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Damalion Ecuador desk

Doing business in Ecuador

Located in South America and home to over 16 million people, is Ecuador. Ecuador has one of the top ten largest economies in Latin America and in recent years, Ecuador has transformed into a much more reliable place to do business with one of the best-performing economies in the Latin American world. Ecuador is a country that is wealthy in culture and history. It is also fast gaining traction as one of the most favorable investment locations in the region due to its competitive economy.

Ecuador is regarded as a land of opportunity, and over the years, the country has made tremendous efforts to attract foreign investment into the country. And as such, it has liberal investment regulations, it gives equal treatment to local and foreign investors and it has an open and civil business culture which makes it an excellent location to promote international transactions.

Ecuador’s economy has been on a constant rise over the past decades, and it has been forecasted that the growth will go on for decades to come.

Advantages of doing business in Ecuador

  • According to ECLAC (Economic Commission for Latin America and the Caribbean), Ecuador’s economy is among those of favorable performance in Latin America.
  • With inflation kept under control, the economic outlook of Ecuador is looking good, and its government remains supportive of investments in the country.
  • Investing in Ecuador is now much easier because of the existing free trade zones which remove restrictions for businesses residing within these free trade zones when it comes to the repatriation of their profits.
  • Ecuador has a low barrier of entry for starting a business, it also has extraordinary potential for commercial activities and Ecuadorian law promises entrepreneurship’s freedom.
  • Ecuador has a beneficial tax structure which has made it easier for investors and entrepreneurs to do business in the country.
  • Investors in Ecuador also stand to benefit in some of the country’s private areas where corporate tax exemption is available for up to 5 years
  • The Ecuadorian law guarantees both local and foreign investors fair and equal treatment before the law, and this gives local and foreign investors the same rights.
LEGAL SYSTEM

Ecuador functions under the standards of respect for social justice and basic rights. In Ecuador, the existing legal system is Civil Law, and this relies on binding, written laws, and not on judicial precedents. The source of Ecuador’s legal system is the Constitution, under which are the multinational treatments and conventions.

Entity Choice in Ecuador

In Ecuador, there are no restrictions on foreign investment. There is also no approval mandated by the government, but investments must be registered at the Central Bank to be officially recognized.

When planning on investing and setting up a business in Ecuador, there are several company structures to choose from.

Listed below is a summary of all general business legal forms most frequently used in Ecuador:

Corporation in Ecuador (Anonymus Societies or Sociedades Anónimas)

The corporation is a traditional type of company in Ecuador whose capital is divided by negotiable amounts of shares. A corporation is based on its capital and is not defined by the relationship between the shareholders.

Features

  • It mandates a minimum of 2 Shareholders, with no maximum limit.
  • The minimum capital needed to start a Joint-Stock Company in Ecuador is USD 800.
  • It is established by a contribution from the shareholders who have control according to the size of their shares.
  • Its shares are freely transferable without any limitation.
  • The General Assembly of Shareholders is the major administration of the company.

Ecuador limited liability company (Sociedad de Responsabilidad Limitada)

Under this company structure, the partners have limited liability and they are only accountable for obligations to the extent of their contributions.

Features

  • It requires a minimum of two partners and a maximum of fifteen.
  • The minimum capital required is USD$400.
  • The Share Capital is allocated into equal Shares.
  • It can have civil and commercial or sales services corporate objectives but is not permitted to operate in the finance system.
  • It requires a General Manager and a President.

Ecuador simplified shares company (Sociedad por Acciones Simplificada)

For this type of entity, the independence of the will of its shareholders prevails, so it has flexibility considering its statute and internal organization and has the possibility of self-regulation.

Features

  • It can be registered with one or more shareholders.
  • There is no mandated minimum Share Capital.
  • It can adapt to the specificities of each business.
  • Its shareholders have full autonomy to establish the rules of its operation in the bylaws.
  • Its registration process is easy and fast.

Foreign branch company in Ecuador

A branch of a foreign company can also be established in Ecuador.

