Economic overview
The most important measure Ecuador has taken over the last few years is undoubtedly the adoption of the dollar in the year 2000. This allowed the inflation rate to drop from 96% to a measly 2%! However, the purchasing power of the population has become one of the lowest in South America. A period of great instability followed.
A president was dismissed by Parliament, another had to decree a state of emergency. Eventually, Rafael Correa arrived as head of state. He revived the economy and amended the Constitution, before foiling a coup attempt. Today, if things appear to be better from the point of view of domestic politics, problems remain in international relations. After expelling the American ambassador, Correa further challenged the United States by granting political asylum to Julian Assange, the founder of Wikileaks.
After the economic crisis of 1999, which caused the loss of the currency and the bankruptcy of the country, Ecuador reacted by adopting the dollar as its national currency. Even if the population has seen its purchasing power sink, it must be noted that the current growth rate is around 7% per year.
Main sectors of economy
Today, with 30% of world production, the country is the world’s leading producer of bananas. Take advantage of the trip to Ecuador to devour it as much as I can. In the field of agriculture, coffee and cocoa are products whose export is flourishing.
Farm. The livestock sector also appears susceptible to development, which today still plays a modest role in the national economy, barely covering the demands of the internal market. Cattle, sheep and pigs prevail, plus a fair number of poultry; in the mountain areas donkeys and mules are widely used as means of transport, in addition to the traditional lamas. On the other hand, fishery products (shrimps, lobsters, tuna, etc.) are mainly destined for export, a sector to which the government has dedicated large investments.
Mineral Resources. The only significant product of the subsoil is oil, extracted both in Ancón, in the Peninsula of Santa Elena, from where it is piped to the La Libertad refinery (other refineries operate in Cautivo and Quito), and from the rich fields of the East, located on the border with Colombia along the Putumayo River. Oil has largely been placed in the service of electricity generation; however, the problem should be solved by making greater use of the very rich hydroelectric potential of the Andean region. Despite the insufficient production of energy, the industry has made remarkable progress and today also operates for export with the predominant traditional textile, food and tobacco sectors.
Fishing is also a sector in which Ecuador is doing very well, in particular with regard to shrimps, of which the country is the third largest producer in the world.
The star product of the economy remains oil. Black gold accounts for half of exports and makes up 25% of total revenue.
About one million tourists visit Ecuador every year. Most go to the Galapagos, which remains the most visited site in the country. In recent times, the trend has been diversifying and Ecuador has paved the way for so-called “community” tourism. The latter is experiencing growing success and allows the sector to occupy the fourth place in the country’s economy. To continue on this path, Ecuador will have to better preserve its environment, too often ruined by oil exploitation.
Taxation for businesses in Ecuador
The Ecuadorian tax system is based on the taxation of income by applying the “source principle”: therefore, all income produced by residents and not produced within the jurisdiction will be subject to tax.
The tax regime of this country is based on the application of the source principle inherent in the taxation of income: therefore all income will be subject to tax, regardless of whether generated by residents or not, produced in the jurisdiction.
It is very important to highlight that in order to lighten the tax burden on taxpayers, the Ecuadorian legislator has prepared advantageous exemption and deduction tools. As regards the former, it should be mentioned that among the list of income not subject to taxes, there are, for example, those deriving from dividends, from the occasional sale of shares or properties. While they will be subtracted from the gross income for the calculation of the taxable amount, for example the contributions paid by the company and any voluntary provisions.
Tax company
The taxable income of companies is subject to the standard rate of 25%. However, it is possible to reduce this value by up to 15% by reinvesting the profits in production activities located in Ecuador.
Value Added Tax – VAT
There is an ordinary rate of 12% on the transfer of goods and services and on the import of goods into the national territory. It is important to highlight that in this jurisdiction the self-consumption of movable property is also considered a transfer. Inheritances, corporate contributions or company transfers are exempt from this tax. The 0% rate is applied to some particular goods: we refer in detail to some particular categories of food products such as domestic milk.
Investing in Ecuador
Among the sectors that stand out most in the horizon of possible investments in Ecuador, we note here those for which the government has implemented targeted and effective policies in recent years.
The exploitation of oil fields certainly represents one of the preponderant resources. The government has planned to implement sustainable development by enacting laws and regulations that stimulate local and foreign investors. Natural resources are a source of great wealth for the country, but the presence of foreign companies that encourage profitable use is one of the elements that are still indispensable to solve some critical issues. So here’s how business opportunities in Ecuador can come for businessmen aiming at renewable resources.
Business opportunities in Ecuador: where to invest
Thanks to the many water basins scattered throughout its territory, Ecuador has focused heavily on the construction of hydroelectric plants, with the intention of continuing to design them for years to come. But not only. The Ecuadorian government is proving to be very sensitive to the issue of alternative energies, such as wind and photovoltaics, as well as gas, a product that has always yielded large profits and that is distributed to private companies through state concessions (among the main companies: Compania Nacional Congas, Conducto Ecuador, Repsol Ecuador).
The construction sector has also seen exponential growth in recent years, certainly facilitated by the low cost of skilled labor. There is still a great demand for private construction and construction, an element that has created the development of a network of satellite companies willing to receive foreign investments to complete their works.
Healthcare has improved significantly thanks to the government’s investment in electro-medical equipment and diagnostic systems.
Finally, the primary macro sector including agriculture, fishing and forestry. Country that grows some of the finest products spread all over the world (and we remember in particular the business opportunity in Ecuadorian cultivation of roses), Ecuador is a major exporter of quality food.