Germán Moya
Germán Moya
Tax Manager at Kreston Ecuador

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German Moya is a distinguished Tax Manager at Kreston Ecuador, serving since April 2020, and concurrently holds the position of Jefe de Impuestos & BPO at CMA CONSULTING since November 2018. With a solid foundation in accounting and taxation, German has enhanced his expertise through a Master in Financial Management from Universidad Internacional de La Rioja (UNIR) and a certification in Tax Management from Universidad Espíritu Santo. He is also a licensed professional accountant, accredited by the Colegio De Contadores Bachilleres y Publicos Del Guayas since May 2016.

Ecuador Investment Contract

March 13, 2024

Germán Moya, Tax Manager at Kreston Ecuador, explores the significance of Ecuador’s Investment Contract, a tax incentive for Foreign Direct Investment. Are reduced income tax rates, exemptions and successes in the mining sector attracting investors?

Ecuador has a tax incentive to promote Foreign Direct Investment (FDI) called the Investment Contract. This legal condition originates from the Organic Code of Production, Trade, and Investments, published on December 31, 2010.

Signing the Ecuador Investment Contract

Why sign an investment contract with the Ecuadorian State? It is a legal framework that provides protection and stability to taxpayers who apply for tax benefits.

Benefits of the Investment Contract

This process begins with a request addressed to the Ministry of Production, with a detailed project description according to the forms published by the same entity. The investor must have no outstanding obligations with the State. The minimum amount to initiate a contract subscription request is USD$ 1 million. This investment can be executed over time, with the investment within the first year being at least USD$ 250,000.

One of the tax benefits generated by Investment Contracts is a remarkable reduction of up to five percentage points (5%) in the income tax rate. The cumulative reduction cannot exceed the amount of the investment or the granted term (up to 15 years) for the contract benefits (whichever occurs first).

Current legislation also benefits Investment Contract subscribers by exempting them from the Foreign Exchange Exit Tax caused by payments made abroad to import capital goods and raw materials. This exemption requires that imports have a direct relationship with the investment project. Likewise, the exemption of all foreign trade taxes is considered, except for customs service fees.

Contracts and Foreign Direct Investment

As the Ministry of Production reported in its official channels, in the last five months of 2023, the Ecuadorian government signed 17 investment contracts for approximately USD $879 million. In the first semester of 2023, FDI recorded a value of USD $107 million, representing a decrease of 86.9% (-USD $705 million) compared to the same period in 2022. The main destination sectors for FDI are
“mining and quarrying,” “commerce,” and “transportation and storage.” These three sectors recorded a positive flow of USD $117 million. The highest foreign direct investment, totalling
USD$ 92.2 million, originated from the United States, China, and Chile during the first semester of 2023.

Attractiveness for mining investments

Those making investments in medium and large-scale metallic mining are entitled to benefit from
tax stability for a specified period, starting from the subscription of an investment contract. This benefit refers to strength regarding;

a. All rules determining the taxable base of the Income Tax and the amount of the tax to be paid, in force at the date of contract subscription;

b. Concerning rates and exemptions from the foreign exchange exit tax and other national direct taxes; and,

c. Concerning rates and exemptions from the Value Added Tax for companies making investments to exploit medium and large-scale metallic mining, whose production is destined for export. This tax stability can also be granted at the parties’ request in the investment contract for companies in other sectors, including primary industries, making productive investments for the country’s development, provided that the investment amount exceeds USD $100 million. Ecuador has abundant mineral resources, making it attractive for mining investment.

Additionally, Ecuador has developed extensive legislation regulating mining activity in all its phases. It now has human resources with experience in this field, both for its control by the State and for its technical, environmental, social, and financial management. Mining projects in Ecuador are highly feasible to benefit both the country and investors.

If you are interested in doing business in Ecuador, please get in touch.