A Tax Reform bill was sent by the President of Ecuador to the National Assembly for discussion, on 28 November 2014. There are several changes in the proposed Tax Reform Bill to the current tax law. The changes are following:
- The general corporate income tax rate would continue at 22 percent. It might, raise to 25 percent for the proportion owned by shareholders that are domiciled in a tax haven or in a lower tax jurisdiction and for all the income earned by the company if the participation owned by shareholders exceeds 50 percent of the company shares.
- Noncommercial loans granted to shareholders and related parties would be considered dividend payments, which would be subject to withholding tax.
- For corporate income tax purposes, dividend payments abroad would be considered exempt income. If the beneficial owner of the dividends income is an Ecuadorian tax resident, however, the exemption would not apply.
- Income from the given transactions would not be exempt from the corporate income tax -Stocks and shares transactions, Financial returns earned from fixed term deposits by companies and Rights that allow the exploitation, exploration and concession.
- The transfer of shares would be reported to the Internal Revenue Service of Ecuador. Failure to comply with this obligation would generate a 5 percent fine, according to the market price of the shares.
- Under the proposed legislation, if a company’s main statutory activity is considered new and productive, the company would be exempt from the corporate income tax for 10 years.
- Deferred taxes would apply to corporate assets as well as liabilities, as would be set forth in the regulation.
- Individuals would be considered tax residents when they stay 183 days or more, consecutive or not, during a 12 months term in Ecuador. If an Ecuadorian tax resident establishes a new residence in a tax haven or a lower tax jurisdiction, it would still be an Ecuadorian tax resident for the following 5 years.
