Taxation in Central and South America/Ecuador

ECUADOR

Introduction

Investment Considerations

Accounting For Inflation

Taxation of Nonresident Entities

Taxation of Groups of Companies

Branches and Subsidiaries

Corporate Assessments and Payments

Taxation of Individuals

Personal Assessments and Payments

Withholding Taxes

Other Taxes

Introduction

Ecuador welcomes foreign investment. The government plans extensive privatization and reduction of state participation in the economy, as well as measures aimed at bolstering the private sector. Deloitte & Touche, the Deloitte Touche Tohmatsu International firm in Ecuador, has six partners and 121 professionals, who serve clients from offices in Quito and Guayaquil. The firm is a leader in the core service areas of audit, management consulting, and tax and has thriving human resources and multinational corporation practices.

International Services: Frederick H. M. Brown,
Quito Audit Services: Frederick H. M. Brown,
Quito Management Consulting Services: Amparo Moya, Quito
Tax Services: Jorge A. Saltos, Quito
Telephone: +593 (2) 454-957
Telecopier: +593 (2) 435-807

Investment Considerations

Forms of Business Organization. The principal forms of business organization in Ecuador are the corporation (sociedad anónima), limited liability company (compañía de responsabilidad limitada), branch of a foreign company (sucursal), and mixed economy company (compañía en economía mixta). Foreigners usually set up a corporation or a branch. A branch involves less paperwork and is often the first choice for a 100% foreign investment. Click here for information on Tax Treatments of Branches,

Corporations, limited liability companies, partnerships, and mixed economy companies established in Ecuador and business entities established abroad are regarded as separate taxable entities for income tax purposes.

Exchange Controls. The foreign exchange market in Ecuador consists of a free market operated by the banks and the exchange houses and an official intervention market operated by the central bank. Generally, funds imported to make direct investments are converted into Ecuador's currency, the sucre (S/), using the free market. Foreign investments in -- and foreign loans to -- the petroleum industry, however, must be channeled through the intervention market. All inward direct investments must be registered with the central bank. No exchange control approval is required for the remittance abroad of profits or dividends; the central bank merely has to be informed that a remittance has been made.

Local Participation or Management Requirements. The government has been ambivalent toward foreign investment over the years, but the climate for the foreign investor is steadily improving. Legislation introduced in early 1993 lifted nearly all previous restrictions on direct foreign investment, which is now permitted in principle without prior authorization for all economic sectors. However, a substantial number of restrictions still remain.

The new legislation did not override Ecuador's constitution and certain specific laws, which:

* Require presidential authorization, approved by the military joint chiefs of staff, for any foreign investment in real estate or negotiation of contracts for mineral substances in frontier zones or reserved areas. Frontier zones are the 50 kilometer strip of land inside Ecuador's borders or shores.

* Reserve from foreign investment the public sector and investments in minerals, petroleum, potable water, electricity, and telecommunications. However, private-sector delegation or participation in these activities, whether the investor is foreign or Ecuadorian, is allowed under terms established by specific laws for the different sectors.

A legal representative of a corporation, limited liability company, or branch or the person to whom the powers of the legal representative are delegated must be an Ecuadorian resident.

Investment Incentives. Ecuador offers a number of investment incentives.

Mining. Legal entities may deduct amounts that they invest in the formation or expansion of mining companies. The deduction does not, however, reduce the 15% employee profit sharing required by the Labor Code.

Imports of machinery, laboratory equipment, work vehicles, and other supplies necessary for mining activities are subject to import duties at lower than normal rates and are also exempt from value added tax. The sale of mineral substances is exempt from value added tax. Mineral exports are free of all taxes except a 0.5% tax on their free-on-board value. Foreign loans obtained by a mining enterprise are exempt from registration tax.

Tourism. Investors may deduct from their taxable income capital contributions made to form or increase the common stock of tourism companies. Tourism companies may import construction materials, machinery, equipment, and vehicles free of customs duties.

