Ecuador Opportunities and Challenges (Executive Summary) 2012
EsRoBross Cía. Ltda. Independent Public Accountants Finec Building. 6th floor, Office 604 Phone: 04 2 512082 Guayaquil – Ecuador A. Montenegro Building, 4th Floor Office 12 Phone: 6013314 Quito - Ecuador www.esrobross.com www.Tiagnet.com @esrobross
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
Ecuador Opportunities and Challenges (Executive Summary) 2012 CONTENT CHAPTER 1
Companies constitution International financial reporting standard (IFRS) Law for prevention, detention and eradication of money laundering and financial crimes Engaging external auditors Merger of companies Companies Dissolution
CHAPTER 2
Employment and labor costs Working time regulations Social security contributions Layoff regulations
CHAPTER 3
Income tax Related parties Income tax advance payment Dividends and profits Payments abroad Accounting and financial statements Value added tax (VAT) Value added tax´s credit Tax credit in the commercialization of inbound tourism packages VAT´S Statement, settlement and payment Special cases for VAT´S determination, settlement and payment Value added tax refund
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
Ecuador Opportunities and Challenges (Executive Summary) 2012 PRESENTATION
T
he commercial opening and the internationalization of the industry open new borders for the
Ecuadorian economy. Nevertheless, to maximize the benefits that the globalization offers, Ecuador has the necessity to strengthen his productive sector and provide him with tools in order to compete with foreign products. Conscious of this need to possess updated information of laws and regulations of how business are performed in the country, EsRoBross, publishes Ecuador Opportunities and Challenges, material of reading that should help to know Ecuador as for his association, labor and tax regulations. This compendium of laws and regulations penetrates on the legal frame, institutional competitions and administrative aspects of anyone of the necessary instances to do business in Ecuador, which every investor needs to know. We hope that this document constitutes a basic guide in order that the productive Ecuadorian sector and foreign investors know in a transparent and objective way the regulations of business performed in Ecuador. Very attentively
Henry Escalante RamĂrez Partner
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
PRESENTACIÓNCHAPTER
1
COMPANIES CONSTITUTION Commercial companies are integrated by two or more partners, to develop production and trading activities or provision services.
Regulatory structure The companies constitution and subsequent operation are subject to the Companies Law, Registration Law, Commercial Code and, the Civil Code. The Companies Law recognizes six types of companies with the following designations:
Societies Collective noun Simple Limited Shares Limited Limited liability company limited Mixed economy
Partners Number 2 or more 2 or more 2 or more 3 a 15 2 or more 2 or more
Minimal Capital USD 800 USD 800 USD 800 USD 800
Paid-in Capital 50% 50% 25% 50% 25% 25%
Control and intervention The Companies Superintendence is the entity that controls the corporate system in Ecuador through inspections and information that companies and their managers must submit annually. The Ecuadorian companies subject to the supervision and control of the Companies Superintendence must present the following:
Copies of the annual balance sheet, the income statement and management reports. The list of managers, legal representatives and partners, in case of foreign companies the names of agents or legal representatives.
The transfer of shares for companies constituted in Ecuador must be communicated indicating the name and nationality of the transferor and transferee.
INTERNATIONAL FINANCIAL REPORTING STANDARDS, IFRS Since 2012 all companies subject to supervision by the Companies Superintendence must submit their financial statements under the International Financial Reporting Standards.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
LAW FOR PREVENTION, DETENTION, AND ERADICATION OF MONEY LAUNDERING AND FINANCIAL CRIMES In Ecuador, the companies that are required to inform to the Financial Analysis Unit (FAU) through legal reports are:
Financial and insurance institutions, The foreign affiliates, the stock and securities houses, fund managers, cooperatives, foundations and nongovernmental organizations, individuals and legal entities engaged regularly in the distribution of vehicles, boats, ships and aircraft; Companies that transfers money or securities nationally or internationally; Domestic and international transportation of parcels, mail and packages, including its operators, agents and agencies; Travel agencies and tour operators; Natural people and legal entities regularly engaged in investment and real estate brokerage and construction, casinos and gambling, bingo, slots and racetracks; Traders of jewelry, precious metals and stones, the antique dealers and art, Notaries and commercial property registrar.
