SETTING UP BUSINESS ECUADOR 2024

SETTING UP BUSINESS IN ECUADOR

General Aspects

Ecuador is a 283.561 km2 country, located in southwestern South America. It’s considered to be the fourth smallest country in South America, and it’s bordered by Colombia on the north, Peru on the east and south, and to the west by the Pacific Ocean. Ecuadorian territory also includes the Galapagos Islands, located 1,000km west to the mainland, which are known for their unique biodiversity and are a renowned UNESCO World Heritage Site and a vital ecological treasure. The largest city in the country is Guayaquil, with a population 2.746.403, but the capital city is Quito, with a population

of 2.679.722, according to the 2022 census. The official currency of Ecuador is the United States dollar (USD). The nationwide official language is Spanish, but there are two precolonial languages spoken by a remarkable percentage of the population; Kichwa and Shuar.

Ecuador has a strategic location as a gateway to the Pacific. Ecuador’s access to the Pacific Ocean makes it an attractive hub for trade and commerce, facilitating import and export activities not only within South America but also with North America and Asia.

Legal Forms of Business Entities

Legal form Feature

Branch of the Foreign Company

Corporation (Sociedad anónima)

Limited Liability Company (Compañía de responsabilidad limitada)

Simplified joint stock (Sociedad de acciones simplificadas S.A.S.)

Three types of companies are applicable to your case: (i) Limited Liability Company; (ii) Corporation; and, (iii) Simplified Stock Company.

To set up a company in Ecuador, the preferred options among foreign investors are Corporations and Simplified Stock Companies, due to their free trading of shares.

The capital is divided into negotiable shares, formed by the contributions of the shareholders, who are only liable for the amount of their shares. The minimum amount required for establishment is US $800, of which at least 25% of the nominal value of each share must be fully subscribed and paid. The capital is freely transferable and can be established by a single partner, with no limit.

The capital is divided into shares, liability is limited up to the amount of shares owned. Minimum amount to establish: US $400 of which 50% must be paid in the incorporation process and the remaining 50% will be paid within one year. It can be established by one partner, but cannot exceed 15. Transferring shares requires unanimous consent from all partners.

The capital is divided into freely negotiable shares, formed by the contributions of the shareholders, who are only liable for the amount of their shares. However, this company does not require a minimum share capital. he capital must be fully subscribed, with at least 25% of the nominal value of each share paid; the remainder must be paid within the next two years

Organizational Questions

Legal form Feature

Enrolment before the control authority

All trade partnerships mentioned above are required to apply for registration of their social contract and bylaws with the “Superintendencia de Compañías Valores y Seguros (SCVS)”.

No public deed is required for the formation of any of the mentioned companies; it can also be completed online through the SCVS website.

With the exception of the Simplified Joint Stock Company, they must enroll with the “Registro Mercantil” of the city where they intend to carry out their activities.

Register with the Tax Authorities

Foreign partners

All natural and legal persons, entities without legal personality, both national and foreign, who initiate or carry out economic activities in the country on a permanent or occasional basis, must register with the “Registro Único de Contribuyentes”, before the national tax authority.

They must also register for the payment of the patent in the canton where they carry out economic activities.

If a foreign company wishes to be a partner in any of these companies, it must appoint an agent or legal representative in Ecuador and provide proof that it is legally constituted in accordance with the laws of the country in which it is organized.

It will be required to submit annually: a certificate of legal existence from the foreign country of origin, as well as the names of the foreign shareholders up to the ultimate beneficial owners (natural persons).

Opening a Branch To settle a branch in Ecuador, the foreign society will need the following documents:

1. Provide proof that it is legally constituted in accordance with the law of the country in which it is organized.

2. Ensure that, in accordance with said law and its by-laws, it may agree to the creation of branches and has the power to negotiate abroad.

3. To have permanently in Ecuador, at least one representative with broad powers to carry out all the legal acts and businesses that are to be celebrated and to have effects in the national territory, and especially to be able to answer any questions that may arise and especially to be able to answer the demands and comply with the contracted obligations.

