Withholding percentage – dividends

withholding-percentage-dividends-tax

Regulation NAC-DGERCGC20-00000011 issued by the Internal Revenue Service establishes the withholding percentages applicable to the dividends distributed by entities with tax residence or permanent establishments located in Ecuador to: (i) individuals with tax residence in Ecuador; or, (ii) foreign entities which beneficial owners are individuals with tax residence in Ecuador.

The withholding percentage will apply over 40% of the amount of the dividend, according to the following:

Taxable income from
(basic tax bracket) 

Taxable income until
(surplus tax bracket)

Withholding over the
basic tax bracket

Withholding percentage over
the surplus tax bracket

20.000,00 0 0%
20.000,01 40.000,00 0 5%
40.000,01 60.000,00 1.000,00 10%
60.000,01 80.000,00 3.000,00 15%
80.000,01 100.000,00 6.000,00 20%
100.000,01 Forward 10.000,00 25%

The withholding receipt must be issued with the name of the individual with tax residence in Ecuador even if the amount to withhold is zero.

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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.

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Tax Regime for Microenterprises

tax-regime-microenterprises-lawyers

Regulation NAC-DGERCGC20-00000011 issued by the Internal Revenue Service and published on February 21, 2020 in the Supplement to the Official Registry 148, establishes the rules for applying the Tax Regime for Microenterprises created by the Law of Simplification and Tax Progressivity.

Microenterprises are those individuals or entities whose annual income is equal to or less than US $ 300,000.00 and, that have 1 to 9 workers.

The Internal Revenue Service is able to include or exclude from the especial regime, taxpayers who meet the conditions to qualify as microenterprises. For this purpose, the Tax Authority is able to update the taxpayer tax ID without prior notice and, it must publish a microenterprises registry on its web page (https://www.sri.gob.ec/web/guest/catastros).

Taxpayers who consider that they should not have been included in the microenterprises tax regimen may request their exclusion until April 7, 2020.

Taxpayers included in the Tax Regime for Microenterprises must comply with the following:

  1. Issue invoices in accordance with current regulations.
  2. Request proof of sale to support the acquisition of goods or provision of services.
  3. Keep accounting books or a record of income and expenses as appropriate.
  4. File tax returns when appropriate. In the case of VAT and excise tax (ICE), the tax returns must be filed semiannually in the months of July and January of each year.
  5. Submit the annexes of information when appropriate, and
  6. Fulfill the other formal duties indicated in the Tax Code.

Taxpayers registered in the microenterprise’s registry must apply the regime from February 2020. Therefore, they will not act as withholding agents for income tax or value added tax since said month.

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Temporary Tax

temporary-tax

Regulation NAC-DGERCGC 20-00000004 issued by the Internal Revenue Service and published on January 29, 2020 in the Supplement of the Official Registry 131 establishes the procedure for filing the tax return and paying the temporary tax.

The Regulation establishes that the temporary tax that must be paid on an annual basis on the fiscal years 2020, 2021 and 2022.

The taxable base is equal to the income obtained on the fiscal year 2018 -as registered in the income tax return or as established by the Tax Administration within an assessment procedure- less the exempt income and income not subject to income tax. To this amount the taxpayer should add or deduct, as appropriate, the adjustments for deferred taxes registered in the same fiscal year.

The following rates must be applied to the taxable base:

Taxable income from 

Taxable income until

Tax rate
US$1.000.000,00 US$5.000.000,00 0,10%
US$5.000.001,00 US$10.000.000,00 0,15%
US$10.000.001,00 Forward 0,20%

The value of annual each contribution cannot exceed 25% of the income tax generated in the fiscal year 2018.

Those taxpayers who did not generate income tax in the fiscal year 2018 are not required to file and pay the temporary tax return. The advanced income tax shall not be considered if the amount was higher than the income tax generated.

If the amount of the taxable income or the amount of the income tax declared in the income tax return filed for the fiscal year 2018 changes, a substitute tax return must be submitted.

If the entity is liquidated before the date on which the temporary tax return must be filed, the tax must be paid in advance with respect to the fiscal year in which the liquidation takes place. Entities liquidated until December 31, 2019 are not required to pay the temporary tax.

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