The companies obligated to report cited in the preceding paragraph shall have a compliance officer and report to the Financial Analysis Unit, the following: • •
•
Report for unusual and unjustified financial transactions or attempts of these, in which must be attach all the underpinnings of the case. The report for attempts should be performed only when a record is deemed to attempt material fact; Report for individual operations and transactions with a value equal to or greater than ten thousand dollars of the United States of America or its equivalent in other currencies, and multiple operations and transactions that together are equal to or greater than this value, when are performed on behalf of the same person within a period of 30 days; Report for nonexistence operations and financial transactions that equal or exceed the legal threshold
ENGAGING EXTERNAL AUDITORS The Ecuadorian Companies Law points that the hiring of external auditors must be done until September 30. The company must inform the Companies Superintendence, within thirty days from the date of hire, the name of the person or entity engaged. According to the law, external audit opinion is mandatory to the following companies: • •
•
National companies (mixed capital, or company limited) involving public law legal enterprises with social or public rights, with assets in excess of USD $ 100,000 dollars from the United States of America; Branches of foreign companies or international companies organized as legal persons established in Ecuador and the associations they form with each other or with domestic companies, provided that the assets exceed USD $ 100,000 dollars from the United States of America, and National limited companies, limited by shares and limited liability, whose assets exceed USD $ 1,000,000 dollars in the United States of America.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
MERGER OF COMPANIES Consolidation or merger of two or more companies in which the interests of each of the beneficiaries continue in a new or modified organization, carrying amount and their respective interests in the capital and earned surplus exhibited remain essentially unchanged, being as the elements of a purchase and sale are absent. There are two ways to merge the companies: • •
Merger by absorption. - Applies to companies or investments in companies with one or more corporations merge and decide absolving capital investment of the other, eliminating the capital. Direct merge. - Applies to companies that decide to merge to create a new company.
Tax aspects The merger will take effect from the financial year in which this merger is registered in the Commercial Register. Until this inscription is recognized, each of the companies that have agreed to merge by absorption from one to the other must continue to perform their operations. Once registered in the commercial register the merger document by absorption, the acquiring company must consolidated the balance sheets and the related statements of income of the companies merged, cut to the date of registration. In the same way, must proceed when two or more companies join to form a new succeeding them, in which its initial balance sheet and statement of income will be the one resulting from the consolidation. The new company will be responsible of all tax obligations of companies to merge. The transfer of assets and liabilities that are carried in the merger process are not subject to income taxes. It will not be taxable or deductible the higher or lower value of the investment of shareholders, partners or members of the merged companies as a result of the merger.
COMPANIES DISSOLUTION Company dissolution is the division of company´s assets, liabilities and equity, thus forms one or more independent companies. Tax aspects When a society is partially dissolved, it must be transferred some of the assets, liabilities and equity of the breakaway, which shall take effect when the respective resolution approving are registered in the Commercial Register. Until the registration is approved, the company being divided will continue fulfilling their tax obligations. In accordance with the provisions of paragraph 3 of Art.27 of the Tax Code, companies resulting from the dissolution will be jointly liable for the tax liability the company being divided owes, until the date on which it is registered in the Commercial Register. The books and other records of the company being divided shall be preserved for a period of up to six years. The transfer of assets and liabilities that are carried at the dissolution processes are not subject to income taxes. It will not be taxable or deductible the higher or lower value reflects the investment of shareholders, partners or members of companies created by the dissolution as a result of it. EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
CHAPTER
2
EMPLOYMENT AND LABOR COSTOS Minimum monthly wages The CONADES establishes for each year, the minimum wage in tables applicable by sector to different industries or economic activities of the private sector, detailed by occupational category. However, in recent years there has not been an individual determination for occupation, but has provided a percentage of the general increase, according to inflation rates projected by the Central Bank of Ecuador. Although there is a minimum salary table for each private sector economic activity, detailed by occupational category, the general minimum wage for 2012 is: •
General worker benefits USD 293.00 monthly plus legal benefits
Legal Benefits Ecuadorian legislation establishes mandatory: • • • • •
An additional remuneration paid in the month of December and is equal to one-twelfth of the total annual remuneration; A school bond (before compensation fourteenth) consisting of a minimum wage for each occupational group that is canceled in April in the Galapagos and Coast region and, in September in the Andean and Amazon Region; Reserve Fund equivalent to full pay which is awarded annually to the worker or to the Social Security Institute, from the second year of work in the same company. The vacation of 15 working days per year, from the fifth year increases one day for each additional year, and, The payment of profits which corresponds to 15% of the company's earnings before payment of income tax.
