Tag Archives: Ecuador

CorralRosales > Ecuador

Income tax – Advance payment

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By Executive Decree 1137 issued on September 2, 2020, the President ordered the advance payment of income tax for the year 2020, to finance the expenses associated with the health emergency.

The previous Executive Decree 1109 issued on July 27, 2020 that established the same tax was not applied since it was declared unconstitutional by the Court.

The individuals, companies, and permanent establishments that comply with the following conditions are required to pay the advance income tax:

  1. Generate taxable income, except income derived from a labor relationship.
  2. In the year 2019 received gross income equal to or greater than US$5,000,000.00; and,
  3. During the period from January to July 2020, generated profits, with the exceptions of income and expenses derived from a labor relationship.

Taxpayers who are not included in the assumptions previously described are able to pay the advance income tax voluntarily.

The following taxpayers are not required to pay the advance income tax:

  • Micro, small, or medium size companies.
  • Taxpayers that are exempt from paying income tax on the fiscal year 2020.
  • Taxpayers that have registered the province of Galapagos as their tax address.
  • Taxpayers that are regular exporters of goods, or that 50% of their income derives from the export of goods; or,
  • Taxpayers with one of the following economic activities:
    • The operation of airlines.
    • The provision of accommodation and/or food services.
    • Activities of the agricultural and aquaculture sector.

In order to calculate the advance payment, the following formula must be applied:

IR = (85% of UC * 25%) – RFIR20

Where:IR = Advance income tax.

UC = The profit derived from the result of operations carried out from January 1 to July 31, 2020, in accordance with the financial statements and accounting and financial regulations.

RFIR20 = Income tax withholdings made to the taxpayer from January 1st to July 31, 2020, that the taxpayer is able to use as tax credit.

Taxpayers are able to pay the full amount of the advance income tax until September 11, 2020 and will not be able to request payment facilities. The late payment will generate interest and penalties.

The advance income tax will be regarded as tax credit for the payment of 2020 income tax.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Bloomberg – Ecuador: Should You Register as a Nonresident Digital Service Provider?

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DETAILS

DATE: 28-08-2020

CORRALROSALES IN THE NEWS:

-Andrea Moya

MEDIA: Bloomberg

Our partner specialized in Tax, Andrea Moya, published an article in Bloomberg where she explains that starting September 16, 2020, digital services will be subject to 12% VAT due to an amendment made to the Internal Tax Regime Law. Additionally, she analyses some of the matters to be considered by the nonresident digital service providers.

Our partner explains “If the entity registers in Ecuador as a nonresident digital service provider, the entity will be required to collect the VAT from the consumer and pay the VAT to the tax authority. If the entity does not register in Ecuador as a nonresident digital service provider, and the payment is made through an intermediary, for example through a credit or debit card, the credit card issuer will be required to withhold the VAT from the consumer and pay the VAT to the tax authority. If the payment is not made through an intermediary, the consumer will be required to liquidate and pay the VAT to the tax authority.”

Moya point out that, in the case of sharing economy business models, the VAT taxable base is equal to the commission charged by the platform, however, in general, the VAT taxable base is equal to the price of the service.

Our partner explains “The process for registering as a nonresident digital service provider and to file the VAT returns must be regulated by the tax authority. Therefore, one of the challenges of the authority when issuing the regulations will be to establish a simplified process that enables the nonresident provider to comply with its obligations, whether directly or through third-party service providers”.

If you want to read the complete article, click here

Renewal – Tax benefits to new investments

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Through Executive Decree 1130 issued on August 19, 2020, the President of the Republic resolved to extend the term for applying the tax benefits for new investments established in the Law for Productive Development, Attraction of Investments and Employment Generation for an additional 24 months, that is, until August 21, 2022.
Therefore, new investments made until August 21, 2022 will be eligible for the following benefits:
  1. New investments made in prioritized sectors will be exempt from paying income tax according to the following:
    • Investments made in the urban areas of Quito and Guayaquil will be entitled to an income tax exemption for 8 years.
    • Investments made outside the urban areas of Quito and Guayaquil will be entitled to an income tax exemption for 12 years.
    • Productive investments in industrial, agro-industrial, and agro-associative sectors, made in border jurisdictions will be entitled to an income tax exemption for 15 years.

