Economic urgency law: “Organic law for economic efficiency and employment generation”.

Temporary Tax Residence : Individuals who have not acquired the status of Ecuadorian tax residents and who have not maintained such residence at any time prior to the entry into force of the law, may apply for temporary tax residence, which will have a duration of 5 years. Individuals under this regime will pay income tax only on income from Ecuadorian sources. Individuals who opt for this regime must comply with any of these requirements from the first day on which they express their desire to opt for the regime until the 120th day: i) Make an investment in real estate or productive activities in Ecuador of at least USD150000, this investment must remain in Ecuador for a period of 5 years; ii) Have a proven monthly income that is not of Ecuadorian source of at least USD 2500, the person who has this income must be affiliated to the social security system during the time he/she remains in the country.

Exemption income tax on financial income: If financial returns are obtained from an institution of the financial system or investments in securities, and the recipient of the income is a direct or indirect debtor of the institution, the income tax exemption will be applied provided that the requirements for such purpose are met.

Free Trade Zones : Taxpayers who are operators or users of Free Trade Zones, will enjoy a 0 percent (0%) Income Tax Rate for the first five (5) years of declaration from the first year in which income is generated. Subsequently, user operators and users will enjoy a fixed rate of fifteen percent (15%) for the payment of Income Tax.

2. Income tax exemption for new productive investments focused on energy transition and security, which will be those of non-conventional renewable energy generation, production, industrialization, transportation, supply and commercialization of natural gas or hydrogen in Ecuador.
3. New productive investments, which are made in projects focused on tourism, will be entitled to income tax exemption for 7 years, counted from the first year in which income directly and solely attributable to the new investment is generated. For this purpose, the investment projects must be aimed at rural tourism and should be carried out in all provinces of the country. The specific conditions for this exemption shall be established in the Regulations.

Income tax exemption for job creation:

DEDUCTIBILITY OF EXPENSES (VEHICLES):

Costs and expenses related to the acquisition, use or ownership of vehicles used in the exercise of the economic activity generating the income, with a maximum value of US$ 35,000.00, are deductible, unless they are armored vehicles, 100% electric vehicles or other zero emission technologies for public transportation, commercial transportation and those that are entitled to exemption or reduction of the annual tax on the ownership of motor vehicles,

i) Depreciation or amortization;

ii) Costs or expenses derived from commercial leasing, renting, leasing or any similar type of contract;

iii)Interest paid on loans obtained for their acquisition; and,

iv)Taxes on vehicle ownership

DEDUCTIBILITY OF EXPENSES (PROMOTION AND ADVERTISING):

The costs and expenses for promotion and advertising in accordance with the Regulations.

Taxpayers marketing prepared foods with ultra-processed content, defined as such by the competent authority, will not be able to deduct advertising costs and expenses. If the taxpayer markets other goods and services, in addition to ultra-processed food, it may deduct its expenses proportionally to the advertising expense in respect of these goods or services, in accordance with the regulations.

An additional 150% will be deducted for the calculation of the taxable income tax base for advertising, promotion, sponsorship and/or patronage expenses incurred in favor of the following:

i) Athletes and sports programs, projects or events qualified by the competent governing entity in the matter;

ii) Low-income students in dual, third or fourth level training, destined for scholarships or living expenses qualified by the Secretariat of Higher Education, Science, Technology and Innovation, either directly or through educational institutions, trusts exclusively created for this purpose or non-profit legal entities with total or partial educational purposes.

DEDUCTIBILITY OF EXPENSES (PROMOTION AND ADVERTISING):

iii) Educational entities at the elementary and high school levels. Public or fiscal-commissioned, qualified by the Ministry of Education, for scholarships, food and infrastructure. It also applies to private elementary and high school educational entities located in rural and marginal urban areas.

iv) Non-profit entities whose activity is focused on the eradication of chronic child malnutrition and care of pregnant and nursing mothers, qualified by the governing entity in the matter.

v) Non-profit entities whose activity is focused on the care of persons with disabilities, qualified by the governing entity in the matter.

vi) Non-profit entities whose activity is focused on the care of persons with catastrophic, orphan or rare diseases, or on comprehensive cancer care, as qualified by the governing entity in the matter.

vii) Non-profit entities whose main activity is focused on the care, defense and protection of animals.

viii) Non-profit entities whose main activity is focused on the care, defense and protection of children and adolescents.

ix) Non-profit entities that prove at least 10 years of experience qualified by the governing entity in the matter, whose activity is focused on the construction of emergency housing solutions or families or communities that are in situations of poverty or extreme poverty.

x) National Police, for donations of equipment and supplies for internal protection.

