Guidelines for the application of the Law on Humanitarian Support

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On July 15th, the Ministry of Labor (hereinafter “MdT”) through Ministerial Agreements MDT-2020-132 and MDT-2020-133, issued guidelines for the establishment of the new labor categories contemplated in the “Organic law on humanitarian support to combat the health crisis arising from COVID-19”.

1. Preservation of labor sources agreements (MDT-2020-132 Agreement)

The employer must update in the online platform SUT – Humanitarian Law section – the employee’s information in accordance with the signed agreement, including its validity.

Agreements may be renewed once, for the same period for which they were originally entered.

Note: Agreements may be registered from July 31st, 2020. Employers who signed agreements with their workers prior to the issuance of Agreement 132, will have 15 working days to register the information in the online platform SUT, that is, until August 21st, 2020.

2. Emerging special employment agreement (Agreement MDT-2020-132)

The employer must register in the online platform SUT the information about the employee and the employment agreement, within 15 days from the beginning of the employment relationship.

Note: Employment agreements may be registered from July 31st, 2020. Employers who signed such agreements prior to the issuance of Agreement 132, will have 15 working days to register the information in the online platform SUT, that is, until August 21st, 2020.

3. Emerging working-day reduction (Agreement MDT-2020-133)

The employer may implement the emerging working-day reduction when facing situations of unforeseen circumstances or force majeure in the terms provided for in Article 30 of the Civil Code.

Conditions and characteristics

  • Reduction: The employer may reduce the working hours by up to 50%, prior authorization from the Ministry of Labor.
  • Term: Up to 1 year, renewable only once for an equal term. After the expiration of the term, the employee’s salary will be the same he/ she received before the measure was applied.
  • Salary: It may not be less than 55% of the salary in force before the reduction and must be proportional to the hours worked.
  • Contributions to IESS: Must be based on the salary paid.
  • Labor benefits: The thirteenth and fourteenth remunerations, reserve fund, vacations and profits shall be paid in proportion to the working-day and the income received by the employee.
  • Compensation: In case of layoff, the compensation will be calculated based on the salary received before the reduction.
  • Exceptions: Employees whose working-day have been reduced under the provision of article 47.1 of the Labor Code may not have this measure applied to them while the previous reduction remains in force.
  • Registration in the SUT: Update the worker’s data in accordance with the new working conditions, including their validity. The lack of registration will be sanctioned according to the Labor Code (US$200 fine), as well as the Constitutional Mandate 8, that is, fines from 3 to 20 minimum statutory wages (currently, from US$1,200 to US$8,000).
  • Notification: The employer must notify the employee by any means of the implementation of the measure and its conditions.

Note: Employers who have applied the working-day reduction before the issuance of Agreement 133, will have 15 working days to register the information in the online platform SUT, that is, until August 5th, 2020.

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Payment facilities and exceptional payment plan – IRS

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Regulations NAC-DGERCGC20-00000043 and NAC-DGERCGC20-00000044 issued on June 23, 2020 by the General Director of the Internal Revenue Service, the rules for applying the Second and Third Transitory Provisions of the Law for Humanitarian Support to Combat the Health Crisis arising from COVID-19 were established.

The Second Transitory Provision of said law and Regulation NAC-DGERCGC20-00000043 establish that those taxpayers that applied the tax amnesty provided in the Law for the Promotion of Production, and that from January 2020 to June 22, 2020 have not paid 2 or more installments of their payment facility plan, may cover the amount owed until September 30, 2020 without surcharges, interest or fines.

Furthermore, the Third Transitory Provision of said law and Regulation NAC-DGERCGC20-00000044 establish that those taxpayers that applied the exceptional payment plan provided for in the Law on Tax Simplification and Progressivity, and that as of June 22, 2020 have not paid any of their installments, may cover the amount owed in 12 equal monthly installments, which must be paid on the 28th of each month, beginning July 28, 2020, without surcharges, interest or fines.

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State of health emergency – MPH

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The Ministry of Public Health, through agreement 00024-2020, dated June 16th, 2020, has extended the state of health emergency previously declared, in all establishments of the National Health System, which includes all laboratory services, epidemiology and control units, air ambulances, medical and paramedical services, hospitalization and outpatient care, due to transmission of COVID-19 in all provinces and the possible need for hospitalization or intensive care.