Forestry. Investors in forestry projects may deduct the amount of their investment up to a limit equal to 40% of their taxable income. The investor must hold the investment for a period of no less than three years. This deduction does not affect the 15% employee profit sharing.

Exports. The principle incentives for exports are

* Application of preferential customs tariffs on exports or total relief for exports to specific developed countries under the Generalized Preferential System (GPS) and the Andean Free Trade Agreement.

* Reimbursement of value added tax paid to purchase raw materials and supplies used to manufacture export products, including agricultural and similar goods. Tax reimbursement is also available for products and goods sold internally but destined for export.

* Partial or total exemption from customs duties (draw-back for imports of raw materials used in the production or treatment of export products).

* Deductibility of investments to increase fixed assets for export of nontraditional products. Investments must be held for no less than five years. The deduction does not affect the 15% employee profit sharing.

Financial investments. The following tax incentives are available to companies and individuals:

* Capital gains, profits, benefits, or revenues are tax exempt when distributed for investment funds and investment trust funds to beneficiaries.

* Capital gains from occasional sale of shares, participations, and stockholders' rights are tax exempt.

* Interest earned on obligations issued by companies for periods greater than one year are tax exempt.

* The following expenses are tax deductible:

* Soucre fluctuations arising from obligations contracted in units of constant value (unidades de valor constante -- UVCs) -- obligations issued in inflation -- adjusted sucres.

* One-half of the cash paid in during each fiscal year for the initial share purchase of shares open for public sale, up to 50% of the taxable income of each year. The expense can be charged over five years. It does not affect 15% employee profit sharing. The shares cannot be transferred within six months of the purchase date.

* One-half of the shares issued through the stock exchange or by public offer. The company may not decrease its social capital during the following five years. The deduction does not affect the 15% employee profit sharing and cannot exceed 50% of taxable income. The unused balance may be deducted from earnings over the next five years.

Free zones. Enterprises that establish processing or trading operations in free zones or administer the free zones on behalf of the National Council of Free Zone Investments are exempt from income tax, value added tax, and municipal taxes for twenty years. This exemption may be renewable. Imports into -- and exports from -- free zones are free of customs duties and taxes. Payments made to foreign technicians for occasional services rendered in the free zones are exempt from income tax.

In-bond assembly. Enterprises authorized to carry on in-bond assembly operations may import raw materials and components on a temporary basis free of customs duties and taxes. These duties and taxes become payable, however, at the moment the imported items are reexported in the form of finished products.

Stock market. Under the Stock Market Law enacted on 28 May 1993, Ecuador has introduced several incentives to attract companies to Ecuador's stock market, including:

* Exemptions for distributions by investment funds and investment trustees from income tax on capital gains, profits, and yields.

* An exemption from income tax of gains from the sale of shares on the stock market.

Taxation of Resident Entities

A resident company is liable for corporate income tax (im-puesto a la renta) on its worldwide income. A company is resident in Ecuador if it is incorporated under the laws of Ecuador.

Corporate Income Tax Rate. Corporate income tax is levied at a rate of 25% on the taxable income of both resident and nonresident companies. The rate is 44.4% in the case of petroleum companies that have entered into hydrocarbon exploration and exploitation risk contracts, unless their earnings are reinvested. Petroleum companies that have entered into exploration and exploitation contracts pay a 1% nondeductible and nonreimbursable investigation tax. New industrial companies that process farm products are subject to tax of 12.5%, provided that they are located outside Quito and Guayaquil.

Taxable Income. In general, the taxable income of a business is the aggregate of its ordinary and extraordinary revenues subject to tax, less the cost of sales, expenses, discounts, and other deductions necessary for producing or pertaining to the taxable revenue.

