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Law to promote the violet economy

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Boletín laboral de CorralRosales - Foto edificio con cristalera

Below, a summary of the most important matters regulated in the Law to Promote the Violet Economy enacted by the Official Gazette Supplement 234 dated January 20, 2023.

1.    LABOR Aspects:

–    The working week for women may be freely distributed in 5 days, without exceeding 40 hours a week or more than 10 hours a day.

–    Companies with 25 or more employees must promote plans and working conditions that prevent sexual harassment in the workplace.

–    Companies with 50 or more employees must prepare and implement a plan for equal treatment, equal opportunities, and non-discrimination in the workplace. This equality plan must be registered with the Ministry of Labor. Equality plans must be submitted to the Ministry of Labor after 1 year, i.e., January 20, 2024.

–    The Ministry of Labor will award a badge to the companies that demonstrate:

i.    Balance in all jobs between women and men.
ii.    Adoption of the equality plan.
iii.    Issuance of non-sexist advertising of the company’s products or services.
iv.    Other measures aimed at achieving gender equality.

–    The breastfeeding period was modified and will last 12 months from the delivery date.

–    The working day of the nursing mother will last 6 hours according to the worker’s needs.

–    The 12 weeks paid maternity leave may be used exclusively by the mother, or shared with the father, up to 75% of the period. The modality will be determined by mutual agreement between the father and the mother, must be notified to the employer prior to the beginning of the leave and cannot be modified.

–    The percentage of insertion of interns will include students in dual training. If female individuals are included in this modality, the percentage of inclusion of interns may be increased by an additional 0.5 percentage points.

2.    TAX Aspects:

As a tax benefit, the taxpayers will be able to deduct up to an additional 140% of the remunerations and social benefits paid for the creation of new jobs for female workers, according to their time of permanence:


If the employment relationship is terminated, the benefit may continue to apply if the job vacancy is filled by another female worker under the same salary and contractual conditions.

The benefit may be applied up to 3 fiscal years if the number of new job openings for women exceeds the following percentages:

The benefit may not be accumulated with other additional deductions granted for the increase of employment contemplated in article 10 numeral 9 of the Internal Tax Regime Law.
3.    CORPORATE Aspects:

It is established that all entities subject to the Companies Law must integrate to their boards at least one woman for every three members of such corporate bodies.

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Suspension of working day on Monday, February 06, 2023

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On January 27, 2023, by means of Executive Decree No. 655 (hereinafter the “Decree”), the President of the Republic, Guillermo Lasso, accepted the request of the National Electoral Council (CNE) to suspend the working day on Monday, February 6, alluding to the 2023 sectional elections, in the following terms:

•    The President of the Republic, Guillermo Lasso, suspended the regular working day on Monday, February 06, 2023, for the public and private sector. The decision responds to the request sent by the National Electoral Council (CNE).
•    According to the presidential disposition, the suspended working day will be recovered, in the public sector through an additional hour during the following eight working days. While in the private sector, the recovery will be established by mutual agreement between employers and workers.
•    Likewise, for Monday, February 6, the provision of basic public health services, firefighters, airports, air, land, maritime and river terminals, and banking services must be guaranteed. Therefore, the competent authorities must have the minimum personnel available to serve the public.

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Organic Law for the Development, Regulation and Control of financial technology services, also known as the fintech law

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The Organic Law for the Development, Regulation, and Control of Financial Technology Services, also known as the Fintech Law (the Law), came into effect on December 22, 2022 through its publication in the second supplement of the Official Register No. 215. Its main objective is to provide legal security to financial technology companies operating in the country, promote foreign investment, and provide users with secure access to services that protect their data. The Law also includes new members to the payment system, the private financial system, the securities market, and the private insurance system. Additionally:

  1. It establishes that regulatory and control bodies must identify and prevent risks of each service;
  2. It grants wide powers to regulatory and control bodies so that they can fulfill their responsibilities adequately;
  3. It includes regulatory Sandboxes (“Test Environments”) that allow continuous monitoring of a technology project, which will allow for greater precision when regulating certain activities in the sector.

Further, the Law reforms the Monetary and Financial Organic Code, the Organic Law of Enterprises and Innovation, the General Insurance Law, and the Securities Market Law.
 
The Law regulates activities related to the development, provision, use, or offering of payment means based on technology, financial technology services, specialized companies in electronic deposits and payments, technological services in the securities market, and insurance. Accordingly, financial technology companies must meet the following requirements:

  1. Authorization from the Superintendency of Banks, Popular and Solidarity Economy, or the Central Bank, as appropriate;
  2. Specific and exclusive object for Fintech activities;
  3. Registration as ecuadorian companies or branches of foreign companies;
  4. Be subject to a territorial application of the Law, i.e., when they operate anywhere in Ecuador;
  5. Respect the prohibition on investment by private financial entities, since these cannot participate in the capital of Fintech companies.

