Ecuador

Group taxation is not permitted in Ecuador.

Transfer pricing

The transfer pricing regime in Ecuador is based on the Organisation for Economic Co-operation and Development (OECD) guidelines. Related-party transactions must be carried out at arm’s length. Formal documentation requirements exist.

A regulation has established the procedures to apply for an Advance Pricing Agreement (APA) in regard to transfer pricing methods for related-party transactions. Accordingly, the taxpayer may submit a formal application for a binding rule.

Thin capitalisation

A thin capitalisation rule applies for interest deductibility on loans granted by related parties equivalent to 20% of the fiscal year profit before taxes plus compulsory profit sharing, interest, depreciation, and amortisation expenses.

Controlled foreign companies (CFCs)

A new tax regime for CFCs was introduced. Overall, a CFC is a non-resident entity that has: (i) at least one beneficial owner tax resident in Ecuador with an effective participation of 25% or more of the entity and (ii) an effective CIT rate lower than 15%.

Specific types of income obtained by the foreign entity will be attributable to the beneficial owner tax resident in Ecuador and, as such, must be included in the yearly income tax return. This regime is applicable as from 1 January 2024.