Eco-Center of the World

An ethical economy

Ethical management of our economy, this is the way in which the National Government has decided to reinforce the rights of our society and of the environment, through innovative and clear regulations that foster efficient entrepreneurial activities that guarantee respect for the environment, laborers and our society in general.

NECESSARY REFORM OF THE STATE

ACTIONS RESULTS

Constitutional Assembly

Modern constitutional framework

Tax reform Increase in tax collection – fiscal stability

Elimination of subcontracting

Fair labor relations

Code of Production Clear incentives and framework for investment

• The Code of Production defines a new and modern legal framework that encourages private investment.

• The Code portrays in a concrete way the Government’s model of productive development and economic development.

• Dollarizacion is a monetary scheme kept

•Promote sustitution of imports

• To complement the dollarization model, the Code encourages:

• Private domestic investment• Foreign investments that boost

Ecuador’s export capacity.

MODEL OF DEVELOPMENT AND ROLE OF THE STATE

PROTECTION FOR PRIVATE INVESTMENT

INCENTIVES OF THE LAW

AGREED UPON ARBITRATION

INVESTMENT CONTRACTS

SECURE INVESTMENT

ECUADORIAN LAWS ALLOW FOR THE PROTECTION OF PRIVATE INVESTMENTS WITH ALL THESE LEGAL

INSTRUMENTS

6

7 STRATEGIC REASONS:

1. COUNTRY WITH THE GREATEST MEGADIVERSITY IN THE WORLD (BY KM2)

2. GROWING AND STABLE ECONOMY

3. STRATEGIC LOCATION AND CLIMATE

4. HUMAN CAPITAL AND SOCIAL INVESTMENT

5. ACCESS TO INTERNATIONAL MARKETS

6. INCENTIVES FOR INVESTMENT WITHIN A CLEAR LEGAL FRAMEWORK

7. DOLLARIZED ECONOMY

ECUADOR: AN INTELLIGENT INVESTMENT

CURRENT INVESTMENT INCENTIVES

INCENTIVE OBJECTIVE AFFECTING TAX

Exemption from income tax on dividends and profits earned or distributed to companies (except tax havens) or non- residents of Ecuador.

Exemption from income generated from the occasional sale of property, shares or units.

Exemption from capital gains, profits or income distributed by mutual funds, pension funds and commercial trusts.

Exemption from income from certificates of deposits of one year or more.

Aditional deduction for annual net increase in employment.

Deduction of lease payments for international trade of capital goods.

Reduction of 10 percent of the income tax rate on reinvestment equipment and machinery

Accelerated depreciation (by request) on durable goods.

Zero tax on electricity produced and sold.

Seeks to encourage investment

Seeks to encourage the capital market and access to housing

Seeks to avoid double taxation

Encourage savings

Encourage employment

Encourage production

Encourage investment

Exoneration

Encourage investment

Income Tax

Income Tax

Income Tax

Income Tax

IRS

Income Tax

IRS

IRS

VAT

INCENTIVES FOR PRIVATE INVESTMENT

GENERAL INCENTIVES FOR INVESTMENTS

Reduction of the income tax from 25% to 22%. The reduction will be 1% each year following the approval of the code.

The following are exempt from the minimum tax: the increased expenditures for new jobs or wage increases; acquisition of new assets for the improvement of productivity and technology; cleaner production; and all the incentives in this code.

For new companies: exemption from the payment of the minimum tax during the first 5 years.

Exemption from the tax on foreign exchange outflow for payments going abroad for credits with a deadline of more than one year, and a rate not higher than that authorized by the Central Bank of Ecuador.

Additional deductions from the income tax, as mechanisms to encourage the improvement of productivity, innovation and eco-efficient production.

Benefits for the opening of capital, such as deferment of income tax payment for companies that open up capital abroad.

Those established for Special Economic Development Zones, as long as they fulfill the criteria for their approval.

GENERAL INCENTIVES FOR INVESTMENTS

INCENTIVES FOR NEW INVESTMENTS IN PRIORITIZED SECTORS

• Total exemption of the income tax for 5 years and its down payment for new investments in the prioritized sectors of the economy:

• Fresh and processed foods• Forestry products• Metalworking/metal processing• Petro chemistry• Pharmaceutical• Tourism • Renewable energies • Logistical services• Biotechnology and applied software• Sectors of strategic substitution of

imports and promotion of exports as determined by the President of the Republic

INCENTIVES FOR SMALL AND MEDIUM ENTERPRISE AND THE POPULAR AND SOLIDARY ECONOMY (EPS)

• Obligation of inclusive purchasing for the government for these sectors.

• Prioritized public investment and specialized programs.

• EPS law will be codified as part of the production code when it is sent to and approved by the legislative assembly.

INCENTIVES FOR MICRO AND SMALL ENTERPRISES

• National Fund of Guarantees: System of guarantees according to their situation (amount and types of collateral).

• Regime for entering into the stock market.

• Government programs of co-financing for the improvement of productivity, innovation, quality, exportable products and their promotion.

• Co-financing programs for entrepreneurship and innovation.

INCENTIVES FOR MEDIUM ENTERPRISES

• Additional deductions of the income tax, for expenditures and investments in the following areas:

1. Technical training aimed at research, development and technological innovation (up to 1% of the expenditure of annual salaries).

2. Expenditures for the improvement of productivity of the company (up to 1% of the sales).

3. Expenses of international promotion of the company and its products (up to 50% of the promotion and publicity expenses).

INCENTIVES FOR REDUCTIONOf the Cost of Credit

• Elimination of the mandatory withholding of income tax, for interest payments going abroad due to credits that have been awarded by or through international financial institutions.

• The benefit will not be conceded when the credits are awarded by or through institutions based in tax havens.

• Reduction of costs through the elimination of the foreign exchange outflow taxes for financing.

INCENTIVES FOR GREEN PRODUCTION

• Regarding the income tax, there will be an additional deduction of 100% of expenditures for the purchase of machinery and equipment for a more clean production, and for the implementation of renewable energy systems (solar, wind and other similar ones) or for the mitigation of environmental impact.

INCENTIVES FOR DEPRESSED ZONES

• The companies that carry out investments in depressed zones will be able to benefit from the additional deduction of 100% of expenses of new jobs generated in that zone for 5 years.

• Prioritization of productive investment.

• Depressed zones will be determined by indicators such as lower economic, social and human development.

INCENTIVES FOR ZEDEs (SPECIAL ECONOMIC DEVELOPMENT ZONES)

• Additional reduction of 5% of the income tax for the administrators and operators of the ZEDEs to 17%. If they are in a preferential sector and it is a new investment, the rate of 0% income tax for 5 years applies.

• The importation of goods will have a Value Added Tax (VAT) rate of 0%.

• Foreign goods will benefit from the exemption of the payment of customs duties while they remain in the ZEDE.

• The administrators and operators will have a tax credit for the VAT associated with local purchasing (services, goods and prime/raw materials for productive processes).

• Exemption of taxes on foreign exchange outflows in the payment of imports and in the payments going abroad for foreign financing.

INCENTIVES FOR PRIVATE COMPANIES TO OPEN UP CAPITAL

• Companies that decide to open up their capital and sell stock to their employees will enjoy the following benefits:

1. Defer down payment and income tax for 5 years.

2. In case companies opt for a financing credit for purchasing stock, the interests will be exempt from the income tax.