidential and special regime will be applied for the procurement of works, goods, and services for (i) national defense and external security of the State; (ii) public order, internal protection, citizen security, and internal security of the State; and (iii) social rehabilitation.
  3. Government providers must adopt compliance management systems for anti-bribery, anti-money laundering, anti-corruption, and others needed to control their resources.
  4. If the bidder is required to make submit to the Financial Analysis Unit (“UAFE”) by law, they cannot participate in any public procurement procedures until obtaining the UAFE Compliance Certificate.
  5. In procurement procedures which require the bidder to be registered and enabled in the Unique Suppliers Registry, contracting entities will verify the registration only at the opening of bids and at the contract signing date.
  6. When bidders are entities or consortium, contracting entities will verify their partners, shareholders, or participants eligibility according to article 250 of the Regulations at the opening of the bids and at the contract signing date.
  7. An individual will be considered the beneficiary owner when: (i) he owns or controls a company through a chain of ownership or any other means; (ii) on whose behalf a transaction is conducted; and/or (iii) who exercises effective control over an entity, national or foreign, or other legal structure. Rules for determining beneficial ownership are specified.
  8. The date of electronically signed contracts will be the date of the last electronic signature. For reception reports, the date stated in the document will apply, regardless of the electronic signature date.
  9. Contractors must submit monthly account statements reflecting the movements of the account designated to receive payments derived from the contract to the contract administrator.
  10. Disputes arising during the execution of a contract can be resolved through a Dispute Resolution Board.
  11. Appeals against administrative acts issued during contract execution shall be subject to the provisions of the Administrative Code.
  12. Establishment of an administrative body within the National Public Procurement Service (“SERCOP”) responsible for reporting unusual and unjustified operations and transactions to the UAFE.
  13. By April 30, 2024, SERCOP and the Ministry of Public Health must prepare a proposal to facilitate the acquisition of medicines and strategic health goods.
  14. By May 7, 2024, the Central Bank of Ecuador, the Tax Authority, and the Ministry of Economy must issue the necessary regulations to implement the Tenth General Provision of the Law of the National Public Procurement System, requiring payments received by contractors and subcontractors to be made public through an information portal or website.
  15. Procurement procedures in the preparatory or pre-contractual phase shall conclude by the regulations with which they commenced.
  16. Contracts entered into before March 22, 2024, will be subject to the regulations in force at the time of signing, without prejudice to the parties agreeing to apply any of the reforms provided for in the Decree.
DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

VAT tax rate increase

Through Executive Decree 198 issued on March 15, 2024, the President of the Republic modified the Value Added Tax rate to 15% for the year 2024. The new tax rate will apply starting from April 1, 2024.

amoya@corralrosales.com
+593 2 2544144

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Law to adress the internal armed conflict

The Law to Address the Internal Armed Conflict, Social and Economic Crisis was enacted by Official Registry Supplement No. 516 of March 12, 2024. Below, we summarize the main topics:


1. Temporary Security Contribution
 
Entities that had taxable income during the fiscal year 2022 will be required to pay a contribution in the fiscal years 2024 and 2025. The contribution will be equivalent to 3.25% of the taxable base of the income tax for the fiscal year 2022.

Micro, small businesses, banks, and savings and credit cooperatives will not be subject to pay this contribution.

2. Temporary Contribution to Profits of Banks and Savings and Credit Cooperatives.
 
Banks and savings and credit cooperatives that had taxable income during the fiscal year 2023 will be required to pay the contribution in the fiscal year 2024. The contribution rate will be applied on the taxable base of the income tax for the fiscal year 2023, according to the following chart:

Group Taxable Profit Tax Rate 1 Less than US$5,000,000.00 5% 2 Greater than US$5,000,000,00 up to US$10,000,000.00 10% 3 Greater than US$10.000.000,00 up to US$50,000,000.00 15% 4 Greater than US$50,000,000.00 up to US$100,000,000.00 20% 5 Greater than US$100,000,000.00 25%
3. Value Added Tax (VAT).
 
The following reforms are made:
 
a. It is established that the VAT rate will be 13%.
b. The President of the Republic may increase the rate to 15%.
c. Local transfers of construction materials will be subject to a 5% VAT rate.

The reforms to the VAT rate will come into effect from April 1, 2024.

4. Outflow Tax (ISD)
 
It is established that the ISD rate will be 5%. The President of the Republic can reduce the ISD tax rate.
 
The reforms to the ISD rate will come into effect from April 1, 2024.

amoya@corralrosales.com
+593 2 2544144

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Ministerial Accord No. MEM-MEM-2024-0002-AM

On March 6th, the Ministry of Energy and Mines issued the Manual for the Operationalization of Free and Informed Prior Consultation (hereinafter “Manual“), recognized in Article 57, paragraph 7 of the Constitution of the Republic of Ecuador (hereinafter “Constitution“). The purpose of the Manual is to develop the constitutional standards for the operationalization of consultation. These standards have been established by the Constitutional Court and international treaties.

The Constitution recognizes the collective right of communes, communities, peoples, and nationalities (hereinafter “consulted subjects“) to free, prior, and informed consultation.  The manual provides that such consultation is mandatory prior to the issuance of administrative measures on plans and programs for prospecting, exploration, exploitation, and commercialization of non-renewable resources that are in the territories of the consulted subjects and may affect them environmentally or culturally.

The results of the prior, free, and informed consultation shall be of a non-binding nature. As a consequence, in cases where the State chooses to implement a project even without the consent of the consulted parties, it must: i) give reasons why it has not been possible to adapt the project in accordance with the observations of the consulted parties; ii) establish the reasons that justify the continuity of the project; and, iii) the measures that minimize the possible impact and maximize the benefits for the consulted parties.

The main aspects of the Manual are detailed below:

I.       Scope of application

Free, prior, and informed consultation shall be carried out prior to the administrative measure issued for prospecting, exploration, exploitation and commercialization plans for mineral resources and mining concessions on indigenous lands. It shall be carried out by the Sector Ministry (hereinafter “consulting subject“).

II.    Principles

Free, prior, and informed consultation shall be governed by the principles of obligatory nature and timeliness; flexibility; good faith; interculturality and plurinationality; systematicity and formality; publicity and information; reasonable time; and ample and necessary information.

III.    Stages of the mining concession

•    Exploration
•    Exploitation

Prior consultation is mandatory before each stage. In small-scale mining, the two stages can be carried out simultaneously and prior consultation is adapted to this reality.

IIII.    Phases of free, prior, and informed consultation

The free, prior, and informed consultation has four phases: i) preparation; ii) public call and registration; iii) registration, information, and execution of the consultation; and iv) analysis of results and closure of the consultation.

a. Preparation phase

The consulting subject will issue an administrative act identifying the consulted subjects of the lands and territories where the mining project will be developed, after requesting information from the Ministry of Agriculture and Livestock.   Once the consulted subjects have been identified, the consulting subject will establish a schedule identifying:

•    The administrative measure on the prospecting, exploration, exploitation, or commercialization program to be consulted.
•    The consultation procedure; and,
•    The phases of the consultation.

b. Public call and registration phase

The consulting subject shall inform via the media of the initiation of the free, prior and informed consultation procedure. And, in turn, shall open information centers for the consultation.

c. Registration, information, and execution of the consultation phase

The information centers will carry out the registration process for the dialogue between the consulting subject and the consulted. The centers will guarantee access to information to make known to the consulted subjects the scope of administrative measures on plans and programs for prospecting, exploration, exploitation, and commercialization of mineral resources.

d. Phase of analysis of results and closure of the consultation.

Within a maximum term of 20 days, the consulting subject shall compile the results of the free, prior, and informed consultation. Lack of attendance or actions that seek to impede or delay the completion of the consultation shall not vitiate it nor shall it be interpreted as motivated opposition.

Once all the information has been compiled, a dialogue table will be set up where the results of the consultation and the observations of the consulted subjects regarding the administrative measure to be issued will be discussed. After the dialogue table is concluded, the consulting subject will prepare a final report containing all the information discussed, especially the consensuses and dissensus reached by the parties. With the results of the consultation, the administrative measure will be issued, and the schedule will be defined with the commitments and benefits agreed with the consulted parties. Once the prior consultation process has been carried out, the consulting party will maintain channels of communication and participation with the consulted parties throughout the project execution process.

