2022 Investment Climate Statements: Ecuador

Policies Towards 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 (flora, fauna, and ancestral knowledge). Although in recent years Ecuador took steps to attract FDI, its overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change. From January to September 2021 (latest information available), FDI flows to Ecuador were USD 493 million, a 50 percent decrease compared to 2020 levels (USD 986 million) and 23 percent lower than 2019 levels (USD 642 million). FDI continues to be very low compared to other countries in the region.

There are no laws or practices that discriminate against foreign investors, but 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. Under the prior Correa administration, disputes involving U.S. companies were politicized, especially in sensitive areas such as the energy sector. This resulted in several high-profile international investment dispute cases, with companies awarded damages in international arbitral rulings against Ecuador in the last few years. One case is still pending final arbitral ruling.

Limits on Foreign Control and Right to Private Ownership and Establishment

[Please use U.S. Department of Commerce key words for industries in this section, list available at https://www.trade.gov/industries-0 ]

Foreign and domestic private entities are allowed to establish and own business enterprises and engage in all forms of remunerative activity, with limitations in strategic sectors as enumerated in the Constitution. Ecuador does not have a single national-level interagency investment screening system for FDI. Each ministry analyzes investments and assesses FDI risks. One hundred precent foreign equity ownership is allowed.

For license and franchise transactions, no limits exist on royalties that may be remitted, although financial outflows are subject to a 4.5 percent capital exit tax. The Lasso administration committed to the gradual phaseout of Ecuador’s capital exit tax (ISD) over the next four years starting in 2022 with a quarterly reduction of 0.25 percent. President Lasso signed September 2 executive decree 182 removing the ISD on the international aviation and maritime cargo sectors. All license and franchise agreements must be registered with the National Service for Intellectual Property Rights (SENADI). 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.

Other Investment Policy Reviews

Ecuador conducted a trade policy review with the World Trade Organization in March 2019; information can be found at https://www.wto.org/english/tratop_e/tpr_e/tp483_e.htm 

In 2020, Ecuador conducted an investment policy review with the United Nations Conference on Trade and Development (UNCTAD), published in 2021. Information can be found at: https://unctad.org/node/34311 . In the past three years, Ecuador has not conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD).

Business Facilitation

ProEcuador ( https://www.proecuador.gob.ec/ ) is the government entity responsible for promoting economic development through exports, imports, and investment in Ecuador. The institution forms a Vice Ministry within the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCEIP) and has 27 offices in 23 countries, including three in the United States.

A newly created company will at a minimum be required to register with the Superintendence of Companies, Securities, and Insurance ( http://www.supercias.gob.ec/ ), the municipal government, the Internal Revenue Service (SRI), and the Social Security Institute (IESS). The registry with the Superintendence of Companies is a completely online process as of April 2019. The incorporation of companies in Ecuador grew 44 percent in 2021 (15,714 new companies), propelled by the introduction of the simplified joint-stock company (SAS). The SAS came into effect in May 2020 following the enactment of the Organic Law on Entrepreneurship and Innovation.

Outward Investment

Ecuador does not restrict domestic investors from investing abroad. ProEcuador is responsible for promoting outward investment from Ecuador. Foreign investments are subject to a 4.5 percent ISD. The 2021 Tax Reform Law enumerates several ISD payment exemptions to productive investment, under certain conditions. In July 2021, the Lasso administration announced a gradual ISD dismantling by sector, quickly followed up with an Executive Decree immediately eliminating ISD on the international aviation and maritime cargo sectors.

In February 2017, voters passed a government-backed referendum prohibiting elected officials and public servants from having financial dealings in tax havens and other suspect jurisdictions. The list includes several U.S. states and territories that do not have state income taxes. The prohibition entered into force in September 2017.

The United States and Ecuador signed the Protocol on Trade Rules and Transparency in December 2020 under the Ecuador-U.S. Trade and Investment Council Agreement (TIC). The Protocol entered into force in August 2021 following National Assembly ratification. The agreement updates the TIC with new annexes in four areas: Trade Facilitation and Customs Administration, Good Regulatory Practices, Anti-Corruption, and SMEs.

The Lasso administration’s tax reform legislation passed into law November 2021 with the aim of increasing tax collection by $1.9 billion over the next two years through progressive taxation. Key elements of the tax law include:

• Temporary contribution for individuals with equity exceeding $1 million with rates between 1.0 and 1.5 percent in 2022.
• Temporary contribution of 0.8 percent for corporations with equity exceeding $5 million in 2022 and 2023.
• The possibility for individuals and corporations to pay a single tax to regularize assets abroad not declared in Ecuador, paying tax rates between 3.5 and 5.5 percent.
• Permanent increase in the income tax rate for individuals according to a tax schedule, with the highest rate rising to 37 percent.
• Possibility to enter mediation with the tax authority on tax auditing process.
• Modifications to indirect taxes (VAT and Special Consumption Tax – ICE) on specific products.
• Progressive tax regime for micro-businesses with rates between 1.0 and 2.0 percent.
• Cloud and web hosting services face a 12 percent digital services VAT.

During the Correa administration, Ecuador’s National Assembly voted on May 3, 2017, to terminate the country’s 12 bilateral investment treaties, including its agreement with the United States. The Government of Ecuador notified the U.S. government of its withdrawal from the Bilateral Investment Treaty (BIT) on May 18, 2017, effective May 18, 2018. Investments made prior to withdrawal are covered for 10 years, but the abrogated BIT covers no new investments in Ecuador.

Ecuador has signed agreements to avoid double taxation with 24 countries including Argentina (1983), Germany (1987), Spain (1994), Canada (2002), Mexico (2002), the Andean Community (2005), China (2015), Belarus (2018), Russia (2019), and Japan (2020). Ecuador does not have an agreement to avoid double taxation with the United States.

Ecuador signed the Tax Information Exchange Agreement (TIEA) with the United States in April 2021, which is pending National Assembly ratification. Ecuador does not have a bilateral taxation treaty with the United States. Ecuador is not a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting.

Transparency of the Regulatory System

The Lasso administration, in office since May 2021, has stressed its desire to build the capacity of Ecuador’s weak institutions and promote democracy, transparency, and governability.  Combatting corruption is a top priority of the Lasso administration including developing state institutions to be more transparent and responsive to the Ecuadorian people and enhancing civil society’s role in promoting transparency and accountability. President Lasso has reaffirmed Ecuador’s commitment to pursue a trade policy that holistically supports workers, protects the environment, and fosters equitable and inclusive growth. However, economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador. National and municipal level regulations can conflict with each other. Regulatory agencies are not required to publish proposed regulations before enactment, and rulemaking bodies are not required to solicit public comments on proposed regulations, although there has been some movement toward public consultative processes. Government ministries generally consult with relevant national actors when drafting regulations, but not always and not broadly.

The government does not promote or require companies’ environmental, social, and governance (ESG) disclosures to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments.

The Government of Ecuador publishes regulatory actions in the Official Registry and posts them online at https://www.registroficial.gob.ec/ . Publicly listed companies generally adhere to International Financial Reporting Standards (IFRS). While there are some transparency enforcement mechanisms within the government, they tend to be weak and rarely enforced.

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). Ecuador is a member of the World Trade Organization (WTO) and notifies draft regulations to the WTO Technical Barriers to Trade (TBT) Committee. Ecuador ratified the WTO Trade Facilitation Agreement on October 16, 2018.

Legal System and Judicial Independence

Ecuador has a civil codified legal system. Systemic weakness in the judicial system and its susceptibility to external pressures constitute challenges faced by U.S. companies investing in Ecuador. While Ecuador updated its Commercial Code in May 2019, enforcement of contract rights, equal treatment under the law, intellectual property protections, and unstable regulatory regimes continue to be concerns for foreign investors.

Laws and Regulations on Foreign Direct Investment

Ecuador does not have laws specifically on FDI, but several have effects on overall 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 Organic Law of Incentives for Public-Private Associations and Foreign Investment from 2015 includes provisions to improve legal stability, reduce red tape, and exempt public private partnerships from paying income and capital exit taxes under certain conditions. The 2021 Tax Reform Law repealed the zero-tariff income tax incentives included in previous legislation and replaced them with income tax reductions. These range from three to five percentage points of the current corporate income tax rate (25 percent), provided the compliance with certain conditions. Investments done under the prior legal framework will continue to enjoy the benefits offered from that legislation. ProEcuador’s website https://www.proecuador.gob.ec/  provides a guide for investors in English and Spanish and highlights the procedures to register a company, types of incentives for investors, and relevant taxes related to investing in Ecuador.

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 control and sanction market power abuses, restrictive market practices, market concentration, and unfair competition. The Superintendence of Control of Market Power can fine up to 12 percent of gross revenue of companies found to be in violation of the law.

Expropriation and Compensation

The Constitution establishes that the state is responsible for 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 been in active use for more than two years.

The Article 101 of the 2015 Telecommunications Law grants permission for the occupation or expropriation of private property for telecommunication network installation provided there are no other economically viable alternatives. Service providers must assume costs associated with the property’s expropriation or occupation.

Dispute Settlement

ICSID Convention and New York Convention

Ecuador withdrew from the International Centre for the Settlement of Investment Disputes (ICSID Convention) in 2010 and rejoined the Convention in 2021. Ecuador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). The 2018 Productive Development Law clarifies the permissibility of international investor-state arbitration under the 2008 constitution and includes provisions permitting arbitration at venues within Latin America.

Investor-State Dispute Settlement

Ecuador’s National Assembly voted on May 3, 2017, to terminate its 12 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, 2017, with the effective date of May 18, 2018. 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 10 years. There have been numerous claims against Ecuador under the BIT that have gone to international arbitration. There are two active cases awaiting a final decision.

International Commercial Arbitration and Foreign Courts

Several U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed for international arbitration due to investment claims. The Government of Ecuador in the past treated these disputes as a political issue, speaking negatively about investors involved in these cases. Payment of arbitration awards generally takes longer than a year, although the Government of Ecuador has paid all final awards. Ecuador’s 2008 Constitution limited investor-state arbitration to regional arbitration entities and was the primary driver of the 2017 termination of BITs.

Bankruptcy Regulations

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 2022 monthly salary (currently USD 212,500) or vehicles worth more than 100 times the basic monthly salary (currently USD 42,500).

In cases of foreclosure, the average time for banks to collect on debts is 5.3 years, usually taking 4.5 years for courts to approve the initiation of foreclosures. After the appointment and acceptance of an auctioneer, it takes about six months for the auction to take place.

Investment Incentives

On November 29, 2021, a new Tax Reform Law went into effect, repealing the August 2018 National Productive Development Law that provided income tax exemptions and VAT exemptions for 12 years for certain investments. Investors who initiated the investment process under the 2018 law could obtain the 2018 tax benefits by signing with the delegating entity on behalf of the Ecuadorian government both an investment agreement by December 31, 2021 and a contract by April 30, 2022. 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. The Ecuadorian government is moving toward a Public-Private Partnership model to attract investments — particularly in the energy and transportation sectors — but does not yet offer sovereign guarantees or joint financing for those projects.

Green energy incentives include a 12-year tax exemption under the Productive Development Law. However, companies are required to submit an Investment Protection Agreement by December 30, 2021, and receive approval from MPCEIP by April 30, 2022, to receive the tax exemption benefits. The government launched a 500 MW renewable energy block of tenders December 2021. Companies must provide their own financing.

The 2021 Tax Reform Law repealed the zero-tariff income tax incentives included in previous legislation and replaced them with income tax reductions. These range from three to five percentage points of the current corporate income tax rate (25 percent), provided the compliance with certain conditions. Investments done under the prior legal framework will continue to enjoy the benefits offered from that legislation.

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; foreign-owned firms have the same investment opportunities as national firms.

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

Performance and Data Localization Requirements

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption. Article 146 of the 2014 Code of the Social Economy of Knowledge, Creativity, and Innovation establishes that data related to national security and strategic sectors must be hosted in computer centers physically located in the Ecuadorian territory. Therefore, foreign companies without local data storage facilities are unable to provide cloud services to many public sector entities under this provision. The Lasso administration pledged to remove Article 146 during its term following a July 2021 ransomware attack that Ecuador’s data localization provisions may have facilitated.

In May 2021, Ecuador´s first Personal Data Protection Law went into effect. One of its provisions establishes that the international transfer of personal data can only be made to organizations or economic territories that provide adequate levels of protection. Companies do not need prior authorization for data transfer. The regulating body, yet to be created, will define what these adequate levels entail. The law also establishes fines on data protection infractions that will come into force in mid-2023. The penalties range between 0.7 percent and 1.0 percent of revenues based on business volume.

On October 11, 2016, Ecuador’s National Assembly passed the Code of the Social Economy of Knowledge, Creativity, and Innovation (Ingenuity Code), 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. Executive Decree 1073 of June 2020 mandated an order of preference when procuring software for the government: 1) Open-Source; 2) Ecuadorian-Developed; 3) Software with Some Ecuadorian Content; and 4) Internationally Developed.

Real Property

Foreign citizens are allowed to own land. Mortgages are available, and the property title registration system is generally reliable.

Intellectual Property Rights

Enforcement against intellectual property infringement in Ecuador remains challenging. In April 2016, the United States Trade Representative moved Ecuador from Priority Watch List to Watch List in its annual Special 301 Report on intellectual property, and Ecuador has remained on the Watch List since that time. In December 2020, SENADI issued implementing regulations for the Code of Knowledge, Creativity, and Innovation Social Economy (Ingenuity Code) – the legislation that covers intellectual property rights. The regulations do not address concerns raised by the U.S. Government and various stakeholders on issues related to copyright exceptions and limitations, patentable subject matter, and geographical indications (GIs), including opposition procedures for proposed GIs, the treatment of common food names, and the protection of prior trademark rights.

The Lasso administration plans additional revisions to the Ingenuity Code, though has not communicated a timeframe. Enforcement of intellectual property (IP) rights against widespread counterfeiting and piracy remains weak, including online and in physical marketplaces. Ecuador is also reportedly a source of unauthorized camcording. Online piracy continues to be a problem despite some increased enforcement activity, and Ecuador has not yet established notice-and-takedown and safe harbor provisions for Internet service providers. Customs enforcement on an ex-officio basis is weak, including actions against goods in transit. SENADI has limited enforcement capacity and remains hampered by a lack of funding and personnel due to budget cuts. SENADI was established in January 1999 to handle patent, trademark, and copyright registrations. SENADI 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. The five percent capital exit tax also inhibits free flow of financial resources into the product and factor markets. Ecuador is a small market that has relied almost exclusively on the financial sector to undertake medium and short-term financing operations. Foreigners can access credit on the local market. In 2021, the Central Bank of Ecuador (BCE) designed a new methodology to set interest rates aimed at increasing financial inclusion and including technical factors for better determination. Despite these changes, the Government continues setting interest rate ceilings and controls.

Money and Banking System

Ecuador is a dollarized economy, and its banking sector is healthy. According to the Ecuadorian Central Bank’s Access to the Financial System Report, as of September 2020, 75 percent of the adult (over 15 years old) population (8.5 million people) has access to financial products and services. As of December 2021, Ecuador’s banks hold in total USD 51.9 billion in assets, with the largest banks being Banco Pichincha with USD 13.3 billion in assets, Banco del Pacifico with USD 6.9 billion, Banco de Guayaquil with USD 6.3 billion, and Produbanco with USD 6.1 billion. The Banking Association (ASOBANCA) estimates 2.3 percent of loans are non-performing. Foreigners require residency to open checking accounts in Ecuador.

Ecuador’s Superintendence of Banks regulates the 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 2021 Law for the Defense of Dollarization established that the Monetary and Financial Policy and Regulation Board be divided into a Monetary Policy and Regulation Board and a Financial Policy and Regulation Board. The latter should oversee the interest rate system jointly with the BCE as the technical entity. The law gives the Financial Policy and Regulation Board the ability to prioritize certain sectors for lending from private banks. There are 24 private banks in Ecuador as of December 2021.

A 2018 BCE resolution that ordered electronic money accounts closure effectively eliminated electronic currency. However, banks handle transactions by electronic or digital means for transferences and/or payments to transfer resources and/or payments according to the authorization of the Superintendence of Banks. BCE resolutions were integrated into the Codification of Monetary, Financial, Insurance, and Securities Resolutions. This regulatory body requires all financial transfers (inflows and outflows) to be channeled through the BCE’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 currency 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 4.5 percent currency 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. Ecuador is a member of the Latin American Financial Action Group (GAFILAT), a FATF-style regional body. Ecuador’s most recent Mutual Evaluation Report (MER) is available in Spanish only at: http://www.gafilat.info/index.php/es/biblioteca-virtual/miembros/ecuador/evaluaciones-mutuas-7/131-ecuador-3era-ronda-2011. Because of the COVID-19 pandemic, GAFILAT delayed Ecuador’s next Mutual Evaluation Report (MER) from 2021 to 2022. The MER will conclude with final discussions and GAFILAT will issue an updated report by December 2022.

Sovereign Wealth Funds

The Government of Ecuador does not maintain a Sovereign Wealth Fund (SWF). Approved in July 2020, Ecuador’s Public Finance Law (COPLAFIP) established a Fiscal Stabilization Fund to invest excess revenues from extractive industries and hedge against oil and metal price fluctuations.

Ecuador has a total of 17 SOEs. The major SOEs include those for petroleum (Petroecuador), electricity (Electricity Corporation of Ecuador – CELEC – and the National Corporation for Electricity – CNEL), and telecommunications (National Corporation of Telecommunications – CNT). The 17 SOEs combined have approximately 30,000 employees. As part of the government’s austerity measures to deal with the COVID-19-related economic crisis, the Lasso administration continued with the SOE liquidation processes started in May 2020. As of September 2021, there were three liquidated SOEs (Manufacture Ecuador, Pharmaceutical Public Company, Public Cement Company) and eight in the process of liquidation, including the state-owned airline (TAME), railroad company (Ecuadorian Railways Company), a social development firm using profits from natural resource revenues (Strategic Ecuador), training centers for athletes (High Performance Training Centers), an agricultural storage company (National Storage Units), the public media company, and a science and technology research firm (Siembra EP, formerly Yachay City of Knowledge). In February 2021, the government announced that Ecuador Post Office will be replaced by Ecuador Postal Services (SPE). Ecuador’s Coordinator of Public Companies maintains a list of SOEs at: https://www.emco.gob.ec/Emco2/empresas-publicas-2/ .

The 2009 Organic Law of Public Enterprises regulates SOEs. SOEs are most active in areas designated by the 2008 Constitution as strategic sectors. 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. Still, 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. SOEs generally do not have professionally audited financial statements. The Ministry of Economy and Finance approves SOEs’ annual budgets and often slows distribution of funds to SOEs to compensate for other government expenditures.

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

Privatization Program

The Ecuadorian Constitution prohibits privatization of state-owned enterprises. Still, the Ecuadorian government is seeking to offer long-term concessions and joint-venture agreements with its SOEs to operate some of its assets in strategic sectors including oil and gas exploration and production, electricity generation, and mining. In addition, MPCEIP is considering projects to be developed as potential PPPs.

Article 66 of the 2008 Constitution guarantees the right to pursue economic activities in a manner that is socially and environmentally responsible. Civil society groups 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. Ecuador joined the Extractive Industries Transparency Initiative (EITI) in October 2020. The country still needs to comply with additional requirements to become a full member. Currently, Ecuador is preparing its Work Plan and is expected to deliver the first country report in April 2022. EITI validation will commence within two and a half years of becoming a candidate (by 5 April 2023).

A number of local and indigenous communities are active in opposing extractive industry projects in their territories, though some communities have welcomed responsible mining companies that are generating employment and bringing benefits to the local people. Ecuador’s Constitutional Court affirmed communities have the right to vote on whether to allow large-scale mining projects near their water sources in a September 2020 ruling on a plebiscite proposed by the Cuenca municipality. The Ecuadorian government is also legally obligated to carry out previous consultation (consulta previa) with indigenous groups and other communities per the Ecuadorian Constitution and its commitments under International Labor Organization Convention 169 and the United Nations Declaration on the Rights of Indigenous Peoples. Ecuador’s Organic Law for Citizen Participation also mandates free, prior, and informed consultations (FPIC) on matters that may impact the environment, culture, and social wellbeing of local people. Ecuador’s 2018 Organic Law for the Integral Planning of the Amazon Region provides for the distribution of extractive industry income for the benefit of local communities affected by the sector’s operations. Still, few financial benefits have trickled down to local communities historically and instead royalties often serve to cover expenses from national and subnational government agencies.

Ecuador has no established protocols for the consultations with indigenous groups and other local communities, leading to political tensions and protests particularly in areas with oil drilling and mining projects. Local and indigenous opposition to mining projects has stalled numerous mining concessions in recent years, including the San Carlos-Panantza Copper Mine and the Rio Blanco Gold Mine. A triumvirate of indigenous groups, including the Confederation of Indigenous Nationalities of Ecuador (CONAIE), filed a lawsuit October 2021 with the Constitutional Court. They demand the Court nullify President Lasso’s Executive Decree 95 related to the oil sector on the basis that the decree violates the FPIC requirement in the Constitution. Although the Constitutional Court has not ruled on the Executive Decree’s constitutionality, in February 2022 the Court called for stronger protections to guarantee indigenous communities’ rights to decide on extractive projects in their territories. Indigenous people and their organizations are seeking more equitable and transparent processes that empower indigenous nations to attract select extractives in their territories and negotiate fair royalties.

Ecuadorian law prohibits all forms of forced or compulsory labor, including all forms of labor exploitation and child labor. Article 42 of the labor code establishes that all companies engaged in global or domestic supply chains are required by law to pay minimum wage, ensure eight-hour workdays, and pay into social security. The Ministry of Labor’s Directorate for Control and Inspections is responsible for enforcement of labor laws. Ecuador currently has four products included on the Department of Labor’s Bureau of International Labor Affairs list of goods that it has reason to believe are produced by child labor or forced labor in violation of international standards, as required under the Trafficking Victims Protection Reauthorization Act (TVPRA) of 2005. These products include bananas, bricks, flowers, and gold. Ministry of Labor (MoL) officials received reports of child labor and conducted inspections but did not furnish specific or aggregated data on the number of inspections or child labor incidences in the production of bananas, bricks, gold, or flowers in 2020 or 2021.

Ecuador’s flower production consortium, in coordination with the International Labor Organization and the MoL, undertook a series of efforts to eliminate child labor from flower farms in 2020. The MoL reported that labor inspections of large flower farms in 2020 in Pichincha province did not find instances of child labor. This positive outcome is largely because these farms are part of the Business Network for a Child-Labor-Free Ecuador and are committed to the elimination of child labor. Despite their progress, flower exporting consortiums continue to resist a diagnostic survey to demonstrate the elimination of child labor.

According to international organizations, adolescents below age 15 engage in dangerous working conditions in the artisanal gold mining near the borders with Colombia and Peru.  Most gold mining is in southern Ecuador near Peru.  Adolescents engaged in hazardous unregulated mining operations faced exposure to mercury and other hazardous chemicals. Government officials admitted difficulty in monitoring for child labor in the unregulated artisanal gold mining sector, particularly in relatively inaccessible border areas. Government and civil society sources did not report child labor in mining for export-oriented firms.

Nationally the government does not mandate local employment. However, the Organic Law of the Amazon, approved by the National Assembly on May 21, 2018, mandates that any company, national or foreign, operating within the area covered by the law (the Amazon Basin) must hire at least 70 percent of their staff locally, unless they cannot find qualified labor from that area. The 2015 Organic Law for the Special Regime of the Galapagos (LOREG) and its regulations enacted in April 2017 include the mandatory hiring of local residents. The law stipulates non-residents can be hired only if companies demonstrate there are no local candidates with the required skill set.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions 

Department of Labor

• Findings on the Worst Forms of Child Labor Report ;
• List of Goods Produced by Child Labor or Forced Labor ;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World  and;
• Comply Chain .

Climate Issues

Ecuador adopted its National Climate Change Strategy (2012-2025) in 2012 and released a National Climate Finance Strategy in 2021. Ecuador plans to launch the development of a new national climate strategy in 2023. In April 2021, Ecuador committed to reaching net-zero emissions by 2050 and launched the development of its National Decarbonization Plan in September 2021. The Ministry of Environment hopes to release the plan in late 2022. The private sector is involved in the development of the National Decarbonization Plan. Major industries, such as the energy industry, are specifically highlighted in Ecuador’s Nationally Determined Contributions, but specific expectations have not been released.

Article 74 of Ecuador’s constitution (2008) restricts the government from selling any natural resource, which the Ecuadorian Ministry of Environment and Ecological Transition (MAATE) has interpreted to restrict Ecuador from participation in market-based emissions reduction solutions, such as carbon bonds or exchanges. MAATE is developing a general framework and regulations governing carbon offset projects and hopes to release them in mid-2022. Once the regulations have been issued, the resulting carbon offset projects should be open for investment. In 2021, Ecuador launched the “Ecuador Zero Carbon Program,” a voluntary eco-labeling initiative in which private sector entities can earn the Ecuador Zero Carbon certification based on efforts to reduce emissions. Ecuador has instituted tax incentives, income tax discounts, and other tax incentives for individuals and entities invested in carbon capture.

Additionally, Environment Ministry officials consider Ecuador’s REDD+ (Reducing Emissions from Deforestation and forest Degradation) projects the country’s most successful climate-related programs. Currently Ecuador is working with United Nations Development Program through the Green Climate Fund and Global Environment Facility-funded ProAmazonia program, which is part of the country’s Bosques Para Buen Vivir REDD+ Action Plan.

In August 2021, the National Public Procurement Service (SERCOP) and the Ministry of Environment, Water and Ecological Transition (MAATE) signed an inter-institutional agreement with the aim of coordinating actions that allow generating policies that promote and facilitate the implementation of sustainable public procurement. The agreement includes commitments regarding the development of environmental sustainability criteria for government suppliers, establishment of adequate environmental management and climate compatible development, promotion of capacity building processes relevant to the achievement of this agreement, and the implementation of sustainable public procurement. SERCOP is currently developing the strategy.

Corruption is a serious problem in Ecuador, and one that the Lasso administration is confronting. Ecuadorian courts have recently tried numerous cases of corruption, resulting in convictions of high-level officials, including former President Rafael Correa, former Vice President Jorge Glas (although the judiciary recently released him), and former Vice President Maria Alejandra Vicuña, among others. U.S. companies have cited corruption as an obstacle to investment, with concerns related specifically to non-transparent public tenders, dispute resolution, and payment of arbitration awards.

Ecuadorian law provides criminal penalties for corruption by public officials, but the government has not implemented the law effectively, and officials have engaged in corrupt practices. Ecuador ranked 105 out of 180 countries surveyed for Transparency International’s 2021 Perceptions of Corruption Index and received a score of 36 out of 100. 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. The Ecuadorian National Assembly approved anti-corruption legislation in December 2020. The legislation, which reforms the Comprehensive Organic Penal Code, creates new criminal acts including circumvention of public procurement procedures, acts of corruption in the private sector, and obstruction of justice. It also includes 11 provisions reforming the laws governing the public procurement system and the Comptroller General’s Office.

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 Comptroller 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 Citizen Participation and Social Control Council (CPCCS), tasked with preventing and combating corruption, among other responsibilities. The 2018 national referendum converted the CPCCS from an appointed to a popularly elected body. In December 2008, President Correa issued a decree that created the National Secretariat for Transparency (SNTG) to investigate and denounce acts of corruption in the public sector. The SNTG became an undersecretariat and was merged with the National Secretariat of Public Administration June 2013. President Moreno established the Anticorruption Secretariat within the Presidency in February 2019 but disbanded it in May 2020 for allegedly intervening in corruption investigations conducted by the Office of the Attorney General. The CPCCS can receive complaints and conduct investigations into alleged acts of corruption. Responsibility for prosecution remains with the Office of the Attorney General.

Resources to Report Corruption

Alleged acts of corruption can be reported by dialing 159 within Ecuador. The CPCCS also maintains a web portal for reporting alleged acts of corruption: http://www.cpccs.gob.ec . The Office of the Attorney General actively pursues corruption cases and receives reports of corruption as well.

Contact at the government agency or agencies that are responsible for combating corruption:

Consejo de Participacion Cuidadana y Control Social
Santa Prisca 425 Entre Vargas y Pasaje Ibarra, Edificio Centenario, Quito
+(593 2) 395 7210
Comunicacion@cpccs.gob.ec

Office of the Attorney General – FGE
Juan León Mera N19-36 and Av. Patria,
(+593 2) 3985 800
https://www.fiscalia.gob.ec/ventanilla-virtual/ 
ventanillafge@fiscalia.gob.ec

Contact at a “watchdog” organization:

Mauricio Alarcón
Executive Director
Citizenship and Development Foundation – FCD
Av. Eloy Alfaro and Av. 6 de Diciembre. Monasterio Plaza Bldg. Of. 1003
(+593 2) 3332 526
info@ciudadaniaydesarrollo.org

