Tax

Important regulations related to the family economy and taxes

Executive Decree 876, which contains a series of important regulations related to the family economy and the tax regime. These regulations cover several crucial aspects, such as:

Income Tax Withholding:
A procedure is established for employers to calculate the income tax withholding of their workers, taking into account the projection of personal expenses.
In addition, Executive Decree 876 modifies the Regulations for the Application of the Internal Tax Regime Law, with notable changes, such as:

Deduction of Losses on Sale of Portfolio and Commercial Credits:
Losses generated in the sale of portfolio and commercial loans between unrelated parties are allowed to be deducted, within certain limits.

Income Tax Rate Reduction:
The reduction of the income tax rate is regulated for those taxpayers who reinvest their profits in sports, cultural, responsible scientific research, or technological development programs.

New Regulations for the Mining Sector:
Regulations related to control processes and tax obligations in the mining sector are included. It’s important to highlight that the entry into force of these regulations varies depending on the type of tax to which they refer. Those related to income tax will come into effect on January 1, 2024, while those related to the RIMPE regime and formal duties will begin to take effect from the first day of the month following the publication of the Decree in the Official Registry.

Environmental

New Redeemable Tax Law on Non-Returnable Plastic Bottles in Ecuador

Decree Law of Economic Urgency for the Creation of the Redeemable Tax on Non-Returnable Plastic Bottles. This decision came after a favorable ruling issued by the Constitutional Court on September 18, 2023, and the new law was published in the Fifth Supplement of the Official Registry 401 on September 21, 2023.

The main features of this tax are the next:

Generating Fact: The act of bottling beverages in non-returnable plastic bottles used to contain alcoholic, non-alcoholic, carbonated, non-carbonated beverages and water. In the case of imported beverages under the consumption regime, the tax is generated at the time of customs clearance.

Subjects: The State, through the Internal Revenue Service, acts as the active subject, while the bottlers and importers of beverages in non-returnable plastic bottles are the passive subjects.

Tax Base: It is calculated based on the number of units bottled or imported, with a rate of two cents (0.02 USD) per bottle.

Tax Refund: The tax will be returned only to recyclers and transformers, following specific criteria for collection, traceability and limits established in the Regulations that must be issued by the President within a period of 30 days.

Exemptions: Dairy products and medicines bottled or imported in non-returnable plastic bottles are exempt from the tax.

Declaration and Payment: The tax settlement will be carried out by multiplying the number of units bottled or imported by the corresponding rate. In the case of imports, the IRBP settlement will be carried out before the goods are cleared through customs.

Non-Deductibility: The tax cannot be considered as a deductible expense for the settlement of income tax.

Transition Period: Until the Regulation comes into force, the regulatory provisions and other secondary regulations related to the existing IRBP return process will continue to apply.
This new law seeks to promote environmental responsibility and sustainability by encouraging the collection and recycling of non-returnable plastic bottles, while contributing to State revenue.
These measures are expected to have a significant impact on waste management and environmental preservation in Ecuador.

Tax

New Tax Reform in Effect

The tax reform came into effect on June 20, 2023, modifying matters related to the payment of income tax, deductible expenses, and value-added tax. Some of the key changes include:

Increased deductible expenses: The tax reform increases the amount of expenses that households can deduct from income tax. Individuals can now deduct up to US$15,294 per year for personal expenses, based on the number of family responsibilities they have. The maximum number of family responsibilities is five.
Therefore, a person with five dependents could deduct multiple expenses and receive the largest reduction in income tax payments, which is US$2,753 per year. Finally, those who have no family responsibilities, on the other hand, benefit from a reduction in their income tax payment of US$964 per year.

New income tax table: The new law regulates the income tax rate from 5% to 37%, but it makes it easier for beneficiaries to determine their payment rate. This means a reduction in tax payable.

Changes for popular businesses and microentrepreneurs: Popular businesses previously paid a single income tax of US$60 per year. The new tax reform establishes a progressive payment table, which means that popular businesses with less than US$2,500 in annual income are exempt from income tax. This benefits 340,000 producers. The new reform also establishes a rate of 0% valueadded tax for these businesses and excludes 500,000 artisans from the Simplified Regime for Entrepreneurs and Popular Businesses. Taxpayers with sales between US$2,500 and US$20,000
per year will pay between US$5 and US$60 per year in tax.

Environmental

Ministry of the Environment strengthens wildlife protection

The Ministry of the Environment has officially launched the Ecuadorian Biodiversity Information System (BIS-EC), which is designed to be an information system for supporting the control and management of biodiversity in the country. BIS-EC provides connection services that enable access and use of information and collaboration on specialist topics using state-of-the-art technologies.

This collaborative approach aims to improve access to biodiversity data and information while helping to improve research, exploitation, monitoring, control, traceability, and decision-making processes. BIS-EC is an important part of the Single Environmental Information System led by the Ministry of Environment, Water Ecology and Transition, in response to the need for updated data and statistics that reflect the management and protection of natural heritage objects from Ecuador.

Data Protection

The Personal Data Protection Law enters the Penalty Regime

The new regulation focuses on broadly protecting personal data, ensuring its security and confidentiality. Additionally, it establishes a system of sanctions that applies to both national and foreign companies operating in Ecuador. In this way, the objective of guaranteeing the exercise of the right to the protection of personal data is fulfilled, which includes access and decision-making regarding information and data of this nature.

The recently enacted regulation includes a system of sanctions for those who fail to comply with the provisions regarding the use and processing of personal data. These companies are obligated to implement data protection programs and systems that enable data subjects to exercise their rights. Among the sanctions, fines ranging from 0.1% to 1% of the total sales of the last annual billing exercise are established for companies that fail to responsibly handle user data, depending on the type of violation. Also, the public entities will be subject to fines of up to 20 minimum
wages.

In the case of recurring or serious violations or misuse of personal data, the temporary or permanent closure of the offending entity is also contemplated, in addition to the possibility of suing those who misuse data, both within and outside Ecuador. The severity of the infringement and the type of sanction depend on its intentionality, recurrence, nature, and repetitiveness.