Features

  • A local Legal Representative must be appointed
  • It requires a minimum share capital of USD 2,000.
  • It is considered one with the parent company, whose existence must be verified by the Ecuadorian consulate.

Are you looking to register your company in Ecuador? Contact your Damalion expert now.

BANKING

Ecuador’s financial system, which included many highly-sophisticated institutions, has operated under the supervision of the Superintendent of Banks and Insurance Companies (Superintendencia de Bancos y Seguros).

Ecuador’s financial system also includes banks which are the most well-known intermediaries of the financial system, as they deliver their services, e.g., helping users get their financial life together, directly to the public.

Opening a bank account in Ecuador

To open a bank account in Ecuador, the best option s to head into a branch in-person and ask about how to set one up (you can save a lot of stress by letting us – Damalion, help). You must choose between a savings account and a checking account.

If you are in the country temporarily, the best option is to open a savings account. But if you want a checking account, you must already achieve permanent residency status or invest in Ecuador.

In Ecuador, anybody, including foreign nationals, can open an account with the right documents. The documents required will vary depending on the account as well as the chosen bank. But generally, you’ll need a deposit to open the account, you’ll also require your passport, proof of address, your residence card, and a copy of your work contract.

If it’s a checking account you are going for, then, in addition, you’ll need to take proof that you have invested a certain amount least into the country.

But if you’re in Ecuador temporarily, you can open a savings account without the stated documents.

Bank accounts are necessary in order to navigate your financial life in the country, it’ll also save you from a lot of financial liabilities. To open one in Ecuador, contact your Damalion expert now.

IMMIGRATION

Ecuador is one of the safest places to live in Latin America. The country provides several advantages, including friendly locals, warm and tropical climate, and a low cost of living. These coupled with several other incentives are some of the reasons why Ecuador has ranked as one of the world’s best countries to live in.

To move to this country, you, as a foreign citizen will require a residency Visa.

Getting a residency visa in Ecuador

As a foreign national, when you first enter Ecuador you will receive a T-3 tourist stamp in your passport, which will enable you to stay in the country for 90 days. But, if you want to stay for more than 90 days within a year, you must apply for an Ecuadorian Temporary Residency Visa or Permanent Residency Visa.

A temporary residency visa will be valid for two years and enable you to leave Ecuador for 90 days per year, and after three years, you can then apply for Ecuadorian permanent residency. The types of visas (both temporary and permanent) you may apply for are outlined below

Types of resident visa in Ecuador

  • Ecuador Pensioner visa (Jubilados): this type of visa is for individuals who receive a stable pension or another form of constant income of at least times 3 of minimum wages in Ecuador. This type of visa is usually preferred since it imposes no major capital investment.
  • Ecuador Professional Visa: this visa type is for professionals with university degrees accepted by the Ecuadorian government. It applies to professionals of high technical levels and specialized fields.
  • Dependent visa (Amparado): this visa type is for dependents of other visa-holders.
  • Work visa (Trabajador): this visa type is for foreigners who are hired to work or who are self-employed in Ecuador.
  • Rentista Visa: This type of visa is aimed at remote workers, such as freelancers, who generate income from abroad or from Ecuadorian sources. The monthly amount employed is yet to be determined.
  • Ecuador Investors Visa (Investionistas): this is for individuals who invest in Ecuador, either at an Ecuadorian bank, in real estate, or in a business.

There are several other visa types in Ecuador but the most common method of achieving residency is the Investor Visa.

Ecuador investors visas

  • Bank deposit: this involves depositing money in the Central Bank of Ecuador for a certain period. The mandated investment is 70 times the minimum wage.
  • Real estate investment: this offers a lot of flexibility in what the applicant can invest in. The mandated investment is 80 times the minimum wage, and the applicant can invest the money in various types of property.
  • Business investment: this involves investing directly in a company in Ecuador. The applicant can either choose between investing in a local company or setting up a new company in the country. For the first option, the applicant can buy shares in an Ecuadorian company (the mandatory investment is 70 times the minimum wage). The second option is to establish a company in Ecuador and invest a specified minimum amount in that company directly.

