Ecuador: Amendments To Income Tax Rates

The Tax Reform Law introduces a rule allowing companies that reinvest their profits in the country to obtain a 10% reduction in the income tax rate on the amounts they reinvest so long as the resulting capital increase is perfected through registration with the Companies Register by December 31 of the fiscal year following the year in which there invested earnings were produced.

Based on the Tax Reform Law, any income remitted outside of Ecuador will be taxed at the sole rate of 25% on taxable income and the tax will be withheld at the source. Previously, income in any form other than profits or dividends remitted, paid or creditor abroad was subject to a sole rate of 33%.

For offshore payments of fees for professional services provided outside of the country or for occasional services provided in the country by non resident individuals or companies without an address or permanent establishment in Ecuador, the 33% rate was computed only on80% of the offshore payment since a 20% reduction for income netting was allowed. The Tax Reform Law has eliminated the 20% reduction and therefore fee payments will be taxed at a rate of 25% on 100% of the payment.

In practice, the actual reduction is 1.4% on the income tax rate applicable to offshore payments for fees since the previous rate of 33% on 80% of remitted fees was the same as 26.4%, and now 25% on 100% of the fee is paid.

The beneficiaries of this type of income are required to pay 5% on the excess over the base sum of income tax for natural persons or undivided estates (US$5,000). The rate used to be 10%.

The taxable base and new income tax rates for natural persons and undivided estates are:

Base Sum Excess Tax on % Tax
Over Base Sum

Base Sum on Excess
Over the Base Sum

Each year the above absolute values will be revised based on the Consumer Price Index issued by INEC in the month of November that will be in effect for the following year.