Furthermore, Fintech companies will be regulated in their operations by the Monetary Policy and Regulation Board and Financial Policy and Regulation Board, according to their competencies, and will be supervised and controlled in the corporate area by the Central Bank of Ecuador, the Superintendency of Companies, Securities, and Insurance, the Superintendency of Banks, or the Superintendency of Popular and Solidarity Economy, according to their competencies. Further, the determination of which financial activities based on technology represent a high risk will correspond to the Financial Policy and Regulation Board.

Consequently, the Law establishes responsibilities and sanctions for Fintech companies, as well as protection measures for the users of their services. It also provides a system for the registration and supervision of Fintech activities, and for the creation of a Fintech Association for the regulation and promotion of the sector.
 
Finally, the Law provides for the possibility of obtaining resources through various mechanisms, (venture capital, angel, seed), ratifies the validity of credit titles issued in electronic support and establishes the obligation of the State to maintain citizen data stored in Ecuadorian territory.

Rafael Serrano, asociado de CorralRosales, con traje y corbata. En el fondo, una parte de Guayaquil (Ecuador)

Specialist in Data Protection and Technology
Rafael Serrano, associate at CorralRosales
rserrano@corralrosales.com
+593 2 2544144

Specialist in Data Protection and Technology
Edgar Bustamante, associate at CorralRosales
ebustamante@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Regulatory guidelines for remote work agreements and right of disconnection from work

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On December 23rd 2022, by Ministerial Agreement No. MDT-2022-237 (hereafter the “Agreement”) the Labor Ministry established regulatory guidelines for remote work agreements and the exercise of the right to remain disconnected from work, in accordance with the following terms:

•    Employees rendering their services under remote work have the same rights and obligations as employees working on a presence-based modality. 
•    By mutual agreement, the scope of the labor relationship may be remote from the beginning or change to remote at any time thereafter. In any case, the duration must be specified.
•    The employer must provide the necessary inputs and equipment to perform the remote work agreement. Any payment in relation to equipment or supplies required to work remotely are not considered as part of the employee remuneration.
•    The employer must control that safety and occupation health regulations are complied with in the workspace. 
•    The employer has 30 days to register the remote work agreement and 15 days to register the agreement that changes the labor relationship form a presence-based modality to a remote modality in the “Sistema Único de Trabajo” (SUT).
•    The employee has the right to remain disconnected for at least 12 consecutive hours in a period of 24 hours and the employer must control this period of disconnection is complied with. The latter does not imply that 12-hour workdays may be established.
•    Within 90 days from the issuance of the Agreement (until March 23rd, 2023) the employer must establish an internal policy that ensures disconnection time. The policy should include at least the following:

a)    Training and education on the respect of working time and the right to disconnection.
b)    Guidelines for the formulation of requirements whilst the employee is not on working time.
c)    Guidelines so that the use of technology and information does not affect the right of disconnection. 
d)    Internal complaints procedure regarding non-compliance of the right to disconnection.

•    The Agreement overrides the Ministerial Agreement No. MDT-2020-181 of the 14th of September 2020, which regulated remote work.

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a consequence of acting or not acting on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Tax assessment proceedings carried out by the municipality of Quito

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The Municipality of Quito has carried out a mass notification of tax assessment procedures regarding property tax corresponding to fiscal year 2020, fire department contribution and citizen security tax, through the following acts:

  1. Mass communications of Difference Assessments OCD-DMTJRM-2022-0491-M, OCD-DMTJRM-2022-0492-M, and OCD-DMT-JRM-2022-0493-M published in the Digital Tax Gazette. The taxpayers were granted a 10-day term to answer said communication.
  2. Mass notification of Tax Assessments for the Payment of Differences LDP-DMT-JRM-2022-0251-M, LDP-DMT-JRM-2022-0252-M, and LDP-DMT-JRM-2022-0253-M published in the Digital Tax Gazette of its web page on December 29 and 30, 2022 and January 3, 2023.
  3. These liquidations can be downloaded through the following links, to identify if the taxpayer is in the lists, we recommend using the browser search engine (CTRL +F): 
  1. Gaceta_Digital_No_0317M_2022.pdf
  2. Gaceta_Digital_No_0318M_2022.pdf
  3. Gaceta_Digital_No_0319M_2022.pdf

According to the law, these tax assessments may be challenged before the Tax Authority or before the Tax Court.

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Reduction of Several Taxes Tariffs

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The President of the Republic, issued the Executive Decrees 643, 644 and 645 on January 10, 2023, by which the reduction of the following taxes tariffs was ordered:

1.    Gradual reduction of the Foreign Exchange Tax (ISD) according to the following schedule:


a.    As of February 1, 2023, the tariff of the Foreign Exchange Tax will be 3.75%. 
b.    As of July 1, 2023, the tariff of the Foreign Exchange Tax will be 3.50%. 
c.    As of December 31, 2023, the tariff of the Foreign Exchange Tax will be 2%.

2.    Reduction of the Value Added Tax (VAT) tariff from 12% to 8% levied on the provision of services related to tourism activities during the following holidays:

a.    Carnival: February 18, 19, 20 and 21, 2023.
b.    Easter: April 7, 8 and 9, 2023.
c.    All Souls’ Day and Cuenca Independence Day: November 2, 3, 4 and 5, 2023.