RELATED PARTIES:

Taxpayers that carry out transactions with related parties shall be exempt from the application of the transfer pricing regime when:

i) Have a tax liability in excess of three percent of their taxable income;

ii) Do not carry out transactions with residents of tax havens or preferential tax regimes; and,

iii) They do not hold a contract with the State for the exploration and exploitation of non-renewable resources.

SINGLE INCOME TAX ON SPORTS BETTING OPERATORS

i) The figure of the substitute who makes use of the sports forecasting platform is eliminated.

ii) A single taxable base is established, regardless of the residence criterion.

iii)A regulation shall be issued establishing the periodicity of the tax returns.

iv) Non-resident operators who wish to carry out sports betting activities within the country must comply with the following formal tax obligations: i) To have RUC; ii) Deliver the information for tax purposes to the Tax Administration established in the regulations; iii) Appoint an attorney-in-fact resident in the country; iv) To declare and pay the Single Income Tax to sports betting operators in accordance with the legal framework in force.

In case of non-compliance with the formal duties, the IP of the non-resident operator will be blocked, without prejudice to the pecuniary penalty to the proxy, which will be up to 30 SBU to the worker in general. The tax will be in effect as of January 1, 2024.

TAX STABILITY:

Taxpayers may benefit from a tax stability regime for five years, in exchange for an increase of two percentage points in income tax.

REDUCTION OF THE INCOME TAX RATE FOR THE PROMOTION OF SPORTS, CULTURE AND RESPONSIBLE AND SUSTAINABLE ECONOMIC DEVELOPMENT, SCIENCE, TECHNOLOGY AND INNOVATION, AND SUPPORT FOR THE DISABLED:

Taxpayers who reinvest their profits in Ecuador, in projects or programs for the care of persons with disabilities, sports, cultural, responsible scientific research or technological development accredited by SENESCYT or the Ministry of Economic and Social Inclusion, will have a percentage reduction of (10%) in programs or projects classified as priority by the governing bodies of disability, sports, culture and education, higher education, science and technology, and eight percent (8%) in other programs and projects, under the terms established in the Regulations to this Law.

LARGE TAXPAYERS: Large Taxpayers shall not be subject to withholding at source by any withholding agent, except: i) contractors for the provision of services for the exploration and exploitation of hydrocarbons in the payments made by the Ecuadorian State; ii) income arising from contracts entered into between a large taxpayer and entities and agencies of the central government, its decentralized bodies and its public enterprises; iii) income from contracts between a large taxpayer and the entities and agencies of parish, rural, cantonal, metropolitan and provincial GADS, including their decentralized bodies and their public enterprises; and, iv) Income from contracts entered into between a large taxpayer and social security entities.

Large Taxpayers must make a monthly IR self-withholding on the total taxable income obtained within such month, excluding those that have already been withheld. The percentage of self-withholding will be established by the IRS according to the effective tax rate determined in control processes according to the usual economic activity. The self-withheld amounts will be a tax credit for income tax liquidation purposes.

CONTROLLED FOREIGN COMPANY (CFC): A CFC shall be considered a company that is not a tax resident in Ecuador or is a permanent establishment not domiciled in Ecuador that has at least one beneficiary that is a tax resident in Ecuador that directly or indirectly holds an effective participation equal to or greater than 25% of the capital, voting rights or other economic rights. If the beneficial owners are related parties, the individual participation percentages shall be added together for purposes of determining whether they comply with the provisions of this section.

The CFC must have an effective IR rate lower than (60%) than the corresponding rate in Ecuador, or that such rate is unknown. Income covered by the CFC regime will be attributed to the beneficial owner who has tax residence in Ecuador.