4. To allocate capital to the activity to be developed, which cannot be less than USD 2000.

These documents must be submitted within a petition to operate as a foreign company in Ecuador to the SCVS under a public deed, which includes the documents described before.

If the legal representative is not Ecuadorian, he must obtain a resident visa.

Branches may not be rearranged nor converted into a subsidiary. The license to operate in Ecuador granted to a branch must be cancelled before creating a new company.

Instead of opening a branch for a Company that only requires a legal representative in Ecuador, it’s preferable to open a representative office.

Bank Account To open a bank account, individuals from Ecuador need a valid identification document or passport. It is not necessary to be registered with the Tax Authority Register or to obtain a tax identification number.

Companies require the articles of association or bylaws, the appointment of a legal representative, a basic services payroll, a shareholders list, a tax identification number, and a letter requesting the opening of the account once it is registered in the Public Mercantile Register (except for S.A.S.).

Transfer of Capital Ecuadorian companies can freely move capital in and out of the country without restrictions, but they are required to inform the authorities about such transfers. For transfers exceeding USD 1,200, companies must pay the Currency Exit Tax (ISD), which is currently set at a 5% rate.

Visa and Residence permit

To act as the legal representative of a company, foreigners will need any type of visa, except for the 12-IX visa (Visa 12-IX: Tourism-Sports-Health-StudiesScience-Art-Commercial Acts).

Employment

Legal form Feature

Basic Principles Labor conditions in Ecuador are mainly regulated by the Labor Law and the Social Security Law.

Salary Full-time employees (working 8 hours per day, not exceeding 40 hours per week) provide their services in exchange for a payment called a salary, which can be paid biweekly or monthly.

For 2024, the minimum wage for all workers is USD 460.

Wages and salaries can be freely negotiated by both parties, but they may not agree on a unified basic monthly salary lower than the legally established basic wage for workers or the sectoral wage in accordance with their economic activity.

Additional Payments The Labor Code recognizes the following benefits to which every worker is entitled:

• Thirteenth Salary: The thirteenth salary is the equivalent of one month’s salary or one-twelfth of the annual income for employees who have been with the company for less than one year. This payment must be made by December 24th, or it will be prorated monthly.

• Fourteenth Salary: The fourteenth salary corresponds to a unified basic monthly salary, which for the year 2023 is set at $450. This bonus must be paid monthly or as a single annual payment by March 15th in the Costa and Galapagos regions, and by August 15th in the Amazon and Sierra regions.

• Reserve Funds: After completing one year of service, employees gain access to their annual reserve funds, equal to 8.33% of their monthly salaries. Employees may choose to receive this reserve either monthly or annually.

• Participation in Company Profits: Employers are required to distribute 15% of the net profits among their employees annually. Of this, 10% is distributed equally among all employees, with proportional shares for those who have worked for less than a year. The remaining 5% is distributed to employees with family responsibilities, including children under 18, disabled children of any age, and spouses or partners recognized by law.

• Living Wage: Companies generating profits must pay the difference between the basic salary and the living wage, which is $447.02, for employees earning less than this amount.

• Retirement Pension: Employees who have worked continuously for 25 years or more are entitled to a retirement pension. This right can also be acquired by employees dismissed after 20 years of work. The pension amount is determined by an actuarial calculation based on the employee’s payments received during their employment.

Vacations Annual vacations: Any employee who has completed one year of service with the same employer is entitled to an uninterrupted period of 15 calendar days of paid vacation.

Foreign citizen hiring A foreign citizen who is not Ecuadorian and who wants to work and reside in Ecuador must apply for a visa at the Consulate of Ecuador in their home country before entering Ecuador, or during the 90 days on entrance to Ecuador.

Social Security Employees are required to make monthly contributions to the IESS social security system, equivalent to 9.45% of the salary they receive. On the other hand, the employer is obliged to make contributions of 11.15% of the worker’s salary.

Health and Security employees regulations

Committee for Safety and Health at Work

The Labor Code mandates that employers must submit internal regulations to the Ministry of Labor if their workplace employs more than ten workers.

It is the responsibility of workplaces with more than fifteen workers to establish a Committee for Safety and Health at Work. This committee must consist of an equal number of three employee representatives and three employer representatives, along with their respective alternates, elected for a one-year term.

Health and Safety Unit As per the Regulations for Safety and Health of Workers and Environmental Improvement Work, companies with one hundred or more permanent workers are required to establish a Health and Safety Unit. This unit must be led by a qualified individual knowledgeable in health and safety matters.

Permanent Medical Service Workplaces with more than one hundred workers must establish a permanent medical service. This service must be staffed with the necessary medical personnel in accordance with the provisions outlined in the Regulations for the Operation of Medical Services in Companies.

Social Worker It is the obligation of an employer with one hundred or more employees under their supervision to engage the services of a qualified social worker. If the company employs three hundred or more workers, the employer must hire an additional social worker for every three hundred surplus employees.

Disabilities As per the provisions of paragraph 33 of Article 42 of the Labor Code, an employer with a minimum of twenty workers must hire a minimum of 4% of staff with disabilities, as proven by a document provided by CONADIS.

Approval of special work schedules he company must submit for approval the special work schedules.

Fortuitous events Due to force majeure, it is possible to unilaterally reduce the working day.

For force majeure layoffs to be valid, the situation must render the employer unable to continue operating.

Taxation

The tax system of Ecuador implies the existence of taxes collected by the different levels of government, being the most relevant:

• National: income tax; simplified regime for small taxpayers; value added tax; Currency Exit Tax (I.S.D)

• Municipal: Tax on property, patent tax and 1.5 per mil tax on fixed assets

of corporate Tax The tax base for calculating CIT consists of all ordinary and extraordinary taxable income, reduced by returns, discounts, costs, expenses, and deductions attributable to such income.

In addition to this tax base, taxpayers must include non-deductible costs and expenses and exclude exempt income, as per the Tax Law.

The CIT rate for companies is 25%. However, companies with a shareholder participation of 50% or more from Tax Haven Jurisdictions will be subject to a rate of 28%. Companies with annual gross income of up to $1,000,000.00 or that are regular exporters will qualify for a reduced rate of 22%, provided they maintain or increase employment.

General Exemptions For the determination and calculation of income tax, the following income, among others, will be exempt:

• Dividends and profits, calculated after payment of income tax, distributed by national or foreign resident companies

• national or foreign resident companies resident in Ecuador; and profits from companies, funds, securitization trusts, which are dedicated exclusively to the investment and management of real estate assets, under certain conditions..

• Those exempted under international conventions

• Those of legally constituted private non-profit institutions.

• Interest earned by individuals on their savings accounts and deposits, paid by financial institutions in Ecuador.

• Income received from social security benefits

• Income received by government colleges and universities.

• scholarship allowances or stipends

• Severance indemnities received by workers and employees.

• Thirteenth and fourteenth salaries.

• Income from non-monetary investments made by entities with oil & gas contracts with the Government.

• Income from occasional real estate sales.

• Income derived from capital gains, profits, benefits, or financial yields distributed by investment funds, welfare funds, pension funds, and merchant trust funds to their beneficiaries, provided these funds have fulfilled their taxpayer obligations.

• Indemnities received from insurance policies.

• Those earned by persons with disabilities, duly qualified by the competent agency, partially.

• Those perceived by people over sixty-five years of age, partially.

• Payments for financial returns within a period of less than 180 days, meeting legal requirements.

• Compensations received for insurance, except for loss of profits.

• Interest paid by employees for loans made by the employer company to acquire shares of the same, as long as the employee retains ownership of such shares.

• The Economic Compensation for the living wage.

• The income received by organizations of the Law of Popular and Solidarity Economy, as long as the profits are reinvested in the organization itself.

• in the organization itself.

• The surpluses received by the members of organizations of the Law of Popular and Solidarity Economy, according to the definitions of the previous numeral.

• Non-reimbursable direct economic transfers from the State to individuals and corporations in agroforestry, reforestation, and similar plans.

• Income originated in bonds of 360 days or more issued to finance public projects in public-private partnership.

• Profits from the alienation of shares of companies carried out in Ecuadorian stock exchanges (with limits).

