Indirect tax - Ecuador

The Value Added Tax (VAT) is the main type of indirect taxation in Ecuador.

The purpose of this tax is to levies the value of the transfer of ownership or the importation of movable property of a corporeal nature, in all its stages of commercialization, as well as copyright, industrial property and related rights; and the value of the services provided.

The transfers that are not subject to this tax are the following:

1. Contributions in kind to companies;
2. Adjudications by inheritance or by liquidation of companies
3. Transfers and transmissions of companies and commercial establishments
4. Mergers, divisions and transformations of companies;
5. Donations to entities and organizations of the public sector;
6. Assignment of shares, social participations and other securities.
7. The fees or contributions made by the condominium owners, as well as the fees for the financing of common expenses in urbanizations.

There are four VAT rates for goods and services: 1) 0% rate, and 2) 13-15% rate. 3) 5% rate 4) 8% rate

Goods and services taxed at the 0% rate include food products of agricultural origin, bread, sugar, salt, certain medicines for human use, commercial passenger transport services, electricity services, water, health, funeral services, among others.

It should be mentioned that exporting individuals and companies will be entitled to a tax credit for VAT paid and withheld on the acquisition of goods that they export.

Likewise, there are several ways in which taxpayers may use the VAT tax credit, which may be used up to five years from the due date of the return, as follows:

a) Use of 100% of the VAT Tax Credit.- Taxpayers engaged in the production or commercialization of goods with a 13-15% rate, rendering services with a 13-15% rate, exporting goods and services, and commercializing receptive tourism packages, invoiced inside or outside the country, rendered to non-resident individuals.

b) Proportional use of the VAT Tax Credit.- Taxpayers engaged in the production or commercialization of goods and services partially taxed at the 0% rate and partially at the 13-15% rate, considering the following:

• •  For the proportional part of the VAT paid on the acquisition and import of fixed assets
  • For the proportional part of the VAT paid in the acquisition of goods, raw materials, supplies and use of services
  • The proportion of VAT paid on purchases of goods or services that can be used monthly as a tax credit will be established by relating sales taxed at 12%, plus exports, plus direct sales of goods and services taxed at a 0% VAT rate to exporters, with total sales

c) No right to use the VAT Tax Credit: For local acquisitions and imports of goods, fixed assets, or services made by taxpayers who produce or sell goods or provide services fully taxed at the 0% VAT rate.

Regarding VAT paid, and not offset, on the local acquisition or importation of goods or services for the elaboration and/or commercialization of construction materials subject to the 5% VAT rate, taxpayers may record the VAT values not offset as a deductible expense only in the Income Tax return corresponding to the fiscal year in which the respective VAT payments were generated.

There is no limit.

Does not apply.

As of 2020, Ecuador has issued regulations on VAT in digital services.

The tax regulations establish the OPTION for companies not domiciled in Ecuador that provide digital services to residents in Ecuador, to register in a registry of digital service providers. 

In this case, the companies that register in this cadastre will collect VAT and pay the same to SRI.

Nevertheless, companies not domiciled in Ecuador that provide digital services to residents in Ecuador and that are not registered in the cadastre, the tax rules will be the following:

a)    When the payment abroad is made by credit card, the credit card will increase the VAT to the value of the transaction and will retain it and pay it to the Local SRI.

b)    When the payment abroad is made directly by the recipient of the local service, the local recipient must make a purchase settlement (reverse charge) to which the VAT will be added and will retain it and pay the SRI.

It should be mentioned that companies not domiciled in Ecuador that provide digital services to residents in Ecuador are not required to register in the country. They can be done optionally.

Yes. Non-established business must have a representative or attorney in Ecuador in order to register.

VAT returns are generally filed with the Tax Administration on a monthly basis.

However, taxpayers classified as entrepreneurs (who have income less than or equal to USD 300k), can file their VAT returns on a semi-annual basis.

All VAT returns must be submitted according to the ninth digit of the taxpayer's RUC.

As all declarations and payments must be submitted electronically.

The tax authority may impose a default surcharge penalty if VAT returns are not filed on time or if the related tax is not paid by the due date.

Likewise, in the event that the tax is paid after the due date, the Tax Administration will charge the corresponding interest.

Not apply.

Yes. Penalties can be imposed for omissions notified by the Tax Administration.

Additionally, in the case of not submitting VAT returns, the criminal type of Tax Fraud could be configured, which is sanctioned with deprivation of freedom.

Not apply.

A VAT invoice must show:

• Number, day, month and year of the authorization to print the document, granted by the Tax Administration.
• Unique taxpayer registry number of the issuer.
• Surnames and names, denomination or business name of the issuer.
• Name of the document.
• Numbering of fifteen digits, which will be distributed as follows:
• • The first three digits correspond to the number of the establishment
    b) Separated by a hyphen (-), the following three digits correspond to the code assigned by the taxpayer to each issuing point within the same establishment; Y,
    c) Also separated by a hyphen (-), the nine-digit sequential number will appear.
• Address of the parent company and of the issuing establishment when applicable.
• Expiration date of the document, expressed in day, month and year, according to the authorization of the Tax Administration.
• Number of the single taxpayer registry, names and surnames, denomination or business name and authorization number granted by the Internal Revenue Service, of the graphic establishment that made the printing.
• The recipients of the copies.
• Taxpayers designated as special must print the words: “Special Taxpayer” and the number of the resolution with which they were qualified on the sales receipts.
• Taxpayers who are included in the RIMPE Regime must print on the sales receipts authorized for this regime the legend: “RIMPE Regime Taxpayer”.
• Natural persons and undivided estates, who in accordance with the Internal Tax Regime Law and its implementing regulations, are required to keep accounts, must print the phrase: “Obliged to Keep Accounts” on the sales receipts.
• Taxpayers considered popular businesses included in the RIMPE Regime must print the legend: "Popular Business Taxpayer - RIMPE Regime" on the authorized sales receipts.
• Taxpayers designated by the SRI as withholding agents must print the words: "Withholding Agent" and the number of the resolution that were qualified on the sales receipts.
• Taxpayers qualified by the IRS as Major Taxpayers must print the legend “Major Taxpayer” and the number of the resolution by which they were qualified as such.

In Ecuador, there is an annex to the monthly VAT return where all purchases and sales of the taxpayer during the month are detailed electronically.

The values entered in this annex must coincide with the monthly VAT return filed with the Tax Administration. This annex must be presented the following month of the declared period.