The first 90 days: What you need to know to start a business in Ecuador
Article 3 minute read

The first 90 days: What you need to know to start a business in Ecuador

04 September 2018

If you are thinking of starting a business in Ecuador, here is all you need to know to get through the first 90 days.

The economy of Ecuador is the eighth largest in Latin America allowing for many opportunities but there are still complexities you must navigate to start a business in the country. 

Incorporation

The first step for foreign investors to start a business in Ecuador is to decide what type of entity to incorporate. It could be a local corporation, a local branch of an existing entity or a limited liability company (SRL – Sociedad de responsabilidad limitada - in Spanish), partnership or mixed economy company. For any type of incorporation, you will need to obtain a tax ID. This process could take 30-45 days.

If your plan to incorporate involves shareholders from a foreign country, then the process will be longer since they must have all the proper documentation. This includes bylaws, power of attorney and IDs. The information also must be translated into Spanish.

One important thing to note before deciding to do business in Ecuador is that there is a 25 percent income tax rate. There is also profit sharing with employees of every business and that is at 15 percent of the taxable profits of the business. This means that every business must pay out around 36 percent of its earnings every year. Companies must realize that any profits they are making will have to be partially given to the government and the employees.

All entities are registered with and controlled by the Superintendent of Companies and governed by the Companies Law. There are two no-cost steps to starting a business in Ecuador with the Municipal Authority. The first is to apply for a patent, which can be done online and only takes up to 24 hours. The second is to obtain the license for functionality. This involves a firefighters’ inspection that is usually made within 15 days following application. After approval, the ‘tasa de habilitacion’ is granted and the commercial patent cost must be paid. This is calculated based on the assets of the company.

Compliance

To combat money laundering, Ecuador has Ultimate Beneficial Owner(UBO) regulations at the tax authority, banks and other financial entities. All shareholders will have to complete mandatory forms to prove that the business and shareholders are legitimate. 

Employees

After incorporation, if a company will have employees, they must be registered and obtain credentials from the Social Security Administration and the Labor Ministry. The employer will have to have credentials to hire and register the new employees. During the hiring process, it is important to know that even if you don’t have sales right away, obligations to your employees, such as salary and benefits, start when the contract is signed. Employees will be paid the 15 percent profit sharing at the end of each period if there is a profit. After this is distributed, the employer is responsible for the income tax.

Employees are paid a thirteenth salary in December.  Employees must also contribute to Social Security, at a rate equal to 9.45 percent of their gross salary. There is also a fourteenth salary which corresponds to one standard salary, currently USD 386, paid in March or August depending on the region.

Location

In the first 90 days, you should pick where your company will be located. There are incentives for new investments in cities outside of the capital and principal cities in Ecuador. The government provides these expansion incentives for specific industries.

Currency

It is important to know, that since 2000, the local currency in is the US dollar. Every transaction, including salaries are paid in US dollars. The economy is stable with very low inflation rates.

TMF Group

TMF Group Ecuador was established in 2006 and is a leading provider of accounting, tax compliance, human resources, payroll, and the management of legal entities, servicing both local and global customers.  An active member of the American Chamber of Commerce, TMF Group is well-positioned to help you navigate the complexities of setting up a business in Ecuador. A team of experienced professionals has local knowledge with global reach, part of a worldwide operation of business support services in 83 countries.Talk to us.

Written by

Diego Mantilla

Director, Client Services
Diego

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