• Profit from the sale of shares by quota holders in funds or investors in securities of securitization trusts, exempt if it meets the established conditions.

• Derived from projects financed entirely with non-refundable credits from government to government, received by foreign companies of the donor country.

Special exemptions Operator users or users of qualified Free Trade Zones will enjoy a 0% Income Tax rate for the first 5 years of declaration from the first year in which income is generated. Subsequently, they will enjoy a fixed rate of 15% Income Tax for the remaining time of their declaration.

New productive investments to be made in projects projects focused on the transition to the generation of non-conventional renewable energies and the production, industrialization, transportation, supply, commercialization and and the production, industrialization, transport, supply and commercialization of natural gas or green hydrogen in the natural gas or green hydrogen in Ecuador, will be entitled to income tax exoneration for 10 years, counted from the date of for 10 years, counted from the first year in which income directly and solely attributable to the new investment is generated.

New productive investments, which are made in projects focused on tourism, will be entitled to income tax exemption for 7 years, counted from the first year in which income is generated in projects focused on tourism, will be entitled to income tax exemption for 7 years, counted from the first year in which income directly and solely attributable to the new investment is generated.

Deductions In computing taxable income, a company can deduct all costs and expenses deemed necessary and related to the activity, aimed at attaining, maintaining and improving the taxable and not exempt income.

The following payments abroad are deductible within specified limitations:

• Costs and expenses attributable to income, supported by sales receipts.

• Interest on debts incurred in the course of business. In order for interest paid or accrued by banks, insurance companies and entities of the financial sector of the Popular and Solidarity Economy for external credits granted directly or indirectly by related parties to be deductible, the total amount of such interest cannot exceed 300% of equity. In the case of other companies or individuals, the total amount of net interest in operations with related parties must not exceed 20% of the profit before labor participation, plus interest, depreciation and amortization of the fiscal year, except for interest payments for loans destined to finance delegated management and public projects of common interest, qualified by the competent public authority. The regulation of the law will establish the conditions and terms for the application of this regulation.

• Interest paid or accrued on the excess of the indicated ratios will not be deductible. In addition, interest and financial costs of external credits not registered with the Central Bank of Ecuador will not be deductible.

• Taxes, fees, contributions and contributions to the mandatory social security system.

• Insurance premiums accrued in the tax year covering personal risks of workers and assets related to the activity generating the taxable income.

• Proven losses due to acts of God, force majeure or crimes that economically affect the assets of the activity generating the income.

• Travel and living expenses necessary to generate income and indirect expenses allocated from abroad to companies domiciled in Ecuador by related parties, up to a maximum of 5% of the taxable income tax base plus the value of such expenses.

• Depreciation and amortization.

• Amortization of losses.

• Wages, salaries, remunerations, social benefits, employee profit sharing, indemnifications and legal bonuses. Additional deduction of up to one hundred and forty percent (140%) for the creation of new jobs for the hiring of women; additional deduction of between 50% and 75% for hiring young people between 18 and 29 years; additional deduction of between 50% and 75% for hiring persons who have served a prison sentence of more than one year, or their spouses or domestic partners.

• Values allocated by insurance and reinsurance companies to form mathematical and other reserves to cover current risks.

• Provisions for bad debts.

• Assumed income tax and personal social security contributions for employees hired on a net salary basis.

Deductions

Continuation

Deduction of foreign payments

• Expenses accrued and pending payment at the end of the fiscal year.

• Expenditures in kind or services for directors, officers, employees and workers, provided that withholding tax has been withheld at source on the totality of these expenditures.

• Expenses related to the acquisition, use or ownership of vehicles used in income-generating economic activity

• Costs and expenses for promotion and advertising with exceptions (not applicable for prepared foods with ultra-processed content).

• An additional deduction of 150% is allowed for advertising, promotion, sponsorship and/or sponsorship expenses incurred in favor of:

• Athletes; low-income students in third or fourth level dual training; non-profit entities that have activities of: eradication of chronic child malnutrition and care for pregnant and nursing mothers, care for people with disabilities, care for catastrophic, orphan or rare diseases, or comprehensive cancer care, animal protection, care, defense and protection of children and adolescents, construction of emergency housing solutions for families or communities in situations of poverty or extreme poverty, as well as in cases of natural emergency; donations of equipment and supplies to the National Police.