Permanent residency (Residencia Permanente) and Ecuadorian citizenship

A temporary residency visa is valid for two years, then after three years (on your second temporary visa), you can apply for permanent residency.

After four years of legal residence, you can apply for Ecuadorian citizenship.

This allows you to apply for an Ecuadorian passport and maintain dual citizenship if you choose.

TAX REGIME

Ecuador’s tax system is friendly for foreign nationals as they are only taxed on income attained within Ecuador, so unless the foreign national is running a business in Ecuador, his/her tax liability will be very low.

Taxation authorities

Ecuador’s tax system is regulated by the Internal Revenue Service (IRS), the National Customs Service of Ecuador, and the Autonomous Decentralized Government of each region.

Ecuador tax system

In Ecuador the primary taxes are the following:

Corporate tax

All organizations incorporated in Ecuador, or have operations and an administration center in Ecuador are subject to a corporation tax on their worldwide income. Companies which are non-residents in Ecuador are only subject to tax on their income sourced within Ecuador.

The company tax rate in Ecuador is 22% to 28%, and the capitalized profits have a 12% to 18% tax rate.

Value added tax

VAT taxes all domain transfers and services provided in Ecuador, at all levels of commercialization.

The current tax rate for VAT in Ecuador is 12% and is paid on nearly all purchases of goods and the provisions of services. In certain cases, the VAT rate is 0%. VAT returns must be filed between the 6th and the 28th of the following month of the transaction, but this will depend on the company’s tax identification numbers.

Personal income tax

In Ecuador, income tax depends on the state of residency. Income tax is payable by both Ecuador residents and non-residents. Personal income tax in Ecuador is progressive and it goes up to 35%.

Other applicable taxes in Ecuador

Apart from the taxes mentioned above. Extra taxes in Ecuador are:

Property tax

In Ecuador, property taxes are based on a percentage of the metropolitan value of the property. City and rural properties are taxed at different rates, and the rate at the moment ranges from 0.025% to 0.3% for rural property and 0.025% to 0.5% for urban property.

Capital gains tax

Capital gains tax is based on the difference in the metropolitan value between the time a property is bought and sold.

Double tax treaties

In order to avoid double taxation and tax evasion Ecuador has 1entered into agreements with the following Nations : and: Brazil, Chile, Canada, Colombia, Mexico, France, China, Venezuela, Korea, Spain, Italy, Romania, Belgium, Switzerland, Peru, and Germany.

If you would like more information about tax laws in Ecuador, contact your Damalion expert now.

INTELLECTUAL PROPERTY

Regarding the importance of Intellectual Property, Ecuador is a member of the (WIPO) World Intellectual Property Organization, a global database that provides access to legal information on intellectual property (IP), including IP laws and regulations.

Intellectual property rights in Ecuador are understood based on their registration in the IEPI (Ecuadorian Intellectual Property Institute), which is the authority for these issues in Ecuador.

In Ecuador, intellectual property is divided into the following categories:

Patents

  • Patents grant the sole privilege to exclude others from an invention for an exclusive period in return for the divulgence of the invention to the public.
  • Patents are approved of on inventions, whether comprising products or processes, and in all sectors of technology that are new, inventive, and industrially applicable.
  • The main purpose of a patent is to motivate individuals to dedicate time and resources to the development of technology which in turn benefits the community.
  • The owner of an invention has the whole right to use the patented product or process and authorize others to do the same.
  • In Ecuador, patents must be registered with the IEPI (Ecuadorian Intellectual Property Institute) to be insured.
  • A patent will be protected for 20 years from the date on which the request is submitted.

Trademarks

  • Trademark refers to a unique sign or indicator used to identify the products or services in the market.
  • Trademarks encourage investors to devote resources to creating and presenting products and services to the public.
  • In order to be protected, trademarks must be registered with the IEPI in Ecuador.
  • Trademark protection is for ten years from the date the trademark is approved and can be renewed for successive ten-year periods.

