Continuing our look at LATAM’s Fintech markets, let’s take a closer look at the regulatory and tax issues directly affecting Fintechs in Ecuador.

Findexable’s Global Fintech Rankings Report 2021 has Ecuador placed 69th of 83 countries reviewed – an amazing achievement as a new entry. The country ranks 9th in the Latin America & Caribbean region, again as a first-time entry, and Ecuador’s capital, Quito, ranks 15th on this same regional index.

Fintech is not new in Ecuador – in fact the country had its own Central Bank Digital Currency (CBDC) operating back in 2014. While the Dinero Electronico program folded in 2018 without reaching its full potential, as discussed in this 2021 paper from the Latin American Journal of Central Banking, it was the first CBDC based on a mobile platform and proved the concept.  The Global Fintech Ranking places Ecuador 6th in the world for maturity of its Retail CBDC project.

As expected, Ecuador’s largest Fintech market is in Digital Payments, with a Statista.com predicting total transaction value of US$7.3 billion in 2022. The lending sector is growing, however, with Mujeres WOW and VisionFund both expanding well in the targeted lending space.

The best-known Ecuadorian Soonicorn, though, is Kushki – founded in 2016 and valued at US$600 million in June 2021. Kushki works to build the platforms and tech infrastructure used by Nubank, Rappi, and the like, to transfer money. Kushki’s platforms allow both domestic and cross-border payments for debit and credit cards, bank transfers, digital cash, mobile wallets and other types of alternative payments.

Ecuador’s internet and smartphone use figures are relatively high for the region and are steadily increasing, according to the Institute of National Statistics and Census (INEC), though further digital infrastructure is required to take this further.

While Ecuador’s Fintech sector is still developing (59 Fintech startups since 2020) it is primed and ready to tap into the almost US$6 billion invested in LATAM Fintech in 2021.

Here are the main aspects of the Ecuador’s legal and tax regimes that affect Fintechs.

Legislation

A draft Fintech Bill was introduced to parliament in August 2021 and is currently under review. The Fintech Bill introduces 12 new articles and reforms many existing laws to regulate and control technological financial services.

While the Fintech Bill does mention benefits like the implementation of ‘sandboxes’ for regulatory testing, there are many opponents to the Bill. These opponents argue that the Bill is too expansive, was created too quickly, and aims to regulate anything to do with digital transactions, even ‘things not yet invented’.

While the Fintech Bill is not yet law, there are several laws with sections relevant to Fintech, such as the Law of Entrepreneurship and Innovation (2020), the E-commerce law (2002) and the Commercial Code updates of 2019.

The use of cryptocurrencies as a source of payment is prohibited in Ecuador, but the purchase of crypto as a financial asset is legal.

Fintech is not new in Ecuador – in fact the country had its own Central Bank Digital Currency (CBDC) operating back in 2014.

Data protection

The Ecuadorian National Assembly issued the Law on Personal Data Protection (link in Spanish) in May 2021, granting a two-year adaptation period before the sanctioning regime begins. By May 2023, public and private entities, including financial services and Fintech entities, need to verify or adapt their processes for the collection, use, treatment, storage and transfer of personal data.

The Law generally follows the EU’s General Data Protection Regulation (GDPR), so any company with GDPR experience shouldn’t find compliance onerous.

Tax incentives

Fintech investment in Ecuador is governed by the Organic Code for Regulation of Investments (COPCI), which notes ‘software development and services’ as a prioritised sector for tax incentives.

In essence, the sector is income tax exempt for 5 years from launch.

Corporate income tax

All companies domiciled in Ecuador that obtain taxable income are subject to corporation tax of 25%, though this increases to 28% based on the level of involvement of residents of tax havens or lower tax regimes.

VAT

General allocation of 12%, one of the lowest in the region.

Ecuador is ready to kickstart its Fintech sector. If you’d like to know how Auxadi can help with your Ecuadorian operations, simply get in touch.

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Gustavo Verdezoto

Gustavo Verdezoto
Country Manager

Local Knowledge – International Coverage

Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

All information contained in this publication is up to date on 2022. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice.No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.