For petroleum companies that have entered into exploration and exploitation service presentation contracts, taxable income is based on payments made by PETROECUADOR for services rendered when commercially exploitable oil is found. Reimbursements by PETROECUADOR for investments, costs, expenses, and interest on nonamortized investments are not considered part of the contractors' gross income subject to income tax or other taxes and are not deductible.

For companies that have entered into participation contracts for the exploration and exploitation of hydrocarbons, gross income is the participation, calculated at the sale price of the oil, which will not be less than the reference price (average price based on volume during the last month of foreign sales made by PETROECUADOR), less costs and related expenses.

Inventory valuation. Inventories may be valued using any of the generally accepted accounting methods.

Dividend income. Dividends are exempt from corporate income tax in the recipient company's hands.

Foreign-source income. Foreign-source income is included in a resident company's taxable income before deducting any foreign withholding tax, but a credit is allowed for foreign income tax paid. The credit is limited on a country-by-country basis to the lesser of the foreign tax paid on income from the country in question or the amount of corporate income tax chargeable on that income. In the case of foreign-source dividends, credit relief is given for foreign corporate income tax levied on the profits out of which the dividends are paid (underlying tax) as well as for foreign withholding tax, provided that the rate of the foreign corporate income tax is similar to that of Ecuador's corporate income tax.

Capital gains. In general, capital gains are treated as special income taxable at 8%. A company's gains from occasional sales of urban real estate are exempt from corporate income tax unless the company is a real estate dealer; however, such gains are subject to a Municipal capital gains tax.

Exchange differences. Exchange losses arising on foreign loans that have been registered with the central bank and on accounts payable to foreign suppliers are deductible, whether realized or unrealized. Exchange differences are taxable or deductible. Unrealized net exchange profits may be taxable based on their accrual.

The system gives the option of taking unrealized exchange differences to the income statement (in accordance with international generally accepted accounting principles) or deferring them until realized. The method chosen should be consistent from year to year.

Interest income. Generally, interest income is subject to a special 8% tax, but interest on securities issued by the government is exempt.

Deductions. In general, expenses are deductible if they relate to the production of business income and are recorded in the company's legal books.

Depreciation. Depreciation of tangible fixed assets is deductible for tax purposes at specified rates based on estimated useful lives. Depreciation is calculated by the straight-line method on the cost of the asset, as adjusted for inflation. The specified rates are 5% for real estate; 10% for machinery, equipment, furniture, and fixtures; and 20% for vehicles and computers. When assets are subject to rapid obsolescence, a company may request permission to apply an acceptable method of accelerated depreciation. Unused machinery purchased as a fixed asset between 1 January 1990 and 31 December 2000 has an annual depreciation rate of 20%.

Depreciation must be recorded in the statement of income regardless of profitability. If depreciation is not charged in a loss-making year, the depreciation forgone cannot be deducted in subsequent profitable years.

Directors' and management remuneration. Directors' fees and management remuneration are deductible, provided that income tax has been withheld as required by the law.

Taxes. Taxes are generally deductible, except for income tax and property taxes. Interest and penalties on overdue tax are not deductible.

Employee profit-sharing payments. Companies are required under the Labor Code to distribute 15% of their pretax earnings to their employees. These profit-sharing payments are fully deductible for corporate income tax purposes.

Treatment of Losses. A business entity may carry forward a loss for setoff against taxable income arising in the five years following that in which the loss was sustained. No carryback of losses is permitted. Normally, losses carried forward may not be set off against more than 25% of the taxable income of any year. In the year in which the liquidation process is concluded, however, a company in liquidation may deduct its unrelieved losses accumulated in the previous five years without the 25% restriction applying.

When two or more companies merge, unrelieved losses of the absorbed companies can be carried over to the absorbing company (the continuing or newly created company) and carried forward by the absorbing company for setoff against its own profits.

Accounting for Inflation

The 1982 Latin American debt crisis affected most of Latin America and started severe and continuing devaluations and hyperinflation in Ecuador (average annual inflation of 50% from 1982 to 1993). The Ecuadorian sucre's cumulative inflation between 1982 and 1993, as measured by the consumer price index, totaled 507%.

