Category Archives: Bulletin

By Decree 876 dated September 15, 2023, and published in the Supplement of the Official Gazette 401 of September 21, 2023, the President of the Republic issued the Regulations of the Decree-Law for Strengthening the Family Economy. The following is a summary of the most relevant changes:

1. Income Tax rebate for personal expenses.

The value of the Basic Family Basket corresponding to the month of January of the fiscal year in which the tax is liquidated must be considered for the calculation of the rebate. Before it was established that the value corresponding to the month of December of the previous year had to be considered.

The expenses corresponding to health, food, education, and clothing may include those incurred for the taxpayer’s pets.

The sales receipts supporting the expense may be issued in the name of the taxpayer or his dependents registered for the calculation of the rebate. Only those individuals whose personal expenses are “practically” covered by the taxpayer within the fiscal year may be registered as dependents.

For the registration of parents as family dependents, their express consent will be required. Children who are not disabled may be considered as dependents until the fiscal year in which they reach 21 years.

1. Income tax withholding over income from labor relationships.

For calculating the income tax withholding, the employer must apply the seniority or disability benefits provided by law.

The value of the tax to be withheld must be divided for 11 months, since in January the employer must not withhold income tax.

If the value of the Basic Family Basket corresponding to the month of January of the fiscal year in which the withholding is made has not been published until February, the employer must apply the value corresponding to the month of December of the previous year and subsequently make the applicable adjustments.

When projecting their personal expenses, the employee must include the number of dependents and the differentiated calculation for catastrophic diseases, if applicable.

1. Reduction of the Income Tax rate.

The regulations establish the conditions for the reduction of the Income Tax rate for reinvestment of profits in sports, cultural, responsible scientific research, or technological development projects.

The taxpayer must reinvest its profits in its own or third-party projects to be executed in the following fiscal year to the one in which the profits were obtained. The benefit is applicable in the fiscal year in which the investment is made.

The reinvestment of profits may be used for:

1. In the case of projects executed by the taxpayer, the resources may be used to acquire goods and services necessary for such project.
2. In the case of projects executed by third parties, the resources may be used to acquire shares of the entity executing the project.

 

1. Simplified Regime for Entrepreneurs and Popular Businesses (RIMPE)

The Internal Revenue Service will register the taxpayers in the RIMPE regime when obtaining or updating the Taxpayers Registry (RUC).

The IRS may include, recategorize or exclude taxpayers from the RIMPE regime at any time. These modifications must be notified to the taxpayer and the formal duties derived from the change will be applicable from the month following the notification.

Taxpayers qualified as Popular Businesses may issue sales notes or invoices in the transfer of goods or services.

For calculating the income tax, taxpayers subject to the RIMPE regime will be able to deduct the applicable tax credits, but not the rebate for personal expenses.

1. Single Income Tax for Sports Betting Operators

For the applying the “Single Income Tax for Sports Betting Operators”, sports betting activities shall be understood as those that allow the user to obtain a prize for predicting the result of a sports activity based on his personal estimation and not only by chance.

It is clarified that sports betting operators cannot carry out games of chance such as casinos, bingos, lotteries, or bets in general, prohibited by the 2011 referendum.

The decree does not regulate how the “Single Income Tax for Sports Betting Operators” will be withheld, declared, and paid.

 

 

Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

By Resolution NAC-DGERCGC23-00000025 issued on September 13, 2023, and published in the Second Supplement to the Official Gazette No. 396 of September 14, 2023, the General Director of the Internal Revenue Service (“SRI”) amended Resolutions NAC-DGERCGC15-00000455 and NAC-DGERCGC16-00000532 which regulate the filing of the Annex of Related Party Transactions and the Comprehensive Transfer Pricing Report.

1. Amendments to Resolution NAC-DGERCGC15-00000455

Taxpayers obliged to apply the transfer pricing regime and that within the same fiscal year have carried out transactions with related parties for an amount exceeding US$10,000,000 (previously US$15,000,000) must file the Comprehensive Transfer Pricing Report.

Regarding the operations included or not in the amount of operations with related parties, the following amendments were made:

• Income derived from agricultural activities subject to a single income tax is excluded, as well as the assets, liabilities, or expenses of the taxpayer attributable to the activity generating such income.
• In transactions between local related parties, those transactions carried out by the taxpayer that made the prior valuation consultation are excluded from the amount. The taxpayer with which such transactions were carried out may not exclude then automatically; therefore, it would have to analyze whether the transactions are excluded for a different reason or whether they should be included in the amount of related party transactions.
• Liability transactions are excluded from the amount, except for any loans obtained in the fiscal period being reported.
• Transactions with local related parties are included when the taxpayer has applied any income tax exemption or a partial or total reduction of the income tax rate.

A new Comprehensive Transfer Pricing Report may not be filed for tax years in respect of which the tax administration exercises or has exercised its assessment capability.

1. Amendments Resolution NAC-DGERCGC16-00000532

The use of financial information corresponding to the fiscal year prior to the one analyzed is allowed when:

• There is no information available for the fiscal year under analysis with respect to one or some of the comparable transactions,
• The accounting closing date of the previous fiscal year is after June 30, and

It is demonstrated that the relevant conditions in both periods did not change.

 

Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

By Resolution No. SCVS-INC-DNCDN-2023-019 dated August 29, 2023, published in the Second Supplement of the Official Gazzete No. 394 of September 12, 2023, the Superintendent of Companies, Securities, and Insurance issued the “Guidelines of probity and civil capacity of companies or individuals which act as legal representatives or officers of companies subject to the control and supervision of the Superintendence of Companies, Securities and Insurance” (the “Guidelines”).

The Guidelines determine that companies or individuals acting as legal representatives or officers of companies subject to the control and supervision of the Superintendence of Companies, Securities, and Insurance, must submit the following documents for the recordation of their appointment, either to the Commercial Registry or the Companies’ Registry of the Superintendence (if the company is a Simplified Stock Corporation (S.A.S.)):

1. The certificate of not appearing in the Database of Persons with Convicted Sentences, issued by the Financial and Economic Analysis Unit (UAFE)
2. Proof of not appearing on the following public international lists: (i) Office of Foreign Assets Control (OFAC); and (ii) United Nation’s Security Council.

Copies of these documents will form part of the file of the minutes of the shareholders’ meeting whereby the legal representatives or officers of the company are appointed.

Additionally, the Guidelines state that the legal representative must submit these documents annually to the Superintendence of Companies, Securities, and Insurance, along with the information/documentation required to be submitted under article 20 of the Law on Companies (financial statements, foreign shareholders list, etc.). Non-compliance with this obligation will be communicated to the National Directorate for the Prevention of Money Laundering.

 

Sofía Rosales, associate at CorralRosales
srosales@corralrosales.com
+593 2 2544144

By Resolution SENAE-SENAE-2023-0056-RE, issued on July 31, 2023, and published in the Fourth Supplement of Official Gazette 386 of August 31, 2023, the National Customs Service of Ecuador (SENAE) established new regulations for companies authorized to operate under the international postal traffic and express courier regimes.

The most important changes include:

1.    Courier entities will have the same responsibilities and obligations as those of a customs broker, regarding the transmission of the simplified customs declaration (DAS) and the filing of supporting documents.
2.    Courier companies shall have the obligation to inform the consignees about the status of the cargo throughout the import process, and to advise them on issues related to tariff classification, valuation rules and reasonable doubt.
3.    The Courier entities shall not be liable before SENAE for:
a.    The accuracy of the information declared or for any difference in quantities and nature of the cargo.
b.    The intention of the consignors to comply with the categories that exempt them from the payment of taxes (categories B, E and G).
c.    The lack of house bills affixed to the shipments as long as they have not been subjected to physical inspections.
d.    Verification of split shipments.
4.    Administrative contraventions for not presenting supporting documents shall not be imposed to the courier entity if it is able to demonstrate that the consignee was duly informed of its obligations or that it had the express consent of the consignee not to present them. In such cases, the fine for the contravention shall be imposed on the consignee.
5.    The exemption of prior control documents for textiles and footwear imported under category D is eliminated.
6.    When importing medicines under category E the applicable medical prescription issued by a professional specialized in the diagnosed disease must be filed.
7.    When the value of the international freight is not identified in the transport document, the courier company shall apply a reference value of US$0.003 per unified basic wage per kilo (freight value = USD$0.003 x (Unified Basic Salary) x Kg).

