0% VAT rate for electric generators

By means of Executive Decree No. 411, issued on October 3, 2024, and published in the Fourth Supplement of Official Gazette No. 658 on October 4, 2024, the President of the Republic reformed -for the purposes of VAT- the definition of “electric energy,” including the import and local sale of electric generators in all their forms and ranges, as well as their parts and components. As a result, the import and sale of electric generators will be subject to a 0% VAT rate.

According to Article 11 of the Tax Code, this reform should apply starting from November 1, 2024. However, the Executive Decree mandates that the reform be implemented immediately.

 

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

© CORRALROSALES 2024
NOTE: The above text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused by actions taken or not taken based on the information contained in this document. Any specific situation requires the specific opinion and advice of the firm.

CORRALROSALES

Beneficial Owners and Corporate Structure Report “REBEFICS”

Through Resolution No. NAC-DGERCGC24-00000033, the Internal Revenue Service established the conditions for submitting the Beneficial Owners and Corporate Structure Report (REBEFICS). This report replaces the Shareholders Annex (APS Annex). Below is a summary of the key points:

  1. Obligated entities

The entities required to submit the REBEFICS Report are:

  • Entities detailed in Article 98 of the Internal Tax Regime Law.
  • Branches of foreign entities with residence in Ecuador.
  • Permanent establishments of non-resident foreign companies.
  • Trusts or similar entities established abroad, when the trustee, administrator, settlor, or beneficiaries are tax residents in Ecuador.
  1. Corporate Structure Report

Obligated entities must report each level of its corporate structure until reaching the individuals who are the beneficial owners.

If the direct or indirect shareholder of the obligated entity is a non-tax resident company in Ecuador, that company will be considered the final level to report, provided that individuals at the end of the ownership structure hold—individually or together with their related parties—less than 10% of the obligated entity’s capital.

However, if at the end of the ownership structure there are individuals who are tax residents in Ecuador, those individuals must be reported, regardless of their percentage of participation in the obligated entity.

  1. Special Cases

When the obligated party is a private non-profit institution, it must report information on its board members, administrators, participants, founding partners and individuals with decision-making or control.

When the obligated party is an investment fund, it must report information on the fund administrator, individuals with decision-making or control, and participants whose accumulated contributions exceed 5 basic exempt fractions.

When the obligated party is a trust, it must report information about its participants, board members, founders or settlers, beneficiaries or trustees.

If the obligated entity lists its shares on stock exchanges in Ecuador, it must report any shareholder who directly or indirectly holds 2% or more of its corporate composition.

If the obligated entity has as a shareholder—directly or indirectly—a company listed on recognized foreign stock markets, it must report the portion of capital that is not publicly traded or is reserved for a limited group of investors, for any shareholder who directly or indirectly holds 2% of the capital. However, if these shareholders are tax residents in Ecuador, they must be reported regardless of their percentage of participation.

  1. Information to Report

For companies and individuals at each level of the corporate structure, the following information must be reported:

  • Individual name or company name.
  • Tax identification number or individual identification number.
  • Type of entity or legal structure.
  • Country of tax residence.
  • Tax regime: general, preferential tax jurisdiction, tax haven, or low-tax jurisdiction.
  • Percentage of participation.
  • In the case of entities, the administrators and board members, and whether the companies or such individuals are related parties to the obligated entity.

Additionally, the obligated entity must report the following information about its beneficial owners:

  • Type and identification number.
  • Names and surnames.
  • Nationality and country of tax residence.
  • Date of birth.
  • Residential address.
  • Criteria for determining ultimate beneficial ownership.
  • Percentage of effective participation.
  1. Filing Deadlines

The information must be submitted in February of each fiscal year, according to the ninth digit of the obligated entity’s tax identification number (RUC).

If the obligated entity experiences changes in its corporate structure or in the information regarding its beneficial owners, the report must be submitted by the 28th of the second month following the change.

 


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

© CORRALROSALES 2024
NOTE: The above text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused by actions taken or not taken based on the information contained in this document. Any specific situation requires the specific opinion and advice of the firm.

CORRALROSALES

Donation of equipment to the Police for applying tax benefits

Through Official Letter DADM-MP-01, the Ministry of Home Affairs issued the “Donation Process Manual”, which regulates the process to donate equipment and supplies to the National Police and access the 150% additional deduction for the calculation of income tax.

Article 10 of the Internal Tax Regime Law provides an additional deduction of 150% on the taxable base of income tax for donations of equipment and supplies to the National Police, aimed at protecting public order.

According to the Manual, the donor must meet the following general requirements:

  1. Not be subject to legal prohibitions for contracting with the Government.
  2. Have an “active” status in the Single Taxpayer Registry.
  3. Be the owner, possessor, manufacturer, or buyer of the equipment and supplies to be donated.

The donation request must include the following documents:

  1. Declaration of the legality of funds in the format provided in the Manual.
  2. Letter of intent to donate, which should include the general data of the donor and the technical specifications of the equipment or supplies to be donated.

In the case of weapons, ammunition, explosives, and accessories, the corresponding permits must be attached, and the import documentation if applicable.

In the case of used equipment and supplies (tangible or intangible), a report must be attached that establishes the state of the used good, its conditions, and useful life.

 

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.

 

CORRALROSALES

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.

 

CORRALROSALES

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

Manos con las uñas pintadas de rosa haciendo uno de una calculadora. Pieza para un boletín tributario de CorralRosales: aparece el logo de CorralRosales también en la pieza gráfica
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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