Tag Archives: Ecuador

The Law on Energy Competitiveness (“LOCE”) was published in the Second Supplement of the Official Registry on January 11, 2024. Below, we summarize the most important energy and tax matters:

1.    Projects included in the Master Plan for Electricity (“PME”) may be delegated to private entities through public selection processes in the following cases:

a.    When it is necessary to meet the public interest, or
b.    When the service cannot be provided by entities wholly or partially owned by the Government, according to the needs of the electric system.

2.    Projects not included in the PME based on unconventional renewable energies that have been identified by the private sector may be delegated to their promoter if the project does not exceed 10MW in power. Larger projects must be delegated through a public selection process, and benefits will be recognized for the promoter’s participation.

3.    The construction, operation, and maintenance of public lighting systems may be delegated to private companies.

4.    All projects delegated to the private sector must be developed by companies established in Ecuador.

5.    The delegation to the private sector of existing infrastructures financed with the General State Budget is prohibited. Entities wholly or partially owned by the Government Public shall be responsible for managing such infrastructures.

6.    Private entities may build new networks and distribution infrastructure to supply electricity for commercial and industrial clients isolated from the electric distribution grid. Expenses incurred for this purpose will be considered deductible for calculating the applicable income.

7.    Regulated and non-regulated consumers may install distributed generation systems for self-supply (“SGDA”). These systems must use unconventional renewable energies and can be owned by the consumer or a third party.

The depreciation and amortization value of the equipment, and technology acquired for SGDA implementation will be deductible with an additional 100% for income tax purposes.

8.    Energy block transactions may be conducted through the sale of energy via contracts signed by participants in the electric sector or through short-term transactions.

9.    Clients who make payments for public electricity and lighting services until June 30, 2024, will not be subject to interest payments. Clients located in Manabí and Esmeraldas will not be subject to paying any amount due for the services received during the state of emergency caused by the 2016 earthquake. These benefits do not apply to industrial clients.

10.    Other tax regime amendments include:

a.    0% VAT rate will apply to the transfer of equipment and accessories for solar photovoltaic generation and wastewater treatment plants.

b.    Electric vehicles are described as those propelled solely by electric power sources, with batteries charged exclusively using this type of energy and that produce zero direct polluting emissions. Electric vehicles shall not be understood as those that have self-generation systems with an internal combustion source.

c.    The remission regime is amended, payment must be made by July 31, 2024.

d.    The Foreign Trade Committee (COMEX) shall tax agricultural machinery that works with clean energy sources with a 0% tariff. This amendment must be carried out until May 10, 2024.

e.    Payments made abroad by private financial institutions for credits and financial returns from fixed-term deposits or investments, will not be exempt from the payment of Outflow Tax (ISD) until January 11, 2025.

The President of the Republic must issue the applicable regulations by February 10, 2024.

Carlos Torres, Senior Associate at CorralRosales
ctorres@corralrosales.com
+593 2 2544144

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

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

1. The Executive Decree 98 by which it is established that the outflow tax (ISD) rate will remain at 3.50% until December 31, 2024.
2. The Executive Decree 99 which amended the following regulations:

• The voluntary income tax advance payment may be performed until January 31 of each year. Before the reform, such payment was allowed until December 31.
• Veterinary services are included as health services subject to 0% Value Added Tax (VAT).
• It is clarified that taxpayers must keep the documents that support the accounting for 7 years.

• Taxpayers classified as Large Taxpayers must include the legend “Large Taxpayer” in their invoices.

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

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

On November 14, 2023, the Labor Ministry by means of the Ministry Agreement No. MDT-2023-056 order:

–    To suspend and interrupt all terms and deadlines related to the registration of employment contracts, termination minutes, sanction resolutions, inspection files, inspection receipts, and thirteenth and fourteenth registries for the year 2023, as of 15 December 2023. This suspension includes any procedures that depend on the computer systems of the Labor Ministry.

–    The terms and deadlines will be resume when the computer systems of the Labor Ministry are enabled, which shall be communicated through the available electronic means, and the fines resulting from the failure to register information in these systems will not be imposed.

–    The following procedures may be submitted to the counters set up for this purpose by the Labor Ministry:

a)    Inspections request.
b)    Legal termination of the employment relationship (visto bueno) request.
c)    Legal termination of the employment relationship (visto bueno) response.
d)    Petitions.
e)    Collective bargaining agreement request.
f)    Employees associations notification.
g)    Unique ballot.
h)    Legal termination of the employment relationship (visto bueno) suspension consignation.
i)    Termination of the labor relationship consignations (provided that the minutes are registered in the SUT beforehand).

–    The termination minutes or employment contracts may be concluded or registered before the labor inspector of the respective jurisdiction. However, once the Labor Ministry computer services are regularized, registration may be formalized.

Edmundo Ramos, Socio en CorralRosales
eramos@corralrosales.com
+593 2 2544144

The “Law for Economic Efficiency and Job Creation” was published on December 20, 2023, in the Supplement of the Official Gazette 461. Below, we detail the most important content regarding tax and customs matters:

1.    Temporary tax domicile: Non-tax residents who enter Ecuador can apply for a temporary tax regime. This regime allows the payment of income tax solely on Ecuadorian source income. The following individuals are eligible for applying this regime: (i) those who invest in real estate or productive activities of at least US$150,000; or (ii) those who have monthly earnings of at least US$2.500 over which social security contributions are paid.

2.    Income tax exemptions: Those taxpayers who invest in non-conventional renewable energy and the production, industrialization, transportation, supply, and commercialization of natural gas or green hydrogen, will be exempted from income tax for 10 years from the year in which income is generated. The exoneration will not exceed the total amount of investment.

3.    Benefits for the tourism sector: Those taxpayers who make new investments in tourism projects qualified by the Ministry of Tourism will be exempted from income tax for 7 years from the year in which income is generated. The investment projects must be of at least US$100,000.00 and 10% must be destined for rural tourism.

Taxpayers registered in the Ministry of Tourism’s registry as tourism service providers will not be required to withhold income tax on payments made abroad for commissions paid to lodging platforms.

4.    Additional deduction for employment generation: Those who generate a net increase of jobs for:

a.    Young people between 18 and 29 years of age will be entitled to an additional deduction of 50% of the value of the salaries on which social security contributions have been made. The deduction will be an additional 75% if the young people are graduates of public institutions.
b.    Workers in the construction and agriculture sectors will be entitled to an additional deduction of 75% of the value of the wages.

5.    Tax stability: Taxpayers who pay 2 additional percentage points over the applicable income tax rate are entitled to tax stability over the tax regime.

6.    Self-withholding for large taxpayers: Large Taxpayers will not be subject to income tax withholding, except in those transactions carried out with the public sector.

However, they will be required to self-withhold income tax over their taxable income. The withholding percentage will be set by the Internal Revenue Service.7.    CFC Rules: The CFC (Controlled Foreign Corporation) regime is created to prevent the taxpayer from deferring the payment of income tax through structures incorporated abroad.

For such purpose, the tax resident in Ecuador is attributed, for the calculation of its income tax, the income of companies located abroad even if such income has not been distributed.

8.    VAT paid on real estate projects: There will be a right to obtain a refund of VAT paid on the acquisition of goods and services for the construction of real estate projects.

Real estate projects must be qualified by the Ministry of Urban Development and Housing. Projects intended for owner-occupied housing do not require qualification.

9.    Banking: The use of the financial system is mandatory for all transactions over US$100.00 (the currently value is US$1,000.00).

10.    Sports Betting Operators: The “Income Tax on Sports Betting Operators” was amended. The tax will be applicable as of July 2024.Both resident and non-resident operators are required to pay 15% of their total income minus the prizes paid in respect of which withholding tax has been applied. Non-resident operators will be required to appoint an agent in Ecuador and obtain a tax ID.

11.    Calculation of customs tariffs: The freight cost is reinstated for the calculation of the taxable base of customs duties.

12.    Investment contracts: Job creation is required for applying tax incentives for new investments. The importation of capital goods and raw materials will be exempted from payment of outflow (ISD) and customs duties. The exemption of other import taxes is eliminated.

13.    Free Trade Zones: The Free Trade Zone regime is established under a multi-business modality. The activities that can be developed in a Free Trade Zone are:

a.    Production of goods, such as manufacturing, agriculture, aquaculture, and forestry.
b.    Provision of services, including tourism, auditing, consulting, professional services, telecommunications, healthcare, scientific research, and technical support.
c.    Commerce and logistics, such as transportation, storage, distribution, and handling.

The free trade zone regime will have the following characteristics:
a.    Tax regime: Tax benefits include:
–    Income tax rate of 0% for 5 years and 15% for the entire period of the regime.
–    Exemption of foreign trade taxes on the import of capital goods and raw materials, destined to the free trade zone.
–    Exemption from Value Added Tax (VAT), Outflow Tax (ISD), foreign trade taxes and other taxes that may be created in the future regarding the transactions carried out within the free trade zone.
–    Exemption of income tax on dividends paid by operators and users to their shareholders.

b.    Customs regime and foreign trade:
–    Goods that enter the free trade zone from the Ecuadorian territory shall be considered as exported.
–    Goods that enter the Ecuadorian territory from a free trade zone are considered imported. Up to a maximum of 20% of the goods produced in free trade zones can be allocated to the Ecuadorian territory.
–    Goods exported from a free trade zone to third parties are not subject to export customs formalities.

14.    Remission of interest, fines and surcharges: The remission of interest, fines and surcharges is established for the payment of tax obligations collected by the Internal Revenue Service. The payment must be made within 150 days from December 20, 2023.

The President of the Republic, the members of the National Assembly and their relatives up to the fourth degree of consanguinity and second degree of affinity are not eligible for this remission. This prohibition does not include the companies they control or participate in.

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

1.      Since January 1, 2024, the statutory minimum wage of the employee (“SMW”) is set at four hundred and sixty dollars of the United States of America (US$460.00); including the salary of small industry employees, agricultural employees, household employees, maquila employees, microenterprise collaborators and artisans.

2.      The percentage increase SMW of the employee for the year 2024 with respect to the year 2023 is 2.223 % (applicable for fixing sectorial minimum wages).

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