Ecuador: VAT on Digital Services

The VAT obligation for digital services has been introduced in Ecuador on December 31, 2019, and will come into force on September 16, 2020. According to the law, VAT on digital services is 12%.

 

What are digital services?

The state regulations include:

  • The provision of services over the Internet
  • Services that are automated and therefore require minimal human intervention to deliver them

However, the device that is used to download or visualize these services does not determine the type of these services.

 

Accordingly, the following specific services are subject to VAT:

  • Providing websites and other services related to helping a company maintain an online presence
  • Digitized products (computer programs)
  • Preventive and corrective remote maintenance
  • Management of remote services and online technical support
  • Web-based services including data storage and online advertising
  • Software services through cloud downloads
  • Access and enable downloading of images, text, videos, sporting events, music, games (including gambling), films, ringtones, online news, traffic and weather updates, statistics services and other audiovisual content available via an Internet connection
  • Database-related services and all other services that are automatically provided by a computer system
  • Online clubs and dating websites
  • Online blogs, magazines and newspapers
  • Internet rendering services
  • Remote exams are evaluated automatically
  • Online marketplace (delivery service for movable goods), online bidding, websites for job advertisements, and online transportation and accommodation services
  • Manipulation and calculation of data over the Internet
  • Other services in the sense of the tax authorities through a generally binding decision (applies to all taxpayers)

 

Are there any exceptions?

VAT is not charged for the following services:

  • The provision of website dominions
  • The hosting servers
  • Cloud Computing Related Services

 

How does a company know if it is obliged to pay?

The tax authority publishes a list of service providers for their digital services that are subject to VAT every three months. In addition, there is a non-compulsory registration option for non-US based digital service providers with the tax authorities.

 

How does VAT collection work?

When paying by card, the VAT must be withheld by the credit or debit card provider so that the account statement issued is proof of withholding tax. In the case of non-card-payment, the Ecuadorian taxpayer must issue a return for the purchase of goods or the provision of services, for which VAT must be added and “deducted”.

 

These regulatory changes could affect your business with view to customizing or support of your ERP/SAP system. Please contact us to learn about possible necessary reactions to the changes – we are happy to assist you!