Ecuador Tax & Business Guide - Deloitte

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Basic facts
Population 13.4m Inflation 3.3% (2006)*
Main languages Spanish GDP per head US$3,050 (2006)*
Currency US dollar (US$) GDP growth 4.8% (2006)*
Economic communities Latin America Integration Association, WTO
GDP sources 6.3% agriculture, 33.2% industry, 60.5% services
*Economist Intelligence Unit estimates.
Political environment

Ecuador has been a presidential democracy since 1979. The 100 members of the Congreso Nacional (National Congress), EcuadorÌs legislature, are elected by popular vote for four-year terms.

Rafael Correa assumed the presidency in January 2007, following a general election.
Foreign trade and investment
Exports US$13.3bn (2006)* Imports US$11.7bn (2006)*
*Economist Intelligence Unit estimates.

Major exports: Oil and oil products, bananas and plantains, and animal products.

Main trading partners: The US, Colombia, Peru, Japan, Italy, Brazil, Venezuela and Chile.

Ecuador publicly welcomes foreign investment and offers an open foreign-investment regime. Nearly all foreign investment is in oil.
Business and financing
Business forms Corporation, branch, limited liability company

Foreign investors in Ecuador prefer the corporation (sociedad an€nima, or SA) and branch forms. The SA is the most flexible form, allowing a mixture of foreign and local capital. Limited liability companies are useful as closed companies, but foreign corporations may not be shareholders of Ecuadorean limited liability companies. The shares of limited liability companies are not freely negotiable.
Labour environment
Unemployment rate 10.1% (2006)* Minimum wage US$170 (monthly)
*Economist Intelligence Unit estimate.

As of December 2006, the minimum monthly wage (including mandatory bonuses) is US$170.

Employers contribute 12.15% of payroll to different social security institutions, and employees contribute 9.35% of their monthly salary.

Expatriates can easily obtain a work visa, with a letter of sponsorship from the home office, a small investment or a work contract from an Ecuadorean company.
Taxation
Corporate tax
Main rate 25%, which can be reduced to 15%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Ecuadorean-source income. A company is resident if it is organised and incorporated under the laws of Ecuador. A tax of 25% is applied to aggregate income, with the exception of a few items, such as dividends received and certain capital gains that are not subject to tax. Companies are entitled to a 15% reduced tax if profits are reinvested.
Individual tax
Progressive rates up to 25%

Resident individuals are subject to tax on their worldwide income with a credit for foreign tax paid; non-residents are taxed only on Ecuadorean-source income. An individual is considered to be a tax resident if that person lives in Ecuador for at least six months in a calendar year. Tax is charged at progressive rates rising to 25% on income over US$58,800. Dividends and other profit distributions received, and interest on savings deposits, are tax-exempt. Work-related travel and meal allowances are also exempt.
Capital gains
Taxed as income

Capital gains derived from the sale of shares and the sale of immoveable property are tax-exempt provided the gain is not derived in the course of a business activity. Gains distributed by investment funds are also tax-exempt.
Indirect tax
Standard rate 12%, exports are zero-rated

Value-added tax (VAT) applies to most transactions at the standard rate of 12%. Exports are zero-rated. Exemptions include housing for individuals, financial and investment services, education and health.

Registration is compulsory for businesses.
Tax administration and compliance
Tax year Corporations: corporate year; Individuals: calendar year

Companies must make an advance payment of one-half of the previous yearÌs tax liability in July and September, and the final payment of tax is due with the submission of the tax return between April 2nd and April 10th of the following year. Employment income of individuals is taxed by withholding. Individuals submit a self-assessment tax return between April 12th and April 30th following the tax year, and any balance of tax payable is due at the time the return is filed.
Additional tax information
Withholding taxes Payments abroad are generally subject to a 25% withholding tax, except for dividends, interest on foreign loans registered with the Banco Central del Ecuador (the Central Bank) and imports. Rates may be reduced or eliminated by double tax treaties.
Tax treaties Ecuador has more than ten double tax treaties.
Dividends Dividends are exempt.
Revenue protection Transfer-pricing rules came into effect on January 1st 2005.
Groups There is group consolidation for financial but not for tax purposes.
Incentives Reduced income tax rate of 15% if profits are reinvested. Tax relief is available for petrochemicals, refining and hydroelectric projects.
Other taxes Excise tax, Municipal property transfer tax, Import duty, Municipal business net worth tax, Immoveable property tax, Tax on credits, transfers and remittances, Real estate transfer tax, Inheritance tax.