• Additional deduction of up to 150% for expenses for organization and sponsorship of artistic and cultural events and production of cinematographic works.

• Expenses for private contributions for the promotion of arts, cinema and innovation in culture, with an additional deduction of up to 150%.

• Additional deduction of up to 10% for the purchase of goods or services from organizations of the popular and solidarity economy, including artisans, which are micro-enterprises.

• Resources and/or donations for undergraduate and graduate careers related to Education Sciences in legally recognized Higher Education Institutions, deductible up to 1% of the taxable income.

• Deduction of an additional 100% for donations, investments and/or sponsorships destined to programs, funds and projects of prevention, protection, conservation, bio-enterprises, restoration and environmental repair, up to a maximum of 10% of the gross annual income.

• Deduction of expenses in works for the construction of new electric power distribution networks and infrastructure to supply commercial and/or industrial customers isolated from the distribution network, provided that they have the approval of the electric distribution companies in the area of influence and are intended for operation and control.

Expenses incurred abroad are deductible, provided that the withholding at source has been made, if what was paid constitutes for the beneficiary an Ecuadorian source income.

The following are deductible without the need of withholding at the source:

Payments for the importation of goods;

Payments for external financing to foreign financial institutions, legally established

Commissions for exports included in the contract and those paid for the promotion of inbound tourism, not exceeding two percent (2%).

Expenses necessarily incurred abroad by maritime or air transport companies

Payments for cession or reinsurance premiums, subject to conditions

payments made by international press agencies

payments for international commercial leasing of capital goods,

payments for promotion of receptive tourism

Special rules

The agricultural and banana sector has a special regime and a reduced rate of income tax is applied, ranging from 0% to 2% for local sales and from 1.30% to 3% for export.

RIMPE: Simplified regime for businesses with annual revenues up to US$300,000.

Tax 2.- VALUE ADDED TAX (I.V.A)

Value Added Tax (I.V.A.)

IVA is levied on the transfer of goods, imports and services provided. The actual rate is 13%, but there are transfers, imports and services levied with “0” rate. The following transactions are no subject to IVA:

• Contributions in kind to corporations.

• Awards arising from inheritances and the liquidation of companies.

• Sale of businesses in which the assets and liabilities are transferred.

• Mergers, spin-offs, and transformations of corporations.

• Donations to public entities and charities.

• Transfer of shares, participations, and other securities.

• The installments or contributions made by the condominium owners within the horizontal property regime,

IVA Refund on Export Activities Individuals and corporations that have paid IVA in the local purchase or import of goods, used in the manufacturing of goods to be exported, will be granted a refund for the tax paid, without interest, in a period of time not exceeding ninety days. If the refund is made after this term, interest will apply. Notwithstanding the above rule, this will not apply to oil & gas exports, due to the fact that oil & gas are not manufactured, but rater extracted from the soil.

Tax 3.- TAX ON SPECIAL CONSUMPTIONS (I.C.E)

Object of ICE ICE applies to the consumption of cigarettes, beers, soft drinks, and luxury or sumptuary articles, national or imported

Taxable base The taxable base of products subject to locally manufactured ICE shall be determined by adding the “ex factory” price, costs, and commercialization margins, minus the VAT and the ICE itself. The rates established by law shall then be applied to this taxable base. For imports subject to ICE, the taxable base will be established by increasing the “Ex-Customs Price” by an additional 30% to account for costs and expected commercialization margins.

Tax 4.- CURRENCY EXIT TAX (ISD)

Tax Rate

Taxpayers subject to this tax

Moneys, funds, and currencies remitted abroad, with or without the intervention of financial institutions located abroad, will be subject to a rate of 5% starting from March 2024.

This includes the transfer or conveyance of currency abroad, whether in cash, checks, credit cards, through wire transfers, withdrawals, or payments of any nature remitted abroad, with or without the intervention of banking and financial institutions. It also encompasses the offsetting or compensation of accounts with entities abroad.

Ecuadorians and foreign individuals residents of Ecuador

Undivided inheritances

Private national corporations, Branches of foreign companies and permanent establishments domiciled in Ecuador, even in the cases when they offset or compensate accounts with entities, related or not, from abroad

Importers of goods, either individual, national or foreign corporations or permanent establishments of foreign companies

Moment of the payment in case of imports

If the payment of the import was made from abroad, in any manner, the Capital Flight Tax shall be declared and paid at the time of nationalization of the goods; to such purpose all importers must file with the customs authorities, the corresponding form to the extent that the SENAE (custom authority) can accurately identify the transaction and collect the tax whenever applicable.

General Exemptions 1. Cash currencies held by Ecuadorian and foreign citizens, who leave the country or minors who do not travel with an adult, up to three unified basic salaries, shall otherwise be taxed. In the case of adults traveling accompanied by minors, the applicable exemption amount shall be added a unified basic salary for each minor.

2. Transfers, shipments or transfers made abroad, except by credit or debit cards, are exempt up to an amount equivalent to three unified basic salaries. In the case of consumptions with credit or debit cards or withdrawals made from abroad, an annual amount equivalent to five thousand dollars (USD 5,000.00) will be considered exempt, adjustable every three Years based on the annual variation of the Consumer Price Index - General CPI - to November of each year, prepared by the competent public body; Otherwise they will be taxed.

3. Payments made abroad for the repayment of principal and interest generated on loans granted by international financial institutions or specialized nonfinancial entities qualified by the corresponding control bodies in Ecuador that grant financing with a term of 360 calendar days or more, via credit, deposit, purchase and sale of portfolio, purchase and sale of securities in the stock market, that are destined to the financing of housing, microcredit or productive investments. Financing operations granted directly or indirectly by related parties by management, administration, control or capital and which in turn are resident or established in tax havens or less taxing jurisdictions, except where the borrower is a financial institution, will not be part of this exception.

4. The payments made abroad by administrators and operators of Special Economic Development Zones (ZEDE) for imports of goods and services related to their authorized activity, without prejudice to the application of the regime provided for in the preceding paragraph for their operations of external financing.

5. Payments made abroad, dividends distributed by national or foreign companies domiciled in Ecuador, after the payment of income tax, in favor of other foreign companies or natural persons not resident in Ecuador, provided, The company or the natural person - as appropriate - is not domiciled in tax havens or jurisdictions of lower taxation. This exemption will not apply when dividends are distributed in favor of foreign companies of which, in turn, shareholders are natural persons or companies resident or domiciled in Ecuador, who are shareholders of the company domiciled in Ecuador that distributes them

General Exemptions

1. Payments made abroad for the financial income, capital gains and capital of those investments coming from abroad that have exclusively entered the Ecuadorian securities market to carry out this transaction and that have remained in the country for at least the indicated period By the Tax Policy Committee, which may not be less than 360 calendar days, made by natural or legal persons domiciled abroad, through the Stock Exchange legally constituted in the country or the Special Stock Exchange Register;

2. Foreign payments arising from financial income, capital gains and capital from investments abroad, in securities issued by legal entities domiciled in Ecuador, which had been acquired in international markets, and provided that the resources

3. generated for such investment have entered the country and have remained at least the period indicated by the Tax Policy Committee, which may not be less than 360 calendar days, intended for housing financing, microcredit or productive investments. This exemption does not apply when payment is made directly or indirectly to natural persons or companies resident or domiciled in Ecuador, or between related parties.

4. Payments made abroad in respect of financial income, capital gains and capital of those fixed-term deposits made with resources from abroad, in institutions of the national financial system, and whose minimum term will be that indicated by the Tax Policy Committee, Carried out by natural or legal persons as of the date of publication of this Law.