In the case of existing companies, the exemption will be applied proportionally according to the following alternatives:

  • If the company is able to divide its assets, liabilities, income, costs, expenses, profits, and labor participation attributable to the new investment, the exemption may be applied by cost center.
  • The company is able to apply the benefit proportionally according to the following formula:

tax-benefits-new-investments-lawyers-ecuador

The reduction in the income tax rate may not be greater than 10 percentage points, unless the Strategic Committee for the Promotion and Attraction of Investments (CEPAI) authorizes a higheer reduction.

  1. Companies that make productive investments in any sector of the economy, and that enter into an investment contract with the Government, will be exempted from paying Foreign Exchange Tax (ISD) over the following payments:
    • Import of capital goods and raw materials necessary for the development of the project, up to the amounts and terms established in the investment contract.
    • Dividends distributed individuals with tax residence in Ecuador as long as the resources come from abroad and the investor demonstrates the entry of such resources in the country.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Unconstitutionality of income tax advance payment

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Through Judgment 3-20EE / 20A published on August 10, 2020, the Constitutional Court issued an unfavorable judgement regarding Executive Decree 1109 issued by the President of the Republic on July 27, 2020 and declare its unconstitutionality.

Executive Decree 1109 ordered the advance payment of income tax of the fiscal year 2020. Therefore, taxpayers are no longer required to make the advance payment. If the taxpayers paid the advanced income tax, it will be regarded as tax credit or the taxpayers are able to request a refund.

 

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Income tax – Advance payment regulations

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Regulation NAC-DGERCGC20-00000051 issued by the General Director of the Internal Revenue Service published on the Official Registry 854 of August 5, 2020 regulates the advance payment of income tax for the year 2020, ordered by Executive Decree 1109.

1. Taxpayers required to make the advance payment:

The individuals, entities, subsidiaries, and permanent establishments of foreign entities that comply with the following conditions are required to pay the advance income tax:
  1. Generate taxable income, except income derived from a labor relationship.
  2. In the year 2019 received gross income equal to or greater than US $5,000,000.00; and,
  3. During the period from January to June 2020, generated profits. In the case of individuals, in order to calculate the profits, income and expenses derived from a labor relationship should not be considered.

2. Taxpayers not required to make the advance payment:

The following taxpayers are not required to pay the advance income tax:
  • Micro, small, or medium size companies.
  • Taxpayers that are exempt from paying income tax on the fiscal year 2020.
  • Taxpayers that have registered the province of Galapagos as their tax address.
  • Taxpayers that are regular exporters of goods, or that 50% of their income derives from the export of goods; or,
  • Taxpayers with one of the following economic activities:
    • The operation of airlines.
    • The provision of accommodation and/or food services.
    • Activities of the agricultural sector.
    • Activities of the aquaculture sector.

3. Amount of the advance payment:

In order to calculate the advance payment, the following formula must be applied:

IR = (85% of UC * 25%) – RFIR20

Where:

IR = Advance income tax.

UC = The profit derived from the result of operations carried out from January 1 to June 30, 2020, in accordance with the financial statements and accounting and financial regulations. In order to calculate the profit, the employees profit sharing must not be deducted.

RFIR20 = Income tax withholdings made to the taxpayer from January 1st to June 30th, 2020, that the taxpayer is able to use as tax credit.

In order to calculate the advance payment, the taxpayer must issue the financial statements as of the closing of June 30, 2020.

4. Settlement the advance payment:

The settlement of the advance payment will be made through the Income Tax Advance Payment Form (form 115).

Taxpayers whose 2019 taxable income was higher than US$5,000,000.00, must file the return until August 14, 2020, even if: (i) the taxpayer does not generate an amount to be paid; or, (ii) if the taxpayer income in 2020 is considered exempt for income tax purposes.

If the taxpayer files the return once the term has expired, it would be required to pay a fine equal to 3% for each month or fraction of a month of delay. The fine will be calculated over the total of the advance tax or, over its profit if an advance payment is not generated.

The advance tax may be paid with the tax return, either in a single payment or in three installments as follows:

  • The first installment on August 14, 2020;
  • The second installment until September 14, 2020; and
  • The third installment until October 14, 2020.

If the payment is not made within these dates, the taxpayer will be required to pay interests.

5. Tax credit:

The advance income tax will be regarded as tax credit for the payment of 2020 income tax. If the value of the advance payment is higher than the income tax generated, the taxpayer may request the reimbursement or may use the excess as credit tax for the payment of income tax for the three following fiscal years.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Amendment to the codification of regulations issued by SERCOP

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By Regulation No. RE-SERCOP-2016-0000072 published on the Official Registry on July 29, 2020, the Codification of Regulations issued by SERCOP was amended.
The main amendments are:
  1. In the technical specifications, terms of reference, market research, proforma invoices or quotations, each work, good or service must be broken down and listed.
  2. It is mandatory for public entities and suppliers to execute relevant documents from the pre-contractual, contractual and execution phase by means of electronic signature; and their validation shall be done through the official system FirmaEC. Additionally, suppliers must have a valid electronic signature certificate issued by one of the certification entities, authorized by the Telecommunications Agency. This obligation will be enforceable within 90 days from July 29, 2020.
  3. Individual and entities, both national and foreign, interested in qualifying as suppliers for the State, when registering shall select only those projects, goods and/or services which codes within the Central Product Classifier, CPC, are directly related to their economic activity registered in the tax ID (RUC), and their statutory corporate purpose. In the case of foreign entities, they must justify their commercial activity. If the documents are in a foreign language, the Spanish translation must also be submitted.
    In the case of associations and consortiums, all the participants must have registered the CPC codes related to the procedure. If the contract includes several CPC codes, at least one participant must be qualified for each code. A participant will not be permitted to qualify for the execution of a CPC code that is not related to its activity or corporate purpose.
    In the case of requests for registering new suppliers in the supplier’s registry (RUP), and requests for increasing CPC codes for suppliers already registered, the requirement described above shall be enforceable within 90 days from July 29, 2020.
  4. Government entities that create associations and consortiums shall participate in equal conditions with the other interested suppliers. For this purpose, they would not be able to take advantage of the provisions of article 2(8) of the Public Procurement System Law: without considering the percentage of participation of the members of the association or consortium. 
  5. The award resolution in all public procurement procedures shall be issued in a term not less than 3 days from the date the administrative act that ends the bid qualification, bidding, or negotiation, is issued. This resolution shall be published in the SERCOP portal within 1 day.
    If the procedure is not awarded within 30 days, the entity must notify the SERCOP the reasons.
    In the event of a complaint or claim filed before SERCOP regarding the procurement procedure, or by SERCOP’s own initiative, the contracting entity, once notified, may not award, or enter into the contract until SERCOP decides on the matter.
  6. In public procurement procedures, except for emergency procedures, once the procedure has been awarded, the contract shall be entered into with the awarded bidder after at least 3 working days from the date of the award.
  7. Emergency Contracts: 
    • Public entities, besides being subject to the Public Procurement System Law, shall be subject to the procedures established in the SERCOP regulations.
    • The maximum authority of the contracting entity or its delegate, shall carry out the qualification of suppliers verifying their legal, economic, and technical capacity, through an administrative act.
    • The economic activity of the suppliers shall be related to the object of the contract. In the event of non-compliance, the contracting entity may unilaterally declare the termination of the contract.
    • Regulations establish a specific procedure for public procurement during an emergency. This procedure does not apply for medicines, medical devices, and supplies, biochemical or diagnostic reagents and other strategic goods or the provision of health or funeral services.
      In this procedure, suppliers shall be required to accept the conditions and to expressly adhere to the technical conditions defined by the contracting entity. In the event of non-compliance, the contracting entity may unilaterally declare the termination of the contract.
      The decision to award the contract or to declare it void shall be taken by the highest authority of the contracting entity.
    • Emergency procedures for the procurement of listed goods and services are prohibited unless the highest authority of the contracting entity issues a decision stating the reasons that makes it impossible to meet or overcome the emergency. This resolution will be subject to analysis by the SERCOP.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Auxiliary Services to Air Transport: What is behind a flight operation?

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If we ask any passenger about their next trip, we find that most of them think that during the flight they are in the hands of the pilot and we tend to think the same way. Well, the truth lies in the fact that no flight crew can operate without a large team of people doing their groundwork.