WORKING TIME REGULATIONS Established normal working hours and weekly working time, the wage determines surcharges tasks performed outside the day shift, at the mandatory holidays (Saturday, Sunday and civic celebrations) or above the appointed time as week labor.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
Working hours for daily and weekly jobs Normal daily hours Week of job Cost of overtime and additional Night shift (*) Overtime (**) Extraordinary time (***)
8 hours 40 hours Wage+ 25% Wage + 50% Wage + 100%
* Between 19H00 and 06H00 of next day ** Overtime, during day and up to 24H00 *** Extraordinary time 24H00 y 06H00 of next day
SOCIAL SECURITY CONTRIBUTIONS The Ecuadorian Social Security Institute (IESS), based on monthly earnings, establishes the % of mandatory employer and personal contributions to Social Security. The % contribution corresponding to: Monthly Contribution Employee´s Contribution to IESS Employer´s contribution to IESS SECAP IECE
% 9.35 11.15 0.5 0.5
LAYOFF REGULATIONS When there is no fixed term of an employment contract may notify the parties will terminate the employment relationship in advance of a month at least if the employer and 15 days if the worker. This notice is called eviction and leads to a bonus if the one who notifies is the employer. In case of dismissal to the employee, without the eviction proceeding, the employer assumes the obligations of the following table: Dismiss costs Bonus for eviction Unexpected Dismiss
To finish a contract before the agreed date
Regulations 25% for each service year From 90 days to three years: 3 prevailing wages to the dismiss date More than 3 years: 1 prevailing wage for each service year 50% the time remaining to the end of the contract
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
CHAPTER
3
TAXES IMCOME TAX For purposes of this tax, income is considered: • •
The Ecuadorian source income obtained gratuitously or for payment from the labor, capital or both sources, consisting of money or services species and, Income earned abroad by natural people who live in the country or national societies.
In Ecuador, the income tax rate for 2012 is 23%.
RELATED PARTIES For tax purposes are considered related parties all individuals or companies domiciled or not in Ecuador, in which one participates directly or indirectly in the management, administration, control or capital of the other, or where a third, whether an individual or company established or not in Ecuador, participates directly or indirectly in the management, administration and control or capital of these ones. The Tax Administration in order to establish some kind of relationship capital by percentage or proportion of transactions, take into account, among others, the following:
When a person or company directly or indirectly holds 25% or more of the capital or equity in another company.
The companies in which the same members, shareholders or their spouses, or their relatives within the fourth degree of consanguinity or second degree of affinity, participate directly or indirectly at least 25% of the capital or equity transactions or maintain commercial transactions, or are serving as employees.
When a person or company directly or indirectly holds 25% or more of the capital or equity in two or more companies.
When an individual or society, domiciled or not in Ecuador, perform 50% or more of their sales or purchases of goods, services or other operations, with an individual or company, domiciled or not in the country.
