The Ecuador tax reform 2020 eliminates tax exemption on dividend, amends Value-Added Tax (VAT) and limits the application of thin-capitalization rules to cross-border and intercompany loans.
Tax exemptions for dividends distributed by Ecuadorian entities are revoked and withholding tax will be levied on dividends distributed to non-residents. The applicable tax rate would be 40% of the distributed dividend and withholding tax to be imposed at 10%.
Income from agricultural activities will be subject to income tax at a rate of 0% to 2%.
Thin-capitalization
Thin-capitalization threshold for cross-border, intercompany loans has been affirmed at 20% of the income, before profit sharing, interests, depreciation, and amortization. The threshold for banks and insurance companies will be 300% of the entity’s equity.
Additions have been made to the list of goods subjects to 0% Value-Added Tax (VAT).
12% Digital Service Tax (DST) will be applicable for digital services provided to Ecuadorian residents.
Outflow Tax Amendments
The tax reform eliminates the 360-day requirement for the loans made by international financial institutions or non-specialized financial institutions for it to be exempt from outflow tax principal and interest. The 360-day requirement has also been revoked for the publicly traded debt in the Ecuadorian stock market.
Rules on outflow dividend tax exemption for principal and interest on loans for the purpose of housing has been simplified. Outflow tax exemption on the payments made to related parties has also been nullified.
Special Contribution Tax
Companies having a taxable income of US$1 million and above will have to pay a special contribution tax from 0.10% to 0.20%. The tax will be levied based on the taxable income computed in the year 2018.
