Under new legislation loans made by Ecuadorian companies to non-resident shareholders are treated as dividends and therefore subject to Ecuadorian withholding tax. The applicable domestic withholding tax rate on dividends is limited to the difference between the Ecuadorian income tax rate of 35% on individuals and the general corporate income tax rate of 22%, so the withholding tax rate cannot exceed 13%.Outbound income remittances other than dividends to tax haven shareholders are subject to a withholding tax rate of 35% in Ecuador.
The Ecuadorian entity would be allowed to claim such withholding taxes applied as an income tax credit in its tax return.
