Ecuador is literally in the middle of the world, because of its geographical location on the line, which it bears the same name. It is one of the smallest countries in South America. It is characterized by being mountainous and at the same time having a large strip of coastline, not to mention, extraordinary natural resources.
It is an ideal country for large investors in industries dedicated to wood, food, plastic and renewable energy for its large amount of natural resources. It is also a tourist power for foreign retired people, since Ecuador offers them products and services at half price.
It is important to mention that with the US dollar as the official currency, the risk of devaluation is very small for investors. Furthermore, there is no lack of government incentives to attract foreign companies.
- Before making investments in Ecuador, you must be aware of a series of fundamental aspects of the economy of this nation, such as:
- Profitable investments in Ecuador.
- Mechanisms that boost foreign investment in Ecuador.
- Visa in Ecuador
- Types of companies in Ecuador.
- Procedure to open a company in Ecuador.
- Taxes to be declared and paid in Ecuador.
Before making investments in Ecuador, you must be aware of a series of fundamental aspects of the economy of this nation, such as:
- The currency used in Ecuador is the US dollar, as mentioned in the previous segment.
- The monthly inflation in June 2019 was -0.04%. The annual price inflation of 2019 reached 0.61%.
- In June 2019, the cost of the Basic Family Basket (CFB) was USD 715.83, while the monthly family income of a type household was USD 735.47, which represents 102.74% of the cost of the CFB.
- Gross Domestic Product (GDP) is 91,034 million euros and the variation rate with respect to 2018 is 1.1%. You can find these data in the newspaper Expansión.
Based on the figures set forth above, it can be translated that the economic situation in Ecuador is quite positive, despite the fact that it registers very slow economic growth in recent years. What attracts more attention is that its inflation is negative, so it has a fairly healthy productive economy and items at excellent prices.
These aspects are figures and rates, less that of GDP, which are extracted based on the bulletin issued annually by the National Institute of Statistics and Censuses (INEC) of Ecuador. In which economic indicators such as inflation, the consumer price index, variations and incidents are defined, in case you want to further expand this information.
These figures and rates are defined in important economic indicators, quite favorable when making the financial structure of your business or investment plan or project, if you want to invest in Ecuador.
Profitable investments in Ecuador.
- Wood export: Ecuador has one of the largest tree reserves on the planet, especially Pine and Eucalyptus. Although this industry is regulated by the state to guarantee environmental well-being, it offers a series of facilities in customs matters to promote the export of this item.
- Metal-mechanical production: the country is characterized by the large turnover and demand for household appliances of its local population, and the state guarantees tax incentives to producers of home technology.
- Technology stores: it is a business model that has grown in Ecuador, especially in its main cities, and is combined with software development services. It should also be noted that these stores are in great demand, and need to be installed in cities in the interior of Ecuador, there is the business opportunity.
- Construction of Self Storage: self storage are storage spaces that are leased or purchased. It is a new market to explode but it is in great demand in Ecuador, since homes in that country are characterized by being small with very little space to store, and it is a market with little supply of these services, which is ideal for investment, and besides there is almost no competition.
- Tourism for retired people: this country promotes tourism for older people, especially foreigners, because it offers products and services at half price for these people. Ecuador is a serene, calm country, with landscapes and activities that fascinate retirees. Although it is a very crowded market, with a lot of offer, it is worth investing, for the amount of elderly people who visit this country every year.
- The plastics industry: it is ideal to invest in it, as it drives the productive matrix of Ecuador and they are investments supported by the State.
- Fresh and processed foods: it is an industry to exploit in Ecuador, the fruits and vegetables of that country are of quality to export, for its freshness without chemical additives.
- Craft: Ecuador is a great tourist destination because of its mountain climate and tourists love the events of this country, rooted in its culture.
- Scientific research: the Ecuadorian state promotes scientific research of a biological, natural and industrial nature.
Mechanisms that boost foreign investment in Ecuador.
Currently in Ecuador, investments are incentivized by the Proecuador agency. Which is responsible for strengthening and boosting foreign investment, by removing barriers for investors who want to favor the economy of this country.
