2017 Investment Climate Statements: Ecuador

Policies Toward Foreign Direct Investment

Ecuador is open to FDI in most sectors. The 2008 Constitution established that the state reserves the right to manage strategic sectors through state-owned or controlled companies. The sectors identified are energy, telecommunications, non-renewable natural resources, transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony. Although Ecuador recently took some steps intended to attract FDI, its overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change. FDI inflow remains very low when compared to other countries in the region.

In general, the legal complexity resulting from the inconsistent application and interpretation of existing laws and regulations increases the risks and costs of doing business in Ecuador. Disputes with U.S. companies can become politicized, especially in sensitive areas such as the energy sector. Ecuador has been involved in several high profile investment disputes with U.S. companies. Chevron, Conoco Phillips, Occidental Petroleum Corporation, and Murphy Oil Corporation were awarded damages in international arbitration rulings against Ecuador in the last two years.

The Institute for Export and Investment Promotion (PRO ECUADOR) is Ecuador’s export promotion agency. PRO ECUADOR maintains U.S. offices in Chicago, Los Angeles, Miami, and New York.

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.

For license and franchise transactions, no limits exist on royalties that may be remitted, although financial outflows are subject to a five percent capital exit tax. 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.

Sectors of interest to Foreign Investors:

• Automotive: the Ministry of Foreign Trade announced September 30, 2016, the elimination of quotas for automobile imports beginning January 1, 2017. This action removed an important restriction on U.S. automobile exports to Ecuador.

• Petroleum: per the 2008 Constitution, all subsurface resources belong to the state. The petroleum sector is controlled by two state owned enterprises (SOEs). 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 FDI. 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.

• 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 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 shareholders and representatives of financial institutions from media ownership. In addition, the 2011 Organic Law for Regulation and Control of Market Power prohibits anyone possessing more than a six percent interest in a media company from investing in any other business sector.

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 (UNCTAD).

Business Facilitation

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 Superintendence of Companies, Securities, and Insurance offers information for registering businesses on its website at http://www.supercias.gob.ec/ .

Outward Investment

Ecuador does not restrict foreign investors from investing abroad. Foreign investments are subject to a capital exit tax of five percent.

In February 2017, voters passed a government-backed referendum prohibiting elected officials and public servants from having financial interactions with official lists of tax havens and other suspect jurisdictions. The lists include several U.S. states and territories. The National Assembly has one year to implement the prohibition.

Ecuador’s National Assembly voted on May 3 to terminate 12 of its bilateral investment treaties, including its agreement with the United States. The Government of Ecuador notified the U.S. government of its withdrawal from the BIT on May 18. Article 12 of the U.S.-Ecuador BIT specifies that the treaty is terminated 12 months after either side gives the other written notification of its intent to withdraw. The treaty further specifies that all U.S. investments in place at the date of termination enjoy the protections of the treaty for the subsequent ten years. In justifying the decision, then-president Rafael Correa said that the BIT was inconsistent with Article 422 of Ecuador’s constitution, which prohibits Ecuador from entering into treaties that cede sovereign jurisdiction to international arbitration in contractual or commercial disputes between Ecuador and individuals or private companies.

The accession of Ecuador to the European Union’s Multiparty Trade Agreement with Colombia and Peru became effective January 1, 2017. Ecuador is currently negotiating trade agreements with South Korea and the European Free Trade Association, which includes Switzerland, Norway, Liechtenstein, and Iceland. Ecuador is negotiating limited trade agreements with Nicaragua and El Salvador.

Ecuador does not have a bilateral taxation treaty with the United States.

Transparency of the Regulatory System

Economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador. Regulatory agencies are not required to publish proposed regulations before enactment and rulemaking bodies are not required to solicit public comments on proposed regulations. The ministries generally consult with relevant national actors when drafting regulations, but not always.

The Government of Ecuador publishes regulatory actions in the Official Registry and posts them online at https://www.registroficial.gob.ec/ .

There are no identified informal regulatory processes led by private sector associations or nongovernmental organizations.

International Regulatory Considerations

Ecuador is a member of the Andean Community of Nations (CAN) along with Bolivia, Colombia, and Peru. Ecuador is an associate member of the Southern Cone Common Market (MERCOSUR).

Legal System and Judicial Independence

Ecuador has a civil codified legal system. Systemic weakness in the judicial system and its susceptibility to political and economic pressures constitute challenges faced by U.S. companies investing in Ecuador. Enforcement of contract rights, equal treatment under the law, intellectual property protections, and unstable regulatory regimes are concerns for foreign investors.

Laws and Regulations on Foreign Direct Investment

Ecuador does not have laws specifically on FDI. 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.

