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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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DISCLAIMER: The preceding text has been prepared for general information purposes only. 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 given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

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Excise tax on plastic bags

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plastic-bags-excise-tax

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

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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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withholding-percentages-income-tax

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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Implementation of an expedited merger control procedure by the Superintendence of Market Power Control

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combination-transactions-control-antitrust

On April 20, 2020, the Antitrust Authority issued an abbreviated analysis and control procedure applicable to certain combination transactions.

This expedited procedure, also known as fast-track, is common in most jurisdictions that have an antitrust merger clearance process and generally apply to transactions that either (i) do not imply any change in the market structure – such as a change of control of a local business in favor of a foreign acquirer with no prior participation in the Ecuadorian market-; or, (ii) in which,  a priori, the market power resulting from the operation is not significant enough to allow unilateral anticompetitive/abusive behaviors by the combined operator.

The analysis and resolution within a fast-track process must be completed within 25 business days. This term contrasts with the regular process that usually lasts between 4 and 14 months (when remedies apply).

The fast-track process is applicable to the following 6 scenarios:

  1. When the change of control of the business occurs in favor of a foreign economic operator with no prior economic activity in Ecuador.
  2. In horizontal combinations (transactions between competitors) where the joint market share of the economic operators involved in the transaction and of their affiliate entities -when applicable- is less than 30% in each relevant market affected by the transaction.
  3. In horizontal combinations that occur in markets where the Herfindahl-Hirschman index (HHI) before the combination is less than 2,000 points and, as a result of the transaction, the HHI index variation is less than 250 points.
  4. In vertical combinations (transactions between operators in the same production/marketing chain), where the joint market share of the economic operators involved in the transaction and of their affiliate entities -when applicable- is less than 30% in each relevant market affected by the transaction.
  5. In vertical combinations where the Herfindahl-Hirschman index (HHI) of each of the vertically integrated markets post-merger is less than 2,000 points.
  6. In transactions involving one or more economic operators that are at risk of bankruptcy, duly supported and qualified by the Antitrust Authority.

The implementation of the fast-track processis highly positive to facilitate new business opportunities, particularly involving foreign investors. In addition, it contributes to the timely application of the competition regulation in the scope of merger control during the state of emergency deriving from Covid-19.

 

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Contribution for financing the comprehensive treatment of cancer

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cancer-financing-comprehensive-treatment-tax

Regulation NAC-DGERCGC20-000000019 issued by the Internal Revenue Service and published on April 3, 2020 in Official Registry 479, established the rules for applying the contribution for financing the comprehensive treatment of cancer.

General provision fourteen of section I of the Monetary and Financial Code establishes that individuals or entities that receive credits from the private financial sector will pay a contribution equal to 0.5% of the amount of the credit.

The contribution tariff may be reduced to 0.01% by executive decree in cases duly justified by economic or social reasons.

The regulation establishes the following parameters for the applying the contribution:

1. Withholding agents

The withholding agents of the contribution are:

  • Credit cooperatives under the control of the Superintendency of Popular and Solidarity Economy; and,
  • Entities of the private financial sector under the control of the Superintendency of Banks.

These entities shall withhold the total amount of the contribution from individuals and entities who have been granted credits, portfolio purchase, discounts on bills of exchange, repo operations, renewal of loans, including deferred payments on credit cards and overdrafts.

2. Declaration and payment

Withholding agents must file the contribution return on a daily basis, using the “Form for Declaring the Contribution for Financing the Comprehensive Treatment of Cancer”. This return may be filed up to 48 hours after the date on which the withholding is made.

In the case of overdrafts, the contribution shall be calculated and paid by the withholding agent, once the operation is settled.

In the event that the declaration and/or payment of the contribution is not made within the 48 hours, the withholding will be subject to pay fines and interest.

In the case of credits granted from January 1 until April 3, 2020 by credit cooperatives controlled by the Superintendency of Popular and Solidarity Economy, they may declare and pay the value of the withholding through the form described above within 45 working days since April 3, 2020.

 

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Extension of deadlines for tax matters

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deadlines-extension-tax-matters

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 April 30, 2020 by regulation NAC-DGERCGC20-00000028.
  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 April 30, 2020 by regulation SENAE-SENAE-2020-0022-RE.
  3. Regulation GADDMQ-DMT-2020-001-R issued by Quito Municipal Authority establishes that terms and deadlines in all administrative processes and the statute of limitations for collecting debts are suspended from March 16 to March 20, 2020. The suspension was extended until March 31, 2020 by regulation GADDMQ-DMT-2020-002-R. As soon as the municipality extends the suspension period, we will inform you through this bulletin.

 

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State of emergency – tax measures (April 1st)

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state-of-emergency-tax-measures

Regulation NAC-DGERCGC20-000000025 issued by the Internal Revenue Service on April 1, 2020 regulates the application of Executive Decree 1021 by which regulated certain tax issues with regard to the state of emergency.

