Almeida Guzmán Asociados presents a synopsis of the tax reforms included in the draft Organic Law for the Control of Irregular Capital Flows, currently before the National Assembly.
1.- Amendment to Art. 39.2 of the Internal Tax Regime Law – LRTI.
Single tax on dividends
Income received from dividends or profits will be subject to a single income tax. This means that such income will not be included in the taxable income of individuals or legal entities, but will be taxed individually, with its own tax rate and withholding scheme.
Under current regulations, this income is part of the global taxable income. Taxable income is equal to 40% of the gross dividend distributed. The withholding applied constitutes a tax credit for the beneficiary of the dividend.
The company distributing the dividends will act as withholding agent for 100% of the tax incurred, and must withhold the tax at the time of distribution, regardless of the date of actual payment.
Definition of dividend distribution
Dividends are considered to be distributed when the shareholders’ meeting, or the competent body depending on the type of company, adopts the corresponding resolution.
In the case of permanent establishments of non-resident companies, any surplus remitted to the parent company will be considered an effectively distributed dividend. The value must be determined annually, in accordance with accounting principles and the arm’s length principle, considering the income, costs and expenses attributable to the operation in Ecuador, after deducting the labor participation and the income tax incurred.
Determination of the tax rate
(a) Distribution to non-residents for tax purposes in Ecuador
10%, which will be increased to 14% if the following conditions are met: (i) at any level of the chain of ownership there is participation of a resident in a tax haven or lower tax jurisdiction; and (ii) the final beneficiary of the dividend is a tax resident in Ecuador.
(b) Dividend distribution by companies that did not disclose their shareholder structure
14%.
(c) Other cases:
12% in all those cases not contemplated in the preceding numerals.
Exemption for individuals residing in Ecuador
Individuals who are tax residents in Ecuador will be entitled to an exemption equivalent to 3 unified basic salaries of the worker in general, for each company that distributes dividends, within the same fiscal year.
Tax treatment of dividends received from abroad
Dividends received from abroad by individuals or companies resident in Ecuador will be integrated to the global income, being subject to taxation according to the tax rate applicable to each of them. To this effect, the tax paid abroad may be imputed as a tax credit, up to the limit of the tax caused in Ecuador for such income.
Inclusion of Art. 39.2.1 subsequent to Art. 39 of the LRTI.
Tax on retained earnings
Obligated parties
(a) Companies resident for tax purposes in Ecuador.
(b) Permanent establishments in Ecuador of non-resident companies.
Generating event
The non-distribution, until July 31 of the current fiscal year, of retained earnings corresponding to previous fiscal years.
Tax base and rate
The rate will be applied on 100% of the balance of undistributed profits, without deducting the amount corresponding to the first exempt tranche. The liquidation will be made at progressive tax rates of up to 2.50%.
Compensation
The amount paid for this tax may be offset by the company during the following two fiscal years. In the event that the tax has not been offset, the remaining balance will be considered a non-deductible expense in the corresponding fiscal year, without being subject to refund.
Exceptions
(a) Business trusts that do not carry out business activities or operate as a going concern.
(b) Non-profit corporations.
(c) Public companies.
(d) Mixed economy companies, with respect to the part belonging to the State.
Quito D.M./Guayaquil, July 2025
