Attitude toward Foreign Direct Investment
Ecuador is open to foreign investment (FDI) in most sectors. Although Ecuador has taken steps recently intended to attract FDI, its overall investment climate remains challenging as Ecuador’s economic, commercial, and investment policies are often subject to change. The regulatory framework has specifically targeted the banking and media sectors, negatively affecting these industries. Frequent changes in Ecuador’s import policies and tax code make business planning difficult.
In general, the legal complexity resulting from the inconsistent application and interpretation of existing laws complicates enforcement of contracts and increases the risks and costs of doing business in Ecuador. Business disputes with U.S. companies can become politicized, especially in sensitive areas such as the energy sector. Several high level investment disputes involving U.S. companies, mostly linked to the energy sector, are under international arbitration.
Other Investment Policy Reviews
In the past three years, Ecuador has not conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD), World Trade Organization (WTO), or United Nations Conference on Trade and Development.
Laws/Regulations on Foreign Direct Investment
The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, includes provisions to improve tax stability and lower the income tax rate in the mining sector.
The Superintendence of Companies, Securities, and Insurance offers information for registering businesses on its website at http://www.supercias.gob.ec/.
Business Registration
Ecuador’s business registration website is http://www.supercias.gob.ec/portalConstitucionElectronica/
A newly created company will at a minimum be required to register with the Superintendence of Companies, the municipal government, the Internal Revenue Service, and the Social Security Institute.
The Ecuadorian government defines a micro-sized enterprise as one having up to 10 employees, a small-sized enterprise as one having up to 50 employees, and a medium-sized enterprise as one having between 50 and 100 employees. The Ecuadorian government provides some tax incentives for micro, small, and medium-sized businesses.
Industrial Promotion
The Coordinating Ministry of Strategic Sectors publishes a catalogue of investments in strategic sectors on its website at http://www.sectoresestrategicos.gob.ec/.
The Coordinating Ministry for Production, Employment, and Competitiveness offers information on investing in Ecuador on its website at http://www.produccion.gob.ec/.
Limits on Foreign Control and Right to Private Ownership and Establishment
One hundred percent foreign equity ownership is allowed without the need for authorization or prior screening in sectors open to domestic private investment.
Articles 313 through 315 of the 2008 Constitution establish that the state is responsible for management of strategic sectors through state-owned or controlled companies. The sectors identified include: energy, telecommunications, non-renewable natural resources (includes petroleum, natural gas, and mining), transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony. In the last few years, new state companies were formed in mining and pharmaceuticals.
For license and franchise transactions, no limits exist on royalties that may be remitted. All license and franchise agreements must be registered with the Ecuadorian Intellectual Property Institute (IEPI). In addition to registering with the Superintendence of Companies, Securities, and Insurance, foreign investors must register investments with Ecuador’s Central Bank for statistical purposes.
Selected Sectors:
Petroleum
Per the 2008 Constitution, all subsurface resources belong to the state. The petroleum sector is controlled by two state owned enterprises (SOEs). Ecuador has signed several contracts with multinational petroleum services companies since 2014. Most fuel prices are controlled and subsidized by the central government.
Mining
The Ecuadorian government has taken steps to reduce taxes in the mining sector in order to attract foreign direct investment. Presidential Decree 475, published in October 2014, altered the windfall tax calculation. The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, included provisions to improve tax stability and lower the income tax rate in the mining sector. The Government of Ecuador also created a separate ministry of mines, which was previously within the Ministry of Non-Renewable Resources.
Electricity
The Organic Law for the Public Service of Electric Energy, which took effect in January 2015, permits some private sector participation and foreign investment in Ecuador’s electricity sector. Per the 2008 Constitution, the electricity sector is a public service and strategic sector.
Telecommunications
In February 2015, Ecuador’s National Assembly passed a telecommunications law that requires telecommunications companies to pay a percentage of revenue to the government. This requirement applies to providers of cellular and fixed line telephone service, internet service, and subscription television with more than 30 percent of market share. The payments range from 0.5 to 9 percent of revenue.
Media
The 2013 Communications Law prohibits partial or total ownership of media businesses by foreign companies or citizens that do not reside permanently in Ecuador. This provision applies to all media owners (radio, subscription video, audio, television, and printed press) with products that reach 30 percent or more of the population. Implementing regulations for the law softened this prohibition to allow citizens or companies from countries that have signed bilateral commercial or economic agreements with Ecuador to own media companies. The United States has no such agreement with Ecuador. The Communications Law also introduced a requirement that advertising disseminated in Ecuador must have 80 percent domestic content. It also requires that television and radio frequencies are distributed 33 percent to private media, 33 percent to public media, and 34 percent to community media.
The government controls a large share of radio, television, and other press holdings. Article 312 of the Constitution prohibits financial institutions, their shareholders, board members, and legal representatives from media ownership. In addition, the Organic Law for Regulation and Control of Market Power, enacted in October 2011, prohibits anyone possessing more than a six percent interest in a media company from investing in any other business sector.
Fishing
Foreign investment in domestic fishing operations is subject to approval by the National Fisheries Development Council. Extractive fishing by foreign companies is permitted provided that the catch is processed in Ecuador.
Privatization Program
Ecuador is not implementing a privatization program.
Screening of FDI
One hundred percent foreign investment in domestic companies is allowed without prior authorization or screening in sectors open to domestic private investment.
Competition Law
The Superintendence of Control of Market Power reviews transactions for competition-related concerns.