Ecuador

Merchandise Trade

• Ecuador has been a World Trade Organization (WTO) member since January 21, 1996.


• Despite the sharp fall in their prices, mineral products – and oil in particular – are Ecuador's main export goods. In 2018, they accounted for some 41.8% of total goods exports, a 5.1% increase since 2017. Although food and agricultural products represent 50.5% of all goods exports from Ecuador, the sector is much more diversified. Bananas and crustaceans – mainly shrimp – are the two biggest agricultural and food exports in Ecuador, followed by cocoa and cocoa products, and meat and seafood.


• Although Ecuador is a major oil producer, it lacks the refining capacity to meet domestic demand for refined products and imports oil derivatives: chemical, industrial and fuel products accounted for 33.2% of total imports in 2018. Mineral products – such as refined fuel – represented 19.7% of all imports in the same time period. Machinery and complex manufactured products made up the second-largest category of goods imported by Ecuador in 2018, accounting for an estimated 32.4% of all goods entering the country.


• Ecuador's constitution outlines that the state has sole control of 'strategic' sectors, including: energy in all its forms, telecommunications, non-renewable natural resources, transport and refining of hydrocarbons, biodiversity and genetic heritage, the radio spectrum and water.


• Ecuador participates in multilateral trading systems, where economic interaction between entities are fair and inclusive. Ecuador's stance on multilateral trade is that any outcomes from engagement with international or regional trade should prioritise development and to take into account flexibilities for developing least developed countries.


• Ecuador is a member of the Andean Community (CAN) and the Latin American Integration Association (LAIA).


• Ecuador has yet to submit the ratified Agreement on Trade Facilitation – agreed upon at the 2013 Bali Ministerial Conference among WTO member states. The agreement contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues; it further contains provisions for technical assistance and capacity building in this area. The WTO notes, however, that Ecuador has taken proactive steps towards facilitating cross-border trade, such as introducing an electronic customs system, ECUAPASS and the Ecuadorian Single Window (VUE) in 2018.


• Ecuador is not a party to the WTO Agreement on Government Procurement and does not participate as an observer in the Committee on Government Procurement.


• As of 2019, Ecuador has banned the export of aluminium and copper wastes and scraps.


• The government has banned the import of air conditioning equipment (as of 2013) and the import of incandescent light bulbs (as of 2010).


• Since Ecuador is a member of the CAN, goods to be imported are classified under the Common Nomenclature of the Andean Countries participating in the Cartagena’s Agreement (NANDINA) Pact, which is based on the Customs Cooperation Council Nomenclature (also known as the Brussels tariff nomenclature). Most consumer goods imports pay 25%, while intermediate goods are usually imported at a 10% or 15% rate. Raw materials and capital goods generally pay 0% to 5%. Ecuador has negotiated exceptions under the Andean common tariff that allow lower duties on certain capital goods and industrial inputs. There is duty-free import of agricultural goods and equipment.


• In addition to import duties, all imports are subject to 12% VAT and other minor taxes that do not exceed 1%. Charges are based on the cost, insurance and freight (CIF) value of the merchandise.


• All Ecuadorian imports and exports are subject to inspection by authorised international verification companies operating in the country (there are some imports exempt from verification). Goods are appraised for value, quantity, quality, and weight at the port of origin.


• A Special consumption tax (Impuesto a los Consumos Especiales or ICE) is imposed on domestic and imported goods that are explicitly listed in the law, including sugared, non-alcoholic and carbonated drinks. This tax is levied at a progressive rate from 5% to 35% on certain automobiles and 15% on airplanes, helicopters, and boats. The taxable basis on cigarettes and alcoholic beverages is obtained by the number of produced or imported cigarettes or degrees of alcohol, respectively.


• Since 2017, a commercial agreement between the European Union (EU) and Ecuador in place, which provides relief on duties upon the importation of certain goods.

Sources: WTO – Trade Policy Review, Fitch Solutions

Multinational Trade Agreements

Active

1. The CAN: The community – which came into existence in 1969 – comprises Peru, Colombia, Ecuador and Bolivia. CAN is a Free Trade Area (FTA) with the goal of eventually becoming a customs union. At present, however, trade between members remains unencumbered by tariffs and other formal measures of trade protection. CAN also provides its members with improved bargaining power, given the collective nature of the organisation. The community also promotes the free movement of people, with residents from member states not requiring a visa. 12.4% of all imports originate in fellow CAN members, with 11.5% of all Ecuadorean exports destined for Peru, Colombia and Bolivia.


2. EU-CAN: In January 2017, CAN ratified a Free Trade Agreement (FTA) and Economic Integration Agreement with the EU. The agreement eliminates tariffs for all industrial and fisheries products, increases market access for agricultural products, improves access to public procurement and services and further reduces technical barriers to trade. The agreement allows Ecuador to benefit from improved access for its main exports to the EU, such as fish and fish products, cut flowers, coffee, cocoa, fruits and nuts. Bananas also benefit from a preferential rate, but a stabilisation mechanism is in place that allows the Commission to examine and consider the suspension of preferences if an annual threshold is reached, as is currently the case for trade deals with Colombia, Peru and Central America. The FTA also includes commitments to effectively implement international conventions on labour rights and environmental protection, which are monitored with the systematic involvement of civil society. The EU accounts for 14.0% of all Ecuadorean trade.


3. Southern Common Market-CAN (Mercosur-CAN): As a member of the CAN, Ecuador is party to commercial agreements with Mercosur (Brazil, Argentina, Paraguay and Uruguay). Mercosur member states present greater economic opportunities for firms in Ecuador and the Agreement brings about greater economic integration. This supports the FTA of the Americas - an agreement that reduces the trade barriers among all countries in Latin America.


4. Ecuador-Chile: The Economic Complementation Agreement Chile - Ecuador was signed under the 1980 Montevideo Treaty, which created the Latin American Integration Association. The treaty created an economic space that allows for the free movement of goods, services and factors of production and strengthens political dialogue and cooperation. The agreed-upon rules cover matters such as the tariff reduction programme, unfair trade practices, safeguards, technical standards, scientific and technological cooperation, sanitary and phytosanitary standards, maritime and air transport, dispute resolution, automotive and government procurement, among others. Trade with Chile accounts for 4.5% of all trade.


5. Ecuador-Mexico: Mexico is Ecuador's sixth largest import partner. As of 2018, Ecuador received 3.5% of all its imports from Mexico, of which vehicles and vehicle parts made up the highest percentage.


6. Ecuador-Guatemala: Guatemala is Ecuador's 38th largest import partner. As of 2018, Ecuador received 0.2% of all its imports from Guatemala, of which residues and waste from food industries and prepared animal fodder made up the highest percentage.


7. Ecuador-El Salvador: The bilateral Partial Scope Agreement came into force in November 2017 and covers trade in goods. El Salvador is Ecuador's 28th largest export partner, and as of 2018, Ecuador exported 0.4% of its total exports to El Salvador. The majority of these exports were mineral fuels, mineral oils and products of their distillation.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 12%
• Corporate Income Tax: 25%

Sources: Servicio de Rentas Internas, Ministerio de Finanzas

Important Updates to Taxation Information

In December 2017, the Ecuadorian government enacted the Law for the Reactivation of the Economy. The main corporate tax measures derived from this Law, effective for 2018, include: An increase in the CIT rate from 22% to 25%, and from 25% to 28% for companies with foreign shareholders located in jurisdictions qualified as tax havens. There are also exemptions and benefits for small business and companies qualified as usual exporters. In addition there are limitations to the deduction of expenses related to accruals of employer's pension and eviction plans.

In August 2018, the Ecuadorian government enacted the Law for the Incentive of Production, Attraction of Investments, Generation of Employment and Fiscal Stability. The main corporate tax measures and reforms are:

• An amnesty programme on interests and fines before Tax and Social Security Authorities, among other regulatory entities, available until December 28, 2018.

• Exemptions of CIT and remittance tax for new investments.

• Regulations for the determination of the CIT rate applicable from 2019.

• Withholding exemption on dividend distribution.

• Reforms on capital gains tax, value-added tax (VAT), and remittance tax, among others.

On December 31, 2019, the government introduced the Law for Tax Simplification and Progressivity The main corporate tax measures and reforms include: Taxation on the distribution of dividends, reforms of Corporate Income Tax pre-payments, new thin-capitalization rules for intercompany loans, reforms on transactions exempted of Remittance Tax, the introduction of a new temporary contribution, and VAT on the importation of digital services.
 

Localisation Requirements

In theory, with the introduction of the Human Mobility Law, the quota restricting the number of foreign workers has been removed. However, the Ministry of Labour sets a cap of 20% with regard to foreign employees. As such, at least 80% of a workforce must be sourced locally and be comprised of Ecuadorian nationals.

The law requires at least one medical examination prior to employment and one when the employment relationship is over. Based on certain regulatory requirements, and depending on the type of job, medical examinations will be required from time to time. The law states that when an employer from either the public or private sector has more than 25 employees, at least 4% of the workforce must be disabled people or individuals who take care of disabled persons.

Visa/Travel Restrictions

All foreigners intending to work in Ecuador must obtain either a temporary or permanent residence visa. A work visa is not needed for a residency visa. A Permanent Residence Visas may be applied for after holding the temporary residency visa for 21 months. The holder of a temporary residency visa may not travel abroad for more than 180 days across two years, 90 consecutive days, or 90 days in one calendar year. Permanent residency visas have gradually lower travel restrictions applied to them. An applicant may register with the Ecuadorean Institute for Social Security (the IESS) after obtaining a residency visa (temporary or permanent) or opt for private health insurance. A number of visas (applicable in addition to the residency visa) may apply to foreigners wishing to work in the country. A general work visa may be obtained either prior or after entering the country on a residency visa and require the contract of employment to be registered with the Ministry of Labour, as well as providing certification from the company in question indicating a lack of debts owed to the IESS, the SRI (Internal Revenue Service), or the superintendence of Companies.

Sources: Ecuador Ministry of Labour, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Rating

Hong Kong’s Trade with Ecuador

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Electrical machinery, apparatus and appliances, and electrical parts thereof	65.5
Commodity 2	Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof	8.5
Commodity 3	Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical	8.3
Commodity 4	Clocks and watches and parts thereof	1.7
Commodity 5	Toys, games and sports requisites; parts and accessories thereof	1.5

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Edible fruit and nuts; peel of citrus fruit or melons	23.2
Commodity 2	Fish, crustaceans, molluscs and aquatic invertebrates, and preparations thereof	5.5
Commodity 3	Copper and articles thereof	4.1
Commodity 4	Electrical machinery and equipment and parts thereof	2.9
Commodity 5	Raw hides and skins (other than furskins) and leather	2.6