The tax reform establishes a new tax on corporations with a certain amount of assets, increases the tax rate on capital gains and reduces the income tax rate on income from new investments.
Ecuador published the tax reform law in the Official Gazette on 29 November 2021. It is enacted and effective as of that date.
New tax on certain companies
The law establishes a new tax for companies with assets of at least US$5 million as of 31 December 2020. Companies will pay the new tax in 2022 and 2023. The tax will be based on the amount of assets at a rate of 0.8%.
Corporate income tax on share transfers (capital gains tax)
Gains derived from direct or indirect transfers of shares (and other capital representative rights) of Ecuadorian entities were subject to an income tax based on a progressive table.
Under the tax reform law, capital gains are subject to a 10% rate, regardless of the transferred value.
Income tax for new investments
The law reduces the income tax rate by 3 or 5 percentage points for income from new investments, depending on the circumstances.
In Ecuador, entities will apply a 22% rate to the income derived from new investments. A 20% rate will apply to new investments subject to an investment contract between the investor and the Government.
Currency outflow tax exemptions
The tax reform exempts dividend payments from the currency outflow tax if those payments equal the capital put into new investments.
For new investments subject to investment contracts with the Ecuadorian Government, the exemption applies to payments for the import of goods and raw material required for the development of the project.
For additional information with respect to this Alert, please contact the following:
EY Addvalue Asesores Cia. Ltda., Quito
EY Addvalue Asesores Cia. Ltda., Guayaquil
Ernst & Young LLP (United States), Latin America Business Center, New York
Ernst & Young Abogados, Latin America Business Center, Madrid
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific