Ecuador: New Financial Changes for 2017

elcomercio.com reported the oil, labor, banking, fiscal and prepaid medicine sectors as well as foreign trade will face new rules of the game in 2017, which will be marked by the electoral agenda. The country is forced to reduce oil production in 2017 due to the agreement reached last November in the Organization of the Petroleum Exporting Countries (OPEC) , with the aim of stabilizing the price of a barrel of crude oil. Regarding foreign trade, from January 1, 2017, the trade agreement with the European Union (EU) was ratified in December 2016 and involves the elimination of tariffs for the importation of products such as liqueurs, raw materials, Capital goods, etc., as well as for the export of flowers, broccoli, bananas, among others. This also has other effects, such as the elimination of quota on car imports or the dismantling of safeguards in June of this year. On the other hand, by February 2017, it is expected that the 465,619 ounces of gold – part of the national reserve – that the Central Bank of Ecuador invested in Goldam Sachs will return to the country, according to the contract of the transaction.

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In house, banks must repatriate capital and credit card issuers adapt to new rules on interest collection. In the case of taxes, as established in the Solidarity Law , VAT should return to 12% in June. 1. Agreement with the EU since January Since Sunday, January 1, 2017, the trade agreement with the EU is in place , which allows 99.7% of agricultural products and 100% of industrial and fishing goods to enter the bloc without paying tariffs. Among the products are flowers, shrimp, tuna and broccoli. While on the European side it is expected that 76% of more than 2,500 products and product groups, including liqueurs, will enter Ecuador without canceling tariffs. For others the relief will be gradual as in the case of light vehicles, which will fall 5% each year for seven years. 2. The cadastre must be updated This year, municipalities must obligatorily update the cadastre, as established by the so-called Law of Goodwill , in force from December 30, 2016. The authorities that fail to comply with this provision could be dismissed and even responsible for the values ​​that are not charged due to the lack of updating. If a taxpayer voluntarily updates the valuation of his property within the next year of enactment of the law, he will pay, for two years, the property tax on the basis used before the update. 3. USD 375, the new basic salary Since January, the unified basic salary (SBU) that the members of the National Council of Labor and Wages (CNTS) defined in December of 2016 has been set at USD 9. This is the lowest increase in the last 10 years. The SBU went from USD 366 to 375. This was achieved following an agreement between employers and workers, the first since 2001. The basic salary is paid to about 400 000 workers nationwide. With the increase of the SBU, the rates of fines and payments related to traffic, judicial and other costs are also adjusted. 4. New rules in banking and cards As of January 1, 14 banking services fell in cost . For example, the issuance of home-address statements and protest protest processing are no longer costly. Formerly it paid USD 1.66 and 8.93, respectively. While provisions for credit card issuers will enter into force on February 1. The rule specifies the cases in which interest on financing and arrears will be allowed. In addition, customers will be entitled to transfer the benefits of their reward plans to another cardholder with the same plan. 5. Increase of 2 points to the VAT, until June The two additional points to the value-added tax (VAT) will run until June 2017. The Earthquake Solidarity Line increased the VAT rate from 12 to 14%. This contribution, which has been in force since June 1, 2016, was introduced to cover the expenses generated by the earthquake of April 16. Until last December 22, USD 329.5 million were raised. Another change for the taxpayer is the new table for the payment of income tax . Those who earn more than USD 11 290 a year this year will pay the tribute. Last year it was USD 11 170 per year. 6. Adjustment for insurers The Law on Prepaid Medicine , in force since October 17, introduced changes for clients and companies in this segment.

Since that date companies have, for example, a year to increase their capital, reform their bylaws or make mergers, if applicable. Until February 2017, the Superintendence of Companies will approve – once the Ministry of Health has issued the regulations and other guidelines established in the law – the health plans and the rates offered by the companies of prepaid medicine and medical insurance. 7. Gold reserves return to the country In June 2014, the Central Bank of Ecuador (ECB) invested part of its gold reserves (465,619 ounces) in the international market through the US bank Goldman Sachs. The expiration date of the transaction, ie, the return of the metal, is February 20, 2017. The profitability of this investment for the ECB was expected to be in the range of US $ 16 million to US $ 20 million. In addition, as a result of this transaction, the Ministry of Finance was reported to have agreed to a Goldman loan of USD 400 million at a rate of 4, 3% per year. 8. Production must be reduced The agreement of the Organization of Petroleum Exporting Countries (OPEC) came into effect on January 1 to reduce daily crude production and stabilize the price. The agreement is valid for six months, but may be extended for a similar period. Ecuador, the smallest country in the group, is expected to reduce production by 26,000 barrels per day. That means that the country’s daily oil production must fall from 549 000 barrels per day, which were recorded up to October, to 522 000 until next June. The Government has not yet explained how it will apply it. 9. Safeguards apply until June By June 2017 the dismantling of the balance of payments safeguards is planned. The reduction schedule is gradual and will be applied between April and June of this year. Products that now have 15% surcharge will pay 10% in April, 5% in May and in June will be completely dismantled. While those with 35% of the safeguard will pass to 23.3% in April, 11.7% in May and in June, finally, will be free of surcharge. As of this year, in addition, the quotas for the import of vehicles of any origin were raised, but they maintain the surcharges. 10. Banks must bring capital On November 24, 2016, the Monetary and Financial Board issued a resolution with which it modified the calculation of the Domestic Liquidity Coefficient (CLD) , thus determining the proportion of money that banks should have in the country. In this way five large institutions were obliged to bring the country around USD 560 million. This measure had to be fulfilled at the beginning of 2017, but that generated costs for the banking, reason why the Board extended the term. They now have until March 29 to comply with the provision. Read Article