Ecuador

As a general rule, payments on operations that exceed USD 500 should be made through an institution of the financial system; otherwise, such operations will become non-deductible.

Depreciation and amortisation

Straight-line depreciation applies at rates specified by law. The Director of the Internal Revenue Service (Servicio de Rentas Internas or IRS) of Ecuador can authorise higher depreciation rates in cases such as obsolescence, excessive use, and faster than expected wear-out of assets.

Annual depreciation rates are as follows:

Depreciation rates apply to the cost of assets.

In the case of vehicles, if, at the time of purchase of the vehicle, its appraisal exceeds USD 35,000, the deductions for depreciation, leasing payments, interests paid for the acquisition, and vehicle property taxes will not be allowed. Some exceptions apply.

Intangible assets are amortised either within the terms specified in the contract or over a 20-year period.

Goodwill

Goodwill cannot be amortised in Ecuador, but there are limited exceptions.

Organisational and start-up expenses

Organisation, experimentation, and pre-operational expenses can be amortised over five years at the rate of 20% per year.

Interest expenses

Interest on debts incurred for business purposes are deductible.

In general, foreign loan interests are deductible for CIT purposes to the extent that the credits are registered before the ECB and the interest rates do not exceed the referential rates established by the ECB.

Interest paid on loans obtained from non-resident financial institutions and other approved entities is deductible and not subject to withholding tax (WHT) unless the interest rate is higher than the referential interest rate established by the ECB. In such cases, the excess is subject to 25% WHT (in all cases where a 25% WHT is applicable, please refer to the Withholding taxes section for more information).

Interest paid for loans granted by a non-registered related party are subject to WHT at 25% over the gross amount.

Bad debt

If the bad debt provision is less than 1% of the portfolio granted in the year, it will be deductible. Any excess will be non-deductible.

Charitable contributions

Payments for charitable contributions are non-deductible for CIT purposes.

Fines and penalties

Interest, fines, and penalties imposed on late payments of any tax obligation are not deductible for CIT calculation purposes.

Taxes

Taxes, rates, and levies related to the generation of taxable income, as well as contributions to the Social Security system, are deductible.

Other significant items

Advertising, pension plans, severance, travel, and foreign related-party expenses are subject to deductibility limits.

Net operating losses

The carryforward of losses is allowed to a maximum of five years, with an amortisation limit of 25% per year over the taxable base. There is no loss carryback.

Payments to foreign affiliates

In most cases, payments made abroad are deductible, as long as income taxes have been withheld (at the rate of 25% or 37% over the taxable base) and do not exceed some maximum limits. Professional fees, royalties, commissions, or any payment made abroad is subject to WHT at a rate of 25% or 37% over the taxable base. Payments on imports are deductible and not subject to WHT.