8.    Courier cargo that has been definitively exported under a simplified customs export declaration shall be subject to the rules of the re-importation in the same state regime.

In the following link you can review the complete text of the Resolution:
SENAE-SENAE-2023-0056-RE

 

     

Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

Fernanda Inga, senior associate at CorralRosales
finga@corralrosales.com
+593 2 2544144

On August 23, 2023, President Guillermo Lasso issued Executive Decree No. 850, which contains the General Regulations of the Organic Law on Communication. In the main, the new Regulation:

• Incorporates the rules for the self-regulation of the media.
• Determines the rules for the operation of the Information and Communication Development and Promotion Council.
• Creates the Mechanism for the prevention and protection of journalistic work, as a state technical instance in charge of adopting measures for this purpose. The mechanism is made up of the Ministries of Defense, the Interior, Foreign Affairs and Human Mobility, Women and Human Rights, the Risk Management Secretariat, the State Attorney General’s Office, a representative of the media workers private, public and community communication and a representative of civil society.
• Modulates the prohibition of dissemination of imported advertising established in article 98 of the Organic Law of Communication, by determining that advertising produced in member countries of the integration treaties and agreements to which Ecuador is a party, will have the quality of national. This implies that the  dissemination of advertising produced in the member countries of the Andean Community of Nations, CAN, (Colombia, Peru and Bolivia) is allowed; and MERCOSUR (Argentina, Brazil, Paraguay, Uruguay, Chile, Colombia, Guyana, Peru and Suriname) is allowed.
• Prohibits the dissemination of advertising of any type of betting or sports prediction systems.

 

The General Regulations to the Organic Law of Communication will enter into force from its publication in the Official Gazette, which has not happened until the moment of publication of this bulletin.

 

Ana Samudio, Senior associate at CorralRosales
asamudio@corralrosales.com
+593 2 2544144

The Regulation CPT-RES-2023-00-1 issued on July 31, 2023, by the Tax Policy Committee (hereafter the “CPT“) amended the list of raw materials and capital goods which importation is subject to Foreign Exchange Tax (ISD) but may be used as a tax credit for the payment of Income Tax.

The following link shows the subheadings that are included and those that are excluded from the list:

CPT-RES-2023-001

The inclusion of subheadings is effective as of January 1st, 2023, and the exclusion of subheadings is effective as of August 1st, 2023.

 

Specialist in Tax Law
Andrea Moya, Partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

On July 20, 2023, the Department of Regulations and Consultations of the General Directorate of the Internal Revenue Service in response to Consultation No. 1170120230744808 issued Official Letter No. 91701202023OCON001932, in which it determines:

• That according to the Labor Code and Circular No. NAC-DGECCGC22-00000004, issued by the Tax Administration, entities may maintain a labor or civil relationship with their Legal Representative.
• In the case of Legal Representatives who maintain an employment relationship with the entity, the amounts for wages, salaries and other remunerations will be deductible if the payment of employer contributions to the Ecuadorian Institute of Social Security, is justified.
• In the case of Legal Representatives who maintain a civil relationship with the entity, the respective fees will be deductible expenses when they are supported by invoices, issued in accordance with tax regulations, therefore, it is not necessary to pay employer contributions to the Ecuadorian Institute of Social Security.

 

Edmundo Ramos, Partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

Resolution SENAE-SENAE-2023-0043-RE issued on July 19, 2023, and published in Official Gazette Supplement 362 of July 27, 2023, the National Customs Service of Ecuador established new regulations for the importation of goods under the exception regime for household goods and work equipment.

