The entrepreneurial activity of foreigners in Ecuador can be effectively carried out through such organizational and legal forms of enterprises as:

• Sociedad Anónima (S.A.) - joint stock corporation
• Compañía de Responsabilidad Limitada (Cía. Ltda.) - private limited liability company
• Sucursales - a branch of a foreign company

Foreign investment is subject to mandatory approval and registration with the Central Bank of Ecuador.

Sociedad Anónima (S.A.)

To establish a joint stock corporation, at least two legal entities or individuals (residents or non-residents of Ecuador) are required, who are entitled to transfer all shares to the sole shareholder after incorporation. The maximum number of shareholders is not limited.

The liability of the shareholders of a corporation is limited to the value of their shares in the enterprise. Shareholders are free to transfer their shares to third parties.

Compañía de Responsabilidad Limitada (Cía Ltda)

A limited liability company is incorporated with a minimum capital of US$400, of which a minimum of 50% must be paid upon registration.

The liability of the shareholders of a corporation is limited to the value of their shares in the enterprise. It is allowed to issue only registered shares, which cannot be freely transferred to third parties.

A meeting of shareholders is the main governing body of both corporation and limited liability company. The shareholders appoint a Board of Directors, the chairman of which is elected by voting and is vested with all powers, except those which remains in the exclusive competence of the shareholders.

The procedure for establishing a legal entity in Ecuador includes the following steps:

• signing of constituent documents in the presence of a public notary;
• approval of constituent documents by the Office of Companies of Ecuador;
• registration of constituent documents in the Commercial Register of Ecuador;
• publication in the press of the decision on the establishment of the company. In the event that the company being founded offers its shares in public subscription, a notice must also be published in the press that the company is entered into the Ecuadorian Stock Exchange Register.

Branches of foreign companies

Branches of foreign companies are also regulated by the Ecuadorian Companies Authority. To register a branch of a foreign company, you will need, in particular:

• submit documents confirming the legal establishment of the company abroad, certified by the consul of Ecuador in the country of establishment of the foreign company;
• obtain a license to operate in Ecuador;
• issue a power of attorney to a local agent to complete all formalities related to the requirements of the Office of the Companies.

All legal entities and branches foreign companies in Ecuador must annually submit financial statements, both to the tax authorities and to the Ecuadorian Companies Office, which is the regulatory body for all legal entities in the country. All businesses must maintain accounting records in US$ in accordance with Ecuadorian accounting standards.

Taxes

Profits of legal entities in Ecuador are subject to income tax.

The following types of income are not taxed in Ecuador:

• dividends received from local companies;
• profit from a one-time sale of real estate and capital gains as a result of the sale of shares or participation in the capital of the enterprise;
• interest income from invested funds and income from trusts;
• profit from investments in non-cash form in government projects for the development of deposits;
• tax-free profits from activities regulated by international agreements.

Business expenses for businesses in Ecuador include salaries, benefits, depreciation, travel expenses, insurance premiums, interest, seniority benefits and expenses related to exchange rates. Allowed expenses for which an Ecuadorian company has the right to reduce its taxable base also include:

• payment for imports;
• commission and interest for foreign loans and credits;
• commission to a foreign agent for export (maximum 2% of the value of exported products);
• secondary insurance;
• payment for printed materials;
• chartering of aircraft or ships;
• payment for the right to use video products;
• payment of equipment rental.

At least 15% of the company's profits must be distributed among employees before tax.

At least 10% of the net profit of corporations and 5% of the net profit of limited liability companies are deducted as a statutory reserve until its volume reaches 50% or 20% of the capital, respectively. This reserve cannot be distributed among shareholders until the moment of the dissolution or liquidation of the enterprise.

A minimum of 50% of the annual profits of closed companies (30% for public corporations) must be distributed among shareholders, who have the right to decide to increase the size of the distributed profits. Dividends can only be paid out of retained earnings.

Ecuador Double Taxation Agreements

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