ECUADOR Law and Practice Contributed by: Diego Almeida-Guzmán, Andrés Álvarez-Toapanta, Guillermo García-Mendoza and Ignacio Jijón-Chiriboga, Almeida Guzmán & Asociados
2.3 Special Incentives Ecuadorian tax law provides for a three-percentage points reduction in the income tax rate for new corpo - rations and investments. The latter will be applicable for up to 15 years. The accumulated exemption may not exceed the amount invested. Entities that concluded new investment contracts with the Ecuadorian government after November 2021 will benefit from a five-percentage points reduction in the income tax rate. The accumulated exemption may not exceed the invested amount. The exemption will apply during the contract’s term, which may not exceed 15 years, unless the contract provides for a longer term. Nevertheless, the contract may be renewed by the same time period or less. The entities may also ben - efit from an exemption on specific foreign trade taxes and the capital remittance tax ( Impuesto a la Salida de Divisas or ISD), regarding the importation of capital goods and raw materials related to the investment (whenever certain conditions are met). Operators of free trade zones will benefit from a 0% income tax rate starting from the first year in which the competent authority qualified the latter as such. Henceforth, a 15% rate will be applicable for such operators. Public-private partnership (APP) is a regime wherein an entity of the government delegates the execution of a specific activity to a private corporation or enter - prise. Said regime is applicable, for example, to the execution of a specific public work or the manage - ment of a public asset. The APP regime is applica - ble to projects that meet specific requirements that include the investment of funds by the private entities. Legal stability is guaranteed for specific regulatory aspects, provided these are regarded as essential by the competent authorities. The term of an APP contract may be up to 30 years. Such term may be extended for an additional ten-year term. In no case may an APP contract have a duration exceeding 40 years, or have a term of less than five years. The income derived from bonds or other securities issued to finance public projects developed through an APP partnership as well as the profit earned in
• Accounting expenses not deductible for tax pur - poses: (a) depreciation and amortisation in the amount that exceeds the limits provided for by tax law (real estate, ships and planes – 5%, machinery and equipment – 10%, vehicles and transporta - tion equipment – 20%, hardware and software – 33%, and intangible assets – 20%); (b) provisions and reserves not allowed by Ecua - dorian law; (c) interests in the amount that exceeds the maximum rates authorised by the Ecuadorian Monetary Authority; (d) interest paid to related parties exceeding 20% of the entity’s EBITDA, in the given fiscal year; (e) interest paid on foreign loans not registered before the Ecuadorian Central Bank, when required; and (f) overall, any other expense not directly related to taxable income. • Expenses not supported by valid invoices. • Tax-exempt income, among others: (a) dividends paid by Ecuadorian entities to other Ecuadorian corporations; (b) occasional capital gains arising from real estate, whenever certain requirements are met, and the sale is made by an individual; (c) financial returns generated by investments at terms greater than 180 days; and (d) foreign-source income according to double taxation treaties. The adjustments are made in the applicable tax return, based on accounting records. Profits are taxed on an accrual basis. 2.2 Technology Investments An income tax rate reduction is enforced for technol - ogy-related initiatives. Indeed, taxpayers who invest their profits in certified projects regarding techno - logical development may benefit from an 8% to 10% reduction in their income tax rate pursuant to the con - ditions provided by the Ecuadorian tax regime. Nev - ertheless, new investments may apply for a general incentive; see 2.3 Special Incentives .
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