Widespread public 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 natural resource development have blocked access by petroleum and mining companies. Opposition to the government’s decision to remove fuel subsidies led to nationwide violent protests in October 2019. The protests paralyzed the country for 11 days, causing significant property damage, including to petroleum and telecommunications infrastructure. A dialogue between the government and indigenous protest leaders, mediated by the United Nations and the Catholic Church, led to the government’s decision to restore the fuel subsidies. Security along the northern border with Colombia deteriorated significantly in late 2017 and early 2018, when dissident Revolutionary Armed Forces of Colombia groups attacked police and military units and kidnapped civilians, resulting in several deaths. Military and police increased their presence in the zone, and violence in the northern border area calmed in 2019, although illicit activities continue. Violence related to drug-trafficking organizations increased in 2020, 2021, and continue into 2022, particularly in Ecuador’s port cities. In 2021, the Lasso administration declared an emergency in the prison system after a series of riots in various prisons that left more than 300 prisoners dead. The Executive has submitted to the National Assembly updated regulations aimed at ensuring public safety and control of prison systems. The National Assembly continues to debate and analyze security sector reforms.

Ecuador’s Constitutional Court affirmed communities have the right to vote on whether to allow large-scale mining projects near their water sources, in a September 21 ruling on a plebiscite proposed by the municipality of Cuenca

As of December 2021, Ecuador’s Statistics Institute (INEC) shows a 66 percent workforce participation rate and an unemployment rate of 5.2 percent. However, the official underemployment rate is 23.2 percent and an estimated 50.6 percent of workers labor in the informal sector, illustrating significant labor vulnerabilities. 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 Ecuador’s flat economic growth since 2014. The COVID-19-related economic crisis is estimated to have resulted in the loss of 230,000 jobs in the formal sector in 2020. In addition, first Colombian and then Venezuelan migrants have added to the informal labor pool in recent years. The National Wages Council and Ministry of Labor Relations set minimum compensation levels for private sector employees annually. The minimum basic monthly salary for 2022 is USD 425 per month.

Ecuador’s Production Code requires 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 basic necessities. INEC determines the cost and the products that are considered basic necessities. In February 2022, the monthly cost of basic necessities was USD 725.16, while the official family wage level is at USD 793.33. As of February 2022, INEC estimated 31.7 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 approved in June 2020 limited labor reforms in an emergency law (Humanitarian Law) valid for two years to address the economic impacts of COVID-19. These reforms allowed for the reduction of working hours up to 50 percent and salary up to 45 percent; ability to modify a labor contract with mutual agreement between employer and employee; new temporary contracts for new investments that can be changed to permanent contracts at the end of the temporary period; and layoffs without severance payments only when the company closes entirely.

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 Ecuadorian Social Security Institute (IESS). The law also mandates that employees’ 13th and 14th-month bonuses 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 eliminated 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 penalties 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 public sector workers in strategic sectors 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. Approximately 3 percent of the total workforce was unionized, with the number of public and private unions registered by the Ministry of Labor decreasing by half since 2017. Labor unions and associations reported difficulties in registering unions in the Ministry of Labor due to excessive requirements and ministry staff shortages.

DFC operates in Ecuador under a pre-existing Overseas Private Investment Corporation (OPIC) agreement and has signed several loan agreements aimed at increasing local bank lending to SMEs and female entrepreneurs. Since 2018, DFC has mobilized over $500 million in financing to support Ecuadorian SMEs, mainly those led by women. In 2021, DFC signed an agreement with Ecuadorian bank Produbanco for $150 million in SME financing. DFC projects in Ecuador include SME financing, housing, health care, and telecommunications sectors. DFC plans to expand its Ecuador portfolio to include financing for renewable energy projects and climate change initiatives.

Ecuador is a signatory to the Multilateral Investment Guarantee Agreement.

* Source for Host Country Data: 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.

Source: Central Bank of Ecuador – September 2021 data. The Central Bank publishes FDI calculated as net flows only. The Central Bank does not publish Outward Direct Investment statistics, nor is there information available on the IMF’s CDIS website.

US Embassy Quito
E12-170 Avirigas y Eloy Alfaro
Quito, Ecuador
+593-2-398-5000
EcuadorCommercial@state.gov