Registered designs

  • In Ecuador, all malleable forms can be registered if they are both novel and for manufacturing an industrial product.
  • In order to protect the design, the owner must obtain a certificate from the IEPI.
  • Once registered, the design owner will have the sole right to manufacture and sell the protected design.
  • Once registered, the protection will last for ten years and is not renewable. At the end of the 10 year period, it will be in the public domain.

Copyright

  • Copyright refers to the ability of authors of literary works to safeguard their imaginative expressions from unauthorized copying.
  • Copyright protection is authorized for all literary and artistic works, irrespective of the genre, merits, or objectives.
  • Once copyrighted, the work owner will have the sole right to use the patented product or technique and can authorize others to do the same.
  • Copyright protection subsists automatically once the work is developed.
  • A copyright holder can apply any appropriate specialized protections to protect and prevent any violation of his rights.
  • Copyright protection will last during the author’s life plus extra 70 years after his death.
LABOR AND EMPLOYMENT

Labor law in Ecuador is regulated mainly by the Work Code and is uniquely suited to the country’s way of life. The Labor Law legislates the terms and conditions of employment such as wages, working hours, holidays, and other employment conditions.

Employment contract in Ecuador

Employment Contracts in Ecuador can either be verbal or written, but it’s recommended to be in writing for formal contracts for each employee. The contract should be in Spanish and include any relevant details such as wage, working hours, benefits, and so on.

Types of employment contract in Ecuador

Different types of contract can be used in different situations under employment law in Ecuador, but the main ones are the following:

  • Indefinite term contract: this type of contract does not have a fixed or definite term for its termination so it will run until both parties mutually agree to the termination. These types of employment contracts can have a 90-day trial period.
  • Temporary contracts: these types of contracts are used to meet conditions that may occur in the ordinary course of business such as the replacement of workers on maternity or sick leave. It can not exceed 180 days within 365 days.
  • Occasional contracts: these types of contracts are used to solve emergent or extraordinary needs not related to the primary activity of the employer. Its term can not surpass 30 days within 365 days.

Employment benefits in Ecuador

  • Working hours: employment law in Ecuador specifies that an employee’s normal working hours shall not surpass 8 hours per day, and a limit of 40 hours per week in a 5-day work week. Any hours worked above that are considered overtime. And over time may not surpass 4 hours per day or 12 hours per week. It is also subject to extra pay.
  • Minimum wage: as of January 2023, the minimum wage in Ecuador is USD 450 per month.
  • Sick pay: employees who are unable to work due to sickness or injury are privileged to sick pay. The employer will grant the employee any leave needed to recover, as long as it has been approved by a registered doctor.
  • Maternity and paternity leave: under Ecuador employment law, women are entitled to 12 weeks of paid maternity leave when they give birth. And father’s leave is to ten days but can be extended by an extra five days in the circumstance of multiple births or birth by cesarean section.
  • Bereavement leave: Ecuador employees are privileged to 3 days of leave with full payment, in the event of the death of any relative to the first or second degree.
  • Annual leave: under Ecuador employment law, employees are entitled to 15 days of paid annual leave during the first five years of service, Afterward, annual leave entitlements will increase by one day for every extra year of service.

Termination of employment in Ecuador

Employment termination processes in Ecuador can be quite confounded. When planning to dismiss an employee, employers generally have to notify an independent labor inspector to state the reason and the independent labor inspector will then make judgment on whether the dismissal is lawful or not.

So, are you thinking of entering the Ecuador market?

If you are interested in knowing more about Ecuadorian employment law, contact your Damalion expert now.

If you are interested in entering the Ecuador market, contact your Damalion expert now. Damalion assists foreign legal entities in setting up a business in Ecuador. We have the expertise and experience that allows us to guide clients during the painstaking activity of building a company in Ecuador. Contact us now to register your company in Ecuador.

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