ECUADOR Law and Practice Contributed by: Sebastian Corral Guevara, Miguel Pizarro Páez, María Fernanda Mencías Pérez, José Cisneros Pazmiño, Roque Bustamante Espinosa and Jorge Pizarro Páez, Flor Bustamante Pizarro & Hurtado
Withholding Taxes Payments made abroad, including dividends, interest, royalties, technical services and other Ecuadorian- source income, may be subject to withholding tax. The applicable withholding rates depend on the nature of the payment, the tax residence of the recipient and the provisions of any applicable double taxation treaty. Higher withholding rates may apply where the recipi - ent is located in a tax haven or a low-tax jurisdiction. Foreign Currency Outflow Tax (Impuesto a la Salida de Divisas – ISD) Certain transfers of funds abroad are subject to the ISD, currently at a rate of 5%, unless a statutory exemption or reduction applies. Municipal Taxes Businesses are also generally subject to municipal taxes and charges, including the municipal business licence tax ( patente municipal ) and, where applicable, the 1.5 per thousand tax on total assets, in accord - ance with the legislation of the relevant municipality. Other Taxes Depending on the nature of their activities, businesses may also be subject to sector-specific taxes, regula - tory contributions or special levies established under As of the date of this publication, Ecuador has not implemented the OECD Pillar Two Global Anti-Base Erosion (GloBE) Rules, nor has it introduced a quali - fied domestic minimum top-up tax (QDMTT) that has been granted safe harbour status under the OECD’s central record. 5.3 Available Tax Credits/Incentives Ecuador offers a broad range of tax incentives aimed at promoting domestic and foreign investment. The principal incentives are contained in COPCI, the Organic Law for Economic Development and Fiscal Sustainability and other sector-specific legislation. The principal tax incentives include the following. Investment Contracts Investors entering into an investment contract with the Ecuadorian state under COPCI may benefit from: Ecuadorian law. OECD Pillar Two
• a reduction of up to five percentage points in the corporate income tax rate; • tax stability for the duration of the investment contract; • legal stability regarding the incentives granted; and • access to additional sector-specific incentives where applicable. Corporate Income Tax Reductions Certain taxpayers may qualify for reductions in the corporate income tax rate, including: • newly incorporated companies meeting the requirements established by law; • micro, small and medium-sized enterprises (MSMEs); • habitual exporters that maintain or increase employment levels; and • companies investing profits in scientific, cultural or disability-support projects, which may benefit from a reduction in the corporate income tax rate of eight or ten percentage points. Special Economic Development Zones (Zonas Especiales de Desarrollo Económico – ZEDEs) Companies established within ZEDEs may benefit from corporate income tax exemptions, customs incentives and other tax benefits, provided that they comply with the applicable investment, operational and employment requirements. Sector-Specific Incentives Additional tax incentives are available for investments in sectors promoted by the Ecuadorian government, including renewable energy, tourism, certain agricul - tural and agro-industrial activities, exports and other strategic sectors. Depending on the applicable legis - lation, these incentives may include corporate income tax exemptions or reductions, accelerated deprecia - tion, customs benefits, VAT incentives and other tax benefits. The availability of each incentive depends on compli - ance with the specific statutory requirements appli - cable to the relevant investment, sector or promotion regime.
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