Taxpayers who meet the requirements established in this rule are subjected to transfer pricing rules and must submit the annexes, reports and other documents relating to transfer pricing, in the manner provided in these rules, without being notified by Tax Administration. It will also be considered related parties the one that transacts with companies domiciled, organized or located in low tax jurisdiction taxation, or tax havens. Also, the Tax Administration EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
may establish related parties by presumption when transactions are not in accordance with the arm's length principle. It will be lower tax jurisdictions and tax havens, those who point the Internal Revenue Service based on the information of the Organization for Economic Cooperation and Development - OECD and the Financial Action Task Force, FATF.
INCOME TAX ADVANCE PAYMENT According to the Internal Tax Regime Law, its regulations and amendments, when the income tax caused is less than the declared tax advance, the advance becomes final payment of income tax and therefore that should be considered for settlement of income tax for the year. The calculation of income tax advance is a value equivalent to the mathematical sum of the following items: • • • •
The zero point two percent (0.2%) of total equity. The zero point two percent (0.2%) of total deductible costs and expenses to effect of income tax. The zero point four percent (0.4%) of total assets, and The zero point four percent (0.4%) of total taxable income to effect of income tax.
Societies and individuals required to keep accounting will not considered in the calculation of the advance income tax payment, receivables except those who have with related parties. The newly established companies, individuals required to keep accounting shall be subject to payment of the advance income tax after the second full year of operation effective. In the event that the production process so requires, this period may be extended, with the authorization granted by the Director General of the Internal Revenue Service. Taxpayers may request that the Internal Revenue Service, after verification, provided the repayment of the advance, in accordance with the law, for a single fiscal year for each three-year period for which shall be considered the first year of the first three-year period fiscal 2010. This right may be exercised only if it has been affected severely the economic activity of the taxpayer in the respective fiscal year, in terms of unforeseeable circumstances or major force.
DIVIDENDS AND PROFITS In the case of dividends and profits calculated after payment of income tax, paid by national or foreign companies’ residents in Ecuador, in favor of other national or foreign societies, not domiciled in tax havens or low tax jurisdictions, or individuals not resident in Ecuador, there will be no additional payment of withholding income tax. Dividends or profits distributed in favor of natural persons residing in Ecuador constitute taxable income to the perceived and should therefore be made a corresponding deduction at source by the company who distributes.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
Retention rates apply progressively according to the following percentages in each range, as follows: Basic Fraction 100.000 200.000
Excess up 100.000 200.000 And up
Withholding fraction 0 1.000 6.000
basic Percent Withholding on surplus fraction 1% 5% 10%
When dividends or profits are distributed in favor of companies domiciled in tax havens or low tax jurisdictions, must be performed for withholding of income tax. The percentage of this retention is 10%.
Anticipated dividends or other benefits retention When a company distributes dividends or other benefits under utilities in favor of its partners or shareholders, before the end of such period and, therefore, previous to the results of the activity of the company, it must make the retention of 23% of the amount of those payments. Such withholding will be declared and paid in the following month and within the limits laid down in the Regulation and shall constitute the business tax credit on the income tax on revenue.
PAYMENTS ABROAD There are deductible, payments made abroad that are directly related to the activity in Ecuador and intended to obtain taxable income. Payments made abroad are deductible provided that carried out the corresponding withholding of income tax (23%). If the taxpayer omits the withholding tax, will be responsible for payment of the tax, in which case the value of the retention shall be considered non-deductible expenses in the tax reconciliation of your income tax statement for the fiscal year corresponding. The foreign payments listed below are deductible and also meet the following rules:
Reimbursement The expenses are deductible, those values that taxpayers reimburse abroad for expenses incurred abroad, directly related to the activity in Ecuador, provided that the withholding of income tax is done. The reimbursement shall be produced if the following circumstances:
Expenses reimbursed arise from a decision of the client company, who for some reason was unable to make direct spending, or because it was convenient to go to a third party to act on its behalf; The amount of reimbursement of expenditure correspond to previously established values and, There are supporting documents substantiating the purchase of goods or services which are the subject of reimbursement.
If established that the taxpayer used an intermediary located in a country which has concluded a double taxation agreement, in order to perform a triangulation and benefit from the exemption from withholding tax, the tax may determine the tax payable without prejudice to any criminal liability that might arise. EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
Indirect costs allocated from outside, to companies domiciled in Ecuador by its related parties, may not exceed 5% of the tax base of income tax plus the value of such expenses, provided that such expenses are related to the main activity in the country. For the case of companies that are in the pre-operational cycle of the business, this percentage corresponds to 5% of total assets, without prejudice to the withholding tax accordingly.
Interest on foreign loans The interests paid on foreign loans are deductibles those acquired for the line of business, until the rate authorized by the Central Bank of Ecuador, provided that such payments and are registered with the Central Bank of Ecuador, and the other conditions established by law. For foreign loans with related parties also should meet the following conditions:
For companies, the interests on their foreign loans are deductibles, provided the ratio of total external debt and its equity does not exceed 300%.
For foreign branches, the interests on foreign loans are deductible, provided the ratio of total external debt and allocated equity does not exceed 300%. Not be considered foreign loans those received from the headquarters.
Foreign payments not subject to withholding tax In addition to the conditions laid down in the Law on Internal Taxation, foreign payments not subject to withholding tax applicable to income tax shall follow the rules detailed below:
The payments for imports, according to the values entered in the respective import documents, including: the current Customs document, invoice, insurance policies and bills of lading, among others.
The export fees stated in the respective contract, not exceeding 2% of the export value. However, if payment is made in favor of a person or company related to the employer or if the beneficiary of these commissions is domiciled in a tax haven or preferential tax regimes, according to the resolution that the Internal Revenue Service issued the matter is to be paid the corresponding withholding on account of income tax in Ecuador.
Payments that travel agents and tourism providers make to hotel and tourist services abroad, as a service to its customers.
Commissions paid by promotion of inbound tourism, not exceeding 2% of the income earned as a result of such activity, provided they are justified by the respective contracts. However, if payment is made in favor of a person or company related to the company or the beneficiary of these commissions are domiciled in a tax haven or preferential tax regimes, according to the resolution that the Internal Revenue Service issued the matter is to be paid the corresponding withholding tax in respect of income in Ecuador.
Expenses necessarily be made abroad by the shipping, air and sea fishing companies, incorporated under the laws of Ecuador, provided they are certified by external auditors with representation in Ecuador.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
90% of the payments made to international press agencies, registered at the State Public Management Secretariat.
96% of the transfer or reinsurance premiums contracted with companies that have no establishment or permanent representative in Ecuador.
60% of the interest on foreign loans and lines of credit opened by foreign financial institutions for national financial institutions, under the conditions laid down in the Law.
Independent Auditors Certification In order to verify the relevance of spending, in the case of payments or account credits do not constitute taxable income in Ecuador, foreign payments under double taxation agreements for transactions made in one fiscal year and which together true duty exceeding a basic fraction of income tax for individuals and in other cases where according to the Internal Taxation Act and this regulation is established the need for an independent auditor certification with branches, subsidiaries or representation in the country, such certification must necessarily be carried out by independent auditors abroad regarding verification of such costs and expenses, may, with respect to the appropriateness of expenditures, the necessity of sending to generate income and latter analysis is taxed on whether or not the income tax, to be conducted by the branch, subsidiary or representative of the same independent auditor in the country, the certificate will be issued in Spanish. The report developed by the independent auditor may consist of two bodies, one by the auditor based on the outside, and another by the auditor based in Ecuador. The independent auditors' certifications abroad must contain at least the following:
Details of the payee and refund if applicable;
Date of payment or account credit. If reimbursement is included in the detail the date of making payments for costs and expenses incurred subject of reimbursement;
Amount of expense and refund if applicable;
one to one description of the costs and expenses incurred, even in the case of reimbursement;
In the case of indirect expenses allocated from the outside, including the method of allocation used and analysis of previously agreed procedures;
Confirmation that the review by the external auditors, was for all the expenses paid or reimbursed and was not made under any method of sampling and
Authentication Ecuadorian consul nearest to the place of issue, this authentication is not required for payments made abroad by companies and public companies.
