Ecuador Tax Authority Mandates Payment on Undistributed Company Profits

Ecuadorian companies that retained profits from previous years instead of distributing them to shareholders will face a new obligation in August 2026. The Internal Revenue Service (SRI) has mandated a payment for companies holding undistributed profits as of July 31, 2026.

The requirement applies to companies with more than $100,000 in accumulated profits. The payment rate varies based on the amount retained, ranging from 0.75% for profits between $100,000.01 and $1 million, up to 2.50% for those exceeding $500 million. Companies holding $100,000 or less are exempt.

Legally, this is termed a "payment on account of undistributed profits" rather than a new "profit tax." The distinction is significant, as the funds paid to the SRI can potentially be recovered. Companies can reclaim this payment through compensation against future tax obligations if they eventually distribute these profits as dividends or capitalize them, provided they adhere to the established regulations and timelines.

The SRI has outlined a tiered structure for these payments. For instance, a company with $800,000 in undistributed profits would be subject to the 0.75% rate on the entire amount, resulting in a payment of $6,000. A company holding $2 million would pay 1.25% on the full sum, amounting to $25,000.

The calculation of these "undistributed profits" involves a specific formula defined by regulation. It begins with the profit or loss from the immediately preceding fiscal year, after accounting for labor participation, income tax expenses, and legal reserves as stipulated by law.