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8.1.1. Corporate Income Tax

The standard corporate income tax rate is 25%. The rate is increased to 28%, if:

  • The entity fails to fully disclose and report its shareholder structure to the tax authorities; or
  • An entity established in a tax haven or low-tax jurisdiction (see Sec. 12.5. for the list) has an interest in the Ecuadorian entity and concurrently the latter has a resident Ecuadorian beneficial owner.

In the latter case, the higher 28% rate applies proportionally to the share of profits corresponding to the interest held by the foreign entity, unless that interest is 50% or more in which case the higher corporate tax rate applies to the entire profit.

Manufacturing, exporting and specified tourism sector entities are entitled to a 10 percentage points reduction in the corporate tax rate (thus translating in an effective rate of 15% or 18%) on the portion of profits reinvested in new assets. For this purpose, the reinvestment must be carried out before 31 December of the year of assessment (i.e., the year following the year the profits were generated).

Effective from 1 January 2022, new investments made by existing companies or investments made by companies established after 1 January 2022 are entitled to a 3 or 5 percentage points reduction in the corporate tax rate as follows:

  • A 3 percentage points reduction in the corporate tax rate (resulting in an effective rate of 22% or 25%) for up to 15 years with respect to income from activities attributable to a new investment, provided certain conditions are met; or
  • A 5 percentage points reduction in the corporate tax rate (resulting in an effective rate of 20% or 23%) with respect to income from activities attributable to a new investment where an investment contract is signed with the government and certain other conditions are met.

Simplified Tax Regime

Effective 1 January 2022, Ecuador introduced a new simplified tax regime which replaces the existing simplified tax regime and the micro-enterprise regime. The new regime may be applied by companies with annual income of up to USD 300,000.

The following progressive rates apply based on gross income under the new regime:

  • Up to USD 20,000 – 0%;
  • USD 20,001 to 50,000 – 1.00%;
  • USD 50,001 to 75,000 – 1.25%;
  • USD 75,001 to 100,000 – 1.50%;
  • USD 100,001 to 200,000 – 1.75%; and
  • USD 200,001 to 300,000 – 2.00%.

Under the previous simplified tax regime which was effective from 1 January 2020, qualifying micro-enterprises were subject to a single tax at a flat rate of 2% on gross income (previously subject to a reduced tax rate of 22%), and agricultural income was subject to a single tax with progressive rates of 0% to 1.8% for producers and local merchants and from 1.3% to 2.0% for exporters.

Capital Gains

Capital gains are generally taxed at the applicable corporate income tax rate. Capital gains on the transfer of shares or other participations in a company established for investment in real estate are exempt.

Effective from 1 January 2022, gains from direct or indirect transfer of shares or other participations in a company or permanent establishment in Ecuador are subject to a flat tax rate of 10% at the time of sale, with an exemption for corporate restructurings where the beneficial owners of the shares, participations, etc. maintain the same participation proportions after the restructuring. Previously, such gains were taxable at progressive tax rates ranging between 0% to 10%.–

Additional Tax

A temporary additional corporate income tax is levied on companies for the fiscal years 2020, 2021, and 2022 if the gross income in the fiscal year 2018 exceeded USD 1 million. The additional tax is payable according to the following rates based on total taxable income declared for the fiscal year 2018:

  • Exceeding USD 1 million and up to 5 million – 0.10%;
  • Exceeding USD 5 million and up to USD 10 million – 0.15%; and
  • Exceeding USD 10 million – 0.20%.

Further, a temporary special contribution tax is levied for the fiscal years 2022 and 2023 on companies holding net assets of USD 5 million or more as on 31 December 2020. The tax is levied at a rate of 0.8% on the amount of assets.