In 2011 a referendum held in Ecuador in which, among others, the following question was asked: Do you agree that businesses dedicated to gambling, such as casinos and gambling halls, should be prohibited in the country? A majority of the population voted in favor of the consultation and, consequently gambling was banned.
On May 17, 2023, the President of the Republic issued a Decree-Law for the Strengthening of the Family Economy and, on June 16 the Constitutional Court issued a favorable opinion.
This Decree-Law creates the “Single Income Tax on Sports Betting Operators”. The taxable event, explains Andrea, “is receiving Ecuadorian source income derived from sports betting activities carried out live, through internet or any other means”.
Andrea states in the article that the tax rate is 15% of the taxable base, and will be calculated according to the following rules:
- Operators with tax residence in Ecuador: The taxable base will be equal to the total income (including commissions) minus the total prizes paid in the same period. Prizes will be deducted from the taxable base if 15% of the value of the prize has been withheld by the operator.
- Non-resident operators: The taxable base will be equal to the total amount paid by the user in each transaction, i.e., the total value of the bets. If the bet is made through an intermediary, the intermediary must collect the tax from the user and pay it to the Internal Revenue Service.
Additionally, our Partner indicates that “the beneficiaries of the prizes will pay a 15% tax on the value of each prize received, in cash or in kind. If the price is paid by an operator located in Ecuador, the operator must withhold the tax”.
Consequently, “those users who place bets through non-resident operators, will be subject to a higher tax than those who place bets through resident operators, since, in this case, they will only pay the tax on the value of the prizes; while, in the first case they will pay a tax on the value of the prizes and on the bets”.
In the present case it is important to take into consideration that users who place bets through non-resident operators are already subject to a higher tax burden, since the value of their bets is subject to the payment of: (i) outflow tax (ISD), if the user, within each fiscal year, exceeds the tax exempt value; and, (ii) Value Added Tax (VAT).
“The Single Income Tax on Sports Betting Operators will become effective as from January 1, 2024. Therefore, the Presidency must issue the necessary rules to regulate its collection until December 31, 2023. It is to be expected that these regulations will clear, among others, the doubts raised in the preceding paragraphs”, she concludes.