Citizenship and Business in Ecuador
From our 3rd Q&A Session: Cuenca – May 20, 2013
1. What is the process for getting an Ecuadorian Passport/Citizenship? When and How do I start the process?
First of all, to qualify for naturalization you must have resided continuously in Ecuador for at least three years from the date of issue of your Cedula (Ecuadorian Identification Card).
The application requirements established in Article 4 of the regulatory document to the Law of Naturalization are:
a) Applicant’s birth certificate, properly legalized and translated
b) Passport from country of current citizenship and Ecuadorian Cedula
c) Certificate issued by the General Director of Consular and Foreign Affairs, if in Quito or by the Provincial Governor, if anywhere else in country, stating that the applicant speaks and writes in the Spanish language and has general knowledge of Ecuadorian History and Geography, as well as the Political Constitution of the Republic
d) Criminal Background Check
e) Certificate issued by the Treasury, Municipality (in place of residency) and the Ecuadorian Social Security Institute, stating that the applicant does not owe any taxes or other payments
f) Medical certificate stating that the applicant is in good health and not suffering from chronic or contagious disease. This certificate must be issued by a hospital or clinic recognized by the State, to be determined in each case by the Minister of Foreign Affairs if in Quito or by the Governor of the Province if anywhere else in the country
g) Three statements from personal acquaintances, to the satisfaction of the Minister of Foreign Affairs, declaring that the applicant 1. Has not been sentenced to prison time 2. Is capable of honorably earning sufficient means to care for him/herself and any dependents 3. Does not promote or spread doctrines that could alter the system of government of the Republic 4. Does not habitually practice illegal activities
i) Any other important document referring to services rendered by the applicant to public institutions or the country in general
j) Five passport photos
After the above naturalization process is completed, you can obtain a passport from your provincial government by presenting your cedula, voting certificate and 70 USD.
2. Can a US citizen/Ecuador permanent resident avoid getting a visa for Brazil?
Unfortunately not. The ALALC (Latin American FREE TRADE Association) does have an agreement that eliminates the requirement of obtaining a visa for travel between certain South American countries, including Brazil. However this only benefits citizens of Latin American countries, thus you must be Ecuadorian by birth or complete the citizenship process in order to enjoy those rights.
3. How do I start an LLC?
There are a number of different types of companies that can be formed in Ecuador. The three types that EcuaAssist primarily works with are the following:
A Sociedad Anónima, or Anonymous Partnership, is the type of company that is most commonly used by investors seeking to form further partnerships in the future or to sell shares of the company to other investors; the liability of shareholders is proportional to the amount of their investment in the company’s capital.
A Compañía Limitada, or Limited Liability Company (LLC), imposes more limitations on the addition of new partners in the future, as it requires the unanimous approval of the company’s shareholders to allow a third party member to invest as a partner.
A Sociedad de Hecho is specifically constituted for a single commercial activity and is easy to manage. Unlike the previous two types of companies, this type does not have its accounting records regulated by the Superintendence of Companies. The liability of each member is proportional to the amount of ownership. In general, companies based on this model are much simpler to start and easier to manage.
To start a Sociedad de Hecho you must:
1) Draft the constitutive bylaws of the company and sign them before an Ecuadorian notary public2) Register the bylaws in the “Registro Mercantil”3) Get a RUC (Tax ID) number for the company from the SRI (Internal Revenue Service)
To start an Anonymous Society or LLC you must:
1) Reserve the company name with the Superintendence of Companies
2) Create the company’s Startup Capital Account (Cuenta de Integración de Capital)
3) Draft the constitutive bylaws of the company and sign them before an Ecuadorian notary public
4) Submit the bylaws, signed by an attorney, to the Superintendence of Companies for approval
5) Publish the approval of the bylaws in a press release
6) Register the constitutive bylaws and the appointment (nombramiento) of the Managing Director and Chairman of the company in the “Registro Mercantil”
8) Obtain Permission for Operation (Patente Municipal) from the Municipal government
9) Resubmit documentation to the Superintendence of Companies
10) Receive approval from the Superintendence for the obtainment of the RUC
11) Get a RUC (Tax ID) number for the company from the SRI (Internal Revenue Service)
