Penalties for failure to deliver and transmit sales receipts

Resolution NAC-DGERCGC24-00000022 issued by the Internal Revenue Service (SRI) on June 6, 2024, and published in the Official Gazette 575 on June 10, 2024, regulates the penalties applicable for failure to deliver and transmit sales receipts.

It is the taxpayer’s obligation to issue sales receipts and transmit them at the time of issuance or within a maximum period of 72 hours. Non-compliance with these obligations is subject to the following penalties:

Characteristics of the taxpayer (as of the date of the offense) Failure to deliver sales receipts (RBU = US$460 for 2024) Failure to transmit electronic sales receipts to the SRI (RBU US$460 for 2024) Large taxpayer and large estates 20 RBU (US$9,200) 30 RBU (US$13,800) Special taxpayer 10 RBU (US$4,600) 15 RBU (US$6,900) Entities other than non-profits, indivisible estates, and individuals required to keep accounting 7 RBU (US$3,220) 10 RBU (US$4,600) Non-profit entities 4 RBU (US$1,840) 5 RBU (US$2,300) Indivisible estates and individuals not required to keep accounting 4 RBU (US$1,840) 5 RBU (US$2,300) Taxpayers considered small businesses subject to RIMPE regime 1 RBU (US$460) 1 RBU (US$460) Non-registered taxpayers 1 RBU (US$460) 1 RBU (US$460)

A sales receipt is considered not delivered when:

  1. The taxpayer delivers a physical receipt with an expired authorization at the time of issuance.
  2. The taxpayer delivers an electronic receipt without being authorized for issuing it.
  3. Receipts belonging to another taxpayer are delivered.
  4. Unauthorized receipts are delivered.

The transmission of electronic receipts is considered verified when:

  1. The transmission to the SRI is made within the 72-hour period.
  2. The receipts have met all the validations established for successful transmission and reception in the SRI systems.
  3. The sales receipts include the information and values of the transaction carried out.

 

Andrea-Moya-abogados-ecuador

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

© CORRALROSALES 2024
DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

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Refund of VAT Paid in Real Estate Projects

Regulation NAC-DGERCGC24-00000019 issued on May 28, 2024, the Internal Revenue Service (SRI) established the procedure for requesting the refund of VAT paid in real estate projects.

Below, we summarize the most important points:

  1. Who can request a refund?

Those companies and individuals who have paid VAT on local acquisitions or imports of goods and services for the construction of real estate projects.

  1.  What is the amount subject to refund?

The VAT generated, declared, and paid as of January 1, 2024, which does not generate the right to a tax credit, is subject to refund.

In the case of housing projects developed for sale to third parties, the refund amount may not exceed 6.5% of the total reference cost of the project registered with the Ministry of Urban Development and Housing (MIDUVI) or SRI.

In the case of housing projects executed by individuals for their use, the refund amount may not exceed 7% of the reference cost of the real estate project, that may not exceed US$105,340 (229 SBU) per dwelling.

  1.  What is the process to obtain the refund?

The beneficiary must:

  1. Perform a pre-validation of the request in the SRI’s web system.
  2. A request must be submitted per month and per project, to which the following must be attached:

i. Certificate of registration of the real estate project with MIDUVI or with SRI.
ii. Construction enabling title granted by the Municipal Government.
iii. Pre-validation report obtained in the SRI’s web system.
iv. List of the physical and electronic sales receipts supporting the total value of VAT paid in the local acquisition or import of goods and services, directly used in the real estate project.

 

Andrea-Moya-abogados-ecuador

Andre Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

© CORRALROSALES 2024
DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

VAT – List of construction supplies

Through Resolution NAC-DGERCGC24-000000013 issued on March 28, 2024, the Tax Authority established the following list of construction supplies that are subject to a 5% Value Added Tax rate, if transferred locally:

Category Subcategory Reinforcement steel bar Reinforced corrugated AS42 steel rods with diameters of 8mm, 10mm, and 12mm. Construction aggregates Clay
Sand
Lime
Limestone
Aggregates Concrete Ready-mix concrete Binder material Cement and its derivatives
Cement residue Recyclable metallic materials Ferrous scrap Mortar Mortar Cement precursors Clinker
Pozzolan
Gypsum Prefabricated concrete and clay products Paving Stone
Block
Bricks
Prefabricated concrete products

The VAT paid on the local acquisition or importation of goods or services for the production and/or commercialization of construction materials subject to a 5% VAT rate, and which has not been offset, may be recorded as a deductible expense in the fiscal year in which the VAT payment was made.

