Double taxation: how to benefit from international treaties
Double taxation occurs when the same income or profit is taxed in two or more countries, which can significantly affect the profitability and competitiveness of companies operating internationally. To mitigate this problem, Ecuador has signed several Double Taxation Avoidance Agreements (DTAs) with several countries.
What are Double Taxation Avoidance Agreements?
DTAs are international treaties that establish rules to determine which country has the right to tax certain income and how double taxation should be avoided. These conventions seek to provide clarity and certainty on the taxation of income earned in foreign jurisdictions, thereby facilitating international trade and investment.
Benefits of DTAs for Ecuadorian companies
Ecuadorian companies can benefit from DTAs in the following ways:
- Tax rate reduction: Covenants typically provide for reduced withholding tax rates for certain types of income, such as dividends, interest, and royalties.
- Avoiding double taxation: Methods are established to eliminate double taxation, either by exemption or credit for taxes paid abroad.
- Legal certainty: They provide a clear and predictable framework for the taxation of cross-border transactions.
Procedure for applying the benefits of DTAs
To reap the benefits of DTAs, companies must follow certain procedures:
- Obtain a tax residence certificate: It is necessary to have a certificate issued by the tax authority of the country of residence of the beneficiary of the income, which proves their status as a tax resident.
- Present the certificate to the withholding agent: This document must be delivered to the payer of the income in Ecuador so that the reduced rates or exemptions established in the agreement can be applied.
- Meet additional requirements: Depending on the specific arrangement, there may be other requirements, such as filing additional forms or showing that the beneficiary is the beneficial owner of the income.
Important considerations
It is essential that companies stay up to date on the current regulations and the procedures established by the Internal Revenue Service (SRI) for the application of DTAs. In addition, it is advisable to have specialized tax advice to ensure the correct use of benefits and compliance with tax obligations.
Conclusion
Double Taxation Avoidance Agreements represent a valuable tool for Ecuadorian companies seeking to expand internationally, by providing mechanisms to reduce the tax burden and offer legal certainty in their cross-border operations. A correct application of these agreements can improve the competitiveness and profitability of companies in the global market.
