Value-added tax (VAT)
VAT is levied at the rates of either 12% or 0% on the transfer of goods, import of goods, and the rendering of services, as well as on services rendered within the country or imported. Royalties and intangible property, imported or locally paid, are also levied with a 12% VAT.
The following are transactions exempt from VAT:
- In-kind contributions to capital of companies.
- Inheritance and assets obtained from liquidation of companies.
- Transfer of business as a whole, amalgamations, mergers, takeovers, and spin-offs.
- Donations to public entities and non-profit organizations.
- Transfers of shares and securities.
Goods and services that are subject to the 0% rate are explicitly listed in the law.
Among others, the following goods are taxed at a 0% rate upon either importation or local transfer of ownership:
- Most agricultural goods and foodstuff, when these remain in their natural state; this includes refrigerated or packaged goods that have not undergone further processing. Also included in this category are milk, meats, sugar, salt, bread, butter and margarine, flour, and cooking oil.
- Drugs, medicines, and other pharmaceutical products, including raw materials for their production.
- Fertilisers, insecticides, animal foods, and similar products, including the raw materials required for processing such goods.
- Agricultural machinery and equipment.
- Goods that are exported.
- Paper, books, magazines, and newspapers.
Among others, the following services are taxed at a 0% rate:
- Transportation of persons and cargo, except air transportation of persons and local air transportation of cargo.
- Book printing services.
- Housing rental.
- Water, electric, sewage, and other public services, including garbage collection.
- Exported services.
The 12% VAT paid on imports and local purchases can be deducted from the 12% VAT charged on sales or services rendered. VAT paid on raw materials, fixed assets, or components required for the production of goods or rendering of services is also creditable when the final product is considered taxable at 12%. Input VAT can be deducted/offset within a period of five years.
VAT paid on raw materials, services, components, or fixed assets necessary for production of export goods is recoverable.
The 12% VAT paid in the acquisition of goods and services utilised for the production or rendering of services levied at 0% VAT is not creditable. Therefore, it will be considered as part of the cost.
Companies appointed as 'special taxpayers' are required to withhold 30% and 70% of VAT paid on the purchase of goods and services, respectively. On purchases made to professionals, 100% VAT must be withheld. When the transaction is carried out between two ‘special taxpayers’, VAT withholding rates are reduced to 10% (goods) and 20% (services).
The Law for Tax Simplification and Progressivity, enacted on December 31, 2019, established that the Tax Administration will appoint the taxpayers that must act as VAT Withholding agents.
For importation of services, 12% VAT must be self-assessed and withheld at 100% by the local entity. This VAT is creditable.
Since 2020 the importation of digital services are levied with 12%VAT.
Exporters of services may request refund of input VAT.
Since Ecuador is a member of the Andean Community, goods to be imported are classified under the Common Nomenclature of the Andean Countries participating in the Cartagena’s Agreement (NANDINA) Pact, which is based on the Customs Cooperation Council Nomenclature (also known as the Brussels tariff nomenclature). Most consumer goods imports pay 25%, while intermediate goods are usually imported at a 10% or 15% rate. Raw materials and capital goods generally pay 0% to 5%. Ecuador has negotiated exceptions under the Andean common tariff that allow lower duties on certain capital goods and industrial inputs. There is duty-free import of agricultural goods and equipment.
The price listed on the commercial bill or invoice is the basis for the assessment of duties, except when the Central Bank of Ecuador (CBE) considers the listed price unreasonable, in which case market prices in arm's-length transactions will be used. The burden of proof lies with the importer.
In addition to import duties, all imports are subject to 12% VAT and other minor taxes that do not exceed 1%. Charges are based on the cost, insurance, and freight (CIF) value of the merchandise.
All Ecuadorian imports and exports are subject to inspection by authorized international verification companies operating in the country (there are some imports exempt from verification). Goods are appraised for value, quantity, quality, and weight at the port of origin.
Since 2017, a commercial agreement between the European Union (EU) and Ecuador is in place, which provides relief on duties upon the importation of certain goods.
