The Organic Law on Social Transparency, in force since August 28, 2025, has introduced substantial changes to the income tax regime on profits generated by resident companies or permanent establishments in Ecuador.
Its reforms focus mainly on two main areas:
1. Dividends distributed to individuals: A single tax is established on 100% of the value of the dividend distributed to each shareholder (individual), with different rates depending on their tax residence:
a. 10% for residents of Ecuador.
b. 12% for residents abroad.
c. 14% for residents in tax havens or low-tax jurisdictions.
This scheme replaces the previous regime, in which the tax was applied only to 40% of the dividend, incorporated into the taxpayer’s overall income in the case of residents in Ecuador.
2. Undistributed dividends: A new tax is created on profits accumulated by companies that have not been distributed by July 31 of each current fiscal year.
This tax applies to amounts exceeding USD 100,000.00, on which differentiated rates ranging from 0.75% to 2.50% will be applied to the total accumulated value.
Investment funds and trusts are exempt from this obligation, as are mixed economy companies in the part corresponding to the State.
The Law also establishes that the amount paid by the company for this new tax may be offset or refunded upon compliance with the legal, regulatory, and resolution conditions issued by the SRI, within the two fiscal years following the payment (except for holding companies, which have three years). After this period, the amount will become a non-deductible expense, which could mean higher income tax for the company.
While it is clear that the immediate effect of this reform is a reduction in corporate liquidity, it is also true that the regulation provides alternatives for optimizing the use of the amount paid for this new tax, which, of course, can only be implemented if the legal conditions established for this purpose are correctly met.
As can be seen, this tax reform requires a proactive approach to the company’s tax and financial management, not just accounting, as it is the technical advice of an experienced tax lawyer that will enable taxpayers to correctly integrate these new variables to mitigate the impact of this tax, minimizing the risk of their compensation or refund being questioned by the IRS; and keep their resources properly optimized so as not to lose competitiveness.
Similarly, shareholders should evaluate their investments and even rethink their strategies within the new legal framework, for which the tax lawyer, an expert in the old and new laws, will be able to identify the tax elements that reduce their net profitability and provide them with elements that will enable them to make the best decisions.
