The Law to Develop Production, Attract Investments, Generate Employment, Fiscal Stability and Balance (“Law of Productive Development”) was published in the Official Registry and is consequently in force.
This law has three main chapters: 1) First Chapter, that regulates the remission of interests and fines; 2) The Second Chapter contains incentives to attract private investment; and 3) Third Chapter contains several amendments to different legal bodies.
A. Incentives to attract investments
1. Income Tax Exemptions
a) For Prioritized Sectors
The Law of Productive Development stipulates that new productive investments initiated on or after the date of the enforcement of the law in the prioritized sectors, shall be entitled to the income tax exemption and the income tax advance during 12 years, counted from the first year that direct income only attributable to the new investment is generated. For those investments in the urban areas of Quito and Guayaquil, said exemption will be during 8 years.
In order for societies to benefit of this exemption, these shall generate net employment under the terms to be defined in the by-laws of the Law of Productive Development.
New productive investments in agro industrial, industrial and agro-associative prioritized sectors, within the cantons located in the boundaries, will benefit with a 15 years’ exemption.
Prioritized sectors are the following:
1. Agriculture sector: production of fresh, frozen and industrialized food.
2. Forestry and agroforestry chain and their processed products
4. Petrochemical and oil-chemical
5. Tourism, film industry, audiovisuals and international events.
6. Renewable energies
7. Foreign commerce logistic services
8. Applied biotechnology and software
9. Exports of services
10. Software development and services, hardware production and development, digital infrastructure, computer security, digital products and contents, on-line services.
11. Energy efficiency
12. Industry of sustainable construction materials and technologies
13. Sectors of strategic replacement of imports and development of exports.
2. For Basic industries:
New productive investments that initiate on or from the date of the entering in force of the Law of Productive Development in the economic sectors determined as basic industries, shall be entitled to the income tax exemption during 15 years. The term of the exemption shall be counted from the first year with direct income only attributable to the new investment is generated.
In case those investments are made in cantons located at the borders, the tax exemption term will be of 20 years.
In order for societies to benefit of such exemption, these shall generate net employment, under the terms to be defined in the by-laws to the Law of Productive Development.
In this context, the following are considered basic industries:
1. Copper and aluminum smelting and refining
2. Steel smelting for the production of plain stainless steel.
3. Hydrocarbons refining
4. Petrochemical industry
5. Cellulose industry
6. Ships’ construction and repair
3. Exemption of the tax on the remittance of currencies
New productive investments for which an agreement had been entered into with the Ecuadorian government, for either sector of the economy, shall be entitled to the exemption of the tax on the remittance of currencies in their payments for:
a. Import of capital goods and raw materials for the development of the project, up to the amounts and in accordance with the terms that shall be defined in the investment contract.
b. Dividends distributed by local companies or foreign companies domiciled in Ecuador, in favor of effective beneficiaries that may be either individuals or corporations, during the terms stipulated in the investment contract.
For companies that reinvest in Ecuador at least 50% of its return, in productive assets, these will be exempt of the tax on remittance of currencies for payments abroad, for payment of dividends to effective beneficiaries residing in Ecuador.
B. Remission of Interests, Fines and Surcharges
a. Tax and Fiscal Obligations handled by the IRS
The Law of Producitve Development orders the remission of 100% of interests, fines and surcharges over the balance of tax obligations handled by the IRS. Such remission does not apply for tax obligations due after April 2, 2018, or for obligations derived from the annual income tax statement of fiscal year 2017.
In order to benefit from the remission, the taxpayers shall pay the total principal within the following deadlines:
1. Within 90 days after the publication of the Law of Productive Development, in case of (1) taxpayers with average gross income for the three latest fiscal years exceeding US$ 5 million; (2) individuals belonging to economic groups according to the IRS’ cadaster as of the date of enforcement of the Law; and (3) taxpayers holding obligations corresponding to withheld or perceived taxes.
2. The rest of taxpayers shall file applications requesting payment facilities or to pay the principal within 90 days from the entering into effect of the Law. Payment facilities for a term of up to 2 years can be granted.
b. Vehicle Registration and Transit violations
1. It is ordered the remission of interests on taxes on vehicles handled by the IRS and due as of April 2 2018, provided that the outstanding total shall be paid within 90 days from the date of entering in force of the Law.
2. It is ordered the remission of surcharges set forth by the National Transit Agency for lack of vehicle registration, due as of April 2 2018, provided that the total is paid within 90 days counted from the date of entering in force of the Law.
3. It ordered the remission of additional 2% fines under the Organic Transit Law, on transit violations, which payment is pending as of April 2 2018, provided that the total penalty is paid within 90 days from the date of entering in force of the Law.
c. Overdue Employers’ IESS obligations in law-suit
It is ordered the reduction of interests, fines and surcharges corresponding to obligations of employees’ affiliation at law-suit, arising from invoices or determination actions, glosses and credit titles issued by the IESS, as long as the payment is made within the following deadlines:
1. Payments within 90 days from the date of entering into effect of the Law may benefit of 99% of reduction of interests, fines and surcharges.
2. Payments made 91 to 150 days from the date of entering into effect of the Law may benefit of a 75% reduction of interests, fines and surcharges.
3. Payments made 151 to 180 days from the date of entering into effect of the Law may benefit of a 50% reduction of interests, fines and surcharges.
Such reduction is not applicable for obligations at law-suit for reserve funds, affiliation for non-remunerated work at home, collections, health extension, unsecured loans, collateral credits. Interests, fines and surcharges for the delayed affiliation filed after April 2, 218 are also excluded.
C. Amendment of several legal bodies
In addition, the Law to Promote Production includes important amendments to several legal bodies, among them:
a. Organic Law of the Internal Tax Regime
b. Law Amending the Law for the Tax Equity in Ecuador.
c. Organic Production, Commerce and Investments Code
d. Organic Monetary and Financial Code
e. Mining Law
f. Hydrocarbons Law
g. Labor Code
h. Social Security Law
i. Companies’ Act
In the next issue we will publish an analysis of the amendments that the Law to Promote Production will bring to general regulations.