Furthermore, the Ministry of Public Health:

  1. Ordered that the health establishments belonging to the Integral Public Health Network, to prioritize their economic resources and human talent, and take the measures that they deem necessary to address the health emergency while the declaration is in effect.
  2. Ordered that the National Agency for Sanitary Regulation, Control and Surveillance (ARCSA) to update the regulations regarding the national production of medicine and medical devices necessary for emergency care and, in turn, to prioritize attention to the regulatory processes under way.
  3. Issued guidelines for purchases made by the Central and the Decentralized Operational Entities of the Ministry of Public Health to attend the health emergency.
  4. Prohibited all private health insurance companies and prepaid medicine companies from limiting coverage for the proper assessment, care, and treatment of patients affected by COVID-19.

The declaration of the state of health emergency will be in force until August 13th of this year. It may be extended if it is necessary.

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Resumption of terms – IRS

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The Internal Revenue Service, through Regulation NAC-DGERCGC20-00000022, suspended the terms and deadlines in all administrative processes and the statute of limitations for collecting debts from March 16 to March 31, 2020. The suspension was extended until June 15, 2020 by regulation NAC-DGERCGC20-00000038.

By Regulation NAC-DGERCGC20-00000042, issued by the Director General of the Internal Revenue Service on June 16, 2020, the terms and deadlines in all administrative processes and the statute of limitations for collecting debts have been resumed, with the following exceptions:

  1. The terms and deadlines of administrative processes and the statute of limitations for collecting debts that are being attended in administrative units of the Internal Revenue Service located that are located in cities classified under “red light” remain suspended. These terms and deadlines will resume once the Emergency Operations Committee classifies the cities under “yellow or green lights”.
  2. In Quito Metropolitan District, the terms and deadlines of administrative processes and the statute of limitations for collecting debts will resume once the government institutions resume their work on-site. When this bulletin was issued, the day on which the on-site work is expected to resume is June 22, 2020.

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Reinstatement of administrative procedures at the Ministry of Labor

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The Ministry of Labor (“MdT”) through Resolution No. MDT-2020-024 dated June 10th, decided to resume as of June 15, 2020, the hearings, terms, deadlines, and prescriptions that were suspended, within the following procedures:

  • “Visto Bueno” (employment termination with cause);
  • Administrative proceedings;
  • Administrative appeals;
  • Collection actions; and,
  • Other administrative procedures followed at any MdT unit.

Complaints submitted under the emergent procedure during the state of emergency will continue the on-line procedure until its completion.

Deadlines and terms of the administrative procedures for those county for which the restrictions continue to be under red light will be resumed when the restrictions change to yellow light, in accordance with the provisions issued by the county Emergency Operations Committee.

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Extension of deadlines for deferral of tax obligations

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Regulation NAC-DGERCGC20-00000036, issued on May 27, 2020 by the General Director of the Internal Revenue Service establishes the following rules for applying the Executive Decree 1030, which allows taxpayers the deferral of its tax obligations:

1. Which taxpayers are eligible for deferral of its tax obligations?

The following taxpayers are able to defer the payment of 2019 corporate income tax and VAT to be declared in the months of April, May and June:

  1. Micro, small and medium enterprises understood as those that obtained gross revenues of up to US$5,000,000.00 during fiscal year 2019.
  2. Taxpayers who during the fiscal year 2019, obtained gross revenue higher than US$5,000,000.00, provided that they meet at least one of the following conditions:
    • Taxpayers that, before March 27, 2020, have registered in their Tax ID one of the following as their main or secondary economic activity: operation of airlines, agricultural activities, provision of accommodation and/or food services.
    • Taxpayers that, before March 27, 2020 have registered in their Tax ID the province of Galapagos as their main tax address.
    • Taxpayers that are regular exporters of goods, or that 50% of their income derives from the export of goods.

Small and medium-sized enterprises that, on April 1, 2020, have registered any of the following as their main economic activity in their Tax ID, will not be eligible for the deferral.

  • Financial services ancillary activities; and/or,
  • Financial service activities, except insurance and pension funding activities.

2. How can taxpayers benefit from the deferral?

In order to apply the deferral, taxpayers are able to submit an original or substitute tax return and pay any fines and interests applicable.

