ECUADOR Trends and Developments Contributed by: Diego Almeida-Guzmán, Andrés Álvarez-Toapanta, Cesar Molina-Delgado and Ignacio Jijón-Chiriboga, Almeida Guzmán & Asociados
Amendment to the Dividend Distribution Tax Regime Background and previous regime Prior to the enactment of the Organic Law on Social Transparency published on 28 August 2025, Ecua - dor’s dividend taxation regime imposed tax exclusive - ly on 40% of dividends actually distributed. For divi - dends distributed to individual residents of Ecuador, the maximum applicable rate was 25% (representing a maximum effective rate of 10% on the distributed dividends), though lower rates could apply pursuant to specific schedules established by the Ecuadorian tax authority. For dividend distributions abroad, wheth - er to individuals or legal entities, a flat rate of 25% applied (representing an effective rate of 10% on the distributed dividends). Key reform The reform eliminated the provision limiting taxation to 40% of distributed dividends. The new regime estab - lishes a minor exemption of up to three unified basic salaries (approximately USD1,500) on the taxable amount, applicable annually. Beyond this exemption, the entire dividend is subject to income tax at rates ranging from 10% to 14%. Applicable rates As a general rule, the 12% rate applies to dividend distributions to individual residents of Ecuador. Con - versely, dividend distributions to individuals or entities resident abroad are subject to a 10% rate on the dis - tributed amount – a rate that, for practical purposes, is equivalent to that in effect prior to the reform. However, the 12% rate shall apply to distributions abroad if the beneficial owner is determined to be a resident of Ecuador. Moreover, if the ownership chain of the distributing company includes a resident in a tax haven jurisdiction and the beneficial owner of the dividends is a resident of Ecuador, the applicable rate shall be 14%. The same 14% rate shall apply to dividend distributions in the event that the distributing company has failed to comply with its obligation to report its ownership structure or chain, irrespective of the identity of the beneficial owner. In all such cases, the exemption of up to three unified basic salaries does not apply.
designation by the Ecuadorian IRS through inclusion on its published list, whereas low-tax jurisdiction sta - tus arises automatically upon satisfaction of two of the three statutory criteria (which in practice should be assessed by taxpayers or the IRS during an audit). Practical implications of the reform Given that characterisation as either a tax haven or a low-tax jurisdiction requires satisfaction of two of the aforementioned conditions, transactions with both the UAE and Panama should, as a general matter, be sub - ject to the generally applicable tax regime and rates. The IRS’s removal of these jurisdictions from the tax haven list necessarily implies that they fail to satisfy two or more of the required conditions. UAE – treaty override The case of the UAE warrants specific consideration. Ecuador entered into a double taxation treaty with the UAE that entered into force in 2022 and adheres to the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. Under the treaty, payments whose beneficial owners are UAE residents are either exempt from Ecuadorian taxation or subject to reduced withholding rates as specified in the treaty. As a matter of international law, the provisions of the bilateral tax treaty supersede domestic tax legisla - tion. Consequently, even if the UAE were to satisfy the criteria for characterisation as a low-tax jurisdic - tion under domestic law, the treaty provisions would prevail with respect to transactions covered by the treaty, thereby rendering the domestic tax haven or low-tax jurisdiction analysis largely academic for trea - ty-eligible transactions. Republic of Panama The removal of Panama from the tax haven list repre - sents a normalisation of bilateral tax relations. Given that Panama now fails to satisfy the cumulative three- part test for tax haven or low-tax jurisdiction status, transactions with Panamanian residents should gen - erally be subject to standard Ecuadorian income tax withholding rates (25%) rather than the enhanced 37% rate applicable to tax havens and low-tax juris - dictions, in the absence of other applicable exemp - tions or treaty relief.
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