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/