On May 17, 2023, the President issued the draft of the Decree-Law for Strengthening the Family Economy. This Decree-Law will enter into force once the Constitutional Court issues a favorable opinion. A public hearing is scheduled for June 6, to analyze this matter. The following is a summary of the most relevant issues:
1. Individuals Income Tax
Increases the amount that individuals may apply as a rebate for personal expenses with respect to the income tax incurred, according to the following detail:
a. Individuals without family dependents: the amount of the rebate will be equal to 18% of the lower value resulting from the personal expenses declared in the respective fiscal year and the value of the basic family basket (US$764.71 for 2023) multiplied by 7.
b. Individuals with family dependents: the amount of the rebate will be equal to 18% of the lesser value resulting from the personal expenses declared in the respective fiscal year and the value of the basic family basket multiplied by the applicable number, according to the following table:
Family dependents are parents, spouse or common-law partner and children up to 21 years of age or disabled of any age; if they do not receive taxable income and are dependent on the taxpayer.
c. Individuals who have dependents with catastrophic, rare and/or orphan diseases: the amount of the rebate will be equal to 18% of the lower value resulting between the personal expenses declared in the respective fiscal year, and the value of the basic family basket multiplied by 20.
If the value of the rebate exceeds the amount of the tax incurred, there will be no refund of the excess.
The income tax table is replaced by the following, which reduces the tax burden for individuals:
The provisions related to the rebate for personal expenses and the table for calculating income tax for individuals will be applicable as from the current fiscal year 2023.
2. Sole Income Tax on Sports Betting Operators
The “Single Income Tax on Sports Betting Operators” is created. The taxable event is receiving Ecuadorian source income derived from sports betting activities carried out live, through internet or any other means.
The taxpayers are:
a. Individuals or entities with tax residence or permanent establishment in Ecuador that carry out sports betting activities.
b. As substitute taxpayers, users of sports betting platforms when the operator does not have tax residence or permanent establishment in Ecuador.
The tax rate is 15% of the taxable base. The taxable base will be calculated according to the following:
a. Operators with tax residence in Ecuador: The taxable base will be equal to the total income (including commissions) minus the total prizes paid in the same period. Prizes will be deducted from the taxable base if 15% of the value of the prize has been withheld.
b. Non-resident operators: The taxable base will be equal to the total amount paid by the user in each transaction, i.e., the total value of the bets. If the bet is made through an intermediary, the intermediary must collect the tax from the user and pay it to the Internal Revenue Service.
The beneficiaries of the prizes will pay a 15% tax on the value of each prize received, in cash or in kind.
The Single Income Tax for Sports Betting Operators will become effective as of January 1, 2024.
3. Simplified Regime for Entrepreneurs and Popular Businesses (RIMPE)
The following are excluded from the RIMPE Regime:
a. Those taxpayers engaged in the production, importation and/or first stage of commercialization of goods or rendering of services taxed with Special Consumption Tax (ICE).
b. Taxpayers who carry out economic activities excluded from the RIMPE regime, even when they simultaneously carry out non-excluded activities.
c. Taxpayers qualified as artisans.
Taxpayers subject to the RIMPE regime will pay the tax according to the following progressive tables:
If, at the end of the fiscal year, the taxpayer had gross income over USD$300,000.00, it must file and pay income tax under the general regime. Prior to this reform, the taxpayer had to apply the general regime in the following year.
The period for the liquidation and payment of income tax corresponding to the RIMPE regime is extended from March to June of each fiscal year.
With respect to Value Added Tax (VAT), the transfer of ownership of tangible property, rights and the rendering of services carried out by popular businesses will be taxed at a 0% VAT rate.
Payments made to taxpayers categorized as popular businesses will not be subject to income tax withholding. In the case of payments made to entrepreneurs, the Internal Revenue Service will determine the income tax withholding percentages.
Would you like to receive our newsletters with information like the one you have just read?
Click here and subscribe.