Today’s digitalization has been affecting the global economy in such a way that it has become relevant for taxation, which is why different jurisdictions have been incorporating taxes on the import of digital services into their tax legislation.
In the case of Ecuador, in December 2019, provisions regarding the Value Added Tax (VAT) for the provision of digital services by a non-resident in Ecuador to a resident in this country were included in the Internal Tax Regime Law (LRTI) through the Organic Law for Tax Simplification and Progressivity.
This article addresses the main aspects of importing digital services in Ecuador.
Is there a cadastre of digital service providers?
Yes, this cadastre will be published on the website of the Internal Revenue Service (SRI), which will be updated every quarter.
This will differentiate between non-resident digital service providers, which may be registered with the SRI, and those resident in Ecuador.
Likewise, it will be differentiated from those non-resident providers, whose withholding agents are the companies or firms that issue debit and credit cards.
Who must withhold the importation of the digital service?
When the provider of the digital service is a non-resident, and he is not registered in the SRI, VAT must be withheld by:
- Intermediary: Those intermediaries in the payment of the digital service, such as credit or debit card issuing companies.
- The importer of the service: In case the payment of the service is made without an intermediary, the VAT withholding agent will be the importer of the service.
What is the basis for the withholding?
The taxable base for VAT withholding will be the total value paid by the importer of the digital service.
In the case of digital services, in which a delivery of goods is required or there is a provision of services where a commission is charged, the VAT to be withheld must take this into account.
How should the declaration and payment of the VAT withheld be made?
In the case of intermediaries in the payment of services, they must declare and pay monthly the amounts withheld, in the form for the declaration and payment of the VAT, according to the terms established in the LORTI regulations.
What are the responsibilities of the withholding agents?
Among other duties or responsibilities, the withholding agents must comply with the following:
- Reporting information: About payments made to digital service providers and withholdings made.
- Keep certain documentation: Documentation of payments made for digital services withholdings must be kept.