As a result of hyperinflation, the use of historical sucre costs led to enormous distortions in financial statements, which made them virtually useless to shareholders and other users. In addition, they no longer provided a reasonable basis for determining taxable income.

Ecuador, like some other Latin American countries, adopted a system of monetary correction for preparing financial statements, for reporting to the superintendent of companies, and for preparing income tax returns. The system of monetary correction has evolved over the years. This brief summary covers only current major features of the system.

Nonmonetary assets (such as inventories, prepaid expenses, property, plant and equipment, investments, and deferred assets); nonmonetary liabilities, if any (such as liabilities denominated in UVCs, deferred income, or amounts paid in for future capital increases); and stockholders' equity are corrected monetarily at the year-end balance sheet date to account for inflation as measured by:

* Devaluation of the sucre against the US dollar for fixed assets of foreign origin.

* Inflation, as measured by the consumer price index, for locally purchased fixed assets and all other nonmonetary items.

Nonmonetary items arising during the year are corrected on a proportional basis.

The net effect of this monetary correction (which represents the inflation gain or loss for the year) is credited or debited to a monetary correction account in stockholders' equity. Any credit balance on this account cannot be paid out as a cash dividend but can be used in its entirety for issuing stock dividends or for offsetting losses. If a credit balance is used to pay a stock dividend, the dividend is subject to tax at the rate of 20%. Any debit balance can be offset against income for the year (with a 20% tax credit, even though the offset is not passed through the income statement) or against earnings retained from prior years.

This accounting for inflation gain or loss by direct charges to stockholders' equity does not conform with international generally accepted accounting principles, which require that such gains or losses flow through the income statement. An exception is made for savings and loans and government banks, which are required to follow international generally accepted accounting principles and charge or credit the inflation gains to the income statement. In addition, special treatment of certain monetary correction adjustments is required for banks and other financial institutions.

Stockholders' equity accounts, except for the monetary correction account, are adjusted in the same manner. However, instead of crediting the effects of inflation to each individual stockholder's equity account, the net effect of these monetary corrections is credited to a stockholders' equity revaluation account in stockholders' equity, with a corresponding debit to the monetary correction account. The balance on the stockholders' equity revaluation account cannot be paid out as a cash dividend, but it can be used in its entirety for issuing stock dividends or offsetting losses (after the monetary correction account has been completely used for this purpose).

Monetary correction is not applied to obsolete inventories, which should not be stated in excess of market value.

Stock dividends received are debited to the investment and credited to the stockholders' equity revaluation account. This represents a partial correction until the year-end adjustment is made. Monetary correction of investments should not exceed their proportional equity value.

The Ecuadorian system of monetary correction, although conceptually imperfect, is a major improvement over the historical concept for financial statements prepared in Ecuadorian sucres. It goes a long way toward correcting the carrying values of assets and stockholders' equity for inflation. It provides more up-to-date costs and expenses (such as cost of goods purchased and depreciation). It also records the gain or loss due to inflation, although, as previously explained, except for savings and loans and government banks, such a gain or loss is taken to the monetary correction account in stockholders' equity, while international generally accepted accounting principles would require that it flow through the income statement.

Depreciation and amortization are only partially adjusted for inflation, as the monetarily corrected charge is not taken until the year following the monetary correction. Income statement items are not monetarily corrected to the year-end index.

Taxation of Nonresident Entities

Companies incorporated under foreign laws are liable for Ecuadorian tax only on income arising in Ecuador. Tax is normally levied at a rate of 25%, the same rate that applies to resident companies. A final withholding tax of 33% generally applies to interest and royalties paid to nonresidents.

Taxation of Groups of Companies

Ecuador's tax law contains no provisions that permit a consolidated tax return to be filed for a group of companies. In addition, there are no provisions permitting transfers of losses between companies in a group. Ecuador has no special rules that affect the transfer of fixed assets between related companies, except that any losses arising from such transactions are not deductible. In computing a company's taxable income, the tax authorities have power to substitute arm's-length prices for actual transaction prices.

Branches and Subsidiaries

A resident subsidiary company is liable for corporate income tax on its worldwide income; at present, an Ecuadorian branch of a nonresident company is not taxed on income arising outside Ecuador. Subsidiaries and branches are both taxed at 25% on taxable income.

A branch cannot be reorganized as a subsidiary. The license granted to a branch to operate in Ecuador must be canceled before a new company can be formed.

Corporate Assessments and Payments

The tax year for companies is the year ending 31 December. All taxable companies, other than nonresident companies that do not have an agent in Ecuador and whose entire Ecuadorian-source income has been subject to withholding tax, must file a corporate income tax return during the period 1 February through 10 April after the end of the tax year. The precise deadline depends on the company's tax registration number. The company normally assesses its own corporate income tax on this annual return, although the tax authorities may revise a company's assessment within specified time limits on subsequent inspection.

The greater of the following two sums must be remitted as an advance payment:

1. Eighty percent of the corporate income tax payable for the previous year, less any withholding tax borne by the company for each year.

2. One percent of total assets as of 31 December of the prior year, less investments in other companies; newly acquired fixed assets such as properties, furniture, fixtures, and machinery; taxes paid abroad by Ecuadorian companies or companies domiciled in Ecuador for operations executed outside the country; certain machinery and equipment used to protect and recover the environment; accounts receivable; and any withholding tax borne by the company for each year.

Petroleum companies need not make advance payments on assets used or destined for exploration if they have entered into exploration contracts. Holding companies whose income is 90% or more tax exempt or is subject to a special tax of 8% do not make advance payments on their assets.

Recently constituted companies are subject to the advance payment regime after their second year in operation. An extension can be requested, with approval from the tax authorities. Construction and urbanization companies that sell to third parties and short-term companies that conclude their objectives in less than two years are exempt from this rule. They will pay taxes when their sales begin and begin making advance payments the following year.

Taxation of Individuals

Resident individuals domiciled in Ecuador are liable for income tax (impuesto a la renta) at progressive rates on their worldwide income, excluding exempt income. Foreign individuals resident in Ecuador are also liable for this tax, but only on their Ecuadorian-source income; they are not taxed on income arising outside Ecuador. Nonresident individuals are taxed only on Ecuadorian-source income. The tax charged is usually a flat-rate withholding tax. If the income arises from services performed in Ecuador for less than six months in the tax year, the income is not subject to tax.

Ecuadorian-source income includes income derived from economic activities performed in Ecuador and, if the income is paid by an individual or company resident in Ecuador, income derived from activities performed abroad.

Foreign individuals are generally considered to be resident in Ecuador if they hold work visas.

Treatment of Families. Each spouse is taxed separately on his or her own employment income. Income from investments is taxed in the hands of the spouse who owns the asset producing the income concerned. Investment income arising from assets that are jointly owned and income from a business that a husband and wife carry on together may be split: the husband and wife are each taxed on 50% of the income. A child's income is taxed separately and is not added to the taxable income of either parent.

Personal Income Tax Rates. The progressive personal income tax rates are applicable to Ecuadorian individuals domiciled in Ecuador and foreigners resident in Ecuador. They also apply to income, other than employment income, from permanent services (services lasting more than six months) rendered in Ecuador by nonresident individuals.

Nonresidents are liable for a final withholding tax on payments for occasional services (services lasting six months or less) rendered in Ecuador other than in the capacity of an employee. The rate is 25% if the payment is made in Ecuador and is 33% on 80% (an effective rate o`f 26%) of the payment if it is made abroad. A final withholding tax at an effective rate of 26% also applies to payments made by resident individuals in the course of business and by resident companies to nonresidents for services rendered abroad, other than in the capacity of an employee. Click here for more information on Withholding Taxes.