Competition and Anti-Trust Laws

The Superintendence of Control of Market Power reviews transactions for competition-related concerns. Ecuador’s 2011 Organic Law for Regulation and Control of Market Power includes mechanisms to prevent, control, and sanction market power abuses, restrictive market practices, economic concentration, and unfair competition. The Superintendence of Control of Market Power, can fine companies found to be in violation of the law up to 12 percent of gross revenue.

Expropriation and Compensation

The Constitution establishes that the state is in charge of managing the use and access to land, while recognizing and guaranteeing the right to private property. It also provides for the redistribution of land if it has not in active use for more than two years. The 2015 Telecommunications Law allows expropriation of private land in accordance with the rules and procedures of the law when necessary for the installation of network infrastructure.

Under the U.S.-Ecuador BIT, expropriation can only be carried out for a public purpose, in a nondiscriminatory manner, and upon payment of prompt, adequate, and effective compensation.

Dispute Settlement

ICSID Convention and New York Convention

Ecuador withdrew from the International Centre for the Settlement of Investment Disputes (ICSID Convention) in 2010. Ecuador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Ecuador’s National Assembly voted on May 3 to terminate 12 of its bilateral investment treaties, including its agreement with the United States. The Government of Ecuador notified the U.S. government of its withdrawel from the BIT on May 18. Article 12 of the U.S.-Ecuador BIT specifies that the treaty is terminated 12 months after either side gives the other written notification of its intent to withdraw. The treaty further specifies that all U.S. investments in place at the date of termination enjoy the protections of the treaty for the subsequent ten years.

International Commercial Arbitration and Foreign Courts

A number of U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed for international arbitration due to investment claims. The GOE has treated these disputes as a political issue, speaking negatively about investors involved in these cases.

Bankruptcy Regulations

Ecuador is ranked 157 out of 190 in the category of Ease of Resolving Insolvency in the 2016 World Bank’s Doing Business Report.

With the goal of protecting consumers and preventing a real estate bubble, the National Assembly approved in June 2012 a law that allows homeowners to default on their first home and car loan without penalty if they forfeit the asset. The provisions do not apply to homes with a market value of more than 500 times the basic salary (currently USD187,500) or vehicles worth more than 100 times the basic salary (currently USD 37,500).

Investment Incentives

In December 2015, Ecuador’s National Assembly approved a Public-Private Partnership law intended to attract investment. The law offers incentives including the reduction of the income tax, value added tax, and capital exit tax, for investors in certain projects. It designates Latin American arbitration bodies as the dispute resolution mechanism. The law came into effect upon publication in the official registry on December 18, 2015.

The Organic Law of Production Incentives and Tax Fraud Prevention, which took effect on December 30, 2014, provides tax incentives related to depreciation calculations and income tax rates, which could benefit some foreign investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

The 2010 Production Code authorized the creation of Special Economic Development Zones (ZEDEs) that are subject to reduced taxes and tariffs. The government considers the extent to which projects promote technology transfer, innovation, and industrial diversification when granting ZEDE status.

Performance and Data Localization Requirements

On October 11, 2016, Ecuador’s National Assembly passed the Code of the Social Economy of Knowledge, Creativity, and Innovation, covering a wide range of intellectual property matters. Article 148 of the Code establishes that agencies must give preference to open source software with content developed in Ecuador when procuring software for government use.

Visa and residency requirements are relatively relaxed and do not inhibit foreign investment.

COMEX Resolution 011-2015 placed tariff surcharges of five percent to 45 percent on about 3,000 tariff lines beginning in March 2015. Ecuador began easing the surcharges in January 2016. As of April 2017, surcharges are applied on about 2,200 products at either 23.3 percent or 10 percent. Ecuador committed to the WTO to eliminate the surcharges by June 2017.

Real Property

Ecuador ranks 69 out of 190 in the 2016 World Bank’s Doing Business Report’s category for Ease of Registering Property. Foreign citizens are allowed to own land.

Intellectual Property Rights

Enforcement against intellectual property infringement remains a problem in Ecuador.

In April 2016, the United States Trade Representative moved Ecuador from Priority Watch List to Watch List to in its annual Special 301 Report on intellectual property and remains on the Watch List in 2017. This decision was in recognition of Ecuador’s passage of an amendment reinstating criminal procedures and penalties for intellectual property violations.

Piracy of computer software and counterfeit activity in brand name apparel is widespread. Pirated CDs and DVDs are readily available on many streets and in shopping malls. Weak copyright enforcement remains a significant problem.

The Ecuadorian Intellectual Property Institute (IEPI) was established in January 1999 to handle patent, trademark, and copyright registrations. IEPI reports information on its activities on its website at http://www.propiedadintelectual.gob.ec/ .