1. New deadline for filing the income tax return

Taxpayers, except non-profit and government entities, may file the corporate income tax return for the fiscal year 2019, without generating fines or interest, until the dates described in the following chart:

Tax ID 9th digit

Due date

1 and 2 April 15, 2020 3 and 4 April 17, 2020 5 and 6 April 21, 2020 7 April 23, 2020 8 and 9 April 29, 2020 0 April 30, 2020

Non-profit and government entities may file the corporate income tax return for the fiscal year 2019, without generating fines or interest, until the dates described in the following chart:

Tax ID 9th digit

Due date

1 and 2 May 4, 2020 3 and 4 May 5, 2020 5 and 6 May 6, 2020 7 and 8 May 7, 2020 9 and 0 May 8, 2020

2. Taxpayers that are able to defer the payment of taxes:

The following taxpayers are able to defer the payment of corporate income tax of the fiscal year 2019 and, value added tax (VAT) to be declared in April, May and June 2020:

  • Micro-enterprises understood as those that obtained gross revenues of up to US$300,000.00 during fiscal year 2019.
  • Taxpayers that, before March 27, 2020, have registered the province of Galapagos in their Tax ID (RUC).
  • Taxpayers that are regular exporters of goods, or that 50% of their income derives from the export of goods; or,
  • Taxpayers that, before March 27, 2020, have registered one of the following as their main economic activity in their Tax ID:
    • The operation of airlines,
    • The provision of accommodation and/or food services; or,
    • Activities of the agricultural sector.

 

3. Deadlines for paying the corporate income tax:

Taxpayers described in paragraph 2 are able to pay the corporate income tax of the fiscal year 2019 in a single installment, according to the general rules of the Income Tax Regime Law and its regulations, or in six installments, in accordance with the following percentages:

Month for filing
the tax return  Payment
installments 

Payment
percentage

April, 2020 April, 2020 10% April, 2020 May, 2020 10% April, 2020 June, 2020 20% April, 2020 July, 2020 20% April, 2020 August, 2020 20% April, 2020 September, 2020 20%

The first installment shall be paid on the date the return is due in accordance with the schedule set forth in paragraph 1. The remaining 5 installments shall be made through the Multiple Payment Form in accordance with the following schedule:

Tax ID 9th digit:

Due date:

1 10th of each month 2 12th of each month 3 14th of each month 4 16th of each month 5 18th of each month 6 20th of each month 7 22th of each month 8 24th of each month 9 26th of each month 0 28th of each month

If the taxpayer doesn’t pay the tax within the deadlines described before, it would be subject to pay the applicable interests and fines.

 

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Reforms to Ministry of Labor guidelines on the application of reduction, modification or emergency suspension of work activities

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work-activities-reduction-modification-suspension-Covid-19-labor

On March 28, the Ministry of Labor amended the Ministerial Agreement MDT-2020-077, regarding guidelines on the application of reduction, modification or emergency suspension of work activities during the sanitary emergency.

Working-day schedule modification

Employer that modifies working schedule due to the sanitary emergency, must allow their workers to rest for 2 consecutive days.

Suspension of work activities 

  • Employer is entitled to recover the period on which activities were suspended, increasing the working schedule up to 12 hours during the week and 8 hours on Saturdays.
  • Employer and workers may agree on a wage payment schedule during the period on which activities are suspended.

Emergency vacation planning

During the health emergency, employer may require its workers to take any vacations days they have available. Employer may also agree with their workers to take early vacations, to do so, the corresponding vacation request must be submitted.

Working conditions modifications 

Employer and workers may agree on work alternatives established in the existing regulations, due to conditions arising from the Covid-19 pandemic, such as the mobilization impossibility, prevention infection risks and employer´s financial status. All these must not imply a waiver to workers’ rights.

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State of emergency – tax measures

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state-of-emergency-tax-measures

By Executive Decree 1021 issued on March 27, 2020, the President of Ecuador, adopted the following tax measures within the state of emergency:

1. Income tax withholding:

The following entities will be required to withhold and pay on a monthly basis income tax over their total taxable income obtained in each month:

Entity activity 

Monthly income tax withholding rate (%)

Financial institutions under the supervision of the Superintendency of Banks and entities that provide mobile telephone services. 1,75% Entities that have entered into contracts with the Goverment for the exploration and exploitation of hydrocarbons under any modality or, contracts for specific works and services under the Hydrocarbons Law or, complementary petroleum services as well as transportation of crude oil. 1,5%

The withholding tax receipt must be issued in the name of the withholding agent and the value withheld will be consider as tax credit for paying the withholding agent’s income tax.

2. Tax payment deadlines:

For this time only, the taxpayers who at this date are considered as:

  • Micro-enterprises;
  • Those domiciled in Galapagos Islands;
  • Those who are regular exporters of goods, or that 50% of their income derived from the export of goods; or,
  • Those whose economic activity is:
    1. The operation of airlines,
    2. The tourism sector, exclusively those that provide accommodation and/or food services; or,
    3. The agricultural sector.

Will be 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 as follows:

  1. 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.
  2. These payments will be made according to the ninth digit of Tax ID as follows:
Ninth Digit of Tax ID 

Payment Date

1 10th of each month 2 12th of each month 3 14th of each month 4 16th of each month 5 18th of each month 6 20th of each month 7 22nd of each month 8 24th of each month 9 26th of each month 0 28th of each month

Taxpayers domiciled in the province of Galapagos are able to make the payment until the 28th of each month..

If a payment deadline overlaps with a mandatory rest day or holiday, the deadline shall be the next working day unless that day falls on the following month, in which case the payment deadline shall be anticipated to the last working day of the month.

If the taxpayer makes the payment after the deadlines have expired, he must pay the respective interest and fines in addition to the tax

  1. The payment of 2019 corporate income tax for the entities described above, will be made from April to September 2020 in the percentages and terms indicated in numbers 1 and 2 of this document.
  2. The payment of VAT for the months of April, May and June 2020 will be made in the percentages and terms described above, in the following months:
VAT to be paid in the month of

Months of Payment:

April 2020 From April to September, 2020 May 2020 From May to October, 2020 June 2020 From June to November, 2020
  1. Taxpayers subject to the Micro-enterprise Taxation Regime shall file their VAT return on a semi-annual basis. These taxpayers will not be subject to the exception regime detailed above.

 

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