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 contains important tax reforms:
Value Added Tax (VAT):
The Law increases the VAT rate from 12% to 13%. It also allows the President of the Republic to increase the rate to up to 15% by decree and with the prior approval of the governing body of public finances. As has been publicly announced, the President will issue the Decree to increase the VAT to 15% in the coming days.
In addition, the Law says that the VAT rate will be 5% on local transfers of construction materials.
The VAT increase will take effect as of April 1.
Temporary security contribution:
A temporary security contribution (CTS in the Spanish acronym) is established, to be paid by companies that have generated profits in fiscal year 2022. It will be calculated based on the profits taxed with income tax for fiscal year 2022, applying a rate of 3.25%. The contribution must be paid in fiscal years 2024 and 2025.
The Ecuadorian Tax Authority must establish the deadlines for the declaration and payment by means of a resolution; the deadlines must be no later than March 31 in 2024 and 2025.
Taxpayers who fail to comply with their duty to declare and pay will be subject to a fine equivalent to 3% of the obligation for each month or fraction thereof of delay.
Temporary banking contribution:
A contribution is established on the profit generated in fiscal year 2023 by banks and savings and credit cooperatives.
The contribution rate varies between 5% and 25% depending on the taxable profit that is recorded in the 2023 income tax return.
International Money Transfer Tax (ISD in the Spanish acronym):
The rate of the International Money Transfer Tax is increased to 5%. The President may change the rate with a prior favorable opinion from the governing body of public finances.
The President must publish the regulations for the application of this Law within 30 days of its publication in the Official Gazette.
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