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Income Tax Withholding percentages

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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

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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

New regulations for rejecting customs declarations

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On January 29, 2024, the Customs Authority (SENAE) issued Resolution SENAE-SENAE-2024-0007-RE by which new regulations for rejecting customs declarations in the ECUAPASS customs system, were issued.

The amendments include:

1.    The grounds for rejecting the customs declaration are modified:

–   Causes that do not generate a fine: 
  • Ecuapass system error: The declarant must request the rejection to the District Director. The request will be verified by the Directorate of Information Technology within 5 days.
  • When the rule allows the rejection to carry out a customs procedure or operation: The District Director shall reject the declaration without the need for a request from the declarant.
  • Re-shipment of goods, whether or not taxes have been paid: Rejection may be requested by the declarant to the District Director or be made without his request.
  • The merchandise did not arrive to the national territory after 15 days of the transmission of the declaration: Rejection will be automatic, without request.
  • The merchandise did not enter the primary zone or does not have the transport document associated with it after the term of validity of the transmitted export declaration has elapsed: Rejection will be automatic, without the need for a request.
  • The Customs District determines that the merchandise was not exported after the customs declaration was transmitted: Rejection may be requested by the declarant to the District Director or made without his request.
–   Causes that generate a fine: 

For these causes, the declarant must request the rejection to the District Director:
  • Errors in the transmission of supporting documents that hinder clearance if taxes have not been paid.
  • Errors of transmission that generate taxes for an amount greater than that which corresponds to what is imported.
  • Application of the code of a customs district different from the district where the goods are physically located.
2.    The rejection of the declaration due to errors resulting in the payment of lower taxes is prohibited unless a tariff deferral is obtained after the declaration has been transmitted.

In the following link you can review the complete text of the Resolution:

 

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

 

Fernanda Inga, senior associate at CorralRosales
finga@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

Extended responsibility in the management of medicines and pharmaceutical products

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By Ministerial Agreement No. MAATE-2023-134, issued on November 22, 2023, and published in the Official Registry No. 490 on February 1, 2024, the Ministry of Environment, Water, and Ecological Transition issued the Technical Standard for the Implementation of the Extended Responsibility Principle in the Comprehensive Management of Medicines and Pharmaceutical Products (hereinafter referred to as the Standard).

The Standard applies to any entity engaged in the production, import, and initial placement on the national market. The term “initial placement on the market” refers to the introduction of medicines and pharmaceutical products into the market through any means, including national sale or donation through electronic or remote methods, i.e., when they are first distributed in the Ecuadorian territory.

Non-hazardous medicines and pharmaceutical products are excluded, as determined by the National Health Authority, as well as medical devices.

The main obligations of the producers are as follows:

  1. Obtain the environmental administrative authorization for the manufacturing, storage, and transportation of medicines or pharmaceutical products.
  2. Obtain the registration as a hazardous and/or special waste generator for medicines and pharmaceutical products that are out of specifications or expired within the scope of the producer’s extended responsibility and update it in case of any changes.
  3. Develop and submit, individually or collectively, a Comprehensive Management Program (“CMP”). Report compliance with actions and goals established in the CMP in the first 10 days of March each year.
  4. Inform the National Environmental Authority of emergency events, accidents, and incidents involving expired or out-of-specification medicines and pharmaceutical products within one (1) day of the occurrence, using any official means.

The main obligations of the distributors are:

  1. Implement the CMP.
  2. Deliver expired or out-of-specification medicines or pharmaceutical products to authorized waste managers.
  3. Inform the Producer, within one (1) day of the occurrence of emergency events, accidents, and incidents involving expired or out-of-specification medicines and pharmaceutical products; and,
  4. Provide the consumers with areas for the installation of collection points, equipped with measures for the safe handling and disposal of medicines and pharmaceutical products that are out of specifications or expired.

The CMP will have a validity of 5 years and must ensure that the management of expired or out-of-specification medicines is carried out in a technically sound manner with the lowest possible risk, incorporating gradual collection goals.

 

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

Organic Law for salary equality between men and women

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On January 18, 2024, the National Assembly issued the Organic Law for Equal Pay between Men and Women, hereby the “Law”, published in the Supplement to the Official Gazette No. 481 of January 19, 2024, of which we highlight the following:

  • Its objective is to guarantee equal remuneration and any other form of economic retribution between men and women.
  • It establishes guidelines to determine that the work rendered is of equal value and obeys objective factors related to performance, competence, and qualifications, working conditions, effort, and responsibility.
  • It imposes the following obligations on employers:a)    To continuously train their personnel both men and women in labor rights. These trainings will be registered and controlled by the Labor Authority.

b)    To report annually the actions oriented to achieve equal remuneration, which will be certified by the Labor Authority.

  • The employers may denounce the non-compliance of their rights to equal remuneration, which must be answered by the employer in detail within a term of 15 days.
  • If in a complaint process the violation of the right to equal remuneration is verified, the employer must make the payment corresponding to the difference in remuneration with retroactive effect and establish a new remuneration.
  • Failure to comply with the obligations established by the Law will result in a penalty.