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The 2014 Law to Strengthen and Optimize Business Partnerships and Stock Markets created the Securities Market Regulation Board to oversee the stock markets. Investment options on the Quito and Guayaquil stock exchanges are very limited. Sufficient liquidity to enter and exit sizeable positions does not exist in the local markets.

Money and Banking System

The country’s largest banks are Banco Pichincha with about USD 10 billion in assets, Banco Pacifico with about USD 5.2 billion, Banco Produbanco with about USD 4 billion, and Banco Guayaquil with about 3.9 billion.

Ecuador’s Superintendence of Banks regulates the countries financial sector. Between 2012 and 2013, the financial sector was the target of numerous new restrictions. By 2012, most banks had sold off their brokerage firms, mutual funds, and insurance companies to comply with constitutional changes following a May 2010 referendum. The amendment to Article 312 of the Constitution required banks and their senior managers and shareholders with more than six percent equity in financial entities to divest entirely from any interest in all non-financial companies by July 2012. These provisions were incorporated into the Anti-Monopoly Law passed in September 2011.

The Organic Monetary and Financial Code, published in the official registry September 12, 2014, created a five-person Monetary and Financial Policy and Regulation Board of presidential appointees to regulate the banking sector. The law gives the Monetary and Financial Policy and Regulation Board the ability to prioritize certain sectors for lending from private banks. The law also created an electronic currency to be administered by Ecuador’s Central Bank and backed by its assets.

The Central Bank issued Regulation 29 in July 2012, requiring all financial transfers (inflows and outflows) to be channeled through the Central Bank’s accounts. In principle, the regulation increases monetary authorities’ oversight and prevents banks from netting their inflows and outflows to avoid paying the five percent capital exit tax.

Foreign Exchange and Remittances

Foreign Exchange

Ecuador adopted the U.S. dollar as the official currency in 2000. Foreign investors may remit 100 percent of net profits and capital, subject to a five percent capital exit tax. There are no restrictions placed on foreign investors in transferring or repatriating funds associated with an investment.

Remittance Policies

Resolution 107-2015-F from Ecuador’s Monetary and Finance Board issued in July 2015 exempted some payments to foreign lenders from the capital exit tax. Among other requirements, the duration of the loan must be more than 360 days, the loan must be registered with the Central Bank, and the resources must be destined for specific purposes such as to fund small businesses or social housing.

The Financial Action Task Force (FATF) announced October 23, 2015 that it had removed Ecuador from the list of countries with strategic deficiencies in anti-money laundering and countering the financing of terrorism (AML/CFT) regimes.

Sovereign Wealth Funds

The Government of Ecuador does not maintain a Sovereign Wealth Fund (SWF).

SOEs in Ecuador are concentrated primarily in the petroleum, electricity, and telecommunications sectors. The government also owns an airline, a railroad company, a cement company, and a university. Two SOEs, Petroamazonas and Petroecuador, control the petroleum sector .

The 2009 Organic Law of Public Enterprises regulates state-owned enterprises (SOEs). SOEs are most active in areas designated by the 2008 Constitution as strategic sectors. Ecuador’s Coordinator of Public Companies maintains a list of SOEs at http://www.emco.gob.ec/empresas-publicas/ 

SOEs follow a special procurement regime with greater flexibility and limited oversight. The Law of Public Enterprises requires SOEs to follow generally accepted accounting principles; however, SOEs are not required to follow the same accounting practices as the central government, nor do they have to participate in the electronic financial management system used in most of the public sector for budget and accounting management. SOEs are eligible for government guarantees, and face lower tax burdens than private companies.

Ecuador is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization.

Privatization Program

Ecuador is not implementing a privatization program.

Article 66 of the 2008 Constitution guarantees the right to pursue economic activities in a manner that is socially and environmentally responsible. NGOs such as the Institute of Corporate Social Responsibility and the Ecuadorian Consortium for Social Responsibility promote responsible business conduct. Many Ecuadorian companies have programs to further responsible business conduct within their organizations.

Corruption is a serious problem in Ecuador. Ecuadorian law provides criminal penalties for corruption by public officials, but the government does not implement the law effectively, and officials may engage in corrupt practices with impunity. Ecuador ranked 120 out of 176 countries surveyed for Transparency International’s 2016 Corruption Perceptions Index and received a score of 31 out of 100. Two high-profile cases of alleged official corruption involving state-owned petroleum company PetroEcuador and Brazilian construction firm Odebrecht illustrate the significant challenges that confront Ecuador with regards to corruption.

Illicit payments for official favors and theft of public funds reportedly take place frequently. Dispute settlement procedures are complicated by the lack of transparency and inefficiency in the judicial system. Offering or accepting a bribe is illegal and punishable by imprisonment for up to five years. The Controller General is responsible for the oversight of public funds and there are frequent investigations and occasional prosecutions for irregularities.