This nation is characterized by having very explicit and transparent regulations for foreign investors.
So much so that the constitution of Ecuador encourages foreign private investment, guaranteeing the freedom of companies, and requires the state to promote free competition. It also establishes the protection of private property, and guarantees the fulfillment of contracts.
According to the Proecuador portal, the incentives provided by the Ecuadorian state to investors are:
- The income tax with a 0% rate for investors who want to promote production in the country. This benefit is granted to micro businesses for 3 years, in addition to cooperative entities that have merged with other cooperatives have this benefit for 5 years, from the first year of merger.
- The tax on the exit of currencies with a rate of 0% on the occasion of payment of dividends, payments to credits granted by international financial and non-financial institutions, and is granted to regular exporters (who import raw material to produce products in exportation quality).
- Value-added tax with a 0% rate for the purchase of electric vehicles, machinery, solar panels, raw materials, among others.
- Environmental incentives for those companies that wish to acquire eco-efficient assets, up to 100% deductible for depreciation and amortization, in book values.
- Incentives for companies located in depressed areas: these areas are made up in the towns of Tulcán (border with Colombia), Esmeraldas, Sucumbíos, Zamora, Huaquillas, Macara, among others. The companies that decide to settle in these areas, will be granted the deduction of 100% in Income Tax, in terms of withholdings and deductions to salaries and social benefits on payroll.
- Tax incentives along with the exemption of income tax and advances of the same tax during a given period, to those productive companies that decide to settle in:
- The outskirts of the cities of Quito and Guayaquil with an advance on the income tax for 12 years.
- Within the cities of Quito and Guayaquil with an advance on the income tax for 8 years.
- Cantons of the border (border areas with Colombia and Peru), to those companies in the agribusiness sector, with an advance on income tax for 15 years.
- Incentives for Zedes: Zedes are customs destinations that must be installed in defined geographical areas, there are currently 5 defined areas: Yachay, Eloy Alfara, Lede Litoral, Posorja and Quito. These Zedes enjoy privileges such as: exemption of the Tax on the exit of foreign currency in imports of goods and services. Tax credit in the Value Added Tax for the purchase of raw materials, supplies and national services. Rate of 0% of the Value Added Tax for the importation of produced goods. Exemption from income tax and its advance payment for 10 years. 10% reduction in the income tax rate, once the 10 years of anticipation have ended.
- Incentives for tourism: these companies will enjoy the exemption of income tax for 20 years, will have financing of plans and projects, among other benefits.
It is worth noting that the Income Tax (ISR) is applicable to both companies and individuals in Ecuador, is considered as the tax to societies or companies, and is calculated in consideration of the profits obtained during the year, in turn you have to cancel an advance of the same as established in your tax law, this tax will be deducted later in the declaration and annual payment.
In reference to the Value Added Tax (VAT) this tax is applied to individuals and companies. In addition, this information will be expanded later in the same article.
Visa in Ecuador
In Ecuador there are an infinity of visas both to visit and to reside. These visas can be found on the website of the consulate of this country.
To invest you need a temporary visa for investors, to apply you need the following requirements:
- Application form printed and filled in with your data.
- Certificate of migratory movement (requirement applicable only within the country).
- Certification of regular immigration status (requirement applicable only within the country)
- Original and legible photocopy of your valid passport.
- Criminal record certificate of your country of origin, apostilled or legalized.
- Accreditation and verification of legal livelihoods (income) that demonstrate and allow your subsistence and that of your dependent family group in Ecuador.
- Title, policy or certificate of deposit in recognized banking entities. With a term not exceeding 730 days and an amount equivalent to USD 26,250. Or title deed of purchase and sale of land owned, registered in the property register of the respective canton (province), with an amount of USD 30,000. Or title of purchase and sale of shares or participations in Ecuadorian company. For an amount of USD 26,250. Registered in the Superintendence of Company, Securities and insurance. Or the act, certificate or legalized deed that demonstrates the capital invested in an own business. For an amount of 26,250 USD.
