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12.5. Other Anti-Avoidance Rules

Tax Information Exchange Agreements (TIEAs)

Tax Information Exchange Agreements (TIEAs) provide for the exchange of information on tax matters. On 7 April 2021, Ecuador and the United States signed a TIEA, however, the same is not yet in force.

Financial Account Information Reporting and Exchange

Ecuador acceded to the OECD Mutual Assistance Convention as amended and the convention entered into force for Ecuador on 1 December 2019. Effective September 2021, Ecuador has signed the Common Reporting Standard (CRS) Multilateral Competent Authority Agreement and adopted measures to implement the automatic exchange of financial account information in accordance with the global standard for exchange of information developed by the OECD under the CRS.

Low or No Tax Jurisdictions and Tax Regimes

Effective 1 January 2015, the government has introduced a number of measures in relation to resident companies owned by shareholders resident in tax haven or low-tax jurisdictions such as:

  • Under the domestic tax laws, foreign income derived by resident companies is exempt from taxation, if such income has been subject to tax in the foreign jurisdiction. However, such exemption is not available for foreign income derived from tax havens or low-tax jurisdictions;
  • The general tax exemption available for dividends received from foreign jurisdictions does not apply if such dividends are received from tax havens or low-tax jurisdictions;
  • Certain payments to non-residents domiciled in tax havens are subject to higher withholding tax at the rate of 35% such as dividend distributions, interest, royalties, and technical service fee payments); and
  • Ecuador resident companies are subject to a higher corporate tax rate if owned by persons established in a tax haven or low-tax jurisdiction (and meeting other tests, see Sec. 8.1.).

A jurisdiction is considered a tax haven or a low-tax jurisdiction if its tax regime meets at least two of the following conditions:

  • It is expressly or tacitly established so that the economic activity under the regime does not require a substantial development within the jurisdiction (does not apply to investment incentives);
  • The effective tax rate is lower than 60% of the standard Ecuador tax rate or the rate is unknown;
  • It does not allow for the exchange of information between tax authorities; and
  • It allows entities to hold bearer shares or nominative owners that do not support the economic risk of their ownership.

Regardless of meeting the above conditions, a jurisdiction with a tax regime meeting any of the following conditions is also considered a tax haven or a low-tax jurisdiction:

  • Regimes that apply for companies under foreign control, but not for domestic companies (ring fencing);
  • Regimes that allow entities to keep rights in their capital with nominal or formal shareholders who do not bear the economic risk of their ownership and the beneficial owners of such rights are unknown;
  • Regimes that grant an income tax exemption for foreign activities that involve merchandise that is not originated or intended for distribution in the territory in which the regime is established; and
  • Regimes under which private entities are not required to register with the tax administration of the jurisdiction.

Relief is provided to non-resident in a tax haven or a low-tax jurisdiction if it holds capital rights in a company resident in Ecuador or in a permanent establishment in Ecuador and meets the following conditions:

  • The non-resident has issued securities listed on a stock exchange not located in a tax haven or low-tax jurisdiction;
  • All beneficial owners resident in Ecuador, if any have been identified;
  • The Ecuadorian resident company or PE keeps the documentation submitted by the non-resident to the regulatory body of the stock exchange in the past 12 months; and
  • The non-resident agrees in writing to provide information to the Ecuador Internal Revenue Service (SRI) regarding who has control or significant influence on its decision-making process.

If the above conditions are met, a non-resident in a tax haven or low-tax jurisdiction is deemed not a resident in such a jurisdiction for tax purposes.

The following countries are listed as countries with tax haven/ low-tax jurisdiction status (as of March 2022):

Albania Cook Islands Malta San Marino
American Samoa Curaçao Marshall Islands Seychelles
Andorra Cyprus Mauritius Solomon Islands
Angola Djibouti Monaco Sri Lanka
Anguilla Dominica Montserrat (UK) Svalbard (Norway)
Antigua and Barbuda French Polynesia Myanmar Swaziland
Aruba Gibraltar Nauru Tokelau
Ascension Island Granada Nigeria Tonga
Azores Islands Greenland Niue Trieste (Italy)
Bahamas Guam Norfolk Islands Trinidad and Tobago
Bahrain Republic of Guyana Oman Tristan Da Cunha
Barbados Hong Kong Ostrava Free Zone (Czech Republic) Tunisia
Belize Isle of Man Palau Turks and Caicos Islands
Bermuda Jordan Panama Tuvalu
Bonaire, Saba, and St. Eustatius Kiribati Pitcairn United Arab Emirates
Brunei Darussalam Kuwait Puerto Rico Vanuatu
British Virgin Islands   Labuan (Malaysia) Qeshm Islands (Iran) United States Virgin Islands
Cape Verde Liberia Saint Kitts and Nevis Islands Western Samoa
Campione D´Italia Liechtenstein Saint Lucia Yemen
Cayman Islands Luxembourg Saint Martin (Netherlands)     
Channel Islands   Macao Saint Pierre and Miquelon     
Christmas Islands Madeira   Saint Vincent and the Grenadines     
Cocos (Keeling) Islands Maldives Saint Helena     

Additionally, certain regimes in Costa Rica, Estonia, Ireland, Montenegro, the Netherlands, Serbia, the United Kingdom, the United States, and New Zealand may be considered as preferential tax regimes and may also be treated as tax havens.

Ultimate Beneficial Ownership Disclosure

Ecuador resident companies having foreign shareholders, including branches and permanent establishments of foreign companies in Ecuador, are required to submit a ‘Shareholder Annex’ to the government, regarding their shareholding details. The required information is for each shareholder through the end of the reporting period and includes information such as shareholder’s name, participation percentage, tax ID number, residence/nationality, etc. The information included in the annex generally only covers the first level of the corporate structure (direct shareholders). However, if the shareholders are related to the reporting entity or resident in a tax haven or low-tax jurisdiction, all levels of the corporate structure must be reported including intermediary companies up to the final individual(s).

Failure to report the required information attracts an increased corporate tax rate on all or part of the entity’s profits (see Sec. 8.1.).

Indirect Transfer of Assets

Effective 1 January 2015, income derived by residents and non-residents from the sale of direct or indirect participations in the capital of an Ecuadorian company or permanent establishment is taxable in Ecuador (see Sec.5.1.). Indirect transfer of an interest (shares, titles, or other rights) in a non-resident entity is taxable if both the following conditions are fulfilled:

  • The transfer is taxable in Ecuador if at any time during the year of transfer the actual value of the rights representing the capital of the Ecuador company or permanent establishment in Ecuador directly or indirectly represents at least 20% of the actual value of the rights representing the capital of the non-resident company being transferred; and
  • The transfer of an interest in the non-resident entity by the same person directly or indirectly, in the same fiscal year or 12 months before the transaction, exceeds the equivalent of 300 times the minimum income chargeable to tax for individuals (USD 3,394,500 for the 2020 fiscal year). This amount is increased to 1,000 times the minimum income chargeable to income tax for individuals (USD 11,315,000 for the 2020 fiscal year) if the transaction does not exceed 10% of the total share capital.