Special consumptions tax (ICE) – Tariffs applicable in 2021

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The General Director of the Internal Revenue Service issued three regulations on December 23, 2020, which were published in the Second Supplement of the Official Registry 359 on December 29, 2020, which are:

1. Regulation NAC-DGERCGC19-00000078 establishes the Special Consumption Tax (ICE) specific tariffs applicable in 2021:

Compared to the tariffs applicable in 2020, the tariffs for cigarettes and soft drinks remain the same, the tariff for plastic bags increases -established by law- and the remaining tariffs are slightly reduced compared to 2020.
2. Regulation NAC-DGERCGC19-00000079 adjusted the manufacturer’s and ex-customs’ sales price value by US$4.29 per liter for applying the Ad Valorem tariff on alcoholic drinks, including beer, applicable for fiscal year 2021.
In 2020 the value was US$4.33 per liter.
3. Regulation NAC-DGERCGC19-00000080 established the percentages of increase to be applied over the ex-customs price or the total production costs to determine the referential prices of perfumes and toilet waters marketed through direct sale (the manufacturer or importer sells to final consumers directly and not through commercial establishments), for fiscal year 2021, according to the percentages detailed in the following table:

The values detailed in the table are the same as those established for the year 2020.
For calculating the tax, the total production costs of the nationally manufactured goods must include raw materials, direct labor, and indirect manufacturing expenses.
Any royalty payments calculated on the basis of volume, value or amount of sales will be considered part of the total production costs for calculating the tax. However, if the royalties do not exceed 5% of the sales, they should not be considered as part of the taxable base.

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Tariffs applicable in 2021 for calculating income tax

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Regulation NAC-DGERCGC19-00000077 issued on December 23, 2020, by the General Director of the Internal Revenue Service establishes the tariffs applicable in the fiscal year 2021 for calculating income tax.

1. Tariffs for calculating and paying income tax applicable to income received by Individuals and Undivided Inheritances in the fiscal year 2021:

2. Tariffs for calculating and paying income tax applicable to patrimonial increase derived from inheritances, legacies, donations, discoveries and any type of act or contract by which the ownership is acquired free of charge of goods and rights in the fiscal year 2021:

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Tax regime for small businesses

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Resolution NAC-DGERCGC20-00000060 issued on September 29, 2020 and published in the Special Edition of the Official Registry 1100 on September 30, 2020, the Director of the Internal Revenue Service established the rules for applying the tax regime for small businesses.

1. Definitions

  1. Small business: It is a productive unit that has up to 9 workers and an annual revenue equal to or less than US$300,000.00. For classifying an enterprise as a small business, the amount of income will prevail over the number of workers.
  2. Main economic activity: The economic activity registered in the Tax Registry (RUC) which generates the higher amount of income during a fiscal year in comparison with the other activities.
  3. Commissioner: Individual, corporation or permanent establishment that habitually engages in the sale of goods, rights, or the provision of services in exchange for a commission.
  4. Capital gains: Profits derived from the placement of capital, shares, credits, and investments of any nature, as long as they do not involve productive processes, the provision of services or other work. For example, the lease of real estate.
  5. Self-employed individuals: Individuals who regularly performs an economic activity on his own account without a labor relationship and receives an income different from a salary or wage. Economic activities of liberal occupation are excluded.
  6. Professional services: Services provided by individuals who have a professional title and are directly related to that title. Including activities related to education, teaching and training related to the professional title.

2. Inclusion/exclusion from the microenterprise regime

The Internal Revenue Service will be able to include or exclude ex officio in the register of small businesses those taxpayers who fulfill or no longer fulfill the conditions to be considered as such. This registry will be published on the IRS website until September 30 of each year.

Taxpayers will be subject to this regime from the first day of the fiscal year following their inclusion of the registry.

The ex officio exclusion will be executed without the need for prior notice and will take effect from the first day of the fiscal year following that exclusion.

Taxpayers who have been subject to the regime for 5 years will cease to be part of it from the first day of the year following the date on which the maximum time was reached.

When taxpayers consider that their inclusion or exclusion from the regime is not appropriate, they are able to file a petition to have that decision reviewed in a term of 20 days counted from the publication of the registry.

3. Registration of new taxpayers

When obtaining the tax registry (RUC), the taxpayer must inform the Tax Authority all its economic activities, the income that might be derived from such activities and the number of workers.

If the taxpayer fulfills the conditions to be considered as a small business, it will be able to start its activity under the small business regime. Otherwise, he will begin its activity subject to the general regime and the authority is able to include the taxpayer in the regime ex officio.

