1st Bac - Value Added Tax

Value Added Tax VAT (IVA in Spanish)

It is a tax that is charged on the value of local transfers or imports of personal property, in all its stages of commercialization and on the value of the services rendered. 

Who has to pay?

-       All persons and companies that provide services and / or carry out transfers or imports of goods must pay Value Added Tax (VAT).

-       Those who have paid VAT may use it as a tax credit in the cases contemplated in the Internal Tax Regime Law.

-       Additionally, the persons and companies designated as withholding agents through current tax regulations, will withhold VAT in cases that warrant.

-       This tax is declared and paid monthly when transactions are taxed and / or when VAT is withheld, and semi-annually when transactions are taxed at 0%.

What should be paid on?

-       VAT must be paid on all local transfers or imports of goods and the provision of services.

-       For local transactions, the VAT tax base corresponds to the sale price of the goods or the value of the provision of the service, including other taxes, fees and other related expenses, less discounts and / or returns.

-       In the case of imports, the VAT tax base corresponds to the sum of the CIF value (Cost, insurance and freight) plus the taxes, duties, fees, charges and surcharges included in the import declaration.

Income Tax

The Income Tax is applied to those incomes obtained by natural persons, undivided successions and companies, whether national or foreign. The tax year runs from January 1 to December 31.

Who has to pay?

-       The Income Tax declaration is mandatory for all-natural persons, undivided successions and companies, national or foreign, domiciled or not in the country, according to the results of their economic activity; even when all of their incomes are made up of exempt income, except for:

o   Taxpayers domiciled abroad, who do not have a representative in the country and who exclusively have income subject to withholding tax.

o   Natural persons whose gross income during the fiscal year does not exceed the basic non-taxable fraction.

What should be paid on?

In order to calculate the Income Tax that a taxpayer must pay, the following must be considered: from all taxed income, the returns, discounts, costs, expenses and deductions, attributable to such income, will be subtracted. We call this result "tax base". 

For which the following definitions must be taken into consideration:

-       Taxed income - These are the income that will be considered for the payment of Income Tax.

-       Exempt income and exemptions - Are those income and activities that are not subject to the payment of this tax.

-       Deductions - In general, for the purpose of determining the taxable base subject to this tax, expenses incurred in order to obtain, maintain and improve income from an Ecuadorian source that are not exempt will be deducted.

Simplified Tax Regime (RISE in Spanish), 

It’s a voluntary registration regime, which replaces the payment of VAT and Income Tax through monthly fees and aims to improve the tax culture in the country.

Requirements:

-       Being a natural person.

-       Having no income greater than USD 60 thousand in the year, or if it is under a dependency relationship, the income for this concept does not exceed the basic fraction of the Income Tax levied at a rate of zero percent (0%) for each year.

-       Do not engage in any of the restricted activities.

-       Not have been a withholding agent for the last 3 years

Classwork: Scan and send me the class copied to your notebook in a PDF file to my email: engteachermiken@gmail.com by the end of the class.