The Ministry of Production, Foreign Trade, Investment and Fishing has regulated the operating aspects of the application of incentives under the Organic Law on Productive Development, Investment Attraction, Job Creation and Fiscal Stability and Balance[1]. The relevant resolution provides mainly for the following:
Definitions:
- Net creation of permanent jobs corresponds to the median of the employees in a fiscal year, without considering contracts for non-periodic or seasonal activities. Persons retained to perform professional services are taken into account.
- Direct employment includes persons retained to perform professional services if related to the investment project.
- CEPAI means Strategic Committee for Investment Promotion and Attraction.
Conditions for net creation of jobs:
The job creation requirement will be measured as follows:
- The company size category is determined on the basis of information for the first fiscal year in which operating income is generated. The period allowed for the company to meet the minimum job creation requirement for its category is expressed in fiscal years and equal to the time elapsed from the incorporation of the company to the first fiscal year in which operating income is generated, but not shorter than one fiscal year.
- Existing companies must increase their net creation of permanent jobs, which is measured on the basis of the median for the fiscal year preceding the making of the investment.
- If there is a significant variation in operating income resulting in a change of company type category, the minimum parameter established for the new category shall apply.
- The CEPAI may exempt any company from the job creation requirement in specific cases upon request. In those cases, the company must maintain at least the average of the last three fiscal years for its category (ISIC classification) according to company size and shall meet certain special conditions including in respect of: (i) intensive investment in technology; (ii) promotion of production; (iii) market diversification; (iv) foreign exchange receipts; (v) product composition; (vi) eco-friendly practices or eco-efficiency; (vii) ratio of new investment to company’s total assets; (viii) exports of services; (ix) Ecuadorian “Punto Verde” recognition; (x) connections with the grassroots economy and with artisans.
Application of income tax incentives for existing companies:
- For existing companies, and in those cases where it is not possible to identify the date on which the generation of income attributable to the new investment started, the application of income tax incentives will commence in the first fiscal year in which the investment is made.
- To apply for more than 10-point reduction of the income tax rate, micro-, small and medium-sized enterprises must meet at least one, and large companies must meet at least two, of the following parameters : (i) employment growth; (ii) intensive investment in technology; (iii) promotion of production; (iv) market diversification; (v) foreign exchange receipts; (vi) product composition; (vii) eco-friendly practices or eco-efficiency; (viii) Ecuadorian “Punto Verde” recognition; (ix) creation of local jobs; (x) job creation in depressed areas; (xi) inclusion of disabled persons; (xii) inclusion of women; (xiii) connections with the grassroots economy.
Where an existing company intends to claim for exemption from the job creation requirement and also to apply for more than 10-point reduction of the income tax rate, the applicable parameters are different in each case.
Application of incentives for overseas remittance tax:
- New productive investments for which investment protection agreements have been entered into at or after the beginning of fiscal year 2018 are entitled to an exemption from overseas remittance tax on payments made abroad for imports of both capital assets and raw materials necessary for the development of the project.
- Overseas transfers may be for partial payments, provided that the maximum amount and grounds for exemption requirements are met.
- No exemption applies to imports made prior to the execution of the investment protection agreement with the State.
- The aggregate amount of overseas transfers for imports of raw materials must be the CIF value thereof.
Application of incentives for commercial activities:
- New productive investments aimed at developing commercial activities as well as others creating added value are entitled to an incentive consisting of overseas remittance tax exemption, provided that an investment protection agreement is entered into.
[1] Resolution No. 001-CEPAI-2019, published in Official Register No. 458 of April 1, 2019
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