5. Those who study abroad in educational institutions recognized by the competent national authority in Ecuador, may carry or transfer up to an amount equivalent to the costs related and charged directly by the educational institution. For which they must carry out the processing of prior exoneration, in accordance with the conditions and procedures established by the Tax Local Authority. In cases in which the tax is paid, it can be requested to return of it by fulfilling the same conditions established for the exemption. In addition, persons who leave the country for study purposes to educational institutions duly recognized by the competent national authority in Ecuador and for reasons of catastrophic illnesses recognized as such by the State, may carry up to 50% of a basic fraction encumbered with zero rate of income tax, in accordance with the conditions and procedures established by the Tax Local Authority.

Exemptions in the Execution of Public Projects in Public-Private Partnership.

Foreign payments made by companies that are created or structured for the development and execution of public projects in a public-private partnership are exempt from the tax on foreign exchange, which comply with the requirements established in the law that regulates the application of The incentives of PPPs, whatever the domicile of the recipient of the payment:

1. In the importation of goods for the execution of the public project, whatever the import regime used.

2. In the acquisition of services for the execution of the public project.

3. Payments made by the company to the public project financiers, including capital, interest and commissions, provided that the agreed interest rate does not exceed the reference rate at the credit registration date. The benefit is extended to the subordinated credits, provided that the borrowing company is not in a situation of undercapitalization according to the general regime.

4. Payments made by the company for distribution of dividends or profits to its beneficiaries, without prejudice to where they have their fiscal domicile.

5. Payments made by any person or company in connection with the acquisition of shares, rights or interests of the structured company for the execution of a public project in the form of public-private partnership or for transactions involving securities representing bonds issued for The financing of the public project.

General Exemptions

ISD

Continuation

Special Cases:

The following operations do not generate an obligation to pay the ISD, under current legal provisions:

1. Payments for imports made under the regimes of “temporary admission for re-export in the same state”, “temporary admission for inward processing”, “free warehouses”, “international fairs”, “special warehouses” and “processing under customs control”.

2. Payments made from abroad by natural persons or Ecuadorian or foreign companies domiciled or resident in Ecuador, when said payments are made with resources that cause ISD upon leaving the country.

3. Transfers, shipments, transfers or payments made under the Law of the Guayaquil Charitable Board, Special Law of the Electricity Sector, Higher Education Law, Free Zones Law.

Transfers abroad made by international organizations, diplomatic missions, consular offices and foreign officials of these entities

When these entities or their foreign officials duly accredited in the country, send or transfer foreign currency, through financial institutions or courier companies, must attach to the respective application, only the form “Declaration of transaction exempt

/ not subject to Tax on the Exit of Currencies “, provided for this purpose by the Local Tax Authority. This form must be filled only through the website of the Local Tax Authority, in the option e Online Services.

4. Dividend payments to foreign companies, provided that there are no natural persons or companies resident in Ecuador.

The exemption does not apply when payment is made between related parties.

5. Payments made abroad for financial returns, capital and capital gains related to:

a) Investments from abroad, entered into the Ecuador stock market.

b) Securities issued by companies domiciled in Ecuador, which had been acquired abroad, destined to finance productive housing, microcredit or investment.

c) Time deposits or investments, with resources from abroad, in institutions of the national financial system.

The exemption does not apply when payment is made between related parties.

This guide has been prepared by ABC GLOBAL an independent member of Antea

ABC GLOBAL

Edificio Royal Business, Oficina 303 Quito, Ecuador

Tel.: +593-3 238 629 info@abcglobal.tax www.abcglobal.tax

SETTING UP BUSINESS IN ECUADOR

Antea members in Ecuador:

GUAYAQUIL

Contact partner: Sabel Gutiérrez

Tel.: + 59342387599

Mail: sabel.gv@ngv.com.ec

Web: www.ngv.com.ec

QUITO (Tax and legal)

Contact partner: Javier Bustos

Tel.: +59 323 8629

Mail: javier.bustos@abcglobal.tax

Web: www.abcglobal.tax

QUITO

Contact partner: Jefferson Galarza Salazar

Tel.: + 59323909279

Mail: jgalarza@bcgdelecuador.com

Mail: www.bcgdelecuador.com

Mallorca, 260 àtic

08008 – Barcelona

Tel.: + 34 93 215 59 89

Fax: + 34 93 487 28 76

Email: info@antea-int.com www.antea-int.com

This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it.

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