3.    Reduction of the Excise Tax (ICE) tariff for the following goods:



 

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Shareholders Annex

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The Internal Revenue Service issued the Regulation NAC-DGERCGC22-00000065 on December 30, 2022, by which the rules for the disclosure of the corporate structure were amended. The most important changes are summarized below: 


1.    The last level of the corporate structure to be disclosed is the one that identifies the individuals who are the beneficial owners of the entity and/or are tax residents in Ecuador. This information excludes nominal or formal holders. 


2.    If the local entity has as -direct or indirect- shareholder an entity which is not a tax resident in Ecuador, this shareholder will be considered as the last level of the corporate structure to be disclosed if the individuals at the end of the chain own -individually or jointly with their related parties-, less than 10% of the local entity’s share capital.


However, if at the end of the chain there are individuals who are tax residents in Ecuador, such individuals will be considered as the last level of the corporate structure to be disclosed, regardless of their percentage of ownership in the local entity. 


3.    If the local entity has as -direct or indirect- shareholder an entity listed in a foreign stock exchange, it will have to disclose the part of the entity’s share capital that is not traded or that is reserved to a limited group of investors. With respect to such part of the capital it shall report: 

a.    Any shareholder holding -directly or indirectly- 2% or more of its share capital. 
b.    All shareholders who are tax residents in Ecuador, regardless of their percentage of ownership.

4.    The shareholders’ annex for the fiscal year 2022 may be filed until March 28, 2023.

 

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Income tax chart update

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The Internal Revenue Service issued the Regulation NAC-DGERCGC22-00000058 on December 27, 2022, by which it updated the ranges of the income tax charts as follows:

  1. For calculating the income tax for individuals and undivided estates, the applicable chart for the fiscal year 2023 is:

 
 
  1. For calculating the tax on inheritance, legacies, donations, finds and any type of act or contract by which the domain of goods and rights is acquired, free of charge, the applicable chart for the fiscal year 2023 is:
 

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Statutory minimum wage

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The Ministry of Labor, through Ministerial Agreement MDT-2021-277 published in the supplement to Official Register 203 of December 6, 2022, established that:

1.      Since January 1st, 2023, the statutory minimum wage of the employee (“SMW”) is set at four hundred and fifty dollars of the United States of America (US$450.00); including the salary of small industry employees, agricultural employees, household employees, maquila employees, microenterprise collaborators and artisans.

2.      The percentage increase SMW of the employee for the year 2023 with respect to the year 2022 is 5.882 % (applicable for fixing sectorial minimum wages).

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a consequence of acting or not acting on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Royalties, technical, administrative and consulting services paid to related parties

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The Internal Revenue Service issued the Circular NAC-DGECCGC22-00000012 on December 19, 2022, to clarify the application over time of the deductibility limit applicable to expenses for royalties, technical, administrative, and consulting services paid to related parties (hereinafter the “Deductibility Limit”).

  1. Background

The President of the Republic issued the Executive Decree 304 published in the Second Supplement of the Official Gazette 608 of December 30, 2021, which contained the Regulations to the Law of Economic Development and Fiscal Sustainability after the COVID 19 Pandemic by means of. Said regulations eliminated the Deductibility Limit established in article 28 #16 of the Internal Tax Regime Law Regulations.
The President of the Republic issued the Executive Decree 586 published in the Third Supplement to Official Gazette 186 of November 10, 2022, which amended several regulations and incorporated once again the Deductibility Limit established in article 28 #16 of the Internal Tax Regime Law Regulations.

  1. Consequences:

Considering the amendments detailed above, the Internal Revenue Service issued Circular NAC-DGECCGC22-00000012 whereby it clarifies:

1.    For calculating the income taxable base for the fiscal year 2022, the Deductibility Limit will not apply.

2.    The advance pricing agreements that have been notified to the taxpayer and which approved an increase in the deductibility limit in force until December 31, 2021, will maintain its legal effects for the year 2022.


3.    For the calculating the income taxable base for the fiscal year 2023 and subsequent years, a deductibility limit equal to 5% of the taxable income of each fiscal year will apply, except in the following cases:

a.    Taxpayers that are in the pre-operative cycle of the business, the limit will be equivalent to 10% of the total assets. 

b.    Taxpayers whose only activity is to provide technical services to independent parties if the operating margin indicator (operating profit over operating sales) is equal or higher than 7.5%. If the indicator is lower, a specific deductibility limit will be applied.

c.    Taxpayers that carry out operations with related parties in Ecuador, as long as the taxpayer that incurs the cost or expense has an effective tax rate equal to or lower than that of its related party with which it carries out the operation. 

d.    When the total of royalties, technical, administrative, and consulting services operations with related parties within a fiscal year does not exceed 20 basic fractions taxed at zero income tax rate for individuals.

4.    For the fiscal year 2023, the taxpayer may request a higher limit of deductibility through an advance pricing agreement with the Tax Authority, until the last business day of February 2023.

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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