Ecuador introduces tax reform bill aimed at boosting foreign investment

On 28 November 2023, newly elected President of Ecuador, Mr. Daniel Noboa proposed a tax reform bill designed to attract foreign investment and boost the economy. The key proposals of the bill are as follows:

  • The special economic development zones have been replaced with a new free trade zone regime in Ecuador. The new regime offers several tax benefits, including a 0% income tax rate for the first five years of zone users’ concession, followed by a 15% rate for the remaining time. Additionally, the regime provides an exemption from VAT, remittance tax, taxes on foreign trade, and other taxes on transactions in free trade zones.
  • Introducing an advanced regulatory framework for public-private projects concerning public investment endeavors in infrastructure, public services, and strategic services.
  • Introducing a self-imposed duty for businesses categorized as “major taxpayers,” amounting to 3% of their total taxed income. This self-withheld sum will serve as a tax credit towards their yearly income tax payment. Entities governed by a distinct income tax regimen are exempt from this obligation.
  • To encourage investments in renewable energies and ensure a smooth transition while enhancing energy security, a 10-year income tax exemption has been introduced.
  • The introduction of a revamped tax amnesty regime, the exact specifications of which will be established through subsequent resolutions.
  • A new measure has been introduced to govern companies operating in the mining sector, specifically those engaged in the production and/or commercialization of minerals from mining concessions. This measure includes a self-withholding obligation, which imposes a 5% withholding tax rate on the total value of every transaction.

This bill, currently under debate in the legislature, is expected to be approved by the end of December and implemented in 2024.

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