Furthermore, the certification of the independent auditors in the country must contain at least the following:
Tax ID number and name of who made the payment.
Analysis of the relevance of the expenditure for the development of economic activity in Ecuador or abroad, and the description of the income for which it was done. EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
Rate of income overseas remittance company under double taxation agreement if applicable, and verification that the payee is the beneficial owner.
Justification of why it would not be taxable income in Ecuador, if applicable.
Withholding on payments made abroad Everyone who sent, paid or credited income taxed abroad, either directly, through compensation, reimbursements, or through the mediation of domestic and foreign financial institutions or other intermediaries must withhold and pay 23% of the respective payment or account credit, except payments that are exempt from income tax. Excepted payments, account credits, advances or expenses reimbursements made abroad for nonprofit institutions that are part of foreign governments, according to certain contracts or agreements between governments, likewise there will not be withhold at source when the payment or account credit correspond to dividends, gains or profits remitted abroad to companies who are not domiciled in tax havens or low tax jurisdictions or individuals not resident in Ecuador.
ACCOUNTING AND FINANCIAL STATEMENTS Taxpayers required maintaining accounting All branches and permanent establishments of foreign companies and national companies are required to keep accounts. Also, they are required to maintain accounting, individuals engaged in business activities and that operates with equity at the beginning of their business or the 1st. January of each tax year that have exceeded $ 60,000 or with annual gross revenues of the preceding fiscal year amounted to more than USD 100,000 or whose annual costs and expenses attributable to the business activity of the preceding fiscal year amounted to more than USD 80,000. Equity is defined as the total assets less liabilities held by the taxpayer, related to the generation of taxable income. In the case of natural persons having as usual economic activity the export of goods must necessarily take accounting, regardless of the limits established in the preceding paragraph. For the case of individuals whose regular business is the leasing of real property shall not be considered the limit of equity. Individuals who, in accordance with the preceding paragraph have been accounts in a tax year and then not reach the levels of equity or annual gross income or annual expenses mentioned above, cannot fail to keep accounts without prior authorization of the Regional Internal Revenue Service Director. The accounts must be brought under the responsibility and with the signing of a legally authorized accountant. The accounting supporting documents must be retained for a minimum period of seven years in accordance with the provisions of the Tax Code as the deadline for the prescription of tax liability.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
VALUE ADDED TAX (VAT) The Value Added Tax is levied on transfers of tangible goods, at all stages of commercialization made in Ecuador by individuals and societies, and the imports of tangible goods. There will also be considered like transfers the withdrawals of tangible goods made by a seller or by the owner, partners, shareholders, directors, officers or employees of a company for personal use or consumption, either from their own production or purchased for resale or the provision of services, regardless of the legal nature of society. For these purposes, it will be be considered withdrawn for own use or consumption, all goods who fail in the inventories of the seller or service provider and whose output cannot be supported with reliable documentation, except in cases of loss or destruction properly verified. It will also be understood as auto consumption, the use of goods of own inventory, to be used as fixed assets. The tax base is the market price. It will be considered as transfers, the withdrawals of tangible goods for raffles and drawings, even free of charge, used as promotions by the taxpayers. The tax is levied, likewise, any form of transfer of rights or license to use held in the country, by individuals and companies of intellectual property rights, thereof comprising: a) The copyright and related rights; b) industrial property, which covers inventions; industrial designs; layout-designs of integrated circuits, undisclosed information and trade secrets and industrial manufacturing brands, services and commercial slogans, trade dress business and commercial establishments, trade names, geographical indications and any other intellectual creation is intended for agricultural, industrial or commercial use; c) Plant varieties. Similarly, the tax levied on the transfer of rights or license to use intellectual property rights, held by holders resident or domiciled abroad for individuals residing in Ecuador or companies domiciled in Ecuador.
VAT Rate The Value Added Tax rate for 2012 is 12%.
