Ecuador Welcoming Foreign Investment Through New Legislation

Ecuador has made a crystal clear statement regarding the international business environment in recent years – we are opening up to the world and we want foreign investment. Few signals can be clearer than the passing of the Productive Promotion and Attraction of Foreign Investment Law in late August. This law includes big tax benefits to new investments in Ecuador and applies to both new companies and previously existing ones.  

The integration of this law continues the trend set by a series of measures and signals from the Ecuadorian government such as signing a Trade Agreement with the European Union, the renegotiation and improvement of a new Bilateral Investment Treaties, the process to sign a trade agreement with the United States as well as negotiations to be part of the Pacific Alliance.

This article will provide a brief analysis of the contents of this new law and analyse the extensive benefits that Ecuador is granting to new investments.

Ecuador Welcomes Foreign Investment – Productive Promotion and Attraction of Foreign Investment Law

The Productive Promotion and Attraction of Foreign Investment Law was passed on August 21, 2018, and is one of the major statements made by the Ecuadorian government that express their intention to grow the economy, reduce unemployment, cover the fiscal breach and achieve continuous development.

To help achieve these objectives, the law addresses the condonations of interest, charges and fines of outstanding tax obligations and other obligations with different types of authorities. However, the most salient reforms included in the law refer to specific benefits to new investments in Ecuador.

What are the specific benefits to new investments in Ecuador in prioritized sectors?

The new law includes income tax exonerations to new productive investments in Ecuador realised either by new companies or by existing ones in certain high-priority sectors. The productive investment must be understood as being irrespective to the type of property, the flow of resources destined to produce goods and services, expand productive capacity and generate new sources of employment in the national economy. To be classified as a new company, it should be an effective investment in productive assets that allows for the expansion of future productive capacity, that generates a greater level of production of goods and services or that generates new sources of employment. 

The benefits consist of a 12-year income tax and provide exoneration for any new productive investments realised in the following sectors:

1. Agricultural sector; production of fresh, frozen and industrialized foods;
2. Forest and agroforestry chain and its processed products;
3. Metalworking;
4. Petrochemistry and oleochemistry;
5. Pharmaceutical;
6. Tourism, cinematography and audiovisuals; 
7. International events;
8. Renewable energies including bioenergy or energy from biomass;
9. Logistics services for foreign trade;
10. Applied biotechnology and software;
11. Exportation of services;
12. Development and software services, production and development of technological hardware, digital infrastructure, computer security, products and digital content, and online services;
13. Energy efficiency services companies;
14. Sustainable construction materials and technology industries;
15. The industrial, agroindustrial and agro-social sector;

If these investments are done inside Quito or Guayaquil, the time is reduced to 8 years. The new productive investments that are executed in the prioritized industrial sectors, agroindustrial and agro-social, within the border cantons, enjoy the exemption foreseen in this article for 15 years.

What are the benefits for new investments in basic industries?

Additionally, the new productive investments that begin as of the effectiveness of the law in the stated economic sectors determined, are entitled to the exemption of income tax for 15 years. The period of exoneration will be counted from the first year that income is generated directly. 

The basic industries can be seen below: 

1. Casting and refining of copper and/or aluminium;
2. Steel foundry for the production of flat steel;
3. Refining of hydrocarbons;
4. Petrochemical industry;
5. Cellulose industry; 
6. Construction and repair of naval vessels.

Interested in benefiting from the new Ecuadorian regulation to attract foreign investment?

The times could not be better for investing in Ecuador. Whether you want to incorporate a local company in Ecuador or to open a branch office, the benefits of income tax exoneration can apply to your new investment. It is a great opportunity to make your company profitable very quickly and for an extended period of time

Contact us today to discuss how we can support you.

Unsure of your business accounting and taxation requirements in Ecuador? Check out the short presentation produced by our accounting and tax team in Quito. 

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