Taxable Income. Taxable income is an individual's earnings in the form of cash, goods, or services derived from work, capital, or a combination of both.

Employment income. Taxable employment income includes wages, salaries, benefits in kind, and other remuneration from employment. Various items are exempt, however, including the compulsory thirteenth, fourteenth, fifteenth, and sixteenth month bonuses; complementary bonus; cost-of-living and transport allowances; and 15% employee profit-sharing payment, which an enterprise is required by law to distribute to its employees. Indemnities for termination of employment are also exempt, subject to legal limits.

Foreign-source income. Resident individuals domiciled in Ecuador must include their foreign-source income in taxable income before foreign withholding tax is deducted, but a credit for that tax is given according to the same rules that apply to companies.

Capital gains. An individual's capital gains are generally taxed as occasional income at a special rate of 8%. Gains from occasional disposals of urban real estate are exempt from income tax and are subject instead to a municipal capital gains tax.

Exempt income. In addition to the exempt employment income, exempt income includes interest on securities issued by the government, interest from corporate bonds issued by public companies, income from pension funds, on-call savings deposits, dividends received, income from occasional sales of real estate, and occasional earnings on the sale of shares.

Deductions and Reliefs. No personal allowances are available. Employees may deduct their social security contributions in computing taxable income. An individual who carries on a business may deduct expenses wholly and exclusively incurred in the production of business income. Business losses may be carried forward for setoff against future business income according to the rules for companies. They may not be set off against employment income.

Personal Assessments and Payments

Employers must withhold income tax monthly from the wages, salaries, and other taxable employment income paid to their resident employees. The amounts withheld are based on the withholding scales issued for this purpose and usually represent a final tax.

All individuals must file annual tax returns, except for nonresident individuals who do not have agents in Ecuador and whose entire Ecuadorian-source income has been subject to withholding tax, resident individuals whose income is 90% or more derived from employment, and resident individuals whose annual income does not exceed the nilrate band. Click to see Personal Income Tax Rates Individuals required to file a return must do so and pay any final balance of tax due within 100 to 120 days after the end of the tax year (the year ending 31 December). The precise deadline varies depending on the individual's identification card number.

Self-employed individuals resident in Ecuador must pay tax in two equal payments. The payments must normally total 80% of the individual income tax payable for the previous tax year, less withholding tax incurred by the individual for that year.

Withholding Taxes

Basic Rates. Legal entities resident in Ecuador must deduct withholding tax from virtually all types of payments. The tax withheld is usually an advance payment of the recipient's ultimate corporate or personal income tax liability, as appropriate, if the payment is made to a resident, and a final tax if it is made to a nonresident.

In the case of expense reimbursement abroad that is related to activities performed in Ecuador, withholding at source will not be applied provided that the expenses are certified by external auditors with branches, affiliates, or representatives within the country.

Dividends. Dividends paid are exempt from income tax and withholding tax in the recipient's hands.

Interest. Interest paid to a nonresident is subject to a final withholding tax at 33%. Interest paid on foreign loans authorized and registered by the central bank of Ecuador is exempt; however, a registration tax may apply.

In the case of residents, tax at the rate of 8% is withheld from loan interest paid by businesses and interest paid by banks and other financial institutions (except for interest on savings accounts and other exempt interest). The tax is not withheld from interest paid to financial institutions.

Royalties. A final tax of 33% is withheld from payments to nonresidents. In the case of residents, a 3% tax is withheld from payments made to legal entities and a 7% tax from payments made to individuals, and the tax withheld represents an advance payment of income tax.

Rates Under Double Tax Treaties. Ecuador has Withholding Tax Rates Under Double Tax Treaties on payments of dividends, interest, and royalties.

Other Taxes

Value Added Tax. Value added tax (impuesto al valor agregado -- IVA), referred to here as VAT, