Corporate Tax 2010 - BMR Advisors

Bustamante & Bustamante
Ecuador
Ecuador
from income tax in the terms explained in the answer to question
3.1 above. If the shareholders at their annual meeting approve the
reinvestments of profits and meet the applicable requirements, as
explained in the answer to question 4.1 above, the company may
benefit from a reduction in income tax to 15% levied on the amount
of profits reinvested, instead of the normal 25% corporate tax rate.
4.7 What other national taxes (excluding those dealt with in
“Transaction Taxes”, above) are there - e.g. property taxes,
etc.
4.7.1. Superintendency of Companies contribution: all companies
subject to the oversight of the Superintendency of Companies must
pay an annual contribution of up to 0.1% over assets, with the
Superintendency having the power to set such contribution within
this limit. Presently, the Superintendency has set the contribution
within a range of 0.065% to 0.085% over tangible assets.
4.7.2. Production chamber dues: companies organised in Ecuador
must be affiliated with a production chamber and pay annual or
monthly dues, as the case may be, which vary depending on the
chamber of affiliation and the capital of the member company.
4.7.3. In accordance with the Labour Code, workers are entitled to
participate in 15% of the profits, before taxes, earned by the
company for which they work. Although the workers’ share is not
a tax but rather a labour burden, its effect upon the company’s
earnings is equal to that of a tax. It should be noted that employee
profit-sharing is a deductible expense when determining the tax
base subject to income tax.
4.7.4. A Capital Exit Tax is levy at a rate of 1% on every payment,
credit or cash remitted abroad. Under this new law, there are no
exemptions for import and foreign loan payments.
4.8 Are there any local taxes not dealt with in answers to
other questions
a) Tax on total fixed assets:
Natural or juridical persons who ordinarily engage in commercial,
industrial and financial activities for which they must keep books,
pursuant to the rules of the Internal Tax Regime Law, are required
to pay the municipality where they carry out their activities an
annual tax equal to 0.15% of their total assets, for which they may
deduct only current liabilities and contingent liabilities. When a
company’s activities are carried out in two or more counties, the tax
is distributed among all of the counties where the company
operates.
b) Property tax:
The value of urban property is subject to a percentage tax
fluctuating between a minimum of 0.25% and a maximum of
0.5%, which is determined in an ordinance by each
municipal council in whose jurisdiction the taxed immovable
property is located.
The value of rural property is subject to a percentage tax
fluctuating between a minimum of 0.25% and a maximum of
0.3%, which is set in an ordinance by each municipal
council.
Municipal patent: all merchants and industrialists operating
in a county as well as those engaging in any economic
activity are obligated to obtain an annual patent from the
municipality where they carry out their activities. Each
municipality issues an ordinance stating the annual tax rate
based on the operating capital of the taxpayers within the
county. The minimum rate is US$10 and the maximum
US$5,000.
Transfer tax on immovable property: the base for
calculating this tax is the contract price. If the price is less
than the property appraisal stated in the cadastre, the latter
will prevail. One percent is applied over the tax base. Taxes
in addition to the property taxes created or to be created by
special laws are charged together with the main tax unless
the law creating them stipulates collection by another agent
of the municipal treasury. The amount of the additional tax
cannot exceed fifty percent of the base rate determined in the
preceding article, and the sum of additional taxes cannot
exceed one hundred percent of the base rate. In the case it
does, only an amount equal to said one hundred percent will
be charged and will be distributed among the participants.
Increased property value tax: municipalities are entitled to
charge a 10% tax on the gain from the sale of urban
immovable property. In addition to other deductions
considered for determining the tax base, for each year after
the second year counted from the date of purchase, 5% will
deducted each year and this tax cannot be charged after
twenty years of the purchase.
5 Capital Gains
5.1 Is there a special set of rules for taxing capital gains and
losses
No. Although exempt from income tax, income resulting from the
occasional sale of immovable property, stock or equity interest is
subject to income tax when earnings are the result of transactions
pertaining to the normal course of the taxpayer’s business or its
ordinary activities. Capital gains or eventual losses incurred must
be reflected in the company’s financial statements and are subject to
the general rules regulating the determination of the tax base and
applicable income tax.
5.2 If so, is the rate of tax imposed upon capital gains
different from the rate imposed upon business profits
This is not applicable in Ecuador. Please see the answer to question
5.1.
5.3 Is there a participation exemption
The only exemption provided under Ecuadorian Tax Law concerns
the occasional gains resulting from the sale of immovable property,
stock or equity interest, as explained in question 5.1 above. If not
exempt, capital gains will be included in the company’s tax base
and taxed accordingly at the 25% rate when earnings are not
reinvested, as explained in question 4.1.
5.4 Is there any special relief for reinvestment
No, there is no special relief for reinvestment.
6 Branch or Subsidiary
6.1 What taxes (e.g. capital duty) would be imposed upon the
formation of a subsidiary
The formation of subsidiaries is not subject to taxes.
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