Law for economic development and fiscal sustainability after the COVID-19 pandemic

Below, we analyze the wealth taxes created by the Law for Economic Development and Fiscal Sustainability after the Covid-19 Pandemic, published on the Official Gazette 587, Third Supplement, of November 29, 2021:

1.    Wealth tax for individuals:

Taxpayers: Individuals who, as of January 1, 2021, have an individual net worth equal to or greater than US$1,000,000.00; or, marital partnership, with a net worth equal to or greater than US$2,000,000.00, in accordance with the following: 

–    In the case of individuals with tax residence in Ecuador, the contribution will be calculated over the assets located inside and outside the country. 
–    In the case of non-residents individuals, the contribution will be calculated over the assets located in the country.

Substitute taxpayer: Companies located in Ecuador whose shareholders are non-residents will act as substitute taxpayers.

Taxable base: The net worth is equal to the value of the assets (including rights) minus liabilities that are directly or indirectly owned by the taxpayer through any means, as of January 1, 2021. The following must be considered for the calculation of the net worth:


–    The proportional equity value of the shares held in companies that, in turn, are required to pay the corporate wealth tax, and that have made such payment, must be excluded.


–    The value of properties that preserve primary forests and areas of ecological diversity that have limitations for their exploitation should be excluded. 


–    Accounts payable to related parties should be excluded from the liabilities unless the loans were granted under market conditions and were used for productive purposes.


–    The value of the net worth may be reduced in up to US$200,000.00 if the individual owns a first home and/or unproductive agricultural land. 

Tax rate: The applicable tax rate shall be calculated in accordance with the following chart:

 

Tax Return: The tax return and payment of the wealth tax must be made until March 31, 2022. Payment facilities may be requested for a term of 6 months and without any initial installment. 

2.    Corporate Wealth Tax:

Taxpayer: Entities that carry out economic activities and have a net worth equal to or greater than US$5,000,000.00 as of December 31, 2020.

Taxable Base: The taxable base will be equal to the value of the net worth of the entity in the fiscal year 2020 as stated in the income tax return filed for such year.

Tax Rate: The applicable tax rate shall be calculated in accordance with the following chart:

 

Tax return: The tax return and payment of the first wealth tax must be made until March 31, 2022, and of the second until March 31, 2023. Payment facilities may be requested for a term of 6 months and without any initial installment. The law does not establish whether entities that had losses in the fiscal years 2020 and 2021 are excluded from paying the tax.

Sanctions: The following penalties shall apply: 

–    Failure to file the return will be sanctioned with a surcharge equal to 50% of the tax.
–    Inaccurate returns (i.e. those in which the total value of the net worth is concealed) will be sanctioned with a surcharge equal to 20% of the value of the difference.

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