The end of the year 2019 is approaching. Foreign companies across Latin America will be grappling with the year-end accounting closing process and administrative procedures.
Do you know how to perform the accounting closing process for your company in Ecuador?
On many occasions, as the closing of the accounting year approaches, companies have a number of doubts about how to start with this process. We approached our Ecuador Accounting Consultant – our expert on tax and accounting requirements in Ecuador – for guidance on closing corporate accounts at the end of the year.
5 key tips on closing accounts from our Ecuador Accounting Consultant
To fulfill your accounting closing obligations in Ecuador, it is important take into consideration all related compliance requirements from the country’s regulatory entities. Plus, you’ll need to be aware of and comply with international regulations that Ecuador subscribes to, called International Financial Reporting Standards or IFRS.
With both national and international accounting compliance requirements to consider, here is some key guidance for accounting teams in foreign companies to ensure they properly close their accounts this year.
1. IFRS application: comply with international standards
There are International Financial Reporting Standards applied to all companies in general, such as International Accounting Standard (IAS) 1, which focusses exclusively on the publication of Financial Statements for public information. It’s important for companies to first identify which of the other international standards apply to your particular commercial operations so that you can appropriately prepare your financial statements for presentation. These obligations mostly correspond to calculations of provisions or amortizations and accounting adjustments at the end of the period.
Make sure your Ecuador accounting consultant or team goes through this identification process at the beginning of the year, together with the main executive staff members. This enables you to keep accurate and proper records during the year, and simplifies the accounting closing process at the end of the year.
Finally, you and your accounting consultant must verify that your company complies with the identified standards.
2. Understand and comply with tax obligations
The local tax authority in Ecuador is the Internal Revenue Service (Servicio de Rentas Internas or SRI. This agency is responsible for collecting taxes generated by individuals and companies nationwide.
In most cases, the main taxes to be declared monthly are the value-added tax (VAT) and withholding income tax. Note that those who are obliged to declare taxes caused or withheld must not maintain firm or challenged debts with the SRI for the aforementioned taxes.
During the year 2019, several changes and reforms regarding taxes were introduced in Ecuador. These changes could have an affect on the way you’re doing business in Ecuador, and how you present your accounts at the end of the year.
3. Submit Income Tax form to SRI
Once your Ecuador Accounting Consultant has prepared and validated your financial statements for the year, the next step is to prepare the Income Tax form (named F101) and submit it to SRI. All the parts that make up the statement of financial position and the income statement with closing as of December 31 of the year in this form must be detailed in values. This determines a value to be paid for income tax for the company.
On the SRI’s official website, there are practical guides that offer more information for making this statement. These – and all other interactions with the SRI – are in Spanish, so make sure to partner with a multilingual corporate accounting consultant in Ecuador who can communicate with local authorities to understand what’s required of your company.
4. Know your obligations to the Superintendence of Companies
Once a company is established in Ecuador, according to its business, it becomes subject to the regulation and control of the Superintendence of Companies, Securities and Insurance of Ecuador. In Spanish, the agency is known as Superintendencia de Compañías, Valores y Seguros (SC).
Among the obligations to present to the SC is the presentation of the year’s financial statements as of December 31. These statements must be verified and approved by the main executives of the companies.
In November 2016, the SC established a resolution that places certain conditions and restrictions on high-value assets and equity of companies. This resolution is called No. SCVS-INC-DNCDN-2016-011. Engage with your Ecuador Accounting Consultant to understand whether or not your company falls within the brackets identified by this resolution. If you are, you’ll need your Accounting Consultant to modify and present the financial statements according to the criteria outlined in the legislation. If your corporate accounting resource in Ecuador is part of your inhouse team, you’ll need to have this step reviewed by an external auditor.
5. Seek expert assistance
The end of the year comes with particular compliance requirements under Ecuadorian accounting and tax laws. If this is your first year operating in Ecuador, or if recent tax reforms have affected your company, you’ll need to pay particular attention to the end of year accounting closing process.
It’s wise to seek external support from qualified and experienced corporate accounting consultants in Ecuador, to make sure your company adheres to all legislative obligations.
Work with our Ecuador Accounting Consultants
Biz Latin Hub has personnel trained exclusively in all areas related to accounting in Ecuador, based on international financial reporting standards applied in different types of businesses or industries. Our experienced Ecuador accounting consultants will ensure your company stays compliant and can close the year on a high note and without delay or penalty.
For more information and advice on tax and accounting procedures in Ecuador, contact us here at Biz Latin Hub. We will be happy to assist you with personalized services and supporting the ongoing success of your company.
Learn more about our team and expert authors, and check out our short video below to find out why investors are choosing to do business in Ecuador.