EcuadorTax Obligations Detailed

In Ecuador, employers face various tax obligations, including income tax withholding, social security contributions, and other specific levies.

Income Tax Withholding

• Rates: Income tax is levied at progressive rates from 5% to 37%. Non-residents are taxed at a flat rate of 25%. An annual income up to USD 11,310 is exempt.
• Withholding: Employers withhold income tax from employee salaries.
• Reporting: Monthly income tax withholding reports are due, detailing employee taxable income and deducted tax. An annual report of withheld income tax is due in January.
• Payment: Monthly withheld taxes are paid based on the last digits of the tax number.
• Employee Filing: Individuals earning above USD 11,310 annually are required to file an annual tax return.

Social Security Contributions

• Administration: The Ecuadorian Institute of Social Security (IESS) manages the social security system.
• Coverage: The system covers health insurance, work-related injury insurance, disability, old age, survivors' pensions, and the national reserve fund.
• Employee Contribution: 9.45% of the employee's monthly taxable income.
• Employer Contribution: 12.15% of the employee's total remuneration.
• Enrolment: Employees must be enrolled from their first day of work.
• Payment deadline Collection proceedings by the IESS for social security contributions are suspended until February 28, 2025. Contributions for November and December 2024 can be paid within 90 days of the due date without incurring employer liability, upon request.

Other Taxes and Obligations

• Training and Education Levy: Employers pay 0.5% of payroll each to a national training fund and an education credit program.
• Temporary Security Contribution: Companies that had profits subject to Corporate Income Tax in 2022 must pay a 3.25% temporary contribution by March 31, both in 2024 and 2025.
• Form 107: Employers must provide Form 107, detailing income tax withholding for the prior fiscal year, to each employee by January 31.

Additional Information

• Payroll Cycle: Weekly or monthly.
• Payslip Format: Paper or digital.
• Tax Year: Calendar year (January 1 to December 31).
• Currency: United States Dollar (USD).
• Tax Filing Deadline for Companies: Between April 9 and April 28, following the tax year.

Please note that this information is current as of February 5, 2025, and might be subject to change. It is essential to consult official sources or legal counsel for the most up-to-date information and specific requirements.

In Ecuador, employee tax deductions encompass various areas, including income tax, social security contributions, and specific deductions for certain expenses.

Income Tax

• Progressive Rates: Income tax is levied at progressive rates ranging from 5% to 37%. An annual income up to USD 11,902 is tax-exempt. This exemption represents the minimum taxable income according to the current progressive Personal Income Tax (PIT) table.
• Taxable Income: Taxable income includes all forms of remuneration, whether cash or in-kind, such as allowances and services.
• Deductions: Social security contributions and the mandatory 13th and 14th-month salaries are deductible.
• Non-Resident Taxation: Non-residents are taxed on Ecuadorian-sourced income at a flat rate of 25%. Special rules may apply for non-residents working temporarily for foreign entities without a local branch.

Social Security Contributions

• Deductible: Social security contributions made by employees are deductible from their taxable income. Information regarding the specific percentage or amount of the contribution can be obtained from the Ecuadorian Institute of Social Security (IESS).
• Employer Contributions: Employers also make social security contributions, detailed information on which can be found on the IESS website or other official resources.

Other Deductions and Considerations

• Additional Deductions for Employers: Employers are entitled to additional deductions to promote the employment of young people (18 to 29 years old) and women, equal to 50% of the employee's salary. The deduction can increase to 75% if the individual has graduated from a public education institution.
• Tax Residency: Tax residency is determined by physical presence in Ecuador. Residents are taxed on worldwide income, while non-residents are taxed only on Ecuadorian-sourced income.
• Tax Haven Jurisdictions: Ecuador maintains a list of tax haven jurisdictions, impacting the tax rates for certain corporations with connections to those jurisdictions. Up-to-date information about tax haven jurisdictions is available from the Ecuadorian Internal Revenue Service (SRI).
• Temporary Security Contribution: Currently, there are temporary tax contributions based on the 2022 fiscal year profits. These contributions might affect employee tax deductions, especially if part of their compensation is linked to profit-sharing schemes. More details regarding these contributions and their validity period can be obtained through the official SRI publications or bulletins.

Further Information

The information provided here reflects the current understanding as of February 5, 2025, and might be subject to changes due to legal updates and interpretations. You can find more details and updated information on the official website of the Ecuadorian Internal Revenue Service (SRI) or consult with a qualified tax advisor for personalized guidance.

In Ecuador, the Value Added Tax (VAT), known as Impuesto al Valor Agregado (IVA), is applied to most goods and services, as well as imports.

VAT Rates

• Standard Rate: As of today, February 5, 2025, the standard VAT rate is 15%, a temporary increase from the previous 12% rate. This increased rate was initially implemented on April 1, 2024, and has been extended through the end of 2025.

• Reduced Rates: A reduced rate of 8% applies to specific tourist services during certain holidays. Additionally, a 5% rate applies to transfers of construction materials.

• Zero Rate (0%): Applies to specific goods and services including basic foodstuffs (like unprocessed food, milk, bread, and cooking oil), medicines, books, electricity for residential use, exports, and certain transportation services.

VAT Registration

• Threshold: There is no registration threshold. All businesses and individuals conducting taxable activities, including those with a permanent establishment in Ecuador, are required to register for VAT. Foreign companies without a permanent establishment are not required to register.

• Process: Registration is done through the Ecuadorian Internal Revenue Services (EIRS) to obtain a taxpayer identification number known as the Registro Único de Contribuyentes (RUC). The RUC consists of thirteen numerical digits.

VAT Filing and Payment

• Frequency: VAT returns are filed monthly. Additional semi-annual filings are required for businesses with 0% VAT transactions. Online filing is mandatory.

• Deadlines: Filing and payment deadlines vary from the 10th to the 28th of the month following the reporting period, depending on the ninth digit of the RUC. Extensions have been granted in the past, so it is important to stay up-to-date with the latest announcements from the Ecuadorian tax authorities.

Other Indirect Taxes

• Special Consumption Tax (ICE): Levied on goods considered luxurious or having a negative social impact, like certain alcoholic beverages and cigarettes. Rates range from 5% to 75%.

• Capital Outflow Tax (ISD): A 5% tax applied to remittances, transfers, and withdrawals made abroad, with exceptions for certain sectors like the pharmaceutical industry.

Exempt Goods and Services

Certain goods and services are exempt from VAT, including:

• Education, religious, and health services.
• Business reorganizations, mergers, and transfers of shares.
• Donations to charities.
• Real estate rental.

Digital Services and VAT

Digital services are subject to the standard VAT rate. Non-resident providers have the option to register with the Ecuadorian tax authorities or the VAT can be collected via the reverse-charge mechanism.

Additional Information

This information is current as of February 5, 2025, and is subject to change. Always consult with a tax professional for the most up-to-date regulations. The official government link for tax information is Servicio de Rentas Internas (SRI).

Ecuador offers several tax incentives to attract investment and stimulate economic growth. These incentives apply to various sectors, including renewable energy, tourism, and free trade zones. As of February 5, 2025, the following incentives are available:

Temporary Tax Residence for Individuals

This regime allows qualifying individuals to pay income tax only on Ecuadorian-sourced income for up to five years.

• Eligibility: Individuals who have not been Ecuadorian tax residents before, including prior to the law's enactment.
• Qualification: Invest at least $150,000 in real estate or productive activities in Ecuador for a minimum of five years, or demonstrate income of at least $2,500 per month from non-Ecuadorian sources and enroll in Ecuadorian social security (IESS).

Free Trade Zone Regime

This regime provides substantial tax benefits for qualified users operating within designated free trade zones.

• Income Tax: 0% for the first five years, followed by a 15% rate thereafter.
• Exemptions: VAT, remittance tax, foreign trade taxes, and other taxes on transactions within the zones.
• VAT Refunds: Available for purchases from suppliers outside the free trade zones in Ecuador.

Income Tax Exemptions for Specific Investments

• Renewable Energy: New investments in renewable energy projects (including natural gas and green hydrogen production, industrialization, transportation, supply, and marketing) are exempt from income tax for 10 years.
• Tourism: New investments of at least $100,000 in tourism are exempt from income tax for seven years, with at least 10% allocated to rural tourism.

Tax Stability Regime

Companies that agree to pay two percentage points above the standard income tax rate are granted tax stability regarding the tax regime. This means they are shielded from future tax increases for a specified period.

RIMPE Regime

The simplified tax regime for entrepreneurs and small businesses (RIMPE) has been revised:

• Annual Gross Income Below $2,000: Exempt from RIMPE.
• Annual Gross Income Between $2,000 and $20,000: Maximum tax of $60.
• Artisans: Now subject to the standard tax regime, no longer under RIMPE.

Additional Deductions for Employment Generation

Employers hiring new employees between 18 and 29 years old can deduct an additional percentage of the employees' wages (subject to social security contributions): The percentage ranges from 20% for 12 new hires to 90% for 500 or more new hires.

General Information on Ecuadorian Taxes

• Corporate Income Tax: Generally 25%.
• Individual Income Tax: Progressive rates, up to 25%.
• Value Added Tax (VAT): Currently 15% (as of April 1, 2024). A reduced rate of 5% applies to local transfers of construction materials.
• Remittance Tax: 5% (as of April 1, 2024).
• Transfer Pricing: Based on OECD guidelines, documentation required. Advance Pricing Agreements (APAs) are available.
• Controlled Foreign Corporations (CFCs): Income earned by certain foreign entities owned by Ecuadorian tax residents may be subject to Ecuadorian tax.

Please note: This information is current as of February 5, 2025, and is subject to change. It's essential to consult with a tax advisor for the most up-to-date and personalized guidance.