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  • ECUADOR

    Income tax refunds for non-residents by application of a double taxation treaty

ECUADOR - Income tax refunds for non-residents by application of a double taxation treaty

September 2019

Double Taxation Treaties

Double Taxation Treaties (DTTs) prevent a tax resident of any of the signatory countries from paying income tax in two jurisdictions, to minimise the tax burden on international operations.

Ecuador established maximum amounts for benefiting from these agreements with effect from July 2016. When these are reached, the Ecuadorian company must apply withholding tax, at the rate of 25%, by the year 2019. However, non-Ecuadorian resident foreign companies have the option to request a refund of this payment. 

The maximum amounts established by the tax administration for each year are as follows:

Year

Maximum Amount

2016

USD 225,800

2017

USD 223,400

2018

USD 225,400

2019

USD 565,500


Tax refunds for non-residents’ income in Ecuador

Foreign companies which have paid withholding tax on income tax in applying a DTT can request a refund of 100% of the amounts withheld, by submitting a formal claim to the Ecuadorian Tax Authority, with copies of the transactions with their clients in Ecuador.

This process takes 60 working days (three months). If the information submitted is incomplete, it can take up to an extra 60 working days.

From March 2019, if a non-Ecuadorian resident requests a refund and recovers 100% of the requested amount, the Ecuadorian Tax Authority will issue a determination stating that transactions with that non-Ecuadorian resident will be no longer be subject to the withholding tax, even if its transactions exceed the maximum amounts. This determination lasts for 36 months.

However, for this to apply, the conditions of the transactions between the non-resident and the Ecuadorian resident must not change.

It is important for companies to be aware of amounts and conditions when implementing the agreements that Ecuador maintains with several countries, to ensure that they recover refundable amounts and improve liquidity.

Countries with which Ecuador has a DTT

Country

Start of application
(Year)

 

Country

Start of application
(Year)

Germany

1987

 

France

1993

Argentina *

1983

 

Italy

1991

Belarus

2018

 

Mexico

2002

Belgium

2005

 

Qatar

2019

Brazil

1989

 

Romania

1997

Canada

2002

 

Russia

2019

Chile

2005

 

Singapore

2016

China

2015

 

Switzerland

1996 (Original text)
2020 (Protocol)

Korea

2014

 

Uruguay

2013

Spain

1994

 

Andean Community of Nations (Bolivia, Colombia, Peru)

2005

* Only applicable to air transport revenues

Jessica Pasquel
[email protected]