Behind the operation of a flight there are providers of “Auxiliary Services to Air Transport” that are technical services specialized in supporting air transport operations. Ground handling addresses many services required for the aircraft; from the time it arrives at the terminal to the time it departs on its next flight. Speed, efficiency and precision are important in ground-handling services to minimize response time. This is the time during which the aircraft must remain parked in the terminal; these services include the following activities:

1. Operational Flight Dispatch

There is a team in the operations center of each airline, which monitors every minute of the flight.  They are called the eyes and ears of the crew. So much so that, when the pilot announces a change of route due to weather conditions, for example, it is likely that this decision was not made by the pilot in the cabin of the plane, but by the flight dispatcher in the center of ground operations that could even be hundreds of kilometers away from where the aircraft is located.

Dispatchers not only plan the flight, they monitor it and are ready to provide any information pilots require, at any time.

2 Ramp Service

These are services that are provided on the airport platform or runway and are directly related to all the activities that are carried out with the aircraft to execute the flight. Among the main ones we find:

  • Guide the aircraft in and out of the parking position, both at landing when it is routed to the passenger sleeves to disembark, and at takeoff when the aircraft is driven to the runway.
  • Load water for the toilets in the aircraft and drain.
  • Supply engine-starting units.
  • Handle the loading and unloading of luggage, generally by means of belt loaders and luggage carts.
  • Handle air cargo, generally through loading platforms and loaders.
  • Refueling, which can be done with a refueling tank truck or refueling pump.
  • Provide power on the ground (so that the engines do not need to be running to provide power to the aircraft on the ground).
  • Provide passenger stairs (used in place of a bridge or aerial stairs. Some airlines on a budget use both to improve response speed).
  • Provide wheelchair lifts, if passengers require them.
  • Supply hydraulic mules (units that provide hydraulic energy to an aircraft externally).
  • Provide de-icing equipment, which is the process of removing snow, ice or frost from the surface of the aircraft using chemicals that not only defrost, but also protect the surface and help delay the formation of ice during a certain period of time, or avoid ice adhesion to facilitate mechanical removal.

3. Passenger services

These services are carried out at the airport terminal and range from the passenger’s arrival at the airport to boarding the aircraft or leaving the terminal. Among the main tasks we find:

  • Provide counter services for the registration and billing (check-in) of each passenger prior to boarding the flight.
  • Provide assistance to passengers on arrival and departure at the boarding gate.
  • Staff the transfer and customer service desks.

4. Catering Service

It consists of loading and unloading food and beverages that will be served during the flight for both passengers and crew. The service is not limited to preparing food, but it must comply with sanitation standards, adequate forms of packaging, as well as waste management. This service should ensure, as far as possible, minimal preparation activities in the air, limiting them to heating the food when necessary.

5. Cleaning and disinfection of aircraft

The first step is cleaning the exterior of the aircraft, the fuselage. Care is taken in areas such as propellers, brakes and the surroundings of electric chargers to ensure that there are no elements that cause static. While the exterior cleaning is carried out, so is the cabin work, both cleaning and disinfection. For these activities, there are international standards that must be followed and are constantly updated.

It must be taken into account that the majority of airlines subcontract these auxiliary services and that their providers are generally the same airports, and assistance agents that are duly qualified by the aeronautical authority of each country or even another airline. According to the International Air Transport Association (IATA), it is estimated that airlines outsource more than 50% of ground-handling services to fulfill their operations at airports around the world.

Therefore, compliance with local regulations and excellence in the provision of these services make airlines opt to subcontract them, allowing operations to be carried out quickly and effectively. All this translates this efficiency into greater safety of operations and of course optimization and better profits.

 

Verónica Olivo
Associate at CorralRosales
volivo@corralrosales.com

Income tax – Advance payment

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By Executive Decree 1109 issued on July 27, 2020, the President ordered the advance payment of income tax for the year 2020, to finance the expenses associated with the health emergency.

The individuals, companies, and permanent establishments that comply with the following conditions are required to pay the advance income tax:

  1. Generate taxable income, except income derived from a labor relationship.
  2. In the year 2019 received gross income equal to or greater than US$5,000,000.00; and,
  3. During the period from January to June 2020, generated profits, with the exceptions of income and expenses derived from a labor relationship.

Taxpayers who do not meet these three conditions are able to pay the advance income tax voluntarily.

