In a circular published on 21 January 2025, Ecuador’s Internal Revenue Service (IRS) released updated criteria for determining whether a jurisdiction is a tax haven, preferential tax regime or low-tax jurisdiction. Transactions with tax haven jurisdictions result in limits on the deductibility of certain expenses, the parties are deemed to be related and higher tax rates apply.
The circular provides that taxpayers must take into account the following criteria in the Internal Tax Regime Law to ascertain whether a regime or jurisdiction is a tax haven (at least two of the three conditions must be satisfied):
It should also be noted that the circular repeals the list of preferential regimes established in 2012, which includes specific regimes in Bulgaria, Estonia, Ireland, Macedonia, Montenegro, Serbia and the US. Now it will be up to the taxpayer to determine, in each case, whether two of the above conditions are satisfied to determine whether a regime is a preferential tax regime (and thus is treated the same as a tax haven).
Nelson Morales
BDO in Ecuador
The circular provides that taxpayers must take into account the following criteria in the Internal Tax Regime Law to ascertain whether a regime or jurisdiction is a tax haven (at least two of the three conditions must be satisfied):
- The effective tax rate is lower than 60% of the 25% Ecuadorian rate or is an unknown rate.
- The jurisdiction does not have substance requirements that have to be met for an entity/transaction to qualify for tax benefits specific to the jurisdiction or regime (e.g., it allows activities not to be substantially carried out within the relevant jurisdiction/regime in order to avail of tax benefits specific to the jurisdiction/regime.
- The jurisdiction lacks an effective exchange of information mechanism that is in line with international standards, including availability and access to information on corporate ownership, reliable accounting records and bank account information.
It should also be noted that the circular repeals the list of preferential regimes established in 2012, which includes specific regimes in Bulgaria, Estonia, Ireland, Macedonia, Montenegro, Serbia and the US. Now it will be up to the taxpayer to determine, in each case, whether two of the above conditions are satisfied to determine whether a regime is a preferential tax regime (and thus is treated the same as a tax haven).
Nelson Morales
BDO in Ecuador