 

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

VAT tax rate increase

Through Executive Decree 198 issued on March 15, 2024, the President of the Republic modified the Value Added Tax rate to 15% for the year 2024. The new tax rate will apply starting from April 1, 2024.

amoya@corralrosales.com
+593 2 2544144

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Law to adress the internal armed conflict

The Law to Address the Internal Armed Conflict, Social and Economic Crisis was enacted by Official Registry Supplement No. 516 of March 12, 2024. Below, we summarize the main topics:


1. Temporary Security Contribution
 
Entities that had taxable income during the fiscal year 2022 will be required to pay a contribution in the fiscal years 2024 and 2025. The contribution will be equivalent to 3.25% of the taxable base of the income tax for the fiscal year 2022.

Micro, small businesses, banks, and savings and credit cooperatives will not be subject to pay this contribution.

2. Temporary Contribution to Profits of Banks and Savings and Credit Cooperatives.
 
Banks and savings and credit cooperatives that had taxable income during the fiscal year 2023 will be required to pay the contribution in the fiscal year 2024. The contribution rate will be applied on the taxable base of the income tax for the fiscal year 2023, according to the following chart:

Group Taxable Profit Tax Rate 1 Less than US$5,000,000.00 5% 2 Greater than US$5,000,000,00 up to US$10,000,000.00 10% 3 Greater than US$10.000.000,00 up to US$50,000,000.00 15% 4 Greater than US$50,000,000.00 up to US$100,000,000.00 20% 5 Greater than US$100,000,000.00 25%
3. Value Added Tax (VAT).
 
The following reforms are made:
 
a. It is established that the VAT rate will be 13%.
b. The President of the Republic may increase the rate to 15%.
c. Local transfers of construction materials will be subject to a 5% VAT rate.

The reforms to the VAT rate will come into effect from April 1, 2024.

4. Outflow Tax (ISD)
 
It is established that the ISD rate will be 5%. The President of the Republic can reduce the ISD tax rate.
 
The reforms to the ISD rate will come into effect from April 1, 2024.

amoya@corralrosales.com
+593 2 2544144

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Self-Withholding – Large Taxpayers

On January 12, 2024, the Internal Revenue Service issued Resolution NAC-DGERCGC24-00000003 which regulates the income tax self-withholding regime applicable for large taxpayers.

For calculating the self-withholding amount, all taxable income must be considered except:

1.    Revenue subject to special income tax regimes,

2.    Revenue subject to another self-withholding regime established by law, and

3.    Revenue derived from the following sources:

a.    Contracts for the provision of services for the exploration and exploitation of hydrocarbons if the payment is made by the Ecuadorian Government,
b.    Contracts with the central government and its entities,
c.    Contracts with local governments and its entities; and
d.    Contracts with Government social security entities.

If the taxable income cannot be segregated from exempt income, the self-withholding must be calculated over the total income received monthly.

Large Taxpayers must issue a withholding certificate monthly. The self-withholding percentage applicable to each taxpayer can be reviewed at the following link:
LINK

DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Regime for regularization assets located abroad

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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. Regulating 

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 of the Regime for Regularization of Assets Located Abroad (hereinafter the “Regime”). 

1.    Who can benefit from the Regime?

Tax residents in Ecuador who as of December 31, 2020, meet the following conditions are eligible for the Regime:
  • 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.

2.    Who are not eligible for the Regime?

The following are not eligible for the Regime:
  • 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%.

3.    What are the requirements to be eligible for the Regime?

Taxpayers may apply for this Regime until December 31, 2022, for such purpose they must comply with the following requirements:  
  • 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.

The valuation of the assets shall be made at commercial value. The sworn statement must include the supporting documentation of the value of the assets.
  • 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.


4.    How is the tax to be paid for the regime calculated?

The taxable base is equal to the sum of:
  • 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.
The applicable tax rate will be established according to the following:
    


5.    What are the effects derived from applying the Regime?
  • 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.

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Income tax withholding to workers

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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.

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Taxable base for customs duties

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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.

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Settlement regarding tax matters

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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 of the SETTLEMENT in tax matters introduced by the law and regulations mentioned above.

  1. What can be settled?

It is possible to mediate and settle: (i) the assessment of the tax liability (including the assessment of disputed factual aspects), its interest, surcharges, and fines; (ii) the term for paying the tax liability, and (iii) the precautionary measures issued against the taxpayer within a coercive collection process.

  1. What cannot be settled?

It is not possible to settle: (i) the general scope of undetermined legal concepts in dispute; (ii) the annulment of regulations, ordinances, resolutions, and circulars of a general nature issued by the Tax Administration, and (iii) tax obligations which have not been declared by the taxpayer prior to the assessment process.

  1. Who may settle?

The transaction must be entered into between the highest authority of the Tax Authority, or its delegate, and the taxpayer. 
If two or more taxpayers enter into the settlement, all of them will be jointly and severally liable for the obligation contained in the settlement agreement.

  1. Is the settlement subject to challenge?

The settlement entered into by the taxpayer and the competent authority is final, binding and cannot be challenged in administrative or judicial proceedings. It can only be declared void if the transaction was made with respect to issues that cannot be settled.

  1. When does the transaction proceed?

A settlement may be reached: (i) during the assessment process; (ii) during an administrative claim; (iii) during an extraordinary administrative appeal; (iv) during the execution of the coercive collection process, and (v) during a judicial process.
 
In the case of final or enforceable assessment procedures, which have not been challenged or over which an extraordinary administrative appeal is pending, it will only be possible to negotiate with respect to payment facilities and deadlines, as well as the application of precautionary measures.

  1. What is the process to reach a settlement?

The taxpayer must submit its request to any mediation center or to any qualified mediator. The center or mediator must notify the Tax Authority, which will have a term of 30 business days to accept or reject the mediation process. 
If the Tax Authority accepts to initiate the settlement procedure, it shall perform a technical cost-benefit analysis prior to the execution of the agreement.


Once the Tax Authority has been notified with the request for mediation, the statute of limitation for assessing and collecting the tax obligation, and for issuing a resolution within administrative claims procedures, will be suspended. If no settlement is reached or the mediation process is not accepted, the statute of limitations period will be resumed.
In the case of assessments for which the term to challenge them in administrative or judicial proceedings has not expired, the notification of the request for mediation will suspend such terms. If no settlement is reached or the mediation process is not accepted, the term to challenge will be resumed.

The costs derived from the mediation process and its execution shall be borne by the applicant.

  1. What is the process to reach a settlement within a judicial procedure?

The settlement will take place during the preliminary or single hearing, as applicable. For this purpose, the judge may order that the dispute be referred to a mediation center. 
If the parties settle the total amount of the obligation, the judicial process will be concluded. If the settlement is partial, the judge will continue the judicial process on the matter in respect of which the dispute remains. 
If the judicial proceeding has already concluded and the judgement is being enforced, the parties may only settle on how to comply with the tax obligation, payment facilities and precautionary measures.

  1. Transitory Regime

Taxpayers who are being subject to assessment procedures or who have initiated judicial or administrative claims against the assessment may benefit from the settlement process subject to the following rules. Those who file the request for mediation:

  1. Until January 29, will be entitled to a reduction of 100% of the interest and surcharges applicable to the tax that the taxpayer agrees to pay in the settlement.
  2. Until February 29, will be entitled to a reduction of 75% of the interest and surcharges applicable to the tax that the taxpayer agrees to pay in the settlement.
  3. Until May 29, will be entitled to a reduction of 50% of the interest and surcharges applicable to the tax that the taxpayer agrees to pay in the settlement.

The reduction will only apply if the taxpayer agrees to pay immediately at least 25% of the principal. This payment must be made prior to the execution of the settlement.

Andrea Moya - CorralRosales - Lawyer Ecuador

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

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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