The following taxpayers are not required to pay the advance income tax:

  • Micro, small, or medium size companies.
  • Taxpayers that are exempt from paying income tax on the fiscal year 2020.
  • Taxpayers that have registered the province of Galapagos as their tax address.
  • Taxpayers that are regular exporters of goods, or that 50% of their income derives from the export of goods; or,
  • Taxpayers with one of the following economic activities:
    • The operation of airlines.
    • The provision of accommodation and/or food services.
    • Activities of the agricultural sector.
    • Activities of the aquaculture sector.

I order to calculate the advance payment the following formula must be applied:

IR = (85% of UC * 25%) – RFIR20

Where:

IR = Advance income tax.

UC = The profit derived from the result of operations carried out from January 1 to June 30, 2020, in accordance with the financial statements and accounting and financial regulations.

RFIR20 = Income tax withholdings made to the taxpayer from January 1st to June 30th, 2020, that the taxpayer is able to use as tax credit.

Taxpayers are able to pay a higher value than the result of the formula. Likewise, if the taxpayer made voluntary income tax advance payments prior to the date the decree was issued, these payments will be attributable to the value of the advance income tax.

Taxpayers are able to pay the full amount of the advance income tax until August 14, 2020 or, in three equal installments until the 14th of the months of August, September and November 2020. The late payment will generate interest and penalties.

The advance income tax will be regarded as tax credit for the payment of 2020 income tax.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

TAG Alliances – Ecuador: Guidelines for the Application of the Law on Humanitarian Support

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DATE: 21-07-2020

MEDIA: TAG Alliances

“The alliance of professional services firms TAG Alliances, of which CorralRosales is a member, has echoed our labor bulletin on the guidelines to apply the new labor regulations contemplated in the “Organic Law of humanitarian support to combat the health crisis arising from COVID-19”, issued last July 15 through ministerial agreements.

According to the agreement to preserve labor sources, the employer must update in the SUT – Humanitarian Law module – the employee’s data in accordance with the agreement signed, including its term. The agreements may be registered as of July 31, 2020. Employers who have signed agreements with their employees prior to the issuance of Agreement 132, will have 15 business days to register the information.

Another agreement reached is in the emerging special employment agreement. The employer must register in the SUT the information about the employee and the agreement, within 15 days from the beginning of the labor relationship. As in the previous case, they shall be able to register as of July 31 and will have 15 working days to register the information if the employers signed agreements with their employees prior to the issuance of Agreement 132.

Regarding the working-day reduction, it may be implemented when faced with situations of unforeseen circumstances or force majeure in the terms provided for within the Civil Code. The conditions and characteristics regulated to be able to take advantage of this reduction include the time of reduction, the term, the remuneration, the contributions to the IESS, the labor benefits, the compensations, the exceptions, the registration in the SUT and the notification. To read the news about our bulletin, click hereSi quiere leer la noticia sobre nuestro boletín, pulse aquí

In CorralRosales we publish a portal in which we inform you about all the legislative updates approved due to the health crisis caused by the Covid-19, such as the Law of Humanitarian Support. Click here to view it.

Teleamazonas – The Ministry of Labor issued the agreements on labor related matters

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DETAILS

DATE: 16-07-2020

CORRALROSALES IN THE NEWS: 

-Edmundo Ramos

MEDIA: Teleamazonas

Television network Teleamazonas conducted an interview with our partner Edmundo Ramos as an expert on labor practices to find out his opinion on the labor changes that began to take place since last March, following the arrival of the health crisis caused by Covid-19. These changes shall be implemented, after the Ministry of Labor issued the agreements with the guidelines for the application of the registration of the types of work and the emerging working-day reduction.

“These agreements specify the procedure to be followed and the deadlines in those cases where employers have already implemented these alternatives,” explained our Partner.

Regarding compensations, within the interview it was clarified that in the event of layoff during the emerging working-day reduction, these compensations, payments and other legal benefits will be calculated based on the salary received by the employee before the reduction.

These guidelines are based on what is stated in the Humanitarian Support Law approved by the National Assembly. In an example given in the interview, it is explained that the emerging contract duly signed shall be registered by the employer in the “Single Work System” (SUT) within fifteen days from the date of execution.

“In the case of emerging working-day reduction, it is established that this reduction shall not be applied if another of the reduction formulas contemplated by law is in force at the time,” adds Ramos.

If you want to see the complete interview, click here

Click here if you want to see the guidelines for the application of the Humanitarian Support Law.

Click here for our information document on the Humanitarian Support Law.

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