Several changes to taxation have been made recently. We provide a short summary of the main changes:
THE GENERAL RATE OF VAT WILL BE 15% AS OF APRIL 1, 2024
On March 12, 2024, the Organic Law to Tackle the Internal Armed Conflict and the Social and Economic Crisis was published in the Official Gazette. This law gives the President of the Republic the power to increase the rate of VAT to up to 15%.
On March 15, 2024, President Noboa issued Executive Decree No. 198, which changed the general VAT rate from 13% to 15%. The Decree was published in the Supplement of the Official Gazette on March 18, 2024.
With the promulgation of Executive Decree No. 198, the general VAT rate of 15% will apply as of April 1, 2024.
We remind you that the Organic Law to Tackle the Internal Armed Conflict and the Social and Economic Crisis also approved a VAT rate of 5% on the local purchase of construction materials, which will also come into effect as of April 1, 2024.
TAX AUTHORITY CLARIFIES THAT THE RATE OF INTERNATIONAL TRANSFER TAX WILL INCREASE TO 5% AS OF APRIL 1, 2024
By means of notice No. NAC-COM-24-014 on March 13, 2024, the Ecuadorian Tax Authority clarified that the 5% rate of International Money Transfer Tax (“ISD” in the Spanish acronym) established in the Organic Law to Tackle the Internal Armed Conflict and the Social and Economic Crisis will apply as of April 1, 2024.
In the same notice, the Tax Authority issued a reminder that the exemptions in article 159 of the Reform Law for Tax Equity in Ecuador are still in effect.
TAX AUTHORITY ISSUES RULES FOR THE DECLARATION AND PAYMENT OF THE TEMPORARY SECURITY CONTRIBUTION AND THE TEMPORARY CONTRIBUTION ON PROFITS OF BANKS AND SAVINGS AND CREDIT COOPERATIVES
The Organic Law to Tackle the Internal Armed Conflict and the Social and Economic Crisis of March 12, 2024, introduced two temporary contributions: the temporary security contribution (“CTS” in the Spanish acronym) and the contribution on profits of banks and savings and credit cooperatives (“CTBC”).
By Resolution No. NAC-DGERCGC24-00000009 on March 15, 2024, the Tax Authority issued the rules for the declaration and payment of these contributions.
As regards the CTS which applies to companies that have profits subject to income tax in 2022, the Tax Authority has said that these companies must file their declaration using Form 124. In this form, they must calculate 3.25% of their taxable profit for fiscal year 2022, individually for fiscal years 2024 and 2025. This declaration must be filed and paid by companies nationwide by March 31, 2024, and March 31, 2025, respectively.
As regards the CTBC, the Tax Authority has said that the payers of this tax must file the declaration and make payment using Form 124 by May 31, 2024, reporting their taxable profit for fiscal year 2023 in accordance with their income tax return.
If companies, banks or savings and credit cooperatives have been deregistered before the effective date of the Organic Law to Tackle the Internal Armed Conflict and the Social and Economic Crisis, then they will not be obligated to pay the contributions, while those that are deregistered afterwards must declare and pay this contribution in advance.
The Resolution establishes that interest and fines will apply to late filing or failure to file the respective declaration. The Tax Authority may initiate an enforced collection proceeding to collect payment.
TAX AUTHORITY CHANGES REQUIREMENTS TO REGISTER, UPDATE AND SUSPEND/CANCEL THE TAXPAYER REGISTRATION (RUC) OF INDIVIDUALS AND COMPANIES
By Resolution No. NAC-DGERCGC24-00000010 on March 15, 2024, the Ecuadorian Tax Authority amended Resolution No. NAC-DGERCGC17-00000587 that establishes the requirements to register, update and suspend/cancel the Taxpayer Registration (RUC) of individuals and companies. The most importance changes are:
- Taxpayers can register, update and suspend/cancel their Taxpayer Registration using their physical or digital ID card.
- Taxpayers will be able to register the address of their ‘electronic establishment’ in their Taxpayer Registration. To do so, they must inform the Tax Authority of their electronic address and IP addresses. To implement this new arrangement, the Tax Authority has been given 120 days to make the corresponding technological changes.
These changes will come into effect as of the publication of this resolution in the Official Gazette.
TAX AUTHORITY ISSUES CIRCULAR ABOUT DEDUCTIBLE EXPENSES
On March 15, 2024, the Tax Authority issued Circular No. NAC-DGECCGC24-00000001 aimed at payers of income tax with an obligation to file tax returns for fiscal year 2023.
To determine the income tax payable by individuals and legal entities, this circular places special emphasis on what expenses can and cannot be considered as deductible. Also, the Circular offers a reference calculation of the personal expenses deduction that individuals who pay this tax can apply.
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