It is important to highlight that this last requirement can be replaced by any of its successors, described in the same paragraph, in summary, they all represent the demonstration of sufficient financial resources by the investor applicant.
You must take into account that the documentation that is in a language other than Spanish must be duly translated into Spanish and, in turn, must have the respective recognition of the translator’s signatures before the notary public. In addition, any official document from abroad must be duly legalized or apostilled.
Apart from the requirements, you must cancel the tariff costs: equivalent to USD 50 for the application, and USD 400 for the visa grant.
It should be noted that recently the Ecuadorian Foreign Ministry reported the establishment of a new type of visa for investors.
These changes in the legislation seek to improve and promote the establishment of foreign investors in the country, as well as facilitate the regularization of foreign officials belonging to national and foreign companies.
The electronic visa entered into force in Ecuador on January 28, 2019, in order to facilitate the visa process for foreign investors. To request it you can enter the website of the consulate of this country.
Types of companies in Ecuador.
- The company in collective name: it is consolidated with two or more people, who carry out the trade under a company name (company name). The capital is integrated by the contributions of each of the partners. The capital contributions can be in money, or movable and immovable property. The incorporation of the company requires the payment of fifty percent (50%) of the subscribed capital.
- The limited liability company: one that is made up of three or more people. The capital of the company will be formed by the contributions of the partners, either in money or goods, and will not be less than the amount set by the Superintendent of Companies, which is the equivalent of 400 dollars. When the company is constituted, the capital will be fully subscribed, and paid at least in fifty percent (50%) of each participation.
- The joint-stock company: it is a company, in which the capital is separated into negotiable shares, and is composed of the contribution of the shareholders that respond only for the amount of their shares. They may be constituted by two or more persons with a capital of 800 dollars or more. These may have as partners, public companies.
- The mixed economy company: it is a company where private capital converges with public capital, both can manage the company. Corresponds to those companies that are dedicated to the development of agriculture, industries conducive to the national economy and oriented to the satisfaction of the needs of the population, can also be responsible for the provision of new public services or the improvement of existing ones.
- The simple limited company divided by shares: it can be formed by one or more limited partners. In which the capital will be divided into registered shares of an equal nominal value for all partners.
- Foreigners or branches in Ecuador: in order for a foreign company to operate in this country, it must comply with the following precautions:
- Statutes corresponding to the foreign company.
- Certificate issued by the Ecuadorian consul, which proves to be constituted in the country of his domicile and has the power to negotiate abroad.
- Check based on its bylaws, that the company can create branches abroad.
- Resolution from the company’s corporate body to operate in Ecuador.
Procedure to open a company in Ecuador.
The steps to open a company in Ecuador are usually a bit long and complex, but if you decide to have all the documents in an orderly manner and perform each step accordingly, it will be much easier for you.
Here are the steps:
1. You must first reserve a name: choose the name of your company and go to the Superintendence of Companies. In that body you can verify if the name of your company is unique or that another entity does not have it.
2. You have to prepare the document with the statutes of your company: which represents the social contract that will handle the company, and is certified through a manuscript signed by an Ecuadorian lawyer.
3. Open a capital integration account at any bank in the country. The basic collections, which may vary depending on the bank, are:
• Have a minimum money capital of USD 400 up to USD 800, depending on the company you are going to open. (Note: the amount deposited will be retained by the bank until you finish all the opening procedures).
• A letter detailing the participation of each of the partners.
• Two (2) Copies of identity card (ID or passport) and ballot paper of each of the partners (if their stay in the country has occurred any government election).
• Then you must request the certificate of capital integration accounts.
4. Then you must validate the company before a public deed: this consists of going to any notary public, and carrying the following documentation: the reservation of the name, the certificate of capital integration account and the document with the statutes.
5. Approval of the statute: once the documents mentioned in the previous step are publicly validated, you must take them to the Superintendence of Companies, to review and approve them by resolution.
6. Publish the resolution in a newspaper: the Superintendence of Companies will grant you four (4) copies of the resolution, together with an extract of it to make a publication in an Ecuadorian national newspaper, it can be any.