VALUE ADDED TAX´S CREDIT To exercise the right to tax credit for imports or local purchases of goods, raw materials, supplies or services, shall be valid only import customs documents and other proof of sale received in import operations with its own tax payment voucher and those expressly authorized sales receipts, in which record the charge of the Value Added Tax paid.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
Total tax credit entitlement The VAT paid on local purchase or import of: goods, raw materials, supplies or services and goods that become part of the fix assets, only when:
The transfer of goods or provides services are fully taxed twelve percent rate. It is used in the manufacture or commercialization of export goods. There are direct transfers to exporters taxed zero percent rate. There are direct transfers to state institutions and public enterprises with exempt income tax purchased with 0% rate but that for other purchasers it will be charged 12% VAT rate. The inbound tourism packages commercialized, billed within or outside the country, provided to individuals not resident in Ecuador.
They are also entitled to tax credit for VAT paid, the manufacturers on local purchase of raw materials, supplies and services for the production of export goods, which are added to the raw materials in the country admitted under special customs regimes although these taxpayers do not export the finished product by themselves, therefore, those goods are actually purchased by exporters. If the taxpayer has not made sales or transfers in a period, the tax credit will be transferred to the period when transfers are made.
Partial tax credit entitlement When transferring goods or services are taxed partly zero tariff rate and partly by twelve percent rate, to establish the proportion of VAT paid on local purchase or import of: goods, raw materials, supplies or services and goods they become part of fixed assets to be used as a tax credit, it must be linked the transfers: with twelve percent rate, exports, direct to exporters, inbound tour packages, billed within or outside the country, provided to individuals not residents of Ecuador; direct to state institutions and public companies exempt from income tax, purchased with 0% rate but for other buyers are paid 12% VAT rate, and direct to exporters from special schemes to total sales. To establish the proportion, in the case of taxpayers who start their productive activities must be physically projected transfers with twelve percent rate, exports, direct to exporters, inbound tour packages, billed within or outside the country, provided to individuals not residents of Ecuador; direct to state institutions and public companies exempt from income tax purchased with 0% rate but for other buyers are paid 12% VAT rate, and direct to exporters from special schemes to total sales. When taxpayers can differentiate unequivocally fixed asset purchases taxed at twelve percent (12%) rate used exclusively in the production, commercialization of goods or provision of services taxable with twelve percent (12%) rate; purchases of fixed assets taxed at twelve percent (12%) rate but used in the production, commercialization of goods or services taxed at zero percent (0%) rate, may, in the first case, using all the VAT paid for determining the tax payable. In case it cannot be differentiated, it must be applied the proportionality factor. The Internal Revenue Service can check at any time, the proportion used.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
TAX CREDIT IN THE COMMERCIALIZATION OF INBOUND TOURISM PACKAGES Inbound tour operators who check inbound tour packages within or outside the country, to individuals or non-resident companies in Ecuador, will be entitled to tax credit for VAT paid and held in local procurement or VAT paid on imports of goods, fixed assets, raw materials, supplies or services that integrate inbound tourism package billed. If for any reason the resulting tax credit has not been offset by the VAT caused within the next month, the tour operator may request the Regional or Provincial Internal Revenue Service Director, the tax credit refund caused by local procurement or imports of: goods, fixed assets, raw materials, supplies or services necessary for the design and commercialization of an inbound tourism package. For local purchase or import of fixed assets, VAT will be refunded by a factor of proportionality that represents the total sales of inbound tour packages within or outside the country, compared to the total sales reported from the total statements for the 6 months prior to the acquisition of the fixed asset. Taxpayers, who start their activities, may request a refund of VAT on fixed assets after six months since its first sale of inbound tourism packages. In these cases the proportionality factor applicable to the month requested, will be calculated according to the total sales of inbound tour packages within or outside the country, to total sales declared in the six months preceding the date of application. For inbound tour operators who do not register sales of tourism packages in the six months preceding the date of application shall be considered the 6 months following the acquisition of the fixed asset. The value that is returned by the Internal Revenue Service in respect of VAT may not exceed twelve percent (12%) of the value of inbound tourism packages billed during the same period. The balance in favor entitled Incoming Tour Operator and has not been returned will be recovered based on future sales of these packages.