 

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Income Tax Withholding percentages

Resolution NAC-DGERCGC24-00000008 issued by the Tax Authority and published in the Supplement of the Official Gazette No. 508 on February 29, 2024, updated the income tax withholding percentages. Below, we detail the main changes:

1. 0% Withholding

Applies to the acquisition of goods and services provided by taxpayers subject to the RIMPE Regime (Popular Business), if a preprinted voucher has been issued.

2. 1% Withholding rate

The 1% withholding rate applies to the following additional concepts:

a.    The acquisition of goods and services by taxpayers subject to the RIMPE Regime (Entrepreneur).

b.    Payments made to insurance and reinsurance companies over the total value of the premiums.

3. 1.75% Withholding rate

The 1.75% withholding rate applies to the following concepts:

a. Payments for the construction of real estate, urbanizations, or similar activities.

b. Acquisition from marketers (non-producers) of agricultural, poultry, livestock, beekeeping, rabbit farming, aquaculture, forestry, and meat products in natural state.

4. 2% Withholding rate

The 2% withholding rate applies to the following additional concepts:

a. Reception of non-returnable PET plastic bottles when a single collector (individual) receives an amount higher than the basic fraction subject to 0% income tax rate. In the case of companies, the withholding applies to any amount.

b. Payments to commercial leasing companies over the lease installments and the purchase option.

c. Payments for interest and commissions for credit sales. To establish the taxable base, these payments will be added to the value of the goods.

d. The issuance of purchase settlements for goods and services in transactions with individuals who have their TAX ID suspended.

4. 2.75% Withholding rate

The 2.75% withholding rate applies to payments for invoices issued by media and advertising agencies.

5. 3% Withholding rate

The 3% withholding applies to the following concepts:

a. Professional services provided by corporations.

b. Commissions paid to corporations, whether national or foreign residents in Ecuador, and permanent establishments domiciled in the country.

6. 8% Withholding rate

The 8% withholding rate applies exclusively to the following concepts:

a. Payments to athletes, coaches, referees, and members of the technical staff.

b. Activities carried out by national or foreign artists residing in Ecuador.

7. 10% Withholding rate

The 10% withholding rate applies to the following additional concepts:

a. Fees, commissions, and other payments made to individuals providing services where intellect prevails over manual labor, regardless of whether the service provider holds a professional title.

b. Fees, commissions, royalties, and other payments made to individuals and corporations with tax residence in Ecuador for activities related to the use of their image, including artists, athletes, coaches, referees, members of the technical staff, and “influencers”.

c. Fees and other payments made to individuals with tax residence in Ecuador providing teaching services.

d. Payments made to notaries for activities inherent to their position.

e. Fees, royalties or any other payment made to individuals and corporations related to the ownership, use, enjoyment, or exploitation of intellectual property rights.

f. Lease of real estate under any contractual modality.

Withholding certificates that must be made between March 1 and March 15, 2024, can be issued until March 30, 2024.

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Regulations to the Organic Law of Energy Competitiveness

By Presidential Decree No. 176 of February 23, 2024, the President issued the Regulations to the Organic Law of Energy Competitiveness (“RLOCE”), set to take effect upon publication in the Official Registry.

The RLOCE amends the General Regulations to the Organic Law of the Public Electricity Service (“RGLOSPEE”), the General Regulations to the Organic Law of Energy Efficiency (“RGLOEE”), the Regulations to the Organic Environmental Code (“RCOAM”) and the Regulations for the application of the Internal Tax Regime Law (“RLRTI”).

Below, we summarize the most important energy and tax matters:

Electricity sector

1.    Energy storage systems, such as green hydrogen and thermal storage, will be incorporated into the electricity sector’s expansion planning.
2.    Natural or synthetic gases will be considered within the Electricity Master Plan (“PME”).
3.    The Ministry of Energy may delegate to foreign private or state-owned companies the participation in sector activities or generation projects foreseen in the PME through public selection processes (“PPS”). Under this scheme, non-conventional renewable energy generation projects will have preferential dispatch conditions.
4.    The Ministry of Energy may directly delegate the execution of electricity generation projects based on urban waste, with preferential dispatch and price conditions. The Ministry of Energy shall regulate the procedure for this delegation.
5.    The Ministry of Energy may directly delegate the execution of generation projects with non-conventional renewable energies not foreseen in the PME and submitted by private or foreign state-owned companies under the following conditions:
a.    If the project is up to 10MW of nominal capacity, its execution may be delegated if it does not affect the generation projects foreseen in the PME.
b.    If the project has more than 10MW of nominal capacity, the authority must determine if it is of public interest and does not affect the generation projects foreseen in the PME: (i) if it meets both conditions, a PPS will be called for its concession and the proponent may participate with bonuses in the qualification of its economic offer; and (ii) if it is not of public interest and does not affect other projects, the proponent may be enabled to develop the project at its own risk.
6.    The Ministry of Energy will have two months to qualify whether or not the project submitted by private or foreign state-owned companies is of public interest, based on three criteria: (i) whether the initiative is required to satisfy the public interest; (ii) the degree of contribution to the fulfillment of the objectives of the electricity sector; and (iii) the degree of benefit to the State and/or the consumers of the electricity sector.
7.    Until February 23, 2025, distribution tolls will be waived for regulated and non-regulated consumers with distributed generation systems for self-supply. Only regulated consumer systems can inject electric energy into the distribution network.
8.    Distribution companies or authorized entities may provide electric vehicle charging services, with tariffs established by the Agency for Regulation and Control of Energy and Non-Renewable Natural Resources (“ARC”).
9.    The ARC is delegated the authority to exercise the competence of regularization, control, and environmental monitoring of projects, works, or activities in the electric sector, as well as the power to sanction non-compliance. For this purpose, the ARC must obtain the respective environmental accreditation.
10.    All environmental regularization procedures initiated with the Ministry of Energy before the ARC’s environmental accreditation must be finalized by February 23, 2027.
11.    Within 30 days of the RLOCE’s publication in the Official Registry:
a.    The ARC must notify the Ministry of Energy regarding ongoing generation and transmission projects with at least 50% progress. This information will enable the Ministry to assess whether these projects should be deemed of national interest, prompting necessary actions for their completion.
b.    The National Electricity Operator must notify the Ministry of Energy of any generation plants requiring maintenance and their availability percentage over time. This information will enable the Ministry to determine which plants should be declared as national interest to enter into operation or determine their retirement and/or replacement plan.
12.    Until August 21, 2024, the ARC must update or issue new regulations for the electricity sector, with current regulations remaining applicable where not in conflict with the Organic Law of the Electric Energy Public Service and the RLOCE.

Energy Efficiency

1.    Autonomous Decentralized Governments should prioritize generating electric energy using the organic fraction of solid waste (biomass) as raw material without limiting the use of the inorganic fraction for the same purpose.
2.    Large energy consumers in commercial, industrial, and public activities will implement the Ecuadorian Energy Management Standard (NTE-INEN-ISO: 5001) in their operations. As of 2026, this implementation shall be carried out with the support of an energy service provider registered in the Catalog of Energy Service Providers.
3.    The National Energy Efficiency Investment Fund will be financed, in part, with the contribution of private internal combustion engine vehicles. This contribution will be 1% of the total value of the vehicle registration without considering fines and surcharges will be considered.
4.    The ARC shall introduce preferential tariffs in the tariff schedule for public electric energy and general public lighting services, aimed at reducing energy consumption starting in 2025.

Tax

1.    Certification from the competent environmental authority must be obtained to apply an additional 100% depreciation for machinery intended to implement unconventional renewable energy generation systems.
2.    The benefit of generating a net increase in employment for young people and individuals who have served a custodial sentence may only be applied for 12 months.
3.    To deduct expenses for constructing new networks to supply electric energy to consumers isolated from the distribution network, authorization from the competent authority for such construction is required.
4.    For calculating individual income tax, expenses will be considered family burdens when the taxpayer covers practically all their costs. This status will continue even if the taxpayer earns taxable income not exceeding a unified basic salary.
5.    To apply for applicable tax benefits, electric vehicles shall be understood as those solely propelled by electric energy sources, with battery charging exclusively using this source and producing zero direct polluting emissions.
6.    Previously, it had been established that special taxpayers and withholding agents must file their tax returns by the 11th day of each month. The RLOCE clarifies that this obligation applies specifically to special taxpayers.

carlos-torres

Carlos Torres, senior associate at CorralRosales
ctorres@corralrosales.com
+593 2 2544144

 

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

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES