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New employment agreement modalities

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The Ministry of Labor (“MdT”) has regulated the following employment agreement modalities:
1. PRODUCTION AGREEMENT
(MDT-2020-220) 
– Sector: Productive sectors.
– Term: For the duration of the work, service, or activity to be performed; continuously or discontinuously, for up to 1 year, renewable for an additional year. If this period is exceeded, the employment relationship becomes an open-term agreement. A 90 day trial period may be agreed.
– Work day: The working days will be carried out as part-time or ordinary with a maximum of 40 hours per week that may be distributed in no more than 6 days a week. If the activities require uninterrupted services, the parties may agree on consecutive days of up to 20 successive working days.
– Termination of the agreement: It will end upon the conclusion of the term or the contracted activity. If the unilateral decision of the employer terminates the employment relationship before the agreed term, the worker will be entitle to severance.
– SUT registration: Within a period of 15 days upon its execution.
2. SPECIAL AGREEMENT FORTOURISM AND / OR CULTURAL AND CREATIVE SECTORS
(MDT-2020-221)
– Sector: Tourism, cultural and creative.
– Term: For the duration of the work, service, or activity to be performed; continuously or discontinuously, for up to 1 year, renewable for an additional year. If this period is exceeded, the employment relationship becomes an open-term agreement. A 90 day trial period may be agreed.
– Work day: The working days will be carried out as part-time or regular with a maximum of 40 hours per week that may be distributed in no more than 6 days a week. If the activities require uninterrupted services, the parties may agree on 20 to 70 consecutive days. Shifts that exceed 20 continuous days must be registered in the Ministry of Labor.
– Termination of the agreement: It will end upon the conclusion of the term or the contracted activity. If the unilateral decision of the employer terminates the employment relationship before the agreed term, the worker will be entitle to severance.
– SUT registration: Within a period of 15 days upon its execution.
3. ENTREPRENEURSHIP AGREEMENT
(MDT-2020-222)
– Sector: Employers registered in the National Registry of Entrepreneurship (RNE).
– Term: Up to 1 year, renewable up to the term of registration in the RNE. If this period is exceeded, the employment relationship becomes an open-term agreement. A 90 day trial period may be agreed.
– Work day: The working days will be carried out as part-time or regular with a maximum of 40 hours per week that may be distributed in no more than 6 days a week. If the activities require the provision of uninterrupted services, the parties may agree on consecutive days of up to 20 successive working days.
– Termination of the agreement: It will end upon the conclusion of the term. If the unilateral decision of the employer terminates the employment relationship before the agreed term, the worker will be entitle to severance.
– SUT registration: Within 15 days upon its execution along with the certificate issued by the RNE.
4. AGREEMENT FOR YOUNG PEOPLE
(MDT-2020-223) 
– Sector: All sectors.
– Agreement for young people: Work agreement aimed to  promote the employment of young people up to 26 years of age.
– Agreement for young people: under academic education: The purpose of this agreement is to promote the employment of young people up to 26 years old who are studying at any educational level. Their remuneration may not be less than US$333.32.
– Work day: The working days will be carried out as part-time or regular with a maximum of 40 hours per week. If the activities require the provision of uninterrupted services, the parties may agree on consecutive days of up to 20 successive working days.
– Term: For the duration of the work, service or activity to be carried out; continuously or discontinuously, for up to 1 year, renewable for an additional year, or until the worker reaches 26 years of age. If they exceed this period, the employment relationship becomes an open-term agreement. A 90 day trial may be agreed.
– Termination of the agreement: It will end upon the conclusion of the term or the contracted activity. If the unilateral decision of the employer terminates the employment relationship before the agreed term, the worker will be entitle to severance.
– SUT registration: Within a period of 15 days upon its execution.

 

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Conditions for filing customs import declarations

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On November 4, 2020 the National Court of Justice issued a ruling within the judicial process 17751-2020-00001 by which it declared that the Regulation SENAE-SENAE-2019-0049-RE (Regulation) issued on June 26, 2019 by the General Director of the Customs Authority was void.

The Regulation established that importers were not able to file customs import declarations if they had any unpaid obligations with the Tax or Customs Authorities. The National Court of Justice resolved that this condition could not be established by a regulation, since it exceeds the legal power of the general director of the Customs Authority.

Once the Regulation has been declared void, importers may file customs import declarations even if they have outstanding obligations with the Tax or Customs Authorities.

 

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Reform of the codification of regulations issued by SERCOP

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By Regulation No. RE-SERCOP-2020-0111 of September 23, 2020, the Regulation No. RE- SERCOP-2016-0000072 was amended (hereinafter, the “Regulation”), replacing Chapter II of Title VIII, relative to the “ACQUISITION OF DRUGS OR STRATEGIC GOODS IN HEALTH THROUGH A SPECIAL REGIME”. The main aspects of this reform are the following:

1. The Corporate Reverse Auction procedure is regulated for the selection of suppliers of drugs or strategic health goods (hereinafter and collectively, the “Products”) for the acquisition of the Products.

2. The Corporate Tender procedure is regulated for the selection of service providers for the storage, distribution and delivery or dispensing of drugs or strategic health goods (hereinafter, the “Services”) for contracting the Services.

3. It is established that the suppliers that participate in corporate purchase procedures must declare that they have no connection with other participants.

4. The attributions of the Inter-Institutional Committee are regulated, mainly  in the preparatory and contractual execution stage of the procedures for the acquisition of the Products and the contracting of the Services. This Committee is different from the Technical Commission, which will act in the pre-contractual stage.

5. As a result of the Corporate Reverse Auction and Corporate Tender procedures, the respective corporate framework agreements will be signed and the Products and Services will be included in the virtual directory of SERCOP´s Portal of PUBLIC PROCUREMENT  (hereinafter, the “Directory”), for their acquisition or contracting, respectively, through purchase orders.

6. It is established that the termination of a corporate framework agreement will not necessarily generate the sanction of a non-compliant contractor.

7. The obligations of the suppliers of the Products or Services are regulated, without prejudice to those established in the specifications of the selection procedure, the corporate framework agreement and the purchase orders. In the case of Service providers, the following obligations stand out:

7.1. The provision of a “continuity of service guarantee” that ensures the Services’ provision, even in the event of early and unilateral termination of the respective corporate framework agreement.

7.2. The implementation of a technological solution to monitor the Products’ route in real-time.

7.3. The implementation of a technological solution for the registration, administration, and control of stock and inventories in collection centers, warehouses, pharmacies, medicine cabinets, and other units or areas necessary to comply with the Services.

7.4. The creation of tickets for Products not delivered in health establishments for causes attributable to the supplier. Through the tickets, the patient will be able to withdraw the Products in the private pharmacies network associated with the supplier  at a national level or with those subject to a previously signed agreement.

8. It is mandatory for the contracting entities that make up the Integrated Public Health Network (“IPHN”) to acquire the Products and contract the Services through the Directory. Only when the Product does not appear in the Directory, these entities may avail themselves of other contracting procedures.

9. It is established that the contracting entities of the IPHN will centralize the acquisition of the Products. Each IPHN health subsystem must define the entity or administrative body (contracting entity) that will be responsible for the centralized generation of purchase orders, in accordance with its planning.

10. It is the obligation of the contracting entities of the IPHN to contract the Services before the acquisition of the Products, except in cases of  contracts related to small amount and emergencies, or when the Products are received by donation.

11. Contracting entities that do not belong to the IPHN will not be obliged to verify and acquire the Product or contract the Services through the Directory. These entities may directly use other procedures provided by law.

12. The public contracting entities that are not part of the IPHN will preferably use the Institutional Reverse Auction procedure for the selection of suppliers and acquisition of the Products. The contracting entities that are part of the IPHN may use this procedure as long as the amount exceeds the one established  for a small amount procedure, and the Products are not available in the Directory for direct purchases.

 

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Regulation of simplified stocks corportations (S.A.S.)

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By Resolution No. SCVS-INC-DNCDN-2020-0015 issued on September 14, 2020, and published in the Special Edition Number 1071 of the Official Registry of September 25, 2020, the Superintendency of Companies, Securities and Insurance issued the Regulation of the Simplified Stock Corporations (S.A.S.)

The main aspects of the Regulations include

1. The determination of the legal existence of a S.A.S. starts with its registration in the Registry of Companies of the Superintendency of Companies, Securities and Insurance.

2. The shareholders of a S. A. S. will only be responsible for the amount of their respective shares, unless they expressly waive it in writing.

3. The impossibility of negotiating it´s own shares in the stock market. Notwithstanding being able to negotiate shares issued by other mercantile societies or other negotiable securities, according to the law of the matter.

4. The incorporation of the Simplified Stock Corporations will be done through private documents unless the assets contributed require a public deed. In this case, the public deed must be registered in the corresponding Registry Office.

5. The process of electronic incorporation of the S.A.S. is hereby established, and the SCVS is required to keep its online system open so that all users can access consultations, certifications, and access all the relevant corporate information of the S.A.S.

6. Foreign companies that are founders and shareholders of a S. A. S. must present a certificate of incorporation and legal existence issued by the authority of the corresponding country. The capital of the foreign company must be represented in shares, participations or nominative papers.

7. The document of incorporation of the S.A.S. will have a presumption of stability, enforceability, and execution. Consequently, it may not be revoked, cancelled or annulled, unless expressly provided by competent Judge.

8. It shall establish the rules of the capital and shares of the S.A.S., their organization, statutory reforms, reorganization, dissolution, liquidation, reinstatement and cancellation.

The Regulations of the Simplified Stock Corporations also govern, among other things, the procedure for the resolution of corporate conflicts, causes of voluntary removal of shareholders, payment of dividends, presentation of corporate/financial documentation, management reports, and balance sheets, removal of shareholders, digital corporate books, and the liability of the shareholder before the company for the abuse of his voting rights, when seeking his own benefit or that of a third party.

 

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The regulation that controls the agroindustrial chain of psychoactive cannabis or hemp and hemp for industrial comes into effect

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October 19th, 2020, the Ministry of Agriculture issued the Ministerial Agreement No.109-2020, which regulates the  IMPORT, PLANTING, GROWING, HARVEST, POST HARVEST, STORAGE, TRANSPORTATION, PROCESSING, MARKETING AND EXPORT OF NON PSYCHOACTIVE CANNABIS OR HEMP AND HEMP FOR INDUSTRIAL USE. This Ministerial Agreement entered into force upon its signing.

Among the provisions included in this Ministerial Agreement, article 22 establishes the Licenses that have to be obtained by those who wish to engage in the following activities:

• Import and Commercialization of Non-Psychoactive Cannabis or Hemp Seeds, or Non-Psychoactive Cannabis or Hemp Cuttings, or Hemp Seeds for Industrial Use. (LICENSE 1)

• Growing and Production of Non-Psychoactive Cannabis or Hemp Seeds, or Non-Psychoactive Cannabis or Hemp Cuttings, or Hemp Seeds for Industrial Use. (LICENSE 2)

• Cultivation of Non-Psychoactive Cannabis or Hemp. (LICENSE 3)

• Cultivation of Hemp for Industrial Use.
(LICENSE 4)

• Non-Psychoactive Cannabis or Hemp Processing and Non-Psychoactive Cannabis or Hemp Derivatives production. (LICENSE 5)

• Plant breeding and / or Germplasm and Research Banks. (LICENSE 6)

• Acquisition of Derivatives and / or Biomass or Non-Psychoactive Cannabis flower or Hemp, or Hemp Biomass for Industrial Use, for Export. (LICENSE 7)

Who can obtain these licenses: entities, cooperatives, associations or communes, universities legally constituted and / or domiciled in Ecuador, which may develop one or more activities provided for in the Regulation.

The minimum extension of land, depending on the type of crop which may be cultivated gradually according to the Agricultural Production Plan approved by the National Agrarian Authority, is the following:

• Hemp for Industrial Use – 5 hectares.
• Non-Psychoactive Cannabis or Hemp – 5 hectares in the open field and 2 hectares in greenhouse.

The period in which the above-detailed minimums must be met may not exceed 5 years from the first crop.

License for the Planting and Production of Non-Psychoactive Cannabis or Hemp Seeds, or of Non-Psychoactive Cannabis or Hemp Cuttings, or of Hemp Seeds for Industrial Use – minimum extension 0.5 hectares.

Licenses for Plant Breeding and / or Germplasm and Research Banks will not be subject to a minimum surface area.

The Ministerial Agreement establishes general and specific requirements for each type of license.

The general requirements are:

a. Application form for Licenses of Non-Psychoactive Cannabis or Hemp, or Hemp for Industrial Use.

b. Copy of the Taxpayer Registry (RUC), which must include the activity or activities to be carried out by the Applicant, information that will be verified on the website of the competent authority.

c. Copy of the statutes of the entity, public entity, cooperative, association or commune, legally constituted, whose objective includes the activities to be carried out by the Applicant.

d. Notarized copy of the appointments of the legal representatives.

e. Affidavit issued by the legal representative of the applicant, granted before a public notary, with the detail of the activities that will be carried out for this purpose, which must be related to the application.

f. Criminal record certificate of the Applicant’s legal representative, its directors and partners, shareholders or members who have a stake greater than 6% of the company’s capital stock, through which it will be verified that they have not been declared criminally liable through a final conviction, for drug trafficking, money laundering, corruption and related crimes. In the event that the shareholders or partners are entities, the certificate of the last individuals in the chain of ownership must be filed, except if those entities are registered in a Stock Exchange, or in the case of an investment fund. In the case of foreign entities, they must file the equivalent document issued by the competent authority of the country of origin; duly legalized.

g. Document in which the organizational structure of the applicant and its members is detailed. In the event that the shareholders, partners or members are legal persons, the last natural persons in the chain of shareholders or partners of legal persons must be disclosed, except if those legal persons are registered in a Stock Exchange or in the case of an investment fund.

h. Form of legality and destination of funds.

i. Proof of payment of the government fee corresponding to the type of license applied, as detailed in the corresponding tariff list.

Here you can access the Ministerial Agreement N° 109-2020

 

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Tax regime for small businesses

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Resolution NAC-DGERCGC20-00000060 issued on September 29, 2020 and published in the Special Edition of the Official Registry 1100 on September 30, 2020, the Director of the Internal Revenue Service established the rules for applying the tax regime for small businesses.

1. Definitions

  1. Small business: It is a productive unit that has up to 9 workers and an annual revenue equal to or less than US$300,000.00. For classifying an enterprise as a small business, the amount of income will prevail over the number of workers.
  2. Main economic activity: The economic activity registered in the Tax Registry (RUC) which generates the higher amount of income during a fiscal year in comparison with the other activities.
  3. Commissioner: Individual, corporation or permanent establishment that habitually engages in the sale of goods, rights, or the provision of services in exchange for a commission.
  4. Capital gains: Profits derived from the placement of capital, shares, credits, and investments of any nature, as long as they do not involve productive processes, the provision of services or other work. For example, the lease of real estate.
  5. Self-employed individuals: Individuals who regularly performs an economic activity on his own account without a labor relationship and receives an income different from a salary or wage. Economic activities of liberal occupation are excluded.
  6. Professional services: Services provided by individuals who have a professional title and are directly related to that title. Including activities related to education, teaching and training related to the professional title.

2. Inclusion/exclusion from the microenterprise regime

The Internal Revenue Service will be able to include or exclude ex officio in the register of small businesses those taxpayers who fulfill or no longer fulfill the conditions to be considered as such. This registry will be published on the IRS website until September 30 of each year.

Taxpayers will be subject to this regime from the first day of the fiscal year following their inclusion of the registry.

The ex officio exclusion will be executed without the need for prior notice and will take effect from the first day of the fiscal year following that exclusion.

Taxpayers who have been subject to the regime for 5 years will cease to be part of it from the first day of the year following the date on which the maximum time was reached.

When taxpayers consider that their inclusion or exclusion from the regime is not appropriate, they are able to file a petition to have that decision reviewed in a term of 20 days counted from the publication of the registry.

3. Registration of new taxpayers

When obtaining the tax registry (RUC), the taxpayer must inform the Tax Authority all its economic activities, the income that might be derived from such activities and the number of workers.

If the taxpayer fulfills the conditions to be considered as a small business, it will be able to start its activity under the small business regime. Otherwise, he will begin its activity subject to the general regime and the authority is able to include the taxpayer in the regime ex officio.

4. Limitations to the regime for microenterprises

Taxpayers who exclusively develop one or more of the following activities will not be subject to the small business regime:

  1. Those taxpayers who are subject to the Simplified Tax Regime for Ecuador (RISE) and Simplified Tax Regime for the Organizations of the Popular and Solidarity Economy.
  2. International organizations, multilateral organizations, specialized international agencies, non-governmental organizations, government institutions and public enterprises.
  3. The financial institutions subject to the control of the Superintendence of Banks, and the organizations of the popular and solidary financial sector, subject to the control of the Superintendence of Popular and Solidary Economy.
  4. Those taxpayers who exclusively develop construction and urbanization activities.
  5. Those taxpayers who exclusively develop activities of liberal occupation, as well as individuals whose economic activity is the provision of professional services, notaries, and registrars.
  6. Those taxpayers who provide public transport services to passengers, as well as the services of commercial transport.
  7. Those taxpayers who exclusively obtain income from a labor relationship.
  8. Those taxpayers who exclusively obtain income subject to single income tax.
  9. Those taxpayers that exclusively obtain capital gains, including holding companies.
  10. Those taxpayers that carry out exploration, exploitation and/or transportation activities of non-renewable natural resources.
  11. Those taxpayers that receive income from international transport of passengers, cargo, express airlines, or couriers incorporated under foreign laws and that operate in the country through branches, permanent establishments, agents, or representatives.
  12. Distributors of hydrocarbon derivatives, liquefied petroleum gas, natural gas, and biofuels.

5. Taxpayer’s obligations

Taxpayers subject to the small business regime must comply with the formal and material obligations set forth in the law, including the following:

  1. Entities are required to keep accounting books in accordance with the regulations established by the controlling authorities. In the case of individuals, if they are required to keep accounting books, they must follow the International Financial Reporting Standards for SMEs.
  2. Taxpayers are required to issue invoices and withholding receipts and complementary documents in applicable cases. The documents must contain the caption “Small Business Taxpayer”.
  3. Taxpayers are required to file value added tax (VAT), excise tax (ICE) and income tax returns on a semester basis, in the months of July (first semester) and January (second semester).
    However, taxpayers may file the VAT and ICE tax return on a monthly basis, during the entire fiscal year.
  4. Taxpayers must file an annual income tax return, in addition to the semi-annual income tax returns in the following cases:
    • Entities and permanent establishments in all cases.
    • Individuals who receive income from sources different form the activities subject to the small business regime.
    • Individuals who request the reimbursement of income tax.
  5. Taxpayers who are required to file the Simplified Transaction Annex (ATS) must file it every six months. If they choose to file the VAT return on a monthly basis, the ATS must also be filed on a monthly basis.
  6.  Taxpayers who are required to file the excise tax annex must file it every six months. If they choose to file the excise tax return on a monthly basis, the annex must also be filed on a monthly basis.

6. Withholding taxes

Taxpayers subject to the small business regime are not required to withhold income tax or VAT, except if they are qualified by the IRS as special taxpayers or withholding agents and in other cases established by law.

<p style="text-align: justify;">However, taxpayers under the regime will be subject to income tax and VAT withholding. In the case of income tax, the withholding tax percentage will be 1.75% over the income derived from the business activities subject to the regime. If the taxpayer obtains revenue from sources other than the business activity subject to the regime, such revenue will be subject to the withholding percentages provided in the current tax regulations.

If taxpayers subject to the regime have made withholdings, they must declare and pay them as follows:

  1. Value added tax withholdings on a monthly or semi-annual basis, depending on the periodicity of the VAT return.
  2. Income tax withholdings on a semi-annual basis, in the months of July -first semester- and January -second semester-.
  3. If the taxpayer did not make any withholdings, the return must not be filed.

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Withholding agents – Income tax and VAT

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Regulation NAC-DGERCGC20-00000057 issued on September 14, 2020 by the General Director of the Internal Revenue Service and published in the Special Edition of the Official Registry 1024 on September 16, 2020 establishes the rules for the classifying, filing returns and paying taxes for withholding agents and special taxpayers.

