Doing business in Ecuador
- How quickly can I set up a business?
- What is the minimum investment needed?
- How can I raise finance?
- What are the legal requirements for setting up my business?
- What structure should I consider?
- What advice can you give me in regards to payroll and taxation requirements?
- Is there anything else that I should know?
How quickly can I set up a business?
A company can be formed in approximately 15 days.
What is the minimum investment needed?
The minimum capital to form a Limited Liability Company is US $ 400, for a Public Limited Company it is US $ 800, and to establish a Branch of a Foreign Company it is US $ 20,000 (plus about $ 2,000 of legal expenses).
How can I raise finance?
In Ecuador, sources of financing can be generated through the following channels and each of them depends on the stage of each business, its activity, structure and business maturity:
- Suppliers of goods and/or services
- Banking entities
- Savings and Credit Cooperatives
- Stock Market
- Private investors
- Business or project incubators
What are the legal requirements for setting up my business?
A company must be constituted and then registered with a control entity according to the activity to be carried out:
- Superintendence of Companies and Insurance
- Superintendency of Banks
- Superintendency of Popular and Solidarity Economy For which the following steps must be followed:
- Constitute the company
- Establish the statutes
- Obtain operating licenses from the city where the company is going to be
- Hold the Shareholders’ Meeting
- Enable the legal representative
- Obtain the Unique Registry of Taxpayers
What structure should I consider?
The structure should basically consider:
- Shareholders’ Meeting
- Legal representative
- Financial Manager
- Commercial Manager
- Operations Manager
What advice can you give me in regards to payroll and taxation requirements?
Regarding payroll in Ecuador, outsourcing is not allowed except for security, food and cleaning issues, in the rest civil contracts must be established for the legal representative and employment contracts for employees in general, the amounts considered remunera- tion and social benefits are defined like this:
- Overtime and supplementary hours
- Reserve fund
- School bonus or also called fourteenth remuneration
- Christmas bonus or also called thirteenth remuneration
- and Holidays
Ecuador’s tax system contemplates national taxes and local taxes. National taxes are administered by the central government and local ones are administered by the Decentralized Autonomous Governments (GADs).
Income or profit tax.
It is calculated on the tax base and the rate is:
- (22%) For micro and small companies or habitual
- (25%) For companies incorporated in Ecuador, as well as for branches of foreign companies domiciled in the country and permanent establishments of foreign companies not domiciled in the country.
- When the company has shareholders, partners, participants, constituents, beneficiaries or similar, resident or established in tax havens or lower tax regimes with direct or indirect participation, it must report on their participation, in accordance with current tax
- (28%) In the case of those that do not comply with the principle of transparency, companies must pay an Income Tax rate of 3 additional points, in accordance with current tax
Tax base. Returns, discounts, costs, expenses and deductions, attributable to such income, will be subtracted from the total taxable income.
Value Added Tax (VAT).
It is a tax that is levied on the value of local transfers or imports of personal property, in all its stages of commercialization, and on the value of the services provided. All persons and companies that provide services and/or carry out transfers or imports of goods must pay VAT. Current VAT rate is 0% and 12%. There is also VAT exemption and refund for the purchase of raw materials and services, related to productive activities.
Special Consumption Tax (ICE).
It is the tax levied on the consumption of certain goods (domestic or imported) and services considered luxury, detailed in the Internal Tax Regime Law in its article 82. According to the tax base, the corresponding rate is applied.
ICE must be paid for:
- Individuals and manufacturing companies of goods subject to this
- Taxpayers who import goods subject to this
- Taxpayers who provide taxable services
Capital Outflow Tax (ISD).
This tax is paid for the transfer, shipment or transfer of currency abroad, whether in cash or through check writing, transfers, withdrawals or payments of any nature. The current rate is applied to the amount of the currency transfer. The rate previously in force was 5%. The first reduction of 0.25% was applied on January 1, 2022. The second reduction is applicable from April 1, 2022. For this reason, in the period between April 1 and July 1, 2022 the rate ISD will be 4.5%. The two remaining reductions will take place on July 1, 2022 and October 1, 2022, until reaching the 4% rate.
The Reformatory Law for Tax Equity in Ecuador in its Article 159, establishes exemptions in the payment of the Capital Outflow Tax (ISD).
Local taxes – set by municipalities.
- Tax on urban and rural
- Sales tax (1%) of the
- Registration tax and
- Tax 5 per thousand on Total Assets.
Is there anything else that I should know?
In some sectors of the economy there are special regulations or particular benefits depending on the activity of the company or if it is in a specialized business segment, for example, agriculture, aquaculture, fishing, hydrocarbons, banks, non-profit entities, etc.
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