Published on March 12, 2024
The Organic Law to Face the Internal Armed Conflict, Social and Economic Crisis published in Supplement No. 516 of March 12, 2024 is in force; The new law introduces significant tax reforms that impact various taxpayers in Ecuador.
The recent Law introduces tax reforms in several key aspects, mainly the Value Added Tax (VAT), a Temporary Security Contribution (CTS), a Temporary Contribution to Banking on profits of Banks and Savings and Credit Cooperatives, and the increase of the rate for the Tax on the Exit of Foreign Currency (ISD). It is important to note that the regulations for the application of these provisions must be issued by the President within a maximum period of 30 days from their official publication on March 12, 2024.
Below are the key points for each of the mentioned tax reforms:
Temporary Security Contribution
- Purpose: To raise resources to adress the internal armed conflict.
- Destination of the funds: Strengthening of the National Police, Armed Forces, as well as for strategic intelligence and coordination between the forces of law and order with the judicial function.
- Taxpayers: Companies tax resident in Ecuador and permanent establishments with taxable income in fiscal year 2022, excluding micro, small companies, banks and savings and credit cooperatives.
- Rate: 3.25% on profits taxed with Income Tax (IR) in 2022.
- Deadlines: The Internal Revenue Service (IRS Ecuador) must issue Resolution, with the limitation that the deadlines for declaration and payment are not later than March 31, 2024 and 2025.
- Deductions: It is not deductible from income tax.
- Fines: 3% of the obligation generated per month or fraction of delay, without the need of an Administrative Resolution. The fine will operate independently of the surcharge and interest generated.
Temporary Contribution on profits of Banks and Savings and Credit Cooperatives
- Object: To temporarily establish a Contribution on the profits of Banks and Savings and Credit Cooperatives..
- Taxpayers: Banks and Savings and Credit Cooperatives Ecuadorian tax residents, as well as branches of foreign Banks and Savings and Credit Cooperatives domiciled in Ecuador, which have had taxable profits during fiscal year 2023.
- Contribution rates:
|
Group |
Taxable Profit |
Rate |
|
Group 1 |
Under $5,000,000 |
5% |
|
Group 2 |
$5,000,000 up to $10,000,000 |
10% |
|
Group 3 |
$10,000,000 up to $50,000,000 |
15% |
|
Group 4 |
$50,000,000 up to $100,000,000 |
20% |
|
Group 5 |
Over $100,000,000 |
25% |
- Taxable base: taxable income taxed with Income Tax for fiscal year 2023.
- Deadlines: The IRS must issue Resolution, with the limitation that the deadlines for declaration and payment are not later than May 31, 2024. No payment facilities are offered for this tax.
- Deductibility: This contribution is not deductible from Income Tax.
New Value Added Tax Rate
A general VAT rate of 13% is determined, with the possibility that the President of the Republic may adjust it, with a maximum limit of 15%.
Additionally, a new VAT rate of 5% is established for local transfers of construction materials.
New Rate for the Tax on the Exit of Foreign Currencies
The President of the Republic is granted the power to modify the ISD rate, both in general and by sectors, after obtaining a favorable opinion from the governing body of public finances. In this line, a fixed rate of 5% is established for the ISD.
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