On 9 April 2019, Ecuador’s Internal Revenue Service (SRI) issued Circular No. NAC-DGECCGC19-00000003. The circular makes a reminder about the application of the legal regulations in force for the determination of income tax for the fiscal year 2018.

The circular reminds taxpayers obliged to present the Income tax declaration for fiscal year 2018, as follows:

Income tax rate

The standard corporate tax rate during fiscal years 2018 and 2019 is 25%. An increased rate of 28% applies to companies that are owned by shareholders resident in tax havens or low-tax jurisdictions. Companies, micro and small businesses and regular exporters of goods, will apply the 22% rate.

Advance tax payment

If advance payments exceed the amount of income tax due, a tax refund mechanism is available to recover the excess of income tax advance payments made and the computation of advance payments to be made during fiscal year 2019.

Related parties transaction

In relation to the application of deductibility limits in operations with related parties from abroad, the following should be considered

-The limit of 20% in payments for royalties, technical, administrative, consulting and similar services must be applied on the taxable base free of the effect of non-deductibility of indirect expenses assigned from abroad, plus all the expenses that are subject to the limit of 20%.

-The limit of 5% of indirect expenses assigned from abroad by related parties must be applied on the taxable basis free of the effect of non-deductibility of expenses for royalties, technical, administrative, consulting and similar services subject to the 20% limit ; plus all the expenses that are subject to the 5% limit

If transactions with related parties do not comply with the arm’s length principle, the corresponding adjustment must be recorded on the Income Tax form.

Tax benefits

The circular stipulates the requirements for the application of income tax incentives approved by the Internal Tax System Law, including tax exemptions, special tax rates and deductions; and

Calculation of fines

The fine calculated for those taxpayers who do not generate income tax, will be 0.1% of the total income (taxed and exempt), for each month or fraction of a month of delay.

The circular is effective from the date of its publication.