1. Designation and Removal:

The amendments to the Internal Tax Regime Law introduced on December 31, 2019 established that only special taxpayers (“contribuyentes especiales”) and those designated as withholding agents by the Internal Revenue Service are required to withhold income tax and VAT.

  • Special Taxpayers: are designated by an administrative act and will be effective from the first day of the month following the date of the notice to the taxpayer.
  • Withholding agents: are designated by: (i) a general resolution that will be effective from the date established in such resolution; and, (ii) an administrative act that will be effective on the first day of the month following the date of the notice to the taxpayer.

In the following link you can verify the taxpayers that have been designated as special taxpayers or withholding agents:
https://www.sri.gob.ec/web/guest/catastros

The tax authority is able to revoke the designation of withholding agents and special taxpayers, this will be effective from the date established in the general resolution or from the first day of the month following the date the taxpayer was noticed with the administrative act.

2. Filing returns and payment of obligations:

Taxpayers designated as withholding agents will continue to file and pay their tax obligations on a regular basis.

Special taxpayers must:

  • File their tax returns and make the payment of income tax, withholding income tax, value added tax (VAT), excise tax (ICE), foreign exchange tax (ISD) and the international currency movement annex (MID), until the 9th day of the month in which each obligation is due.

Special taxpayers with residence in Galapagos will be able to file the return and pay their tax obligations until the 28th day of each month.

When these dates overlap with mandatory rest days or national or local holidays, the return must be filed on the last working day prior to the date the filing is due.

  • Pay their tax obligations through debit from their bank accounts or by using credit notes.

3. Other taxpayers:

Those taxpayers who have not been designated as withholding agents or special taxpayers must withhold income tax and value added tax until September 30, 2020.

Starting October 1st, 2020 such taxpayers must withhold taxes only in the following cases:

  • Income tax:
    1. Distribution of dividends and anticipated payment of dividends.
    2. Transfer of shares.
    3. Payments and refunds made abroad.
    4. Salaries and other payments made to their workers.
    5. Taxpayers whose activity is the related to public events.
    6. Credit or debit card entities.
    7. Organizers of lotteries, raffles, bets and similar.
    8. Those who make monetary donations.
    9. Taxpayers that pay interest or other financial gains.
    10. Taxpayers who commercialize mineral substances.
    11. Taxpayers who transfers hydrocarbon licenses.
    12. Taxpayers who issue liquidations of purchases of goods and provision of services, regarding such transactions.
    13. Taxpayers who make purchases of bananas and other musaceous plants from local producers.
  • Value added tax:
    1. Import of services.
    2. Taxpayers who issue liquidations of purchases of goods and provision of services, regarding such transactions.
    3. Taxpayers who withhold of presumptive VAT in the transfer of fuel.
    4. Entities of the financial system, for payments or credits made under collection or debit agreements.

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New provisions of the Ministry of Labor

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On September 9th, the Ministry of Labor (“MdT”) issued the following provisions on labor matters:

1. Agreement MDT-2020-171: Exemptions on the application of Chapter III of Humanitarian Organic Law to support and combat the health crisis arising from Covid-19

  • Employers may not reduce the salary of the disabled or their substitutes by the implementation of agreements to preserve labor sources or working-day emergent reduction.
  • Disabled or substitutes employees must inform to the employer their condition within 7 days from the dated they were notified with the application of such measures. If the employee does not comply to inform, then he/she will not benefit from these exceptions.
  • Agreements to preserve labor sources or working-day emergent reduction applied to disabled or substitutes employees before September 9th, are no longer enforceable.
  • From the next salary payment, disabled or substitutes employees shall receive their full salary. This provision has no retroactive effect.

2. Agreement MDT-2020-174: Reform to Ministerial Agreement No.MDT-2020-077

  • In the event of force majeure or unforeseen circumstances, the employer may apply the emergent reduction, modification or suspension of the working-day provided within the Ministerial Agreement No.MDT-2020-077.
  • Emergent reduction, modification or suspension of the working-day ends by:
    • Mutual agreement between the parties.
    • Completion of the emergent working-day reduction term provided for in the Labor Code, article 47.1 (up to 12 months);
    • Completion of the emergent working-day modification term; or;
    • Ceasing of the cause that justified the emergent working-day suspension (Labor Code, article 60).

