By: Atty. Gabriel Pinto Navarrete
Head of Tax Department
In March 2024, Ecuador introduced the Temporary Security Contribution (TSC) through the Organic Law published in the Official Register No. 516, aiming to address the current social and economic crisis and the internal armed conflict the country is facing. This measure directly affects tax resident companies in Ecuador.
Who is required to contribute?
The TSC applies to all tax resident legal entities (corporations) that reported taxable income in the year 2022. However, an exemption has been established for micro and small businesses, as well as for banks and savings and credit cooperatives, in an effort to protect the most vulnerable entities of the economy.
Duration and Rate
The contribution has a rate of 3.25% on the taxable profit with the income tax for the year 2022 and will be paid for two consecutive years, corresponding to the fiscal years 2024 and 2025. The deadline for the payment of this contribution is March 31, 2024, for the first period and March 31, 2025, for the second.
Consequences of Non-Payment
It is important to highlight that the payment of the TSC will not be deductible from the income tax, and no payment facilities will be offered. Companies that fail to comply with this obligation will face fines of 3% of the total amount owed, plus surcharges and interest.
Conclusion
The introduction of the TSC is a reminder of the importance of keeping up to date with tax obligations and understanding how new laws can affect business operations in Ecuador. Companies must prepare adequately to meet these requirements and consider the financial impact the TSC will have on their balance sheets.
For companies looking to navigate this new tax landscape, it is crucial to seek specialized legal advice that can provide accurate guidance and strategies for proper tax planning in this period of changes.
For more information on how these changes could affect your tax obligations or strategies, do not hesitate to contact us. Our team of experts is ready to assist you with personalized advice and tailored solutions.