4. Limitations to the regime for microenterprises

Taxpayers who exclusively develop one or more of the following activities will not be subject to the small business regime:

  1. Those taxpayers who are subject to the Simplified Tax Regime for Ecuador (RISE) and Simplified Tax Regime for the Organizations of the Popular and Solidarity Economy.
  2. International organizations, multilateral organizations, specialized international agencies, non-governmental organizations, government institutions and public enterprises.
  3. The financial institutions subject to the control of the Superintendence of Banks, and the organizations of the popular and solidary financial sector, subject to the control of the Superintendence of Popular and Solidary Economy.
  4. Those taxpayers who exclusively develop construction and urbanization activities.
  5. Those taxpayers who exclusively develop activities of liberal occupation, as well as individuals whose economic activity is the provision of professional services, notaries, and registrars.
  6. Those taxpayers who provide public transport services to passengers, as well as the services of commercial transport.
  7. Those taxpayers who exclusively obtain income from a labor relationship.
  8. Those taxpayers who exclusively obtain income subject to single income tax.
  9. Those taxpayers that exclusively obtain capital gains, including holding companies.
  10. Those taxpayers that carry out exploration, exploitation and/or transportation activities of non-renewable natural resources.
  11. Those taxpayers that receive income from international transport of passengers, cargo, express airlines, or couriers incorporated under foreign laws and that operate in the country through branches, permanent establishments, agents, or representatives.
  12. Distributors of hydrocarbon derivatives, liquefied petroleum gas, natural gas, and biofuels.

5. Taxpayer’s obligations

Taxpayers subject to the small business regime must comply with the formal and material obligations set forth in the law, including the following:

  1. Entities are required to keep accounting books in accordance with the regulations established by the controlling authorities. In the case of individuals, if they are required to keep accounting books, they must follow the International Financial Reporting Standards for SMEs.
  2. Taxpayers are required to issue invoices and withholding receipts and complementary documents in applicable cases. The documents must contain the caption “Small Business Taxpayer”.
  3. Taxpayers are required to file value added tax (VAT), excise tax (ICE) and income tax returns on a semester basis, in the months of July (first semester) and January (second semester).
    However, taxpayers may file the VAT and ICE tax return on a monthly basis, during the entire fiscal year.
  4. Taxpayers must file an annual income tax return, in addition to the semi-annual income tax returns in the following cases:
    • Entities and permanent establishments in all cases.
    • Individuals who receive income from sources different form the activities subject to the small business regime.
    • Individuals who request the reimbursement of income tax.
  5. Taxpayers who are required to file the Simplified Transaction Annex (ATS) must file it every six months. If they choose to file the VAT return on a monthly basis, the ATS must also be filed on a monthly basis.
  6.  Taxpayers who are required to file the excise tax annex must file it every six months. If they choose to file the excise tax return on a monthly basis, the annex must also be filed on a monthly basis.

6. Withholding taxes

Taxpayers subject to the small business regime are not required to withhold income tax or VAT, except if they are qualified by the IRS as special taxpayers or withholding agents and in other cases established by law.

If taxpayers subject to the regime have made withholdings, they must declare and pay them as follows:

  1. Value added tax withholdings on a monthly or semi-annual basis, depending on the periodicity of the VAT return.
  2. Income tax withholdings on a semi-annual basis, in the months of July -first semester- and January -second semester-.
  3. If the taxpayer did not make any withholdings, the return must not be filed.

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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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Payment facilities and exceptional payment plan – IRS

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Regulations NAC-DGERCGC20-00000043 and NAC-DGERCGC20-00000044 issued on June 23, 2020 by the General Director of the Internal Revenue Service, the rules for applying the Second and Third Transitory Provisions of the Law for Humanitarian Support to Combat the Health Crisis arising from COVID-19 were established.

The Second Transitory Provision of said law and Regulation NAC-DGERCGC20-00000043 establish that those taxpayers that applied the tax amnesty provided in the Law for the Promotion of Production, and that from January 2020 to June 22, 2020 have not paid 2 or more installments of their payment facility plan, may cover the amount owed until September 30, 2020 without surcharges, interest or fines.

Furthermore, the Third Transitory Provision of said law and Regulation NAC-DGERCGC20-00000044 establish that those taxpayers that applied the exceptional payment plan provided for in the Law on Tax Simplification and Progressivity, and that as of June 22, 2020 have not paid any of their installments, may cover the amount owed in 12 equal monthly installments, which must be paid on the 28th of each month, beginning July 28, 2020, without surcharges, interest or fines.

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Resumption of terms – IRS

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The Internal Revenue Service, through Regulation NAC-DGERCGC20-00000022, suspended the terms and deadlines in all administrative processes and the statute of limitations for collecting debts from March 16 to March 31, 2020. The suspension was extended until June 15, 2020 by regulation NAC-DGERCGC20-00000038.

By Regulation NAC-DGERCGC20-00000042, issued by the Director General of the Internal Revenue Service on June 16, 2020, the terms and deadlines in all administrative processes and the statute of limitations for collecting debts have been resumed, with the following exceptions:

  1. The terms and deadlines of administrative processes and the statute of limitations for collecting debts that are being attended in administrative units of the Internal Revenue Service located that are located in cities classified under “red light” remain suspended. These terms and deadlines will resume once the Emergency Operations Committee classifies the cities under “yellow or green lights”.
  2. In Quito Metropolitan District, the terms and deadlines of administrative processes and the statute of limitations for collecting debts will resume once the government institutions resume their work on-site. When this bulletin was issued, the day on which the on-site work is expected to resume is June 22, 2020.

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Income tax – Withholding percentages

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Regulation NAC-DGERCGC20-00000030 issued by the Internal Revenue Service on April 22, 2020, amended Regulation NAC-DGERCGC14-00787 which establishes the income tax withholding percentages.

The following income tax withholding percentages have been modified:

Concept

Previous withholding percentage

Current withholding percentage

Real estate construction activities and similar activities. 1% 1,75%
Insurance and reinsurance services provided by companies legally incorporated in the country and by branchesof foreign entities domiciled in Ecuador. The withholding must be applied over 10% of the invoiced or scheduled premiums. 1% 1,75%
Commercial lease provided by companies legally established in Ecuador. The withholding must be applied over the lease payments and the purchase option. 1% 1,75%
Services provided by media and advertising agencies. 1% 1,75%

 


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Contribution for financing the comprehensive treatment of cancer

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Regulation NAC-DGERCGC20-000000019 issued by the Internal Revenue Service and published on April 3, 2020 in Official Registry 479, established the rules for applying the contribution for financing the comprehensive treatment of cancer.

General provision fourteen of section I of the Monetary and Financial Code establishes that individuals or entities that receive credits from the private financial sector will pay a contribution equal to 0.5% of the amount of the credit.

The contribution tariff may be reduced to 0.01% by executive decree in cases duly justified by economic or social reasons.

The regulation establishes the following parameters for the applying the contribution:

1. Withholding agents

The withholding agents of the contribution are:

  • Credit cooperatives under the control of the Superintendency of Popular and Solidarity Economy; and,
  • Entities of the private financial sector under the control of the Superintendency of Banks.

These entities shall withhold the total amount of the contribution from individuals and entities who have been granted credits, portfolio purchase, discounts on bills of exchange, repo operations, renewal of loans, including deferred payments on credit cards and overdrafts.

2. Declaration and payment

Withholding agents must file the contribution return on a daily basis, using the “Form for Declaring the Contribution for Financing the Comprehensive Treatment of Cancer”. This return may be filed up to 48 hours after the date on which the withholding is made.

In the case of overdrafts, the contribution shall be calculated and paid by the withholding agent, once the operation is settled.

In the event that the declaration and/or payment of the contribution is not made within the 48 hours, the withholding will be subject to pay fines and interest.

In the case of credits granted from January 1 until April 3, 2020 by credit cooperatives controlled by the Superintendency of Popular and Solidarity Economy, they may declare and pay the value of the withholding through the form described above within 45 working days since April 3, 2020.

 

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State of emergency – tax measures (April 1st)

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Regulation NAC-DGERCGC20-000000025 issued by the Internal Revenue Service on April 1, 2020 regulates the application of Executive Decree 1021 by which regulated certain tax issues with regard to the state of emergency.

1. New deadline for filing the income tax return

Taxpayers, except non-profit and government entities, may file the corporate income tax return for the fiscal year 2019, without generating fines or interest, until the dates described in the following chart:

Tax ID 9th digit

Due date

1 and 2 April 15, 2020
3 and 4 April 17, 2020
5 and 6 April 21, 2020
7 April 23, 2020
8 and 9 April 29, 2020
0 April 30, 2020

Non-profit and government entities may file the corporate income tax return for the fiscal year 2019, without generating fines or interest, until the dates described in the following chart:

Tax ID 9th digit

Due date

1 and 2 May 4, 2020
3 and 4 May 5, 2020
5 and 6 May 6, 2020
7 and 8 May 7, 2020
9 and 0 May 8, 2020

2. Taxpayers that are able to defer the payment of taxes:

The following taxpayers are able to defer the payment of corporate income tax of the fiscal year 2019 and, value added tax (VAT) to be declared in April, May and June 2020:

  • Micro-enterprises understood as those that obtained gross revenues of up to US$300,000.00 during fiscal year 2019.
  • Taxpayers that, before March 27, 2020, have registered the province of Galapagos in their Tax ID (RUC).
  • Taxpayers that are regular exporters of goods, or that 50% of their income derives from the export of goods; or,
  • Taxpayers that, before March 27, 2020, have registered one of the following as their main economic activity in their Tax ID:
    • The operation of airlines,
    • The provision of accommodation and/or food services; or,
    • Activities of the agricultural sector.

