Ecuador Wants Tax Incentives Tied to Results. The Rules Are Not Written Yet.

Ecuador is considering a redesign of its tax-incentive system so that benefits are tied more closely to measurable business results. The proposal appears in the Agenda de Crecimiento Ecuador (ACE) 2040, a long-term initiative built by the national government with support from the Inter-American Development Bank (IDB) and contributions from the public sector, businesses, academia, and civil society.

The agenda is not a new tax law. It establishes general policy lines rather than a schedule of immediately available deductions or exemptions.

What the proposal would change

The agenda calls for a tax system that is simpler, more predictable, and more supportive of formal business growth. It proposes benefits tied to explicit and measurable goals, lower administrative friction, and fewer barriers that discourage companies from expanding.

The seven priority sectors identified by the agenda are agriculture, agro-industry, manufacturing, tourism, mining, hydrocarbons, and electricity.

The core idea is to connect tax support with outcomes. Possible measures include employment, investment, production, and other objectives. The agenda also calls for clear expiration periods, so a benefit would not continue indefinitely once a company has reached the goal that justified it.

The “size trap” problem

The agenda says Ecuador’s current system can create a “size trap.” A business may avoid moving into a larger category because growth can bring heavier administrative duties and higher rates. Experts quoted by El Universo say that can encourage firms to remain small, split operations, or delay expansion.

One example in the report contrasts a family business leaving the Rimpe regime with the possibility of moving from an approximate 2.75% or 3% payment to a 25% rate, together with the need to hire accounting and tax-advisory support. That example is used to illustrate the transition problem; it is not a universal calculation for every Rimpe taxpayer.

The agenda also points to the scale of existing tax expenditure. The latest available 2024 manual put the state’s foregone revenue from tax benefits at USD 6.607 billion, equal to 5.3% of GDP and 38.5% of tax collection.

What This Means for Expats

Foreign residents who own, manage, or invest in Ecuadorian businesses should treat this as a policy signal, not as a current filing instruction. The next meaningful steps would be a formal reform, implementing rules, eligibility criteria, and a transition schedule.

For now, the practical questions are whether a business is in one of the priority sectors, which regime it currently uses, and what evidence it could produce for employment, investment, or production if a results-based incentive is eventually enacted. The proposal does not establish a new tax benefit or change a current filing deadline.

Source: El Universo

The proposal is most relevant at the planning stage. A company considering a new investment should keep its current tax position separate from any future policy discussion, document the results it is already required to report, and wait for enacted rules before changing a filing position. That distinction protects a business from treating a policy agenda as if it were an operating instruction.