Tax and Accounting Requirements in Ecuador
When a company decides to move their business into a new market and open up a new office in a new country, one of the first things to be considered is the country’s tax system. Around the world every country has different tax and accounting systems – some are easier to manage than others. Therefore, when moving into a new market, companies have to determine and understand the country’s corporation tax, sales tax, dividend tax, and other applicable tax rates. Additionally, a company must be aware of the accounting standards to be applied in a particular country. Before moving a business into a new market, it is important that a company fully evaluates these matters to determine if the company’s existing accounting, finance and tax professionals can manage this or if it is necessary to engage a local professional accounting services provider for their business. Hence, when making the management decision to move into a new market, the new country’s tax regime is of high importance and must be taken into consideration. This article gives further insights on taxation and accounting requirements in Ecuador.
What are the Tax and Accounting Requirements in Ecuador?
Depending on the type of legal structure, you must comply with Tax and Accounting Requirements in Ecuador
The Ecuadorian tax system is friendly for foreigners since they are only taxed on income earned within Ecuador. In Ecuador, International Financial Reporting Standards (IFRS) are applied and financial statements must be submitted annually to the Internal Revenue Services and the superintendence of companies. Ecuador has 19 tax treaties and the national tax authority responsible for taxation matters within Ecuador is the Internal Revenue Service’s (SRI). The tax authorities have three years from the date of filing to review tax returns and make changes if deemed necessary. If a tax return was filed incomplete or not at all, the period of review can be extended for up to 6 years. Usually, when an economic activity is carried out in Ecuador, companies as well as individuals, have to register before the national tax authority. Once the national tax identification number has been registered for, the RUC can be obtained.
The Ecuadorian Tax System: Corporate Tax & Value Added Tax Rate (IVA)
Corporate Tax
All companies that reside in Ecuador, are incorporated in Ecuador, or have operations and a management center in Ecuador are subject to a corporation tax rate of 25% on their worldwide income, and have discounts when disabled or senior staff are hired. Companies which are non-resident in Ecuador (all companies not incorporated in Ecuador) only have to pay income on their income sourced within Ecuador. The end of the Ecuadorian tax year is the 31st of December and taxes must be filed in April, the exact date it needs to be filed depends on the 9th digit of the Ecuadorian tax identification number.
Value Added Tax – IVA
The tax from which most income is generated in Ecuador is IVA, which is the Ecuadorian Value Added Tax. Currently, the tax rate for the IVA is 12% and is paid on almost all purchases of goods, imports and the provisions of services. The tax rate for exports, food, agricultural input, medical goods, popular personal hygiene products, import of fuels derived from hydrocarbons, leasing of land for agricultural and livestock use, tourist accommodation services to foreigners, digital services for the creation of audio-visual content, books and government purchases is 0%. VAT returns must be filed monthly, between the 10th and the 28th of the following month of the transaction – the exact day depends on the company’s tax identification number, RUC.