VAT ON LODGING FOR FOREIGN TOURISTS: In the event that the service is acquired through tour operators or dual agencies, the lodging establishments may distinguish the operation of tourist lodging provided to foreign tourists in the sales receipts issued to the incoming tour operators or dual agencies, and establish the zero percent rate for such operation.

VAT REFUND PAID ON REAL ESTATE PROJECTS: Individuals and companies that have paid VAT on local acquisitions or imports of goods and services for the construction of real estate projects are entitled to a refund, without interest, within a period not exceeding 90 days through the issuance of a credit note. Real estate projects must be registered with the corresponding ministry or entity, with the exception of those intended for private housing and not exceeding two projects per year.

VAT PAID ON RENTING, COMMERCIAL LEASING OR LEASING SERVICES: Individuals and companies that have paid VAT for the rental of 100% electric vehicles or other zero-emission technologies for public, commercial and own-account transportation services, who hold the corresponding enabling title, are entitled to have this tax reimbursed, without interest, in a period not exceeding 90 days through the issuance of the respective credit note.

WITHHOLDING ON PRODUCTION AND/OR COMMERCIALIZATION OF MINERALS AND OTHER GOODS OF REGULATED EXPLOITATION: The commercialization of mineral substances that require the obtaining of commercialization licenses, as well as the production and commercialization of mineral substances that come from a mining concession are subject to income tax withholding at source up to a maximum of 10% of the gross amount of each transaction.

WITHHOLDING AT THE SOURCE FOR ENTREPRENEURS: IR and VAT must be withheld on payments to taxpayers categorized as entrepreneurs when payments are made through credit or debit cards, collection or debit agreements, or other electronic means of payment. The value of such withholdings will constitute a tax credit for the payment of the tax,

BANKING TRANSACTIONS: Any transaction of more than US$ 500.00 must be carried out by any institution of the financial system in order for such cost to be deductible for the calculation of the IR and the VAT tax credit to be applicable.

SANCTIONING REGIME: Individuals or legal entities resident in the country that do not submit sales receipts will be sanctioned with a fine of 1 to 30 SBU, according to the general resolution issued by the IRS. Taxpayers who do not declare to the SRI the information of their assets abroad, will be sanctioned with a fine equivalent to two percent (2%) of the total value of their undeclared assets and/or income, for each month of delay in the presentation of the same, without exceeding ten percent (10%) of the value of the assets and/or income. Individuals or legal entities domiciled in the country that do not submit information requests to the SRI will be sanctioned with a fine of up to 10 SBU.

REMISSION OF INTEREST, FINES AND SURCHARGES: The taxpayers will be entitled to a remission of 75% of interest and fines, without generating surcharges, provided that they pay the total amount of the obligation determined within seven (7) days from the date of notification of the determining act.

Taxpayers who pay the totality of the obligation and tax obligations due as of the effective date of this law or those taxpayers who have been notified with a communication of differences or draft assessments up to the effective date of this law, will enjoy the remission of 100% of interest, fines and surcharges derived from the taxes whose administration and collection correspond to the IRS. The total payment must be made within a maximum period of 150 days from the publication of this law. If there are pending administrative or judicial proceedings, the taxpayer or the tax administration must present the waivers of the respective appeals or actions.

REMISSION OF INTEREST, FINES AND SURCHARGES: The GADS, as well as their companies covered by the LOEP, agencies, institutions and affiliated entities, may order the remission of 100% of the interest, fines and surcharges of taxes whose administration corresponds to them, including the road tax. The GADS must issue an ordinance within 45 days. Payment must be made within a maximum period of 150 days from the publication of the ordinance.

The ANT, the Public Service of Traffic Accidents, and the Prefectures will apply the remission of 100% of the interest, fines and surcharges of the taxes that are pending payment that are under their administration and that are collected annually with the Motor Vehicle Property Tax by the SRI. The secondary regulations will be issued within 45 days. Payment must be made within 150 days of the issuance of the secondary regulations.

The remission of one hundred percent of the interest and surcharges generated by educational credit obligations that have matured or by educational credit obligations that have matured or by payment agreements is provided for; the remission includes interest on arrears, fines and administrative expenses that are pending payment as of the effective date of this law.