The most important reforms include:

1. Alcoholic beverages are admissible if it does not exceed 50 liters in total and 2 liters for each commercial brand.
2. Collectible goods that are not restricted according to the following list are admissible: https://www.aduana.gob.ec/gaceta-resolucion/SENAE-SENAE-2021-0131-RE/
3. If the imported goods are not properly identified or do not match with the data registered in the list of goods subject to the exception regime, the returning migrant or foreigner will be subject to the payment of a fine. However, this will not prevent the importation process from continuing under the exception regime.
4. The returning migrant or foreigner may reimport the household goods and work equipment that was definitively exported under the reimportation regime in the same condition. This regime is exempt from the payment of foreign trade taxes. The re-importation must be carried out within a period of 2 years from the date of shipment of the goods.
5. The percentage of goods subject to prior inspection is reduced from 30% to 15%. The customs operating technician is able to review only 15% of the total amount of goods imported by the returning migrant.
6.  For the import of used or new vehicles of the returning migrant, the following supporting documents may be attached to the customs declaration: i) the exports customs declaration made in the country of departure where the value of the vehicle is stated; or, ii) the certificate issued by the dealer or commercial house detailing the value of the vehicle.
7. When the declared price for vehicles and motorcycles of the returning migrant is lower than the minimum values established by the Customs Authority, the Authority shall initiate a reasonable doubt procedure for the returned migrant to justify the price.
8. Only foreign migrants may maintain the benefit of the exception regime when the interruption of their residence does not exceed 180 days as long as it is due to labor reasons.

The new regulations are effective from the date of publication in the Official Gazette, that is, from July 27, 2023. However, the new regulations will not be applicable to imports shipped prior to their publication in the Official Gazette, unless it benefits the migrant.

In the following link you can review the complete text of the Resolution:

https://www.aduana.gob.ec/gaceta-resolucion/SENAE-SENAE-2023-0043-RE/

The Ministerial Agreement MPCEIP-MPCEIP-2023-0030-A (the Regulation) issued on July 3, 2023, and published in the Official Gazette 355 of July 18 of the same year, the Ministry of Production, Foreign Trade, Investment and Fisheries established the parameters (thresholds) to strengthen the risk profile and customs control system against possible circumstances of customs fraud, money laundering and other illicit operations.

These thresholds will be applied to imports under a definitive importation regime (Regime 10) of textiles and its manufactured goods classified in chapters 52, 53, 54, 55, 55, 58, 60, 61, 62 and 63 of the National Tariff.

Annex 1 of the Regulation details the 527 tariff subheadings that will be subject to the special reasonable doubt procedure of the National Customs Service of Ecuador (SENAE), when the Authority verifies that the FOB value per kilo declared is less than or equal to the thresholds established for each subheading, which range between US$4.00 and US$20.00 per kilo.

Once the reasonable doubt procedure has been initiated, the importer is able to justify that the declared value is equal to the price actually paid or payable for the imported goods within 5 working days. This procedure is regulated in the “Specific Manual for Applying the Reasonable Doubt Procedure” which may be reviewed in the following link: https://www.aduana.gob.ec/gaceta-resolucion/SENAE-SENAE-2021-0050-RE/

The provisions of the Regulation must be implemented by SENAE within 60 days from its promulgation in the Official Gazette.

This measure is not applicable for imports made by Authorized Economic Operators (AEO), imports exempted from payment of foreign trade taxes, and imports shipped prior to the enactment of the Regulation.

The complete text of the Regulation may be review in the following link:

ACUERDO Nro. MPCEIP-MPCEIP-2023-0030-A

 

Andrea Moya, Partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

By Executive Decree number 788 issued on June 26, 2023 and published in Official Gazette Supplement 341 of June 28, 2023, the President of the Republic issued the Regulations for Public-Private Partnerships (“Regulation“), on which we highlight the following.