Ecuador ratified the UN Anticorruption Convention in September 2005. Ecuador is not a signatory to the OECD Convention on Combating Bribery. The 2008 Constitution created the Transparency and Social Control branch of government, tasked with preventing and combating corruption, among other things. In December 2008, President Correa issued a decree that created the National Secretariat for Transparency to investigate and denounce acts of corruption in the public sector. Both entities can conduct investigations into alleged acts of corruption. Responsibility for prosecution remains with the Office of the Prosecutor General.

Through the Function of Transparency and Social Control, alleged acts of corruption can be reported by dialing 159 within Ecuador. The Council for Citizen Participation and Social Control also maintains a web portal for reporting alleged acts of corruption: http://www.cpccs.gob.ec .

Ecuador does not have a tradition of frequent violence as a result of demonstrations or political instability. Student, labor union, and indigenous protests against government policies have been a regular feature of political life in Ecuador. While disruptive, especially to transportation, violence is usually limited and localized. Popular protests in 1997, 2000, and 2005 contributed to the removal of three elected presidents before the end of their terms. Large-scale but peaceful demonstrations against the Correa government occurred in June 2015. Some indigenous communities opposed to development have blocked access by petroleum and mining companies.

Semi-skilled and unskilled workers are relatively abundant at low wages. The supply of available workers is high due to layoffs in sectors affected by the downturn in Ecuador’s economy since 2014. The National Wages Council and Ministry of Labor Relations set minimum compensation levels for private sector employees annually. The minimum basic salary for 2017 is USD 375 per month.

Ecuador’s Production Code requires that workers be paid a dignified wage, defined as an amount that would enable a family of four with 1.6 wage earners to be able to afford the basic necessities. The cost and the products that are considered basic necessities are determined by Ecuador’s Statistics Institute (INEC). In February 2017, the cost of basic necessities was USD 708.52, while the official family wage level is at USD 700. As of December 2016, INEC estimated 41.2 percent of workers had adequate employment. INEC defines adequate employment as earning at least the minimum basic salary working 40 hours per week.

Ecuador’s National Assembly passed a labor reform law in March 2016 intended to promote youth employment, support unemployed workers, and introduce greater labor flexibility for companies suffering from reduced revenue. The law established a new unemployment insurance program, a subsidized youth employment scheme, temporary reductions in workers’ hours for financially-strapped companies, and nine months of unpaid maternity or paternity leave.

The Law for Labor Justice and Recognition of Work in the Home, which included several changes related to labor and social security, took effect in April 2015. The law limits the yearly bonus paid to employees, which is equal to 15 percent of companies’ profits and is required by law, to 24 times the minimum wage. Any surplus profits are to be handed over to IESS. The law also mandates that employees’ thirteenth and fourteenth month bonuses, which are required by law, be paid in installments throughout the year instead of in lump sums. Employees have the option to opt out of this change and continue to receive the payments in lump sums. The law eliminates fixed-term employee contracts and replaced them with indefinite contracts, which shortens the allowable trial period for employees to 90 days. The law also allows participation in social security pensions for non-paid work at home.

The Labor Code provides for a 40-hour work week, 15 calendar days of annual paid vacation, restrictions and sanctions for those who employ child labor, general protection of worker health and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits. The 2008 Constitution bans child labor, requires hiring workers with disabilities, and prohibits strikes in most of the public sector. Unpaid internships are not permitted in Ecuador.

Most workers in the private sector and at SOEs have the constitutional right to form trade unions and local law allows for unionization of any company with more than 30 employees. Private employers are required to engage in collective bargaining with recognized unions. The Labor Code provides for resolution of conflicts through a tripartite arbitration and conciliation board process. The Code also prohibits discrimination against union members and requires that employers provide space for union activities.

Workers fired for organizing a labor union are entitled to limited financial indemnification, but the law does not mandate reinstatement. The Public Service Law enacted in October 2010 prohibits the vast majority of public sector workers from joining unions, exercising collective bargaining rights, or paralyzing public services in general. The Constitution lists health; environmental sanitation; education; justice; fire brigade; social security; electrical energy; drinking water and sewerage; hydrocarbon production; processing, transport, and distribution of fuel; public transport; and post and telecommunications as strategic sectors. Public workers who are not under the Public Service Law may join a union and bargain collectively since they are governed by the provisions under the Labor Code.

Ecuador has an Investment Guarantee Agreement with the Overseas Private Investment Corporation. Ecuador is also a signatory to the Multilateral Investment Guarantee Agreement.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Host country data is from the Central Bank of Ecuador. The Central Bank publishes FDI calculated as net flows only. Outward Direct Investment statistics are not published by the Central Bank.
Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Portfolio investment data are not available for Ecuador.

Please contact Embassy Quito at ecuadorcommercial@state.gov