On November 21, 2019, the President of Ecuador presented the Bill for Simple and Progressive Taxation which proposes tax reforms and some minor amendments to other laws. The bill repeats some of the ideas included in the Bill for Fiscal Transparency which the National Assembly set aside on November 17. The bill proposes the following main changes:
1.- New single temporary contribution. Creates a contribution payable by companies engaged in economic activities (except state-owned companies) who generated taxed income of US$1,000,000 or more in fiscal year 2018. The contribution applies in fiscal years 2020, 2021 and 2022 at a progressive rate of 0.10%, 0.15% and 0.20%.
2.-Simplified system for entrepreneurs and microenterprises. 1. Includes income tax, VAT and Excise Tax. This is mandatory for those who meet the definition of microenterprise under the Code for Production, Trade and Investment (one to nine employees and US$300,000 in net sales).
3.- Amendments to income tax. Eliminates the mandatory advance payment; includes investment in hospital infrastructure services and education, cultural and artistic services as priority sectors; includes new exemptions; limits the deductibility of interest paid on foreign loans and the deductibility of personal expenses for individuals with more than US$100,000 in net income.
4.- Amendments to dividends. Taxes dividends paid to foreign companies and non-residents.
5.-Amendments to the single tax on the banana sector. Simplifies the calculation of tax for producers and exporters.
6.- New single tax on agricultural activities. Creates a tax with a progressive rate from 0 to 1.8% for producers and local sales, and from 1.3% to 2% for exporters.
7.- Withholding agents. Taxpayers who pay or transfer income which is taxable for the recipient must act as withholding agents if they are approved by the Internal Revenue Service as per the criteria established in the regulations.
8.- Amendments to the Foreign Money Transfer Tax (ISD). Eliminates temporary restrictions on several exemptions and limits certain exemptions for payments between related parties. Exempts dividend payments to shareholders domiciled in tax havens from ISD when the beneficial owners are non-Ecuador resident individuals.
9.- Amendments to VAT. Applies the 0% rate to flowers, foliage and cut branches; tractors up to 300 hp including those used in agricultural activities; test strips for measuring glucose levels; insulin pumps; pacemakers; and newsprint, newspapers and magazines. Taxes imports of digital services and the supply of web domains, hosting and cloud computing.
10.- Amendments to Excise Tax. Taxes plastic bags and tobacco vaping devices and liquids that contain nicotine used via nicotine delivery systems. Includes as exempted goods all types of electric motorized vehicles; vans up to 3.5-ton capacity; trucks and vehicles worth up to US$30,000 when the buyer is registered in community transport support programs.
11.- Marking mechanisms. Expects the IRS to create rates for operating identification, marking, tracing and tracking mechanisms.
12.- Automatic tax refund mechanisms. Authorizes the IRS to implement these systems for the taxes it manages.
13.- Amendments to the Code for Production, Trade and Investment. Proposes a simplified and consolidated refund system for tax on foreign trade, except VAT.
14.- Interpretation of other laws. Introduces rules for interpreting the Organic Senior Citizens Law and the Code on Territorial Organization, Autonomy and Decentralization. .
15.- Non-Tax Remission System. Proposes a remission system applicable to: (i) education loans, financial assistance and scholarships granted by any public institution; (ii) the copayment system for the provision of emergency housing and land for the victims of the earthquake of April 16, 2016; and (iii) for agricultural, livestock and fishing credit operations issued by the CFN and BANECUADOR.
16.- Amendments to other laws. IIntroduces amendments to the Telecommunications Law, Administrative Code, Planning and Public Finance Code, and the Monetary and Financial Code.
17.- Addition of further benefits: Introduces an (i) exceptional payment plan for receiving and withholding agents with outstanding payment obligations, and a (ii) system to extinguish payment obligations for adjustments, resettlements, redeterminations or other recalculations of vehicle taxes managed by the IRS. (iii) Decreases the 10% income tax in 2019 for taxpayers domiciled as at September 2019 in the provinces of Imbabura, Bolívar, Chimborazo, Tungurahua, Cotopaxi and Cañar who are engaged in the agriculture, livestock and/or agroindustry sectors affected by the strike in October 2019. (iv) Excludes credit operations from the credit report/score when these are held in the public and private financial system, are past due on the date the Law comes into effect and are paid within 120 days of this date.