Ecuador is one of the smallest countries in South America but is rich in culture, history, and biodiversity. Economic growth figures in the last few years have been steadily increasing and authorities expect continuous economic growth, albeit slow. However, Ecuador is making efforts to improve its economy by attracting foreign investment and capital. A couple of recent legislative changes and successful oiling years are sparking this improvement.
Ecuador is famous for its tropical rainforests, the Galapagos Islands, and bananas. However, the desire to improve its economic stability won’t be unnoticed by international investors. Moreover, being able to jump in early and benefit from the nations improving landscape will reward smart investors and entrepreneurs. To be able to fully benefit from Ecuador’s promising economic future, it is advisable to have a deep understanding of your desired market, key business opportunities and the local culture.
This article will further explain why foreign companies are looking towards Ecuador as a key region to do business in.
Regional Trade Agreements
Along with other already existing agreements, the Ecuadorian government has signed a free trade agreement with the European Union (EU). This free trade agreement means Ecuador now has free access to trade with any European Union nation; a consumer market of over 510 million people. In short, this agreement means that Ecuadorian companies will not have to pay export tariffs when exporting to any country that is part of the EU.
A free trade agreement with a sizeable partner such as the EU has additional advantages beyond diminishing tariffs. For example, having a partner this size sends a message to other countries around the globe regarding Ecuador’s push to be integrated into the global market. This message implies that Ecuador can be trusted and proves it is a good trading partner. Subsequently, it is also highly likely that other nations will push to form trade agreements with Ecuador post based on its existing agreements.
The country´s growing status on the international stage as an attractive trading hub has already attracted a range of international companies expand their trade operations to Ecuador.
Incorporating a Company in Ecuador
Incorporating a company in Ecuador has several advantages for international businesses. As mentioned before, the government has implemented some legislative changes that make Ecuador an inviting jurisdiction for foreign business. Some of the advantages for foreign companies looking to expand to Ecuador include:
- The government permits 100% foreign ownership of local companies.
- Incorporating a Limited Liability Company can be completed with just two shareholders.
- Ecuador has a low minimum share capital – only US$400. This encourages the expansion of startups and SMEs into the Ecuadorian marketplace.
- The US dollar is the national currency. In the year 2000, the Ecuadorian government adopted the US dollar as the national currency; bringing a range of benefits to the nation and making the region a more favourable investment destination.
Quito’s Special Economic Development Zone
Also known as ZEDE, the special economic development zone in Ecuador’s capital Quito is an interesting project and has allowed for the stimulation of economic development. ZEDE aims to be the ideal destination for the development of new and innovative investment projects.
This zone will create opportunities which will allow for the expansion of production and the development of new products and services. In addition, it provides an ideal zone for value-added production. It will conveniently offer a single location that meets logistical needs while also providing cost reduction, international competitiveness, trade, and tax benefits. Due to a heavy reliance on its oil sector (where profits are directly linked to international oil prices), the government has developed this program to stimulate other sectors. By stimulating these sectors the government aims to not only stabilise the national economy but strengthen it, ensuring that there is not an over-reliance on a single sector. ZEDE’s main investment incentives include:
- Tax Benefits: ZEDE offers businesses a deduction on income tax and Value-Added Tax (VAT/IVA).
- Remittance Benefits: The program entitles entities to exemption from remittance charges.
- Connectivity: Being strategically located close to Quito airport, the ZEDE program allows international businesses easy access to their projects.
- Benefits of Capital: The program offers benefits for providing social capital for companies.
- Customs Benefits: Foreign trade taxes will be reduced when operating under the umbrella of ZEDE.
After tumultuous years in the Ecuadorian government, recent years have seen more stability. In 2008, president Rafael Correa changed the governmental set-up. He wrote a new constitution with his special constitutional assembly, which looks more similar to the United States government. Ecuador’s Congress passes laws, levies taxes, approves international treaties and promotes an annual budget proposed by the executive branch. Multi-party elections elect congressmen and they simultaneously represent one of Ecuador’s 21 provinces.
Even though Rafael Correa has a questionable reputation (he fled the country to seek asylum in Belgium), his predecessor shares his left-wing characteristics. Moreover, Lenin Moreno, the current president, was elected by way of voting. As Ecuador’s governmental structure is now set for the coming years, the current setup cannot be changed in a quickly. It takes a couple of governmental bodies to vote and agree upon law changes. Moreover, this means the current attractive foreign investment legislation can also not be changed quickly. This provides stability and security for any company attracted by for example the current tax benefits.
Need Local Support?
If you are looking to expand, Ecuador should be a country to consider. Indeed, with Ecuador’s free trade agreements, its range of market opportunities, the special economic development zones, stable governmental system, and low barriers to entry, there has never been a better time to step foot in the nation and start your business.
When you’re ready to get started, acquire the help of the team here at Biz Latin Hub. With years of experience helping businesses enter into markets such as Ecuador, we’re best placed to guide you through the entire process. Covering everything from the company incorporation process to due diligence and recruitment. Contact the team at [email protected] for personalized support and assistance.
What are the 5 best reasons to do business and trade with or invest in Ecuador? Check out the video below and discover more!