With over 16 million inhabitants on a territory the size of Nevada, Ecuador is one oft he smallest LATAM countries. Nevertheless, Ecuador has excellent trade relations to the US which incentivize companies to settle there. What makes Ecuador stand out from its neighbor is its introduction of the Dollar to fight its high inflation rates as well as attract FDIs. Tax incentives n the sectors of food production, petrochemistry, renewable energies, tourism, biotechnology, and software have stabilized the Ecuadorian economy. Despite one of the highest minimum wages in Latin America (375 USD) corruption is widespread in Ecuador. The country only ranks 117 out of 180 countries in Transparency International`s Corruption Perception index of 2017. Respective legislation fighting corruption is currently being implemented.
Parallel to its online e-invoicing system Ecuador introduced an alternative offline version in 2015 which is being monitored by the tax authority Servicio de Rentas Internas (SRI). Invoices exceeding the total value of 4 USD have to be issues via e-Invoicing. With the online version – which has been discontinued in 2017 – a company had to wait for the government to issue verification codes. With the now installed offline version companies can generate their own access keys. Those are being used to generate an invoice and send it to both the client (accompanying the goods) and the SRI within 24 hours. The self-generated code allows the government to track both the invoice and the delivered goods. The adaptation of the system enables the SRI to keep possible infringements under control while streamlining the invoicing system. After receiving the goods, the client has to validate the invoice via the SRI website. All documents need to be saved for at least seven years.
• The company generates the 49-digit access code to verify it invoices
• The company encloses the XML formatted invoice in the delivery and sends it to both the client and the SRI
• The client confirms the invoice after receiving the goods via SRI website
In March of 2017 Ecuador published an Executive Decree which details the Law on the Prevention of Money Laundering and Financial Crimes. The Law includes all natural and judicial persons that work in the sectors of automotive, aviation, boats and real estates and have surpassed the legislative thresholds for four months in a row. The following measures are mandatory for them:
• Development of a handbook for the prevention of money laundering and financial crimes
• Validation of the handbook through the Department for Financial and Economic Analysis prior to implementation
• Development of a Code of Ethics and a risk evaluation program similar to Compliance programs of other LATAM countries
• Archiving of all relevant financial information of clients, partners as well as all other financial transactions
• Appointment of a Compliance Officer
The Department for Financial and Economic Analysis can control any relevant documents at any time. The regulations for the Compliance Officer are being detailed in the Decree and comprise of his Registration with the Department for Financial and Economic Analysis as well as 120 hours initial Training. Furthermore, even big businesses can only Appoint one Compliance Officer who is responsible for all of their subsidiaries as well.
His concrete responsibilities comprise of:
• Control over all operations and transactions
• Creation of regular reports for the Department for Financial and Economic Analysis
• Planning and training of staff in accordance with the handbook
• Special controlling rights as well due diligence for public office holders and their families
|Legal basis||Law on the Prevention of Money Laundering and Financial Crimes|
|Compliance program duty?||Yes, in certain sectors|
|Standards||· State-registered Compliance Officer
· State-verified prevention handbook
· Anti-corruption rules
· Controlling mechanisms
· Cooperation mechanisms with the authorities
|Compliance program as mitigating factor?||unclear|
|Sanctions||· Penalties of up to millions of USD
· Prison sentences of 7-13 years for natural persons
Tax Law & Taxes
In Ecuador there are a total of 18 tax laws which are being monitored and enforced by the tax authority Servicio de Rentas Internas (SRI).
|Tax type||Tax base||Rate|
|CIT||Total income including capital gains||25%-28%|
|VAT (Impuesto al valor agregado, IVA)||Imports, goods and services||
0% oder 12%
|Special Excise Tax (Impuesto a los Consumos Especiales, ICE)||Konsum bestimmter Güter und Dienstleistungen||5-75%|
|Capital Outflow Tax
(Impuesto a la Salida de Divisas, ISD)
In November of 2017 a new law entailed reforms of the tax system that have been in place since January of 2018. These include:
• Increase of the CIT and the general withholding tax from 22% to 25%
• Increase of the CIT of up to 28% if shareholders are residing in tax havens or countries with reduced taxation
• 10% reduction of the CIT for frequent exporters, producers and tourism companies
• 3-year exemption from the CIT for micro and small companies
• Granted tax stability for investors in metal mining
• Enables tax migration für companies that cancel their registration in their origin countries
Further information on the Decree-related changes can be found here.
An explanation of all relevant technical and tax terms is available here.