If the taxpayer has already filed the tax return, they are able to apply the deferral if they have outstanding tax obligations. Any payments made by the taxpayer prior to the date on which the substitute tax return is filed, these will be applied in accordance with article 47 of the Tax Code (first to interest, then to the tax amount and finally to fines).

3. Until what date can the income tax return be filed?

For purposes of tax deferral, taxpayers must file their original or substitute income tax return according to the following schedule:

 

Corporate Income Tax
fiscal year 2019
Ninth Digit of Tax ID Date of submission
(until)
1,2 and 3 4th of June, 2020
4,5 and 6 5th of June, 2020
7,8 and 9 8th of June, 2020
0 9th of June, 2020

Taxpayers domiciled in the province of Galapagos may file the return until June 9.

Taxpayers must pay the first instalment of the tax plus interests and fines, if applicable at the date the tax return is filed. The second instalment must be paid within the same deadlines, through the Multiple Payment Form.

The payment of the remaining four installments must be made according to the following percentages, through the Multiple Payment Form:

 

Quota Month of Payment Rate of
payment
3 June 2020 20%
4 July 2020 20%
5 August 2020 20%
6 September 2020 20%

4. Until what date can the VAT returns be filed?

For the purposes of tax deferral, taxpayers must file their original or substitute VAT returns according to the following schedule:

VAT  – March 2020
Ninth Digit of Tax ID Date of submission
(until)
1,2 and 3 4th of June, 2020
4,5 and 6 5th of June, 2020
7,8 and 9 8th of June, 2020
0 9th of June, 2020

 

VAT  – April 2020
Ninth Digit of Tax ID Fecha de presentación
(hasta)
1,2 and 3 4th of June, 2020
4,5, 6 and 0 5th of June, 2020
7,8 and 9 8th of June, 2020

Taxpayers domiciled in the province of Galapagos may file the return until June 9.

Taxpayers must pay the first instalment of the tax plus interests and fines, if applicable at the date the tax return is filed. The second instalment must be paid within the same deadlines, through the Multiple Payment Form.

The payment of the remaining four installments must be made according to the following percentages, through the Multiple Payment Form:

VAT – Month Payment quota: Month of
Payment
Rate of
Payment
March 2020 3 June 2020 20%
4 July 2020 20%
5 August 2020 20%
6 September 2020 20%
April 2020 3 June 2020 20%
4 July 2020 20%
5 August 2020 20%
6 September 2020 20%

According to Executive Decree 1030, taxpayers that layoff their workers during the emergency will not be eligible for tax deferral. The Ministry of Labor shall notify the Tax Authority of any dismissals made during such period.

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Extension of deadlines for tax matters

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In accordance with the state of emergency declared by the President, the following tax authorities, in the exercise of their powers, have suspended the following deadlines and terms:

  1. Regulation NAC-DGERCGC20-00000022 issued by the Internal Revenue Service establishes that terms and deadlines in all administrative processes and the statute of limitations for collecting debts are suspended from March 16 to March 31, 2020. The suspension was extended until May 22, 2020 by regulation NAC-DGERCGC20-00000034.
  2. Regulation SENAE-SENAE-2020-0016-RE issued by the Customs Authority establishes that terms and deadlines in all administrative processes and the statute of limitations for collecting debts are suspended from March 17 to March 31, 2020. The suspension was extended until June 1st, 2020 by regulation SENAE-SENAE-2020-0025-RE.

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Excise tax on plastic bags

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Regulation NAC-DGERCGC20-00000033 issued on May 6, 2020, by the General Director of the Internal Revenue Service established the following rules for the payment of the Excise Tax (ICE) on plastic bags.

Taxable base:

The taxable base of the excise tax is the number of plastic bags delivered by the commercial establishment to the consumer. A plastic bag is defined as one with or without a handle, produced from high- and low-density polypropylene or low-density polyethylene resins.

Tax rate:

The excise tax rate will be the described in the following chart:

Year

ICE specific rate

2020 US$0,04 by plastic bag
2021 US$0,06 by plastic bag
2022 US$0,08 by plastic bag
2023 US$0,10 by plastic bag

Collecting agents:

Commercial establishments which, in order to facilitate the transfer of goods, deliver plastic bags to the purchaser, shall act as a collecting agent of the excise tax.

