Microenterprises with no profits in tax year 2020 have until November 2021 to file an income tax return, showing that they had no profits. The decree also establishes a reduced tax rate for taxpayers that did not have profits in tax year 2020 but are not on the Tax Administration’s registry.
Ecuador’s President issued a decree establishing temporary regulations for the payment of income tax by microenterprises.
Background
The President extended the due date for microenterprises with no profits in 2020 to pay their income tax. Subsequently, the tax authorities issued the regulations requiring companies to prove that they did not have any profits during 2020 by filing the annual income tax return for tax year 2020.
Microenterprises income tax
Microenterprises are entities with income of up to US$300,000 and nine employees. The effective income tax rate for microenterprises is 2%.
Entities may qualify for the regime even if they meet the income requirement, but not the employee requirement.
For microenterprises that appear in the Tax Administration’s cadastre (i.e., registry) and have not generated income in 2020, the decree extends the due date for making the income tax payment as follows:
For tax year 2020, the due date is extended to November 2021 (with the exact due date determined by the ninth digit of the tax identification number).
For tax year 2021, the due date is March 2022 (with the exact due date determined by the ninth digit of the tax identification number).
To qualify for the extended due date, microenterprises will have to establish that they did not have any profits in 2020 by filing an annual income tax return for tax year 2020.
When determining the income tax payment, microenterprises must consider the tax credit for amounts withheld by sellers.
Applicability of lower income tax rate
The following entities will qualify for an income tax rate of 22% rather than the regular rate of 25%, regardless of whether they are on the Tax Administration’s cadastre:
Micro-sized enterprises: one to nine employees and annual sales or gross income equal to or less than US$300,000
Small-sized enterprises: 10 to 49 employees and annual sales or gross income from US$300,001 to US$1,000,000
Medium-sized enterprises: 50 to 199 employees and annual sales or gross income from US$1,000,001 to US$5,000,000
The extended due dates will not apply in this instance. Therefore, the tax payment is due on its original due date.
For additional information with respect to this Alert, please contact the following:
EY Addvalue Asesores Cia. Ltda., Quito
Javier Salazar
EY Addvalue Asesores Cia. Ltda., Guayaquil
Carlos Cazar
Eduardo Góngora
Ernst & Young LLP (United States), Latin America Business Center, New York
Ana Mingramm
Enrique Perez Grovas
Pablo Wejcman
Ernst & Young Abogados, Latin America Business Center, Madrid
Jaime Vargas
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Lourdes Libreros
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific
Raul Moreno, Tokyo
Luis Coronado, Singapore
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
