The new law aims to regulate irregular capital flows and introduces revised tax rules on dividends and undistributed profits.
Ecuador’s President submitted the Draft Organic Law for the Control of Irregular Capital Flows to the National Assembly.
The draft law includes changes to the taxation of dividends distributed by resident companies and permanent establishments. A standard 12% withholding tax will apply, while distributions to non-residents will be taxed at 10%.
A higher 14% rate will apply in cases involving entities linked to tax havens, Ecuadorian-resident final beneficiaries, or failures to report ownership structures. Exemptions apply to distributions between resident companies and certain income thresholds for resident individuals.
The law also introduces a new advance income tax on undistributed profits not allocated by 31 July of each fiscal year. The rates range from 0% to 2.5% depending on the retained earnings amount, applied to the full balance. Paid amounts may be credited against corporate income tax over the following two years. If not used, the amount becomes a non-deductible expense.
Exclusions from the undistributed profits tax apply to non-profit organisations, public entities, non-commercial trusts, and government-owned shares in mixed-economy companies.
Additionally, dividends from abroad will be consolidated with global income and taxed at progressive or corporate rates, with credit for foreign taxes paid.
If enacted, the new tax provisions will come into effect on the first day of the month after the law is published in the Official Gazette.
