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Ecuador Introduces Amnesty And Taxes On Assets

Wednesday, January 5, 2022

Legislation has been enacted in Ecuador to introduce new taxes on companies and wealthy individuals, to fund government efforts during the COVID-19 pandemic.

The legislation includes a tax on individuals with assets, less liabilities, equal to or greater than USD1m (or USD2m for couples) as of January 1, 2021. Payable in the 2022 fiscal year, the tax is one percent on assets of USD1m or more, up to USD1,199,999. For taxpayers with assets of more than USD1.2m, the tax rate is 1.5 percent on the value of assets up to USD2m.

Taxpayers will be allowed to deduct up to USD200,000 of the value of a primary residence and agricultural land from their assets when calculating the value of taxable assets. Further, for the 2022 fiscal year, shares held in companies that are taxable under other Ecuadorian tax provisions will be outside the scope of the regime. Related-party loans will be disregarded when calculating the value of liabilities that may be deducted from assets.

For resident taxpayers, the tax will apply to both assets situated in Ecuador and overseas. The levy on individuals will also apply to assets held in corporate structures for a non-resident taxpayer.

A 0.8 percent tax will be required also from companies, in fiscal years 2022 and 2023, on assets exceeding USD5m as of December 31, 2020. The tax must be declared and paid on March 31 of the relevant fiscal year. The tax charge is neither deductible nor creditable against other tax liabilities.

Taxpayers failing to pay the taxes will be liable to a penalty of 50 percent of the tax due, plus interest.

The law also includes a tax amnesty scheme for taxpayers to regularize and repatriate assets held overseas, as at December 31, 2020. The declared assets will be subject to a final tax rate of 3.5 percent, if declaration and payment is made by March 31, 2022; 4.5 percent, if payment and declaration is made by June 30, 2022; and 5.5 percent if declaration and payment is made by December 31, 2022, when the amnesty will close. Taxpayers making a full declaration and settling the tax due within the specified deadlines will be free from enforcement action, penalties, and interest.