1. Overview:

Scope: The Regulation applies to Public Private Partnership (“PPP“) projects carried out by the Central Government or by the Decentralized Autonomous Governments (“GAD“). This will allow GAD to implement delegation projects under this modality, which had occurred only by exception.

Definitions: The Regulation incorporates the definition of several elements necessary for all stages of the process of a PPP contract. Some of the most relevant definitions, due to their practical usefulness, are those related to the promotion, structuring, execution, financing and evaluation of PPP projects.

The measurement of progress or degree of compliance of the Private Manager of a PPP project must be related to performance indicators or KPIs (Key Performance Indicators). These indicators may be financial or non-financial.

Institutional framework: The Interinstitutional PPP Committee (“CIAPP“) is maintained as the entity in charge of the steering and regulation of PPPs. This entity is formed by the head of the Secretariat of Public-Private Investments (“SIPP“) -who will preside it and will have the casting vote- and the heads or delegates of the following institutions: the entity in charge of production and investments, who will be the vice-president; the Ministry of Economy and Finance (“MEF“); and the entity in charge of national planning. Its main functions are to issue policies and regulations regarding the promotion of investment through PPPs as well as to coordinate actions at the central administration level.

The SIPP is also maintained as an entity attached to the Presidency of the Republic to promote, facilitate, materialize and maintain investments derived from PPPs. The Regulations establish a list of functions of the SIPP, the requirements to be appointed and the functions of the Secretary of Public-Private Investments.

The Regulation determines the functions of the Delegating Entities, among which the following stand out: preparation of the Initial and Final Business Case, execution of the PPP contracts and everything related to the management of the PPP project phases. The Delegating Entities may transfer their functions to another public administration related to the object of the PPP project. This scheme will be financed from: the budget of the Delegating Entity or from the fiduciary business set up by the SIPP.  In both cases, a scheme for the recovery of costs and expenses by the successful bidder may be included; and, at the risk of the structurers, when the procedure concludes with a successful bidder and a mechanism has been established in the bidding conditions. In any case, the Delegating Entities must include in their budgets the necessary resources to comply with their obligations.

In the case of the GAD, they will exercise their institutional autonomy to assign competencies and budgets. They will require a preliminary report and opinion from the MEF when the PPP project requires any contribution from the General State Budget or when it requires the assumption of any contingent liability of the central public administration.

It also determines the functions to be performed by the MEF and the Private Manager, which must necessarily be a special purpose vehicle.

Principles: The Regulation establishes the following principles and guidelines applicable for all actors of a PPP project: integrity and probity, publicity; citizen participation, quality and efficiency, concurrence and environmental sustainability, among others. It also establishes criteria for coverage and social inclusion related to social groups, communities and nationalities, the hiring of human talent residing in the area of influence and the use of a national component in the development of PPP projects.

1. About PPP Contracts

Definition: a PPP association is defined as a long-term delegated management contractual modality in which the experience, knowledge, equipment, technologies and technical and financial capacities of the private sector are incorporated, in order to fulfill one or several of the following activities: design, finance, build, improve, operate and maintain a new or existing public asset and/or provide the maintenance, administration and supplies of a public service. Under this scheme the risks are distributed between the parties, with the Private Manager assuming significant risks. The Private Manager’s consideration will be linked to its performance.

Classification: projects are classified as self-financed by the Private Manager and co-financed between the Private Manager and the Delegating Entity.

Duration and value: PPP contracts must have a term of between 5 and 30 years. Exceptionally, this term may be extended for 10 years. The minimum Total Value of a PPP project shall be US$ 20 million. In the case of the GAD it will be US$ 10 million.

Public Trust Funds: the Regulation creates the possibility for the State to have public trust funds for (i) financing preparation studies; (ii) fiscal risk coverage; (iii) liquidity to meet firm commitment obligations; and, (iv) others that the CIAPP resolves to promote the bankability of PPP projects. The assets may originate from the General State Budget, the private sector and/or reimbursable and non-reimbursable financing.