VAT´S STATEMENT, SETTLEMENT AND PAYMENT Taxpayers subject to Value Added Tax to make transfers of goods or services taxed at 12% rate of value added tax, and those who make purchases or payments to be made by the withholding of Value Added Tax, are required to submit a monthly statement of transactions subject to this tax, made in the previous month and to settle and pay the value added tax, in the manner and within the time limits established in the tax regulation. When the taxpayer files a statement in full with zero values and then replace it with values that demonstrate effectively the event, the tax base and the amount of the tax, shall, in the latter, calculate the corresponding fine in accordance with the Internal Taxation Law, without prejudice to other sanctions as may be appropriate.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
SPECIAL CASES FOR VAT´S DETERMINATION, SETTLEMENT AND PAYMENT Brokering of tourism packages abroad In the case of contracts or tourism packages abroad, the value added tax is not caused, for services rendered abroad, but it will cause the value added tax by the values for the intermediation of wholesalers and agents of tourism. Travel agents may or may not break down the values of the service they provide and the VAT generated by this concept since the service is provided to the final consumer who is not entitled to tax credit, so the sales receipt must contain the total package value including costs of intermediation and the related value added tax calculated on the latter.
VALUE ADDED TAX REFUND VAT refund to exporters of goods For exporters of goods to obtain a refund of value added tax paid in the cases provided for in the Internal Taxation Law and its regulations shall be entered in a Register of Taxpayers. The Internal Revenue Service will maintain a register of exporters after verifying as exporter a taxpayer in accordance with the procedure established by Resolution for effect. Once the export is done and submitted the declaration and annexes to the Internal Revenue Service, exporters of goods may apply the VAT refund by presenting the documents or information that the Internal Revenue Service, by resolution required to verify the right to return, in accordance with the law. The value that is returned by VAT to exporters in a period cannot exceed 12% of the FOB value of exports in that period. The balance in favor to be eligible and that has not been returned, will be recovered by the exporter on the basis of future exports.
VAT refund to exporters´ direct suppliers of goods Exporters ´direct providers of goods may request a refund of value added tax paid on import or local purchase of goods, raw materials, supplies, services and fixed assets used in the manufacture and commercialization of goods that are transferred to the exporter for export, when the transfers made to the exporter are subject to a zero percent rate of VAT in accordance with the provisions of the Internal Tax Regime Law. For the purpose of refund, it will be verified that the requested value added tax has not been used as a tax credit or has not been reimbursed in any way. The value that is returned by VAT to exporters´ direct suppliers in one period may not exceed 12% of the total value of taxable transfers with 0% rate to exporters of goods made in that period. The balance in favor to be eligible will be recovered by the direct provider based on exporter ´s future transfers for export.
VAT refund for older people Those seniors who pay VAT on the purchase of goods and services for use and personal consumption, are entitled to receive the refund of that tax, through the issuance of the respective credit note, check or other method of payment, without interests, at a time not superior than ninety EsRoBross – Ecuador Member of TIAG, The International Accounting Group.
(90) days of the request to which it must be attached original or certified copies of relevant bills of sale and other documents or other information that the IRS requires to verify the right to return.
VAT Refund for Tourists Foreign tourists, in accordance with the guidelines of the Tourism Law, while in Ecuador have contracted the services of tourist accommodation and / or acquired goods produced in the country and bring with them when leaving the country, are entitled for refund of VAT paid for these acquisitions provided that each invoice has a value not less than fifty dollars U.S. $ 50.00.
VAT Refund urban public land transport of passengers Taxpayers whose line of business is the public land transport of passengers in city service buses, which have paid VAT on local procurement of chassis and car bodies and that has provided the services of transport, are entitled to this tax will be refunded, without interest, at a time not to exceed thirty (30) days of the request.
EsRoBross – Ecuador Member of TIAG, The International Accounting Group.