Top challenges of doing business in Ecuador

Disclaimer: This article was accurate at the time of publishing. To obtain the most up-to-date information, please get in touch with our local experts.

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Ecuadorian economy has been transformed from one of turmoil to one of stability, but doing business can still be a challenging task without local help.

In 2011, the Ecuadorian economy was among the best performing economies in Latin America with growth of 8% and single digit inflation rate. Since 2000, Ecuador’s growth rate has been 5.5%, second only to Peru (7%) and way ahead of Brazil , which scored a relatively modest 4%. Its GDP-to-debt ratio stands at 24%, which is far more stable than most of its neighbouring countries.

The small Andean country has struggled to receive a lot of attention from foreign investors, but recent studies have shown that it has the potential to become a key player in the economics of the region. Thanks to its preferential position among Latin America’s biggest economies and quick access to the US, many companies are coming to view Ecuador as an ideal foothold on the continent, taking advantage of its excellent trade routes and bilateral agreements.

Along with its dynamic and skilled workforce, there is modern infrastructure supporting its vast sea line and domestic routes. There are over 2,500 vessels that leave from Ecuadorian ports every year and Quito International Airport supports many direct routes into key growth areas and established cities of the north.

But companies looking to advance on Ecuador’s strong economic growth rates and stability could find their efforts stifled by the complex tax, legal and regulatory environment. The World Bank and International Finance Corporation (IFC) rank it within the bottom 50 countries in the world for ease of doing business, which is why having local help on hand is crucial.

Starting a Business
Starting a business is a costly affair and can also be very time consuming. There are 13 procedures to navigate, many of which require legal advice and inspections from municipality officers. Businesses are kept waiting an average of 29 days to receive the inspection and operations permit from the municipality, which is the final step before "tasa de habilitacion" is obtained and the commercial patent is paid at the municipality.

Dealing with Construction Permits
There are several reports and numerous inspections to undergo when dealing with construction permits, taking a total of 128 days to complete and incurring significant costs. There are also several different official departments to be consulted during the procedure, such as the Professional Association of Architects, the Professional Association of Engineers and the Property Registry.

Getting Electricity
Electrical connections are carefully governed in Ecuador, and most procedures require official consent. The business is required to hire an electrical engineer listed within the list of Companies or qualified by the local government agency. The engineer will then submit a connection request and wait for the feasibility report, before an inspection can be completed and designs can be submitted for assessment. The contracted engineer carries out the external connection according to the standards set in the agreement.

Registering Property
Registering property is a drawn-out procedure, with several contracts required and various taxes to be paid. The Property Registry is the main point of call for most procedures, but a lawyer will be required to prepare contracts and notarise agreements.

Getting Credit and Protecting Investors
There is no public registry in Ecuador and the legal rights index is underdeveloped, which makes getting credit quite difficult. Investor protection is also an area in which Ecuador struggles; the World Bank and IFC rank it in 139th place in the world.

Paying Taxes
There are only eight tax payments to make each year in Ecuador, but processing them can take an astonishing 654 hours a year. VAT payments take 240 hours to file and corporate tax requires 108 hours of business time to work through. Employer paid social security contributions can take over 300 hours alone.

Trading Across Borders
Exporting and importing goods is a rather tricky proposition. The cost of trading across borders works out at around US$1,535 per container, which is substantially more than most countries tracked by the OECD. It is also a time consuming endeavour, taking 20 days to move goods out of the country and 25 to import them in.

Enforcing Contracts
There are 39 procedures to navigate when enforcing contracts which takes an average of 588 days to complete. The cost of the claim is lower than the Latin American average but much higher than the OECD norm.

Resolving Insolvency
Insolvency cases take an average of 5.3 years to move through judicial processes. The recovery rate is well below the norm in both Latin America and across the OECD.

If you have never travelled to Ecuador on business you must bear in mind the change in altitude, and it would be wise to arrive a day early to acclimatise. Most business executives are not the most punctual of people, and doing business can turn into quite a relaxed affair, although you should be careful not to slip into what may be deemed unprofessional informality.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Ecuador or just want to streamline your Ecuadorian operations, talk to us.