Economic reforms in Ecuador
Article 3 minute read

Economic reforms in Ecuador

11 December 2017

Recently, Lenin Moreno, president of Ecuador, announced the Economic Program for the next four years. Our local expert explains the most important measures

As a result of the high rates of public spending and the country's debt level, Moreno´s administration has presented a series of economic adjustments. The measures contained in an Economic Program include, among other things:

Income tax

  1. Increase in Income Tax for companies from 22% to 25%.
  2. Individuals who receive more than USD 3,000 per month will pay income tax in the Thirteenth Salary starting in 2018.
  3. The payment of Income Tax will be eliminated for those companies whose annual sales do not exceed USD 300,000.
  4. Micro companies that are already established are exempted from the payment of this tax for their first USD 11,000 profit. For the new micro enterprises there will be an exoneration of 2 years.
  5. Exemption from income tax for five years for those Ecuadorians who bring their production capital within 12 months after the publication of the official record of this reform.
  6. Progressive reimbursement of the minimum tax (Income Tax Advance) for companies that invoice more than USD 300,000 (The requirements will be regulated in the Official Register publication).

Incentives to the Productive Sector

One of the main objectives of this economic program is to protect the dollarization system implemented since 2000, which aims to boost the economy and prevent the outflow of capital. Changes related to this include:

  1. eliminate the law of surplus value through popular consultation, to reactivate the construction sector
  2. refund of taxes to exporters for the income of foreign currency and for the maintenance of employment
  3. approval of a customs control rate (USD 0.10) to finance the fight against smuggling
  4. increase of tariffs on 375 consumer goods to protect the national industry
  5. new types of employment contracts, still to be defined.

Country Austerity Plan

It is intended to reduce the fiscal deficit from USD 4.7 of current GDP to 1% in 2020, through:

  1. a 10% decrease in the salary of high-ranking officials, in addition to freezing the hiring of employees in public sector entities and rationalizing the payment of overtime and travel expenses
  2. prohibition for the purchase of luxury vehicles for official use.

As additional measures, it is proposed to maintain tax stability during the next period (4 years) and it is established that the national financial system, through the Banks and Cooperatives, will be in charge of the operation of electronic money, under the supervision of the State.

Get help from experts

Companies operating or thinking of investing in Ecuador should foresee the effect that these adjustments will have on their results as of 2018. It is advisable to make a new fiscal planning that shows the situation adjusted with the new measures.

Do you have questions? Our experts at TMF Ecuador can offer a detailed explanation of the effects of these measures on your company, and also about the alternatives available to mitigate inconveniences in your operations. Contact us.

Learn how to successfully adapt to foreign rules and regulations.

Written by

Diego Mantilla

Director, Client Services
Diego

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