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New VAT regulation 2024: Impact on builders and businesses

Gabriel Pinto

 

Dear friends and clients:


On April 1, 2024, the construction sector and companies in Ecuador will face a new scenario with the publication of the General Regulations to the Organic Law to Confront the Internal Armed Conflict and the Social and Economic Crisis.


The law is published in the Second Supplement of the Official Gazette No. 529 and establishes the following:


Changes in the VAT rate

The 5% VAT rate on the transfer of construction materials will only apply to materials included in the list to be published by the Internal Revenue Service (SRI). Therefore, it is crucial that builders and companies review the specific list of materials published by the Internal Revenue Service (IRS) in order to correctly apply this reduction.


Uniformity in the Application of Sales Tax

The recent regulation introduces significant changes beyond simply changing the sales tax rate; it also redefines the interpretation of existing regulatory rules:

  • As of April 1, 2024, any reference to a 12% VAT rate in the regulatory provisions or secondary regulations must be interpreted as a reference to the VAT rate in force at that time.

  • Similarly, this interpretation criterion applies to the entire content of the provisions of the Law on the Internal Tax Regime and any other secondary regulations that mention a 12% VAT rate, ensuring that it is understood as the rate in force at the time of its application.


Selected Construction Materials

The construction materials affected by this measure and the operational details for its application are as follows:

Category

Subcategory

Reinforcement Steel Bars

Corrugated Laminated Rod AS42 of 8mm, 10mm, and 12mm diameter.

Aggregates

Clay, Sand, Lime, Limestone, Stone materials

Concrete

Ready-mixed Concrete

Conglomerates

Cement and its derivatives, Cement Residue

Recyclable Metallic Materials

Scrap iron

Mortars

Mortars

Cement Precursor

Clinker, Pozzolan, Gypsum

Precast Concrete and Clay

Cobblestones, Blocks, Bricks, Precast Concrete Products

Issuance of credit notes with VAT rate of 15%.

Last March 28, 2024, the Director of the Internal Revenue Service disseminated, through Circular No. NAC-DGECCGC24-00000002, the new guidelines regarding the procedure for the issuance of credit notes. The regulation establishes the following:

"Taxpayers who, in the course of their economic activity, need to issue credit notes modifying transactions carried out before April 1, 2024, must apply the VAT rate that was in force at the time of the issuance of the original sales receipt".

For more information on tax updates and their impact on the construction industry, please contact us. We are available to assist with any questions or clarifications you may have.



Trabajadores en construcció
VAT reduction on building materials


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Legal disclaimer

The content of this blog is provided for informational and educational purposes only and should not be considered legal advice. Regulations in Ecuador are subject to changes and updates that may affect the applicability and accuracy of the content published here. We do not guarantee that the information presented is accurate, complete or current at the time of reading. Therefore, past postings should not be construed as necessarily reflecting current regulations. We strongly recommend that you consult with our qualified attorneys for specific and personalized advice.

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