4. How do I set up an extension of a US-based LLC in Ecuador?
a) Company’s constitutional documents (bylaws/articles of incorporation), duly notarized by a notary public and apostilled by the Secretary of State or legalized by the Ecuadorian Consulate
b) Resolution of the Board of Directors or a competent authority, authorizing the opening of a branch in Ecuador (duly notarized and apostilled or legalized by the Ecuadorian Consulate). The resolution must also state that the company will maintain a capital investment of at least U.S. $ 2,000 for the purpose of establishing and maintaining its branch in Ecuador. It is worth noting that the minimum value of the capital must be U.S. $ 2,000, meaning it can be higher. This resolution should also contain the designation of a general representative, Ecuadorian or foreign, with the power to represent the company in Ecuador.*If you choose to use EcuaAssist to help you with this process, we will send you the text that this resolution should contain
c) General Power of Attorney (notarized and apostilled or legalized by the Ecuadorian Consulate) giving the legal representative of the Company the necessary powers to sign contracts, documents and resolve disputes raised by third parties.*If you choose to use EcuaAssist to help you in this process we will send you the power of attorney contract you will need, containing the minimum clauses required under Ecuadorian law. This power may be granted in favor of a national or foreign individual, or an Ecuadorian company. In case you choose to designate a non-Ecuadorian citizen as the general representative, this person must obtain a residency visa. The fees and costs for obtaining this visa, are additional to those quoted for the establishment of the branch.
d) Presentation of a Certificate of the company´s Legal Existence issued by the Ecuadorian Consulate, stating that the parent company is legally established in the original country and is authorized to operate abroad (in Ecuador).
Besides presenting the documents listed above, the procedure for establishing a branch in Ecuador is the following:
a) All of the documents mentioned should be submitted in Spanish and notarized by an Ecuadorian notary public
b) The company must open an account in a bank operating in Ecuador with the required minimum capital investment of USD 2,000. These funds may be withdrawn from the startup capital account upon the completion of the clearance process
c) The documents listed must be presented to the Superintendence of Companies, along with an application form signed by a lawyer
d) Once the resolution has been approved by the Superintendence of Companies, it will publish a complete copy of the power of attorney in one of the leading newspapers in Ecuador
e) The company must also obtain the Municipal Permission for Operation (Patente) in order to register it in the “Registro Mercantil”.
f) The company may need to fulfill other requirements depending on its main purpose or activity (A doctor’s office, educational center, restaurant, etc.)
g) Whenever an investor is going to start a branch of a foreign company, the value of the capital investment should be registered in the Central Bank of Ecuador.
h) Finally, you must Get a RUC (Tax ID) number for the company from the SRI (Internal Revenue Service) so that the Superintendence of Companies can issue a certificate authorizing the bank to make your investment deposit available for withdrawal.
i) In the event that the company plans to import goods, it will need to register for an importer identification number.
j) In the event that the company plans to hire employees in Ecuador, it must obtain a Número Patronal (Employer’s Identification Number)
After registering all the documents required to establish a branch with the “Registro Mercantil”, the legal existence of the company in Ecuador will be finalized and the branch will be able to sign contracts and other documents, hire personnel, and carry out all business activities.
5. What Ecuador and/or US taxes would be applicable if a US citizen/Ecuador permanent resident rents out a house or apartment?
All residents of Ecuador must pay income taxes on income obtained within Ecuador, as well as income earned abroad, unless they can present evidence of foreign taxes paid on said foreign income.
The law requires that anyone who starts business activities with capital of at least 60K, or whose gross earnings are at least 100K, or whose expenses are above 80K, is required to keep official accounting records, with the legal responsibilities that this entails.
With regard to the IVA (or VAT: Value Added Tax) due on a rental, if the property is being rented exclusively as living quarters, the IVA rate charged will be 0%, but if the property is being rented for commercial use, the IVA rate will be 12%.
We are not the experts on the specifics of US Tax Law, but the US government does require you to declare income earned abroad as stated here.