 

3. Deadlines for paying the corporate income tax:

Taxpayers described in paragraph 2 are able to pay the corporate income tax of the fiscal year 2019 in a single installment, according to the general rules of the Income Tax Regime Law and its regulations, or in six installments, in accordance with the following percentages:

Month for filing
the tax return 
Payment
installments 

Payment
percentage

April, 2020 April, 2020 10%
April, 2020 May, 2020 10%
April, 2020 June, 2020 20%
April, 2020 July, 2020 20%
April, 2020 August, 2020 20%
April, 2020 September, 2020 20%

The first installment shall be paid on the date the return is due in accordance with the schedule set forth in paragraph 1. The remaining 5 installments shall be made through the Multiple Payment Form in accordance with the following schedule:

Tax ID 9th digit:

Due date:

1 10th of each month
2 12th of each month
3 14th of each month
4 16th of each month
5 18th of each month
6 20th of each month
7 22th of each month
8 24th of each month
9 26th of each month
0 28th of each month

If the taxpayer doesn’t pay the tax within the deadlines described before, it would be subject to pay the applicable interests and fines.

 

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State of emergency – tax measures

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By Executive Decree 1021 issued on March 27, 2020, the President of Ecuador, adopted the following tax measures within the state of emergency:

1. Income tax withholding:

The following entities will be required to withhold and pay on a monthly basis income tax over their total taxable income obtained in each month:

Entity activity 

Monthly income tax withholding rate (%)

Financial institutions under the supervision of the Superintendency of Banks and entities that provide mobile telephone services. 1,75%
Entities that have entered into contracts with the Goverment for the exploration and exploitation of hydrocarbons under any modality or, contracts for specific works and services under the Hydrocarbons Law or, complementary petroleum services as well as transportation of crude oil. 1,5%

The withholding tax receipt must be issued in the name of the withholding agent and the value withheld will be consider as tax credit for paying the withholding agent’s income tax.

2. Tax payment deadlines:

For this time only, the taxpayers who at this date are considered as:

  • Micro-enterprises;
  • Those domiciled in Galapagos Islands;
  • Those who are regular exporters of goods, or that 50% of their income derived from the export of goods; or,
  • Those whose economic activity is:
    1. The operation of airlines,
    2. The tourism sector, exclusively those that provide accommodation and/or food services; or,
    3. The agricultural sector.

Will be able to pay the corporate income tax for the fiscal year 2019 and the value added tax (VAT) to be paid in April, May and June 2020 as follows:

  1. Payments will be made in 6 installments during the year 2020 in the following percentages: in each of the first two months, the taxpayers are required to pay 10% of the total value; and, in each of the remaining four months, taxpayers are required to pay 20% of the total value.
  2. These payments will be made according to the ninth digit of Tax ID as follows:
Ninth Digit of Tax ID 

Payment Date

1 10th of each month
2 12th of each month
3 14th of each month
4 16th of each month
5 18th of each month
6 20th of each month
7 22nd of each month
8 24th of each month
9 26th of each month
0 28th of each month

Taxpayers domiciled in the province of Galapagos are able to make the payment until the 28th of each month..

If a payment deadline overlaps with a mandatory rest day or holiday, the deadline shall be the next working day unless that day falls on the following month, in which case the payment deadline shall be anticipated to the last working day of the month.

If the taxpayer makes the payment after the deadlines have expired, he must pay the respective interest and fines in addition to the tax

  1. The payment of 2019 corporate income tax for the entities described above, will be made from April to September 2020 in the percentages and terms indicated in numbers 1 and 2 of this document.
  2. The payment of VAT for the months of April, May and June 2020 will be made in the percentages and terms described above, in the following months:
VAT to be paid in the month of

Months of Payment:

April 2020 From April to September, 2020
May 2020 From May to October, 2020
June 2020 From June to November, 2020
  1. Taxpayers subject to the Micro-enterprise Taxation Regime shall file their VAT return on a semi-annual basis. These taxpayers will not be subject to the exception regime detailed above.

 

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