 

Edmundo Ramos, partner at CorralRosales
eramos@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

Guidelines for the Registration of Equity Plans

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By Ministerial Agreement No. MDT-2024-013 subscribed on January 19, 2024, the Ministry of Labor issued the following guidelines for the registration of Equity Plans:

  • The Ministry of Labor will provide a certificate of registration of the Equity Plan, hereby the “Plan”.
  • The employer has the obligation to disseminate and socialize the Plan with its employees for its effective compliance.
  • If the Plan should be renewed due to one of the causes established for its mandatory renewal, it must include the reason for the review and update.
  • Failure to register the Plan may be reported to the Regional Directorate of Labor and Public Service.
  • The “Equity Plan” will be valid for 4 years from the date of registration before the Ministry of Labor. Once the registration period has expired, the employer must carry out a new diagnosis of the situation.
  • Failure to comply with the obligation to register the Plan will result in a sanction.
  • The registration of Plans must be made from January 20, 2024, to July 31, 2024.

The Agreement is in force since its signing date regardless of its publication in the Official Gazette.

 

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

Self-Withholding – Large Taxpayers

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On January 12, 2024, the Internal Revenue Service issued Resolution NAC-DGERCGC24-00000003 which regulates the income tax self-withholding regime applicable for large taxpayers.

For calculating the self-withholding amount, all taxable income must be considered except:

1.    Revenue subject to special income tax regimes,

2.    Revenue subject to another self-withholding regime established by law, and

3.    Revenue derived from the following sources:

a.    Contracts for the provision of services for the exploration and exploitation of hydrocarbons if the payment is made by the Ecuadorian Government,
b.    Contracts with the central government and its entities,
c.    Contracts with local governments and its entities; and
d.    Contracts with Government social security entities.

If the taxable income cannot be segregated from exempt income, the self-withholding must be calculated over the total income received monthly.

Large Taxpayers must issue a withholding certificate monthly. The self-withholding percentage applicable to each taxpayer can be reviewed at the following link:
LINK

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 on Energy Competitiveness

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The Law on Energy Competitiveness (“LOCE”) was published in the Second Supplement of the Official Registry on January 11, 2024. Below, we summarize the most important energy and tax matters:

1.    Projects included in the Master Plan for Electricity (“PME”) may be delegated to private entities through public selection processes in the following cases:

a.    When it is necessary to meet the public interest, or
b.    When the service cannot be provided by entities wholly or partially owned by the Government, according to the needs of the electric system.

2.    Projects not included in the PME based on unconventional renewable energies that have been identified by the private sector may be delegated to their promoter if the project does not exceed 10MW in power. Larger projects must be delegated through a public selection process, and benefits will be recognized for the promoter’s participation.

3.    The construction, operation, and maintenance of public lighting systems may be delegated to private companies.

4.    All projects delegated to the private sector must be developed by companies established in Ecuador.

5.    The delegation to the private sector of existing infrastructures financed with the General State Budget is prohibited. Entities wholly or partially owned by the Government Public shall be responsible for managing such infrastructures.

6.    Private entities may build new networks and distribution infrastructure to supply electricity for commercial and industrial clients isolated from the electric distribution grid. Expenses incurred for this purpose will be considered deductible for calculating the applicable income.

7.    Regulated and non-regulated consumers may install distributed generation systems for self-supply (“SGDA”). These systems must use unconventional renewable energies and can be owned by the consumer or a third party.

The depreciation and amortization value of the equipment, and technology acquired for SGDA implementation will be deductible with an additional 100% for income tax purposes.

8.    Energy block transactions may be conducted through the sale of energy via contracts signed by participants in the electric sector or through short-term transactions.

9.    Clients who make payments for public electricity and lighting services until June 30, 2024, will not be subject to interest payments. Clients located in Manabí and Esmeraldas will not be subject to paying any amount due for the services received during the state of emergency caused by the 2016 earthquake. These benefits do not apply to industrial clients.

10.    Other tax regime amendments include:

a.    0% VAT rate will apply to the transfer of equipment and accessories for solar photovoltaic generation and wastewater treatment plants.

b.    Electric vehicles are described as those propelled solely by electric power sources, with batteries charged exclusively using this type of energy and that produce zero direct polluting emissions. Electric vehicles shall not be understood as those that have self-generation systems with an internal combustion source.

c.    The remission regime is amended, payment must be made by July 31, 2024.

d.    The Foreign Trade Committee (COMEX) shall tax agricultural machinery that works with clean energy sources with a 0% tariff. This amendment must be carried out until May 10, 2024.

e.    Payments made abroad by private financial institutions for credits and financial returns from fixed-term deposits or investments, will not be exempt from the payment of Outflow Tax (ISD) until January 11, 2025.

The President of the Republic must issue the applicable regulations by February 10, 2024.

 

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

Suspension of deadlines – Internal Revenue Service

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On January 10, 2024, the Internal Revenue Service issued Resolution NAC-DGERCGC24-00000001 suspending the terms and deadlines of all tax administrative procedures from January 10 to January 12, 2024, including the latter.
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

Extension of the validity term of the disability card

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By Resolution No. 002-CONADIS-2023 signed on December 28, 2023, the National Council for the Equality of Disabilities (CONADIS) determined:

1.      To extend the validity of the species “CONADIS disability card” until December 31, 2024.

2.      To extend the validity of the species “Ministry of Public Health (MSP) disability card” until December 31, 2024.

The Resolution has not been published in the Official Gazette yet.

Edmundo Ramos, Partner at CorralRosales
eramos@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

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