ECUADOR Law and Practice Contributed by: Randy Arévalo, Diego F. Amen, Darío Vicuña and Sandra Touma Faytong, VIVANCO & VIVANCO
(a) paying the debt and presenting the discharge to the judge; or (b) providing an alternative guarantee that covers the disputed amount while the litigation contin - ues. 7.7 Requirements Before Use or Inhabitation Ecuadorian law, primarily through LOOTUGS and municipal ordinances, strictly prohibits the habitation or use of any building until it has received an official clearance. Once construction is complete, develop - ers must obtain a Certificate of Habitability, which is issued only after a final inspection verifies strict com - pliance with approved architectural plans, fire depart - ment safety standards and proper utility connections. For multi-unit developments such as malls or offices, the property cannot be legally subdivided under the horizontal property regime until the building is sub - stantially complete and compliant with municipal reg - ulations. Occupying a structure without these proper certifications can lead to severe consequences, including significant administrative fines, the suspen - sion of commercial licences and the potential discon - nection of public utility services. In Ecuador, the sale and purchase of real estate (land and buildings) is exempt from VAT. It is considered a transfer of a capital asset, not a service or a movable good. While the sale of the finished asset is exempt, the construction services and materials used to build it are subject to VAT (currently at 15%, though some materials have a reduced rate of 5%). VAT Refund A significant incentive exists for developers: they can apply for a VAT refund on all purchases of goods and services used in the construction of housing projects, which improves the project internal rate of return (IRR). 8.2 Mitigation of Tax Liability The acquisition of significant real estate portfolios in Ecuador requires strategic fiscal planning to mitigate the impact of indirect taxes and municipal levies. 8. Tax 8.1 VAT and Sales Tax
Investors frequently utilise share deals as a primary mitigation strategy; by purchasing the shares of the entity owning the property rather than the asset itself, they avoid transfer tax and capital gains tax since the legal titleholder remains unchanged. Furthermore, contributing real estate to a mercantile trust can be structured as a non-taxable event when intended for collective investment or development, provided there is no immediate shift in beneficial own - ership. Similarly, corporate reorganisations such as mergers and spin-offs are generally neutral for transfer tax purposes in Ecuador. These mechanisms allow for the efficient consolidation or restructuring of large portfolios without triggering the standard 1% tax, offering a sophisticated route for institutional inves - tors to optimise their entry and hold costs. 8.3 Municipal Taxes Commercial and industrial operations in Ecuador are subject to a series of municipal levies and safety con - tributions that are mandatory for any entity maintain- ing physical premises. These localised obligations ensure compliance with urban planning and public safety standards while funding essential municipal services. While these costs are typically standard, significant exemptions exist for strategic investments and specialised economic zones aimed at fostering industrial growth. • LUAE: Any person or company occupying a prem - ise for commercial purposes must pay an annual municipal licence fee. The cost varies depending on the type of activity and the size of the premises. • Fire department fee: An annual fee for fire safety inspection is mandatory for all commercial build - ings. • Property tax: This is paid annually by the owner. However, in commercial leases, it is common to pass this cost to the tenant. • Exemptions: New businesses in certain special economic development zones or those aligned with specific productive investment laws may receive temporary exemptions from these local fees.
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