On September 2, 2020 in Executive Decree No. 1137, President Lenín Moreno ordered the collection of advance income tax chargeable to fiscal year 2020. The Constitutional Court declared that this decree is constitutional in order No. 5-20-EE/A on September 4, 2020.
I. Purpose
The collected funds will be used to cover the main sums owed to the health sector, and the main health needs due to the pandemic.
II. Who must pay the advance?
Natural persons and companies, including permanent establishments of non-resident foreign companies, that:
- Have earnings subject to income tax, excluding income from an employment relationship;
- Received gross income in 2019 of USD 5,000,000 or more; and
- Have an accounting profit between January and July 2020. This excludes income and expenses from work in an employment relationship
Important: Natural persons who meet the requirements in 1 and 2 and who have received dividends in 2020 must pay the advance.
The following taxpayers are not obliged to pay the advance:
- Microenterprise and small and medium-sized companies;
- Those whose total income for 2020 is below the threshold for paying income tax;
- Those whose main tax domicile is in the Galapagos Islands;
- Their business involves the operation of airlines, the tourism sector, agricultural sector, or the aquaculture sector.
- They are regular exporters, or 50% of their income is derived from exporting goods.
Taxpayers who are not obliged to pay the advance may do so voluntarily.
This voluntary payment will generate interest in favor of the taxpayer and will be calculated from the date of payment up to April 2021.
III. Calculation of the Advance
Advance = (85% of the AP x 25%) – RFIR20
AP = Accounting Profit
RFIR20 = Income tax withholding at source between January 01 and July 31 2020
The amount paid will constitute an Income Tax Credit.
Taxpayers may voluntarily pay a higher amount.
IV. Settlement and Payment
The advance must be settled and paid by September 11, 2020.
The advance payment will not be subject to payment facilities.
Those who pay the advance after the deadline must pay the corresponding interest and penalties.
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