Stability and Incentives: legal stability will apply to sectoral and specific regulatory aspects declared as essential in a PPP contract. Tax incentives may be established in the investment contracts. Exemption from foreign trade taxes and foreign currency outflow taxes must be requested and justified by the Delegating Entity. Other tax incentives may be granted by the CIAPP.

1. Economic-financial regime and risk allocation

Project revenues and compensation: the Private Manager will be paid through public resources, payments made by the users, payments derived from the commercial exploitation of the project or a combination of the above. In projects related to new or existing public infrastructure, payment by the Private Manager in favor of the Delegating Entity may be determined. Revenues and expenses will be administered through a commercial trust according to the type of project and the conditions established in the bidding documents, contracts and other regulations. The tariff scheme will be determined by the Delegating Entity.

Risk distribution: the risk analysis shall be performed by the Delegating Entity in order to identify, prioritize and quantify the risks associated with the PPP project and their distribution between the Private Manager and the Delegating Entity.

Financing: the Private Manager may establish the necessary guarantees to ensure the financing of the project. The Regulation establishes the general scheme of rights of the financiers in PPP projects.

1. PPP Project Cycle

The Regulation determines the following phases of a PPP project:

• Planning and eligibility phase: includes the elaboration of the project profile, verification of alignment with general planning, incorporation of the project in the National PPP Registry and determination of eligibility criteria.
• Structuring phase: includes the (i) pre-feasibility studies, which must materialize in a Preliminary Technical Report issued by the Delegating Entity with which the MEF will issue a Preliminary Sustainability and Fiscal Risks Report; (ii) feasibility and transactional stage, in which the pre-feasibility studies are concluded and adjusted, the bidding documents are formulated, the draft PPP contract, among others, with which the Delegating Entity will issue the Final Business Case; (iii) public bidding, for which the Delegating Entity will determine an award variable, these variables are related to the contributions of state resources, the remuneration to the State, the tariff level, among others; and, (iv) award of the PPP contract, from which the successful bidder will have 90 days to confirm compliance with all the necessary conditions such as the incorporation of a sole purpose company and the presentation of insurance and guarantees for the execution of the PPP contract.
• Execution and management phase of the PPP contract: includes the provision of infrastructure and/or services object of the PPP contract, the supervision of the execution by the Delegating Entity and the articulation of coordination actions between the parties. The creation of one or more commercial trusts for the administration of all the income and expenses of the project is determined. The Private Manager must report periodically on its performance and the Delegating Entity will publish its performance reports annually in the National PPP Registry.
• The Regulation also establishes the rules for the suspension, termination and liquidation of PPP contracts. At the end of the Contract, the assets will revert to the Delegating Entity.

Private initiative: private initiatives must be submitted within the timeframe determined by the CIAPP and always aimed at satisfying a need in accordance with the plans or policies established by the respective level of government. The proponent will assume the totality of the costs of the development of its proposal. The Delegating Entity may declare a private initiative to be of public interest or reject it for cause. If a declaration of public interest is issued, pre-feasibility studies may begin. In 2023 private initiatives may be submitted between July and September, in 2024 between January and March and between July and September.

Prequalification: The Delegating Entity may use a prequalification system when it considers that its amount or complexity could limit the number of bidders.

Dispute Resolution: the PPP contract shall provide for a tiered dispute resolution mechanism. The parties may agree that disputes of a technical nature shall be heard by a Combined Dispute Board whose decisions shall have binding effect.

Reformatory and Derogatory Provisions: the Regulation includes reformatory provisions to the General Regulation of the Organic Code of Planning and Public Finances, mostly related to the determination and management of fiscal risks. The rule that any modification to a PPP contract under execution will require the opinion of sustainability and fiscal risks issued by the MEF is maintained. The 3 Executive Decrees that regulated this matter are expressly derogated.

 

Specialist in Infrastructure
Jimmy Rodríguez, associate at CorralRosales
jirodriguez@corralrosales.com
+593 2 2544144