New Tax Withholding Rates in Effect — SRI Eliminates 2.75% Bracket, Raises Default to 3%

Ecuador's tax authority has quietly changed the withholding rates that affect every business transaction in the country — and if you earn income in Ecuador, you need to understand the new structure.

What Changed

The SRI (Servicio de Rentas Internas) — Ecuador's equivalent of the IRS — issued resolution NAC-DGERCGC26-00000009, effective March 1, 2026, which restructures the country's income tax withholding rates (retenciones en la fuente).

The key changes:

• The 2.75% withholding rate has been eliminated entirely. Transactions that previously fell under the 2.75% bracket have been moved to a new 5% withholding rate — nearly doubling the amount withheld at the source
• The default withholding rate — applied when no specific rate is designated for a transaction type — has been changed from 2% to 3%
• Various other withholding categories have been adjusted, with most rates moving upward

These changes apply to all businesses and individuals who are registered as withholding agents with SRI, which includes virtually every company operating in Ecuador and many self-employed professionals.

How Withholding Works in Ecuador

For expats unfamiliar with the system: Ecuador uses a withholding-at-source model for income tax collection. When a business pays a vendor, contractor, or service provider, it is required to withhold a percentage of the payment and remit it directly to SRI on behalf of the recipient.

For example, if you are a freelancer who invoices an Ecuadorian company $1,000 for services, the company does not pay you $1,000. It pays you $1,000 minus the applicable withholding rate, and sends the withheld amount to SRI. You then claim credit for the withheld amount when you file your annual tax return.

The withholding rates vary by the type of transaction — services, goods, rent, professional fees, and other categories each have assigned rates.

The Filing Threshold

Not everyone in Ecuador is required to file a tax return. The 2026 filing threshold is $12,208 per year (approximately $1,017 per month). If your gross income is below this threshold, you are generally not required to file.

However, if you have withholdings taken from your payments (which happens automatically when you invoice businesses), you may want to file anyway to recover those amounts as a refund.

The Practical Impact

The elimination of the 2.75% bracket and its replacement with 5% is the most significant change. Here is what that means in practice:

• If you provide professional services to Ecuadorian companies, you will see larger deductions from your invoices starting in March. On a $5,000 invoice, the withholding jumps from $137.50 (at 2.75%) to $250 (at 5%) — an additional $112.50 withheld per invoice
• This is not additional tax — it is an advance payment on your eventual tax liability. If your total tax owed at year-end is less than the amount withheld, you receive a refund. But refunds from SRI are notoriously slow, often taking 6-12 months
• Cash flow is affected immediately. Businesses and freelancers will have less cash available from each transaction, even if the year-end tax bill remains the same
• The default rate increase from 2% to 3% catches any transactions that do not fall into a specific category. If your business deals with SRI gray areas, expect higher withholding

What This Means for Expats

• If you earn income in Ecuador — whether from consulting, freelancing, rental income, or operating a business — your cash flow will decrease slightly on each transaction due to higher withholding rates
• Review your invoicing and payment processes. Make sure your accountant (contador) has updated the withholding tables in your accounting software. Errors in withholding rates can trigger SRI penalties
• If you are a landlord renting property to businesses, the withholding on your rental income may have changed. Confirm the new rate with your tenant or property manager
• File your annual tax return even if you are below the threshold, particularly if you have withholdings. This is the only way to recover over-withheld amounts
• Keep your RUC (Registro Unico de Contribuyentes) active and compliant. SRI has been increasing enforcement, and the new withholding rates suggest the government is looking to accelerate tax collection — which often comes with stricter auditing
• If you have an Ecuadorian contador, now is a good time to schedule a review of your 2025 return and 2026 tax planning. The rate changes may affect estimated payments and cash flow projections

Source: Teleamazonas