 

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Income tax – Advance payment regulations

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Regulation NAC-DGERCGC20-00000054 issued by the General Director of the Internal Revenue Service on September 4, 2020 regulates the advance payment of income tax for the year 2020, ordered by Executive Decree 1137 of September 2, 2020.

The regulation confirms the content of Executive Decree 1137 y adds the following:

1. Amount of the advance payment:

In order to calculate the advance payment, the following formula must be applied:

IR = (85% of UC * 25%) – RFIR20

Where:

IR = Advance income tax.

UC = The profit derived from the result of operations carried out from January 1 to July 31, 2020, in accordance with the financial statements and accounting and financial regulations. In order to calculate the profit, the employees profit sharing must not be deducted.

RFIR20 = Income tax withholdings made to the taxpayer from January 1 to July 31, 2020, that the taxpayer is able to use as tax credit.

In order to calculate the advance payment, the taxpayer must issue the financial statements as of the closing of July 31, 2020.

2. Settlement the advance payment:

The settlement of the advance payment will be made through the Income Tax Advance Payment Form (form 115).

Taxpayers whose 2019 taxable income was higher than US$5,000,000.00, must file the return until September 11, 2020, even if: (i) the taxpayer does not generate an amount to be paid; or, (ii) if the taxpayer income in 2020 is considered exempt for income tax purposes.

If the taxpayer files the return once the term has expired, it would be required to pay a fine equal to 3% for each month or fraction of a month of delay. The fine will be calculated over the total of the advance tax or, over its profit if an advance payment is not generated.

The advance tax must be paid until September 11, 2020 through debit from the taxpayer bank account. If the payment is not made until this date, the taxpayer will be required to pay interests.

3. Tax credit:

The advance income tax will be regarded as tax credit for the payment of 2020 income tax.

If the value of the advance payment is higher than the income tax generated, the taxpayer may request the reimbursement or may use the excess as credit tax for the payment of income tax for the three following fiscal years.

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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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Income tax – Advance payment

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By Executive Decree 1137 issued on September 2, 2020, the President ordered the advance payment of income tax for the year 2020, to finance the expenses associated with the health emergency.

The previous Executive Decree 1109 issued on July 27, 2020 that established the same tax was not applied since it was declared unconstitutional by the Court.

The individuals, companies, and permanent establishments that comply with the following conditions are required to pay the advance income tax:

  1. Generate taxable income, except income derived from a labor relationship.
  2. In the year 2019 received gross income equal to or greater than US$5,000,000.00; and,
  3. During the period from January to July 2020, generated profits, with the exceptions of income and expenses derived from a labor relationship.

Taxpayers who are not included in the assumptions previously described are able to pay the advance income tax voluntarily.

The following taxpayers are not required to pay the advance income tax:

  • Micro, small, or medium size companies.
  • Taxpayers that are exempt from paying income tax on the fiscal year 2020.
  • Taxpayers that have registered the province of Galapagos as their tax address.
  • Taxpayers that are regular exporters of goods, or that 50% of their income derives from the export of goods; or,
  • Taxpayers with one of the following economic activities:
    • The operation of airlines.
    • The provision of accommodation and/or food services.
    • Activities of the agricultural and aquaculture sector.

In order to calculate the advance payment, the following formula must be applied:

IR = (85% of UC * 25%) – RFIR20

Where:IR = Advance income tax.

UC = The profit derived from the result of operations carried out from January 1 to July 31, 2020, in accordance with the financial statements and accounting and financial regulations.

RFIR20 = Income tax withholdings made to the taxpayer from January 1st to July 31, 2020, that the taxpayer is able to use as tax credit.

Taxpayers are able to pay the full amount of the advance income tax until September 11, 2020 and will not be able to request payment facilities. The late payment will generate interest and penalties.

The advance income tax will be regarded as tax credit for the payment of 2020 income tax.

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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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