Volume 6, Number 16, Page 1

Foreign Capital in Ecuador

By Pérez, Bustamente and Pérez

Introduction

Traditionally, Ecuador has been known as a country that welcomes foreign capital and investment.

Foreign investors, whether individuals or corporations, may invest in Ecuador by participating in:

• The establishment of local companies
• Capital increases of existing companies
• Purchase of shares or interests in existing companies
• The establishment of branches

Foreign investment is considered only a contribution to a company’s capital. Other economic activities carried out by foreigners, such as the purchase of real estate or other assets, leasing from abroad, etc., are not so regulated.

Areas in which foreign investment is restricted

Radio and Television:

• Foreign individuals and corporations may invest up to a maximum 25% of the capital stock of the Ecuadorian company receiving the investment.

Fishing:

• This activity is subdivided into aquaculture and fisheries sectors.

The former accepts direct, sub-regional or neutral foreign investment, without restrictions, in any of its phases: breeding, culture, processing or marketing.

In the fisheries sector, on the other hand, whoever carries out authorized activities may transfer without any restrictions their shares, interests or facilities. However, in the case of new investments, they will be accepted when the product is to be processed in plants located in the country, upon a prior report issued by the National Fishing Institute certifying the existence of sufficient fishing resources.

Finally, the Law on National Security prohibits investments and activities by foreign individuals and corporations in the international border areas within the national territory.

Authorizations and registrations

a. No prior authorization is required.

In accordance with the current legal regime, a foreign individual or corporation requires no prior authorization for investing and there are no mandatory maximum or minimum amounts for such investments.

b. Registration procedure

The Central Bank of Ecuador is the competent body that registers direct, sub-regional and neutral foreign investment. The following documents must be submitted:

• Copy of the public deed, if applicable, and a voucher evidencing the sale of foreign currency if it was sold in the country, or the corres-ponding import document. In the case of transfer of shares or interests, the documents evidencing such transfer.

Foreign investments are registered in foreign currency, even if made in local currency.

Remittance of profits and repatriation of capital

Foreign investors are entitled to remit abroad (through the free exchange market) the totality of the proven net profits resulting from their investments.

Foreign investors may freely repatriate their investments after payment of the applicable taxes, if any.

Special Investments

a. Investments in the financial sector and insurance.

Banks, other financial institutions and insurance companies are subject to the control of the Office of the Superintendent of Banks. In certain cases, national and foreign shareholders must be qualified by the Office of the Superintendent of Banks. The Office of the Superintendent of Banks has established a parallel control system for the purpose of precluding investment of money deriving from illegal sources.

b. Investments in free-trade zones (CONAZOFRA)

Foreign investments in free-trade zones are not subject to the common regime established by the Andean Pact regarding treatment of foreign capital nor to any other similar regime that may be enacted in the future. The only requirement for operating in such zones is the authorization from the National Free-Trade Zone Council (CONAZOFRA).

c. “Maquila” (in-bond assembly) operations

In this type of industrial process, raw materials may be imported free from import tariffs under a temporary admission regime, provided the processed products are subsequently exported.

Guarantees and benefits provided by Ecuadorian legislation to foreign investors:

Duly registered foreign investment enjoys the following guarantees:

• In the case of expropriation or requisition of goods acquired in Ecuador by foreigners:
• The Political Constitution expressly prohibits confiscation of goods whether owned by Ecuadorians or foreigners. Expropriation, as in the case of many countries, is determined and regulated by law. An individual can resort to a civil judge and request that a fair price be set by impartial experts, although he cannot object to expropriation by reason of public utility. Requisition applies only in the event of a national emergency declared by the President of the Republic.
• Complete freedom to trade the registered investment or to transfer abroad, in a foreign currency, the net profits or the amounts obtained after liquidation of a company.
• Tax stability.

Individual holders of investments in excess of US$ 500,000 will be entitled to the benefit of tax stability as of the date of registration. This is to be understood as stability of the income tax rate existing on the date of registration of the investment applicable to the holder or beneficiary.

Tax stability is applied for periods of ten years, in the case of new investments in existing companies, and twenty years if the new investments are used for developing new projects or expanding the production.

Optionally, and for a clear application of this benefit, a foreign investor may enter into an investment agreement with the Ministry of Foreign Trade, Industrialization and Fishing by means of a public deed stating the treatment given to the investment, the period within which the investment will be made, and its destination.).