ECUADOR Law and Practice Contributed by: Diego Almeida-Guzmán, Andrés Álvarez-Toapanta, Guillermo García-Mendoza and Ignacio Jijón-Chiriboga, Almeida Guzmán & Asociados
trading such securities are income tax exempted. The benefit does not apply to transactions concluded between related parties. 2.4 Loss Relief Losses registered in a fiscal year can be amortised (carried forward) for up to five years. Taxpayers may offset only up to 25% of the taxable income. Ecuadorian law does not provide for loss carry-back, nor for offsetting income losses against capital gains or vice versa. Losses incurred in transactions with related parties are not tax-deductible. 2.5 Deduction of Interest Interest is deductible whenever the related loan is needed for the debtor to undertake its commercial activity. For tax purposes, interest is deductible pro - vided the rate does not exceed the maximum rate set by the Ecuadorian Monetary Authority. The amount that exceeds such rate is not tax-deductible. This also applies to foreign loans, which, in certain cases, are subject to registration before the Ecuadori - an Central Bank. For registration purposes, the capital of the loan must be deposited in an Ecuadorian bank. Interest paid exceeding the maximum rate applicable to this kind of transaction is subject to income tax withholding. Interest paid to related parties that exceeds 20% of the entity’s EBITDA will not be deductible. 2.6 Consolidated Tax Grouping The consolidation of financial statements for tax pur - poses is not allowed under Ecuadorian law. As such, groups of companies are not allowed to record losses reported by entities other than those incurring the loss. However, for reporting purposes before the Superin - tendence of Companies, IFRS rules on consolidating financial statements apply. 2.7 Capital Gains Overall, Ecuadorian law does not provide for a par - ticular tax treatment on capital gains, which are taxed as general income.
However, there are exceptions to the general rule, as follows. • Occasional capital gains obtained in the sale of real estate are tax-exempt provided certain require - ments are met and the seller is an individual. • Capital gains on the sale of shares and other equity rights are taxed at a 10% rate. This treatment also applies to the indirect sale of the equity of an Ecua - dorian entity, provided certain requirements are met. An indirect sale occurs when shares owned by any shareholder within the chain of ownership of an Ecuadorian entity are disposed of, includ - ing shares held outside the Ecuadorian territory. Indeed, any transfer of shares of any entity that directly or indirectly owns an Ecuadorian corpora - tion’s shares is regarded as an indirect sale. The taxable base applicable to the disposal of shares is determined as the difference between the sale price and: • the face value of the shares; Whenever the seller is a foreign entity, the Ecuado - rian company whose shares are being transferred is obliged to act as a substitute taxpayer and pay the tax on behalf of the shareholder. The sale of shares listed on an Ecuadorian stock exchange may benefit from the following exemptions and reductions: • whenever the entity’s equity sold does not exceed 25%, a deduction of up to USD610,400 (in 2026) applies; or • whenever the entity’s equity sold exceeds 25%, a deduction of up to USD610,400 (in 2026) applies, • the original cost of the shares; or • the proportional value of equity.
as well as a 5% tax rate on the excess. 2.8 Other Taxes on Transactions The following taxes are applicable. Value-Added Tax (VAT)
VAT of 15% is levied on the sale or provision of goods and services. The tax is collected by the business that
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