All entities and individuals required to keep accounting books who market products at a wholesale or retail level are regarded as commercial establishments, also all franchisers and their franchisees, regardless of the number of establishments.

Exemptions

The following are exempted from paying excise tax:

  1. Plastic bags for industrial, agricultural, agro-industrial and export use, for frozen products.
  2. The plastic bags that contain at least 50% of recycled raw material post consumption.
  3. Plastic bags used as primary packaging. Plastic bags for single use that are in direct contact with food in their natural state and beverages, cleaning and personal hygiene items, chemicals, paints, lubricants, among others, are considered primary packaging.

The following plastic bags have a 50% discount from the excise tax rate:

  1. Biodegradable plastic bags regarded as those that come from natural renewable materials that can be decomposed into natural chemical elements by the action of biological agents, such as the sun, water, bacteria, plants or animals, without human intervention under normal environmental conditions.
  2. Compostable plastic bags regarded as those that come from biodegradable material that, when properly disposed of, are degraded in a shorter time than biodegradable plastic and which purpose is to be converted into fertilizer or compost.

Manufacturers and importers that are eligible for applying these exemptions or reductions must be certified by the Authority. The list of qualified manufacturers and importers will be published periodically on the institutional website of the Internal Revenue Service.

Declaration and payment of the tax:

Collecting agents must submit a monthly tax return with the operations carried out within each month, using the “Excise Tax Declaration Form”, code 3680. Taxpayers subject to the microenterprise regime must file the return every six months.

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Deferral of tax obligations

deferral-of-tax-obligations

By Executive Decree 1030 issued on May 4, 2020, the President of the Republic ordered the following:

  1. The deferral of tax obligations established by Executive Decree 1021 shall be applicable to all small and medium-sized companies, except for those taxpayers whose tax ID (RUC), as of April 1, 2020, had registered any of the following as their main economic activity:
  • Ancillary activities of financial services activities; and/or
  • Financial services activities, except insurance and pension fund activities.

These taxpayers are able to pay the corporate income tax for the fiscal year 2019 and the value added tax (VAT) to be paid in April, May and June 2020 on a deferred basis. Payments will be made in 6 installments during the year 2020 in the following percentages: in each of the first two months, the taxpayers are required to pay 10% of the total value; and, in each of the remaining four months, taxpayers are required to pay 20% of the total value.

  1. The taxpayers subject to the Simplified Tax System (RISE) are able to pay the instalments of March, April and May in accordance with the following calendar:
RISE instalment to
be paid in:

Month of payment

March 2020 June 2020
April 2020 July 2020
May 2020 August 2020

Payments must be made according to the 9th digit of the tax ID (RUC) according to the following schedule:

Ninth digit of the RUC or
identity card

Expiration date

1 10 of the applicable month
2 12 of the applicable month
3 14 of the applicable month
4 16 of the applicable month
5 18 of the applicable month
6 20 of the applicable month
7 22 of the applicable month
8 24 of the applicable month
9 26 of the applicable month
0 28 of the applicable month
  1. The annual motor vehicle ownership tax, which would have been due in the months of March and April, may be paid according to the following schedule:
Expiration in the month of:

Payment of the tax:

March 2020 Until June 2020
April 2020 Until July 2020
  1. Those taxpayers who lay-off employees without cause during the state of emergency are not able to apply the benefits established by Executive Decrees 1021 and 1030.

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Income tax – Withholding percentages

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Regulation NAC-DGERCGC20-00000030 issued by the Internal Revenue Service on April 22, 2020, amended Regulation NAC-DGERCGC14-00787 which establishes the income tax withholding percentages.

The following income tax withholding percentages have been modified:

Concept

Previous withholding percentage

Current withholding percentage

Real estate construction activities and similar activities. 1% 1,75%
Insurance and reinsurance services provided by companies legally incorporated in the country and by branchesof foreign entities domiciled in Ecuador. The withholding must be applied over 10% of the invoiced or scheduled premiums. 1% 1,75%
Commercial lease provided by companies legally established in Ecuador. The withholding must be applied over the lease payments and the purchase option. 1% 1,75%
Services provided by media and advertising agencies. 1% 1,75%

 


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