Managing Corporate Taxation in Latin American Countries - Ecuador
Mondaq Business Briefing › Ecuador Law Articles in English (2010)
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Managing Corporate Taxation in Latin American Countries - Ecuador
1. Income Tax Tax Brackets for Individuals for 2010 1.1.General Aspects Corporate Income Tax. Corporate income tax is levied on companies domiciled in Ecuador. Companies domiciled in Ecuador include those incorporated in Ecuador and companies incorporated in foreign countries that have been approved as branches by the Superintendence of companies after a legal proceeding. Companies incorporated in Ecuador are subject to tax on their worldwide income. Foreign companies are subject to tax on income derived from activities within Ecuador and from goods and assets located within Ecuador. 1.2. Taxable Base The base for calculation of Income Tax is composed by the totality of ordinary and extraordinary taxable income, minus devolutions, discounts, costs, expenses and deductions attributable to such income. Additionally to this taxable base, taxpayers must add non-deductible costs and expenses and subtract the exempt income, in accordance with the Tax Law. 1.3. Rate of Corporate Tax. The standard rate of corporate income tax is 25%. Companies that reinvest their profits in Ecuador are entitled to a reduction of 10% in the corporate income tax rate on the reinvested amount (which means, the reinvested profits are taxed at 15%) if they retain the reinvested profits until 31 December of the tax year following the tax year in which the profits are earned. A rate of 44.4% applies to profits derived from oil exploration and exploitation service contracts that are not reinvested. 1.4. Capital Gains. Capital gains derived from sales of shares are exempt from tax if the sales are "occasional" sales, which are sales that are not made in the ordinary course of business of the company. Losses on sales between related parties are not deductible. 1.5. General Exemptions and Deductions Taxable income is based on accounting profits with appropriate tax adjustments. In computing taxable income, a company can deduct all costs and expenses deemed necessary and related to the activity, aimed at attaining, maintaining and improving the taxable and not exempt income Exemptions For pur...
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