Contributors from Ecuador were asked three questions: What were the highlights/trends in your market last year? (i.e. important mergers, regulatory changes, economic situation etc.); What are the opportunities and challenges for accounting firms in the market?; What are the expectations for the future short/medium/long term?
By Vicky Tzimiropoulou, country manager, Biz Latin Hub, 3E Accounting
The Ecuadorian economy grew an average of over 4% per year between 2006 and 2014. Growth stunted in 2015 due to a drop in oil prices and the strengthening of the dollar – the currency Ecuador uses nationally. The president at the time, Correa, set the country on the path to growth with numerous regulatory changes to help Ecuador out of the slump.
Although Ecuador is open to foreign investment in most sectors, foreign direct investment (FDI) has been low in the country compared to that in other Latin American markets. The government has signed investment contracts with multinational petroleum companies to help show its support for more foreign investment, passed a public-private partnership law, and has changed tax and regulatory policies for mining to better suit foreign investors.
One of the advantages of doing business in Ecuador is that foreign investors may keep up to 100% of its net profits and capital. This is subject to a capital exit tax currently set at 5%. Ecuadorian law requires private companies to distribute 15% of pre-tax profits to employees each year.
To understand the opportunities for accounting firms in Ecuador, you must first understand the challenges that the accounting industry faces.
A difficulty in Ecuador is that its commercial and investment policies are subject to frequent changes and can be contradicting at times. Problems also arise in the judicial system, which can sometimes be susceptible to political and economic pressures. When combined, these factors increase both the costs and risks of doing business in Ecuador.
Because of the frequent changes and constant modifications in the law, having a credible accounting service aware of all of regulatory changes is critical for your business success. Accounting services are more valuable than ever in Ecuador because professional accountants act as advisers in the decision-making process of the organisation. Not only do accountants in Ecuador handle day-to-day accounting and finance operations, but also they act as consultants for businesses, which adds much value when forming a company there.
In the short term, Ecuador is not expected to see exponential growth due to the continued strengthening of the US dollar. This, paired with its crippling debt, might not make it seem like the most attractive economy for investors at the moment. However, there is always opportunity, no matter what the status of an economy is, and the country has put in strong regulatory measures to make sure that doing business here is more simple, profitable and attractive to investors.
In the long term, Ecuador looks like a promising country for mergers and acquisitions, which could be beneficial for professional accounting services in the country.
By Fabián Delgado Loor, partner, SMS Ecuador
In 2016 Ecuador suffered an earthquake that forced the Government to temporarily raise taxes. This with the price of oil falling had many companies reporting strong losses in their operations.
During the same year, the Superintendency of Companies of Ecuador (SCE) lowered the amount of assets from one million US dollars to half a million dollars for mandatory audits. However, the SCE also determined the rotation of auditors to five years for recurring the audit contract.
The Government is encouraging a public-private alliance that will promote new investments and will hopefully bring more and new clients.
We are focused on a plan to capitalize the new terms for rotation of auditors.