The Regulations for the Organic Law for Economic Development and Fiscal Sustainability Post-COVID-19 have been published

On December 29, 2021, the President of Ecuador issued the Regulations for the Organic Law for Economic Development and Fiscal Sustainability Post-COVID-19. The main provisions included in these Regulations are:

1. Temporary Contributions:

a. Contributions by Individuals:

• Taxpayers are considered those who as at January 1, 2021 have had an individual net worth of $1,000,000 or more; or in the case of community property, of $2,000,000 or more. Non-tax residents in Ecuador will calculate and pay the contribution on the net worth located in the country.
• The rules establish how to determine the tax base in relation to the valuation of capital rights; and it specifies what is not considered for the calculation of the contribution. The taxpayer will value the capital rights at the proportional equity value (VPP) or at the commercial value if listed on the stock exchange and is more than the VPP.
• The statement must be filed and the temporary contribution on the net worth of individuals must be paid by March 31, 2022. An amount equivalent to 5% of the average of their income tax from fiscal years 2018, 2019 and 2020 can be deducted from the tax base, without such amount exceeding 5% of the total amount payable with certain conditions.
  
  

b. Temporary Contribution by Companies

• Taxpayers are considered as domestic or foreign companies domiciled in Ecuador which, on the Law’s date of publication, have an economic activity and whose net worth as at December 31, 2020 had been $5,000,000 or more, with certain exceptions.
• The companies must inform the holders of the capital rights of the proportional equity value of these rights, or the commercial value if listed on the stock exchange.
  
  

c. General Rules Applicable to Both Contributions

• It is expected that the capital rights on which, at any level of ownership, the temporary contribution has been paid by other obliged companies, will not be taxed again on the part of the rest of the holders and/or beneficiaries in the chain of ownership.
• The statements and information related to the temporary contributions for the economic boost post Covid-19 are confidential.
• For the purposes of the surcharges provided for by the Law, information will be considered inaccurate when it is incomplete or contains mistakes regarding the value of the net worth, concealing it in whole or in part, including breach of the valuation rules.
  
  

2. Voluntary, Single and Temporary Taxation Regime for the Regularization of Foreign Assets

• Taxpayers who avail of this regime must make the respective sworn statement. Afterwards, they will submit the statement and pay the tax for the regularization of assets.
• Taxpayers must submit the original or substitute net worth statements by December 31, 2022, as applicable, and the original or substitute statements of the “Annex of Corporate Assets and Liabilities”, as applicable.
  
  

3. Tax Settlement regarding Taxes under the Responsibility of the Central Tax Authority

• Regarding obligations for which an extraordinary motion for reconsideration is pending, a settlement can only be reached on easy terms of payment and payment timeframes, and the application, modification, suspension, replacement or lifting of precautionary measures.
• Before signing the respective settlement agreement or mediation record, the tax collector entity must have the cost-benefit technical analysis report.
• When it concerns requests for mediation for administrative acts or resolutions where the deadline for challenges has not passed, the submission of the request–understood as the notification–will suspend the computation of such deadlines until the record is signed or the request is denied.
  
  

4.  Amendments to Various Bodies of Rules

The Regulations also amend various regulations so that these are in accordance with the amendments introduced in the law which include:

• Regulations for the Application of the Internal Tax Regime Law: changes are introduced that make viable the amendments in matters of exemptions, deductions, reduction of personal expenses, withholding at source, VAT, Excise Tax (ICE) and the Simplified Regime for Entrepreneurs and People’s Businesses (RIMPE).
• Regulations for Sales and Withholding Receipts and Accompanying Documents: changes are made to implement the issuance of receipts by taxpayers subject to RIMPE.
• Regulations for the Application of International Money Transfer Tax (ISD): it defines what is understood by entities providing Auxiliary Services of the Financial System for the purpose of the ISD exemption on payments that these entities process.
• General Regulations for the Organic Telecommunications Law.
  
  

Also, the Regulations contain several general and transition provisions, including:

i. It clarifies that the new deadlines established in article 94 of the Tax Code will be applicable with regards to tax obligations created as of the Law coming into effect (November 29, 2021), and those tax obligations for which the new deadlines are shorter than those which had applied before the reform.

ii. It establishes that the tax base for calculating the customs duties contemplated in article 110 of the COPCI will be applicable, unless the freight value must be added under an international commitment by Ecuador.

iii. All taxpayers subject to the RISE tax regime, and the Microenterprise Tax Regime, provided they meet the considerations in the Law, will be officially automatically incorporated into the RIMPE regime.

iv. Companies that benefit from exemptions and/or cuts provided for in the Law will keep such tax incentives or benefits until the period for which they were granted expires.

v. Managers and operators previously approved under the ZEDE (Special Economic Development Zone) regime will enjoy legal and tax stability, and will maintain the applicable legal regime and the exemptions and tax benefits and non-tax benefits in effect on the date the Law is issued.

vi. It is expected that companies can sign investment contracts and/or addenda until April 30, 2022, without prejudice to the investment start date, which must be set forth in the investment contract.  It is stipulated that the public officials of CEPAI and those in charge in the decision of the governing entity of public finance will be administratively liable, pursuant to the applicable law, for delays in the processing of the contracts and addenda thereto and which do not allow the contracts to be signed by the deadline granted by Law.

If you have any questions about the content of the Regulations, please contact notificacionesut@pbplaw.com.