Tag Archives: Tax

• The taxpayers have maintained assets abroad such as money, real estate, shares, etc. derived from income that should have been subject to income tax in 2020 or before, but such tax has not been paid, provided that:
• The Tax Authority has not initiated an assessment procedure and the assessment is not final,
• The assets are not subject to judicial litigation,
• The assets are not located in countries classified as high risk or non-cooperative by the Financial Action Task Force (FATF), and
• The money is in a financial institution.
• The taxpayer has carried out transactions subject to Outflow Tax (ISD) and have not paid such tax, provided that conditions (i) and (ii) above are met.

• Individuals who, as of November 29, 2021, have an enforceable conviction for crimes against the development regime, crimes against the efficiency of the public administration, customs, or economic crimes, and
• Individuals who have been public officials at any time since 2015, their spouses, domestic partners or family members up to the second degree of consanguinity and second degree of affinity, and entities in which these officials have or have had a participation of more than 10%.

• Taxpayers must submit a reserved sworn statement in which they state the following:
• That as of December 31, 2020, they did not maintain any other assets and did not carry out other operations that should have been subject to tax, which comply with the conditions to benefit from the Regime.
• The taxable income that was not taxed in Ecuador, detailed for each fiscal year to which the Regime will be applied.
• For each asset, the date and value of acquisition, the commercial value as of December 31, 2020, the place where they are located and, in case of money, the financial entity where it is deposited.
• The amount of the operations that should have been subject to the pay outflow tax (ISD), the date of the taxable event and its description.

• b.    Declare and pay the Temporary Tax for the Regularization of Assets Abroad. The taxpayer may request payment facilities.
• c.    Submit the patrimonial statement including the regularized assets until December 31, 2022.

• a.    The values of the assets included in the sworn declaration; and,
• b.    The value of the operations that were not subject to the payment of outflow tax (ISD) included in the sworn statement.

• Taxpayers will not be subject to assessment process regarding income tax for the fiscal years 2020 and prior years, and outflow tax (ISD) for operations occurring up to December 31, 2020.
• The taxpayers will not be subject to legal or administrative sanctions derived from the noncompliance of the formal duties related to the above taxes.
• Criminal proceedings will not be initiated regarding crimes of unjustified private enrichment, tax fraud or customs fraud.

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

The Law for Economic Development and Fiscal Sustainability After the Pandemic COVID-19, enacted in the Official Gazette 587, Third Supplement, on November 29, 2021, amended the Tax Code and, among others, the Internal Tax Regime Law.
 
On December 29, the President of the Republic issued the corresponding regulations. CorralRosales will summarize the most important changes introduced by the indicated regulations in several bulletins. The following analyzes the main elements to be considered for calculating the income tax withholding to workers.
 
Employers must withhold income tax from their employees on a monthly basis. For this purpose, they must follow the following procedure:

1. The taxable income of the employee for the fiscal year must be projected.
2. From such value, the amount of the contribution to the Social Security Authority must be deducted.
3. The amount obtained will be the income taxable base, over which the tax rate must be applied according to the following table:

1. The amount of the tax obtaining from applying the tax rate must be reduced by the discount for personal expenses.
2. The result must be divided by 12 to establish the monthly rate to be withheld to the employee.

In order to calculate the maximum amount of the personal expense deduction, employers must apply the following procedure:

1. The value of the employee’s personal expenses projected for the year must be informed to the employer. The maximum amount of personal expenses is equal to the value of the Basic Family Basket (BFC) of December of the previous fiscal year multiplied by 7. For the calculation of the monthly withholding of the fiscal year 2022 the maximum value for the personal expenses is US$5,037.55 which is equal to the value of the BFC of December 2021 (US$719.65) multiplied by 7.
2. The employee’s gross annual income must be determined. This is equal to the total value of the employee’s income, including exempted income.
   1. If the employee’s gross annual income does not exceed US$24,090.30, the tax credit to be discounted from the income tax will be 20% of the value of the projected personal expenses (maximum US$5,037.55).
   2. If the employee’s gross annual income exceeds US$24,090.30, the tax credit to be discounted from the income tax will be 10% of the value of the projected personal expenses (maximum US$5,037.55).

The personal expenses to be considered for the calculation of the tax credit are those incurred for housing, health, food, clothing, tourism, and education, including art and culture.

* On the Circular NAC-DGERCGC21-00000007 issued by the Internal Revenue Service on December 30, the value of the FBC as of November 2021 was used as an example, since the value of December 2021 was not known at that date.

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

The Law for Economic Development and Fiscal Sustainability After the COVID-19 Pandemic, enacted in the Official Gazette 587, Third Supplement, of November 29, 2021, introduced several amendments to the Code of Production, Commerce, and Investments (COPCI).
 
Regarding customs matters, the law provided for the exclusion of freight from the taxable base for the calculation of customs duties. Through Bulletin 96 issued on December 23, 2021, the Customs Authority (SENAE) stated the following:

• For calculating the taxable base for customs duties (Advalorem tariff), the freight must be excluded from the customs value of the merchandise.
• For calculating the taxable base of the remaining taxes on foreign trade (FODINFA, Value added tax and excise tax), freight should not be excluded from the customs value.

The Customs Authority established that, with respect to import customs forms filed from November 29, 2021 until December 23, 2021 that are in the process of nationalization, the form must be amended and the taxable base must be calculated based on the criteria indicated above.
 
With regard to imports made from November 29, 2021 to December 23, 2021 and which merchandise has already been nationalized, we recommend verifying that the taxable base was calculated correctly. If the importer paid less than the amount due, a substitute declaration may be filed; and, if the importer has paid more than the amount due, a reimbursement claim may be filed.

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

On December 22, 2021, the President issued the Executive Decree 298 by which a progressive reduction of the outflow tax rate was ordered until reaching 4%, according to the following schedule: 

–    As of January 1, 2022, the tax rate will be 4.75%.
–    As of April 1, 2022, the tax rate will be 4.50%.
–    Beginning July 1, 2022, the tax rate will be 4.25%.
–    As from October 1, 2022, the tax rate will be 4%.

Withholding agents must make the necessary adjustments in their operating systems to comply with the rate reduction ordered in the Decree.

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

Below, we analyze the most important reforms regarding income tax, VAT, ICE and ISD introduced by the Law for Economic Development and Fiscal Sustainability After the COVID-19 Pandemic, published in the Official Registry 587, on November 29, 2021:

1. Income Tax

Deductions: The following deductions are incorporated:

• Additional deduction of 100% for the depreciation and amortization of machinery, equipment, and sustainable construction technologies.
• Additional deduction of 150% on advertising, promotion and sponsorship expenses incurred in favor of athletes qualified by the Sports Ministry.
• Additional deduction of 150% on sponsorships made schools, high schools, or non-profit entities which activity is focused on the eradication of child malnutrition and care of pregnant mothers.
• Additional deduction of 150% on expenses for organization and sponsoring of artistic, cultural events or cinematographic work.
• Additional deduction of 150% on expenses for contributing to the promotion of arts, cinema, and innovation in culture.
• Additional deduction of 100% on donations, investments and/or sponsorships of programs for protection and conservation of the environment, bio-enterprises, environmental restoration duly qualified by the environmental authority, provided that the deduction does not exceed 10% of the annual income.

The following deductions are removed:

• Additional deduction for net increase of the employment.
• Additional deduction for payments to senior citizens and returned migrants over 40 years of age.
• Deduction for the provision for wrongful dismissal and employer retirement pensions.
• Additional deductions for micro, small and medium-sized enterprises.

Payments abroad: Double taxation treaties are automatically applied regardless of the value of the payment made to the supplier. This reform applies from November 30, 2021.
 
Income obtained abroad: Those who receive income abroad that was subject to income tax in the country of origin may use as tax credit the tax paid abroad. This income is no longer considered exempt.
 
Individuals’ income tax: The maximum rate applicable to individuals increases from 35% to 37%.
Individuals will not be able to deduct personal expenses to calculate the taxable income. From the year 2022 individuals will be able to credit against the amount of their income tax an amount equivalent to:

If your annual income does not exceed 2.13 income tax fractions, the maximum amount of the credit will be the amount resulting from the application of the following formula:
 
R=L x 20%
 
R= Personal expense reduction.
L= The lesser value between the declared personal expenses of the fiscal period and the value of 7 times the basic food basket.
If your income exceeds 2.13 income tax fractions:
 
R=L x 10%

Inheritance tax: The following individuals are exempted from paying inheritance tax: (i) beneficiaries within the first degree of consanguinity with the deceased; and (ii) the surviving spouse, if there are no children entitled to inheritance.

1. Single income tax on the sale of shares.

Rate: The progressive tax rate is eliminated and a single tariff of 10% is established.
Exonerations: Transfers made in Ecuadorian stock exchanges are exonerated from payment of the tax provided that:

1. Their value does not exceed fifty income tax fractions, and
2. The amount transferred is less than 25% of the subscribed and paid-in capital of the company.

1. Value Added Tax

The following goods and services are taxed with 0% tariff since December 1, 2021:

1. Masks, oximeters, alcohol, and antibacterial gel with a concentration higher than 70%.
2. Sanitary napkins, tampons, menstrual cups, and popular disposable diapers. The term “popular” shall be defined in the regulations.
3. The importation of fuels derived from hydrocarbons, biofuels, their mixtures, including LPG and natural gas, destined for internal consumption.
4. The leasing of land for agricultural uses.
5. Services rendered by tourist lodging establishments to foreign tourists. Foreign tourists are those who legally enter Ecuador, stay in the country for less than 90 days, and do not have temporary or permanent residence in the country.

The following goods and services are taxed with a 12% tariff since December 1, 2021:

1. LED lamps.
2. Electric stoves for domestic use and those that operate exclusively by means of electric induction mechanisms, including those with electric ovens.
3. Domestic pots to be used in induction stoves.
4. Electric water heating systems for domestic use, including electric showers.
5. Membership fees charged by social clubs regardless of their value.
6. The supply of web page domains, servers (hosting), cloud computing (Cloud Computing).

1. Excise Tax (ICE)

Since December 1, 2021, the following goods and services will no longer be taxed with ICE:

1. Video games.
2. Heaters and water heating systems, for domestic use, that work totally or partially by means of gas.
3. Telephone landline services and plans that commercialize only voice, data and SMS of the advanced mobile service.

Since December 1, 2021, the following goods and services are exempt from payment of ICE:

1. Hybrid vehicles
2. Juices with a natural content of more than 50%. The regulation shall define the requirements to apply this exemption.

Since December 1, 2021, the following ICE tariffs will apply:

GROUP III TARIFF TARIFF OF AD VALOREM Description Tariff TV paid services, excluding streaming services
15% Fees, memberships, affiliations, shares and similar fees charged to members and users by social clubs 30% (before 35%) GROUP IV MIXED TARIFF Description Specific tariff Ad Valorem Tariff Cigarettes US$0,16 Not apply Alcohol (other than alcoholic beverages and pharmaceuticals) and alcoholic beverages US$10 per liter of pure alcohol (previously US$7.22 for alcohol and US$7.25 for alcoholic beverages). 75% Industrial beer US$13.08 per liter of pure alcohol (previously the rate was US$9.49, US$10.58 or US$13.02 according to small, medium, and large-scale production). 75% Craft beer and wines of national production US$1.5 per liter of pure alcohol (previously wine was not included in this category) 75%

1. Outflow tax

The following transactions are exempted from the payment of the Outflow Tax:

1. Payments made for the sale of shares, or any other asset acquired by companies or persons not residing in Ecuador. Although the wording is not clear, it may be understood that the seller is entitled to the exoneration when he receives the price in Ecuador and transfers it abroad, this should be clarified through regulations.
2. Transfers made by entities of Auxiliary Services of the Financial System that correspond to the payment and/or return of values collected for the rendering of services of electronic means of payment.
3. Payments made abroad for the import of capital goods and raw materials made by companies that subscribe investment contracts.

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

Below, we analyze the wealth taxes created by the Law for Economic Development and Fiscal Sustainability after the Covid-19 Pandemic, published on the Official Gazette 587, Third Supplement, of November 29, 2021:

1.    Wealth tax for individuals:

Taxpayers: Individuals who, as of January 1, 2021, have an individual net worth equal to or greater than US$1,000,000.00; or, marital partnership, with a net worth equal to or greater than US$2,000,000.00, in accordance with the following: 

–    In the case of individuals with tax residence in Ecuador, the contribution will be calculated over the assets located inside and outside the country. 
–    In the case of non-residents individuals, the contribution will be calculated over the assets located in the country.

Substitute taxpayer: Companies located in Ecuador whose shareholders are non-residents will act as substitute taxpayers.

Taxable base: The net worth is equal to the value of the assets (including rights) minus liabilities that are directly or indirectly owned by the taxpayer through any means, as of January 1, 2021. The following must be considered for the calculation of the net worth:


–    The proportional equity value of the shares held in companies that, in turn, are required to pay the corporate wealth tax, and that have made such payment, must be excluded.


–    The value of properties that preserve primary forests and areas of ecological diversity that have limitations for their exploitation should be excluded. 


–    Accounts payable to related parties should be excluded from the liabilities unless the loans were granted under market conditions and were used for productive purposes.


–    The value of the net worth may be reduced in up to US$200,000.00 if the individual owns a first home and/or unproductive agricultural land. 

Tax rate: The applicable tax rate shall be calculated in accordance with the following chart:

 

Tax Return: The tax return and payment of the wealth tax must be made until March 31, 2022. Payment facilities may be requested for a term of 6 months and without any initial installment. 

2.    Corporate Wealth Tax:

Taxpayer: Entities that carry out economic activities and have a net worth equal to or greater than US$5,000,000.00 as of December 31, 2020.

Taxable Base: The taxable base will be equal to the value of the net worth of the entity in the fiscal year 2020 as stated in the income tax return filed for such year.

Tax Rate: The applicable tax rate shall be calculated in accordance with the following chart:

 

Tax return: The tax return and payment of the first wealth tax must be made until March 31, 2022, and of the second until March 31, 2023. Payment facilities may be requested for a term of 6 months and without any initial installment. The law does not establish whether entities that had losses in the fiscal years 2020 and 2021 are excluded from paying the tax.

Sanctions: The following penalties shall apply: 

–    Failure to file the return will be sanctioned with a surcharge equal to 50% of the tax.
–    Inaccurate returns (i.e. those in which the total value of the net worth is concealed) will be sanctioned with a surcharge equal to 20% of the value of the difference.

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

Below, we analyze the wealth taxes created by the Law for Economic Development and Fiscal Sustainability after the Covid-19 Pandemic, published on the Official Gazette 587, Third Supplement, of November 29, 2021:

1.    Wealth tax for individuals:

Taxpayers: Individuals who, as of January 1, 2021, have an individual net worth equal to or greater than US$1,000,000.00; or, marital partnership, with a net worth equal to or greater than US$2,000,000.00, in accordance with the following: 

–    In the case of individuals with tax residence in Ecuador, the contribution will be calculated over the assets located inside and outside the country. 
–    In the case of non-residents individuals, the contribution will be calculated over the assets located in the country.

Substitute taxpayer: Companies located in Ecuador whose shareholders are non-residents will act as substitute taxpayers.

Taxable base: The net worth is equal to the value of the assets (including rights) minus liabilities that are directly or indirectly owned by the taxpayer through any means, as of January 1, 2021. The following must be considered for the calculation of the net worth:


–    The proportional equity value of the shares held in companies that, in turn, are required to pay the corporate wealth tax, and that have made such payment, must be excluded.


–    The value of properties that preserve primary forests and areas of ecological diversity that have limitations for their exploitation should be excluded. 


–    Accounts payable to related parties should be excluded from the liabilities unless the loans were granted under market conditions and were used for productive purposes.


–    The value of the net worth may be reduced in up to US$200,000.00 if the individual owns a first home and/or unproductive agricultural land. 

Tax rate: The applicable tax rate shall be calculated in accordance with the following chart:

 

Tax Return: The tax return and payment of the wealth tax must be made until March 31, 2022. Payment facilities may be requested for a term of 6 months and without any initial installment. 

2.    Corporate Wealth Tax:

Taxpayer: Entities that carry out economic activities and have a net worth equal to or greater than US$5,000,000.00 as of December 31, 2020.

Taxable Base: The taxable base will be equal to the value of the net worth of the entity in the fiscal year 2020 as stated in the income tax return filed for such year.

Tax Rate: The applicable tax rate shall be calculated in accordance with the following chart:

 

Tax return: The tax return and payment of the first wealth tax must be made until March 31, 2022, and of the second until March 31, 2023. Payment facilities may be requested for a term of 6 months and without any initial installment. The law does not establish whether entities that had losses in the fiscal years 2020 and 2021 are excluded from paying the tax.

Sanctions: The following penalties shall apply: 

–    Failure to file the return will be sanctioned with a surcharge equal to 50% of the tax.
–    Inaccurate returns (i.e. those in which the total value of the net worth is concealed) will be sanctioned with a surcharge equal to 20% of the value of the difference.

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

Regulation NAC-DGERCGC21-00000040 issued by the General Director of the Internal Revenue Service and published in the Second Supplement of the Official Registry 550 of October 1, 2021, establishes the requirements to apply the 0% rate of Outflow Tax (ISD) on transfers of money abroad made by foreign airlines.

1. Beneficiaries:

In order to apply the 0% rate, airlines must be designated by the authority of their country to develop in Ecuador activities of international transportation of passengers, cargo, a combination of them or cargo only.

1. Application:

Prior to the transfer of money, the beneficiaries must submit to the financial institution or courier company the following:

• The “Informative Declaration Form of Transactions Exempted or Not Subject to Outflow Tax “, using for this purpose box 819.

 

• The documents that certify its quality of beneficiary, this is the designation by the authority of its country to develop in Ecuador activities of international transport.

Withholding certificates should not be issued for transfers of money abroad that are subject to 0% Outflow Tax rate.

1. Reimbursement

If beneficiaries have made transfers of money abroad from October 1, 2021, and have been subject to 5% Outflow Tax, this tax must be reimbursed by the financial institutions or courier companies that made the withholding.

Specialist in Tax matter

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

The President issued the Executive Decree 227 on October 19, 2021, by which the customs regulations were amended to allow non-intrusive inspections. Below a summary of the mos important matters:

1.    Definitions:

The following 3 definitions were added:

•    Non-intrusive equipment: Equipment, machines or devices that have a source of X-ray emission, which allow through tunnels and arches to obtain images from different angles, which have an interface or computer system with a series of tools that allow the discrimination of densities by color, size increase, mobilization, management of brightness, contrast, measurement, among other tools.

•    Physical inspection: Action carried out by the competent authorities, which may be performed simultaneously, in order to verify the nature, origin, condition, quantity, value, tariff classification and regulatory treatment of the goods.

•    Non-intrusive inspection: Action carried out by the competent authorities, which may be performed simultaneously, in order to verify the nature of the goods, through the use of non-intrusive equipment that allows scanning the merchandise inside a container, cargo unit, packaging, package or any other object, without having to unload it, in order to compare with the information in the customs declaration and verify compliance with the applicable regulations.

2.    Non-intrusive physical inspection

The non-intrusive physical inspection was included. Through this type of inspection, the nature and other characteristics of the goods will be verified by means of the exclusive use of non-intrusive equipment and applying risk profiles established by the Customs Authority.

3.    Control with non-intrusive equipment

In the case of imports, the Customs Authority will establish which customs warehouses must have the necessary equipment for non-intrusive inspections to be made to goods, cargo units and means of transport that have been risk profiled.

In the case of exports, all goods, cargo units and means of transport will be subject to controls with non-intrusive equipment by the Customs Authority.

The Customs Authority will have a term of 60 days to establish the minimum requirements to be met by the non-intrusive equipment. Once these requirements are established, the Customs Authority must establish which warehouses, ports, airports, and border crossings require the implementation of such equipment, which must operate within 12 months from the publication of the decree in the Official Gazette.

4.    Concurrent control

The Customs Authority may request documents different from the supporting and accompanying customs documents in order to establish the accuracy and veracity of the data included in the customs declarations.