7. You must obtain municipal permits: go to the municipality of the city where your company was created, where you must cancel the municipal patent and request the certificate of compliance with obligations.
8. You have to register your company: collect all the previous documentation, take it to the Mercantile Registry of the canton (region or province), where your company was established, to register the company.
9. You must hold the General Meeting of Shareholders with the partners where they must appoint the representatives of the company (president, manager, among others), according to the bylaws.
10. Obtain the qualifying documents of your company: with the inscription in the Mercantile Registry, go to the Superintendence of Companies to give you the necessary documents to obtain the RUC (Unique Registry of Taxpayers) of the company.
11. Register the appointment of the legal representative or administrator: go to the Mercantile Registry, register the appointment of the administrator of the company appointed in the Shareholders’ Meeting, with your signed acceptance. You must do this within the first thirty 30 days after your appointment.
12. Obtain the Unique Registry of Taxpayers (RUC), this is acquired in the Internal Revenue Service (SRI), with:
• The form duly printed and filled out.
• Original and copy of the deed of incorporation of the company.
• Original and copy of the appointments of the board of directors.
• Copies of identity card (passport, ID) and voting ballot of the members.
• An authorization letter from the legal representative in favor of the person who will carry out the corresponding procedure.
13. You must obtain the letter for the bank: go to the Superintendence of Companies, deliver the RUC there, and they will give you a letter addressed to the bank where you opened the capital integration account, so you can have the amount deposited.
The details of each of the steps can be expanded in the Companies Law of Ecuador, or by visiting La Cámara de Quito, or the National Institute of Statistics and Censuses (INEC) of Ecuador.
Although it is worth mentioning that Ecuador, like the visa, these procedures can be done online, I also leave the link for you to see:
https://youtu.be/5IJBJiPDBqo (New electronic mode of incorporation of companies in Ecuador).
Taxes to be declared and paid in Ecuador.
In Ecuador, taxes are governed through the Tax Regime Law, which in turn regulates legal relations, which will apply to all taxes: national, provincial, municipal or local.
Taxes must be declared and paid at the Internal Revenue Service (SRI).
Among the taxes we have:
• Income tax
• Value added tax
• Currency exit tax
• Special consumption tax
• Tax on motor vehicles
• Environmental tax on vehicle pollution
• Redeemable tax on non-returnable plastic bottles
• Taxes on rural lands
• Tax on assets abroad
• Income tax on income from inheritances, legacies and donations.
• Conservation patents for mining concession
• Royalties to mining activity
• Contribution to the operation of comprehensive cancer care
• Solidarity contribution
But the most important taxes that Ecuadorian companies must declare and pay in full are the income tax, the value added tax and the currency exit tax. Which we will explain below:
• Income Tax (ISR) is applicable to income earned by natural persons, undivided inheritance and companies that are national or foreign. The tax period or time of this tax is from January 1 to December 31. The rate varies according to the economic activity of each taxpayer, you can see that information here in Internal Revenue Service (SRI) / income tax.
• Value Added Tax (VAT): it is a tax that marks the value of local transfers and imports of goods, in all stages of commercialization, and is applicable to the amount corresponding to the services provided. The current rate is 0% and 12% and applies to both goods and services. You can better detail this information in Internal Revenue Service (SRI) / value-added-VAT-tax.
• The currency exit tax (ISD): it is a tax that is applied to transfers, shipments or transfers of foreign currency that are made abroad, either in cash or through the draft of checks, transfers, withdrawals or payments of any nature. Except for compensation made with or without the intermediation of financial system institutions. The ISD rate is 5%. You can know more about this tax in the Internal Revenue Service (SRI) / tax-on-the-exit-of-currency-isd.
In conclusion, Ecuador is a great country to invest, since it is the country that most grants fiscal incentives in South America, and promotes economic and market freedom, as well as simplifying its visa processes and establishing companies. Although its economic growth is slow, it has a very stable economy, and has new markets to develop and there is the business opportunity.
I hope it has been very useful for you.
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