ECUADOR Law and Practice Contributed by: Diego Almeida-Guzmán, Andrés Álvarez-Toapanta, Guillermo García-Mendoza and Ignacio Jijón-Chiriboga, Almeida Guzmán & Asociados
Almeida Guzmán & Asociados Whymper N27-70 y Orellana Edificio Sassari Piso 8 Quito D.M. Ecuador Tel: +59 32 292 8115
Email: law@almeidaguzman.com Web: www.almeidaguzman.com
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Businesses commonly adopt a corporate form. The most common structures are corporations and limited liability companies (partnerships), which can adopt the following forms: • Compañía anónima (corporation) – the trans - fer of issued shares is not subject to limitations. For incorporation, at least two shareholders are required and there is a minimum share capital of USD800. • Compañía de responsabilidad limitada (corpora - tion/partnership) – the transfer of issued shares requires unanimous approval by the partners. For incorporation, at least two partners are required and there is a minimum share capital of USD400. • Sociedad por acciones simplificada (simplified joint-stock corporation) – issued shares may be freely transferred but cannot be traded on an Ecuadorian stock market. For incorporation, only one shareholder is required. There is no minimum capital requirement. This type of company requires relatively fewer formalities for its incorporation and operation. Corporate structures are taxed as independent enti - ties. Shareholder and partner liability is limited to the amount of their equity in the company. Consortiums and joint ventures are corporate entities that are not widely used in Ecuador. They are used primarily when undertaking public works contracts
as well as specific projects with a limited duration. For tax purposes, consortiums and joint ventures are regarded as independent entities and taxed accord - ingly. Nevertheless, their members’ liability is not lim - ited to their equity. 1.2 Use and Taxation of Transparent Business Structures All corporate entities are considered to be independ - ent taxpayers. The Ecuadorian regime does not pro - vide for tax-transparent entities. Dividends paid by corporate entities are subject to income tax withholding, unless the beneficiary is a local corporation. Individual beneficiaries of dividends are subject to a 12% income tax withholding on the relevant dividend distributed. Dividends paid to for - eign individuals and entities are subject to a 10% income tax withholding (see 3.4 Taxation of Individu- als on Shares in Closely Held Corporations ). Stakeholders in sectors such as banking, insurance, the stock exchange and securities are obliged to use corporations to carry out their business. The Ecuadorian stock exchange law provides for trusts, investment funds, commercial funds and hedge funds. Under Ecuadorian law, these legal entities are considered to be independent for both commercial and tax purposes. In some cases, trusts and funds are obliged to act as tax withholding agents. Stakeholders in the construction sector (both for pri - vate and public projects) normally perform their activi - ties using trusts, consortiums and joint ventures.
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