Special consumption tax (Impuesto a los Consumos Especiales or ICE)
ICE is imposed on domestic and imported goods that are explicitly listed in the law, including plastic bags, sugared, non-alcoholic and carbonated drinks. This tax is levied at a progressive rate from 5% to 32% on certain automobiles and 15% on airplanes, helicopters, and boats. The taxable basis on cigarettes and alcoholic beverages is obtained by the number of produced or imported cigarettes or degrees of alcohol, respectively.
Foreign assets tax (Impuesto a los Activos en el Exterior)
The tax base for the foreign assets tax is the average monthly balance of cash deposits held in foreign entities by private entities registered in the stock market and regulated by the Superintendent of Banks and Companies. The monthly tax rate is 0.25% (0.35% for assets held in tax haven jurisdictions).
Remittance tax (Impuesto a la Salida de Divisas)
Remittance tax of 5% is imposed on the transfer of money abroad in cash or through pay checks, transfers, or courier of any nature carried out with or without the mediation of the Ecuadorian financial system, including transfer from foreign bank accounts. Dividends and foreign loans may be exempt of this tax, under certain considerations.
No stamp taxes are levied in Ecuador.
There are no additional payroll taxes applicable other than Social Security contributions (see below).
Social Security contributions
Employers and employees pay contributions to the Social Security at the rates of 12.15% and 9.45%, respectively, on the minimum monthly taxable wages as established for the different contributing categories by the Social Security. Such categories are revised annually.
Labour profit sharing
Although it is not considered a tax, companies are obligated to pay 15% of their pre-tax earnings to their employees. This payment is considered a deductible expense for CIT computation purposes.
Redeemable Tax on Non-Returnable Plastic Bottles
A tax is levied on the bottling of beverages in non-returnable plastic bottles utilized for containing alcoholic and non-alcoholic drinks, beverages, soft drinks, and water. In the case of imported beverages, this tax is levied upon their customs clearance for home use.
For each plastic bottle levied with this tax, the rate is up to 0.30 United States dollars (USD) per kg of plastic bottles. This amount is fully reimbursed to whoever collects, delivers, and returns the bottles.
Taxpayers of this tax are the bottlers of drinks contained in plastic bottles and importers of drinks in plastic bottles.
Milk products and medicines filled in plastic bottles are exempt from this tax.
This tax is not considered as a deductible expense for CIT purposes.
Environmental Tax on Vehicle Pollution (ETVP)
ETVP is levied to offset environmental pollution caused by the use of ground transportation motor vehicles.
Taxpayers of ETVP are individuals, undivided inheritances, and national or foreign corporations who are proprietors of ground transportation motor vehicles.
There are several vehicles exempt from this tax, including government vehicles, public transportation of passengers, school buses, taxis, ambulances, moving hospitals, vehicles regarded as 'classical', electric vehicles, and those destined for the use and transportation of handicapped individuals.
The taxable base of the ETVP corresponds to the cylinder capacity of the vehicle motor, expressed in cubic centimetres, and a percentage related to the potential level of environmental pollution provoked by motorised vehicles in connection with the vehicle´s motor´s years of antiquity.
Municipal asset tax
The municipal asset tax is levied on all individuals and companies required to keep accounting records in accordance with Ecuadorian tax legislation. This tax is levied annually at a rate of 1.5 per thousand (or 0.15%) of total assets less current and contingent liabilities, as shown on the balance sheet.
Municipal real estate tax
The city governments assess an annual municipal property tax , which ranges between 0.25 per thousand and 5 per thousand (0.025% to 0.5%) of the commercial value of the property, as determined by valuation carried out by the city government, for both urban and rural properties (rural property is taxed at a maximum of 0.3%).
Companies with taxable revenues that exceed USD 1 million in 2018, must pay an annual contribution in 2020, 2021 and 2022.
The contribution rate ranges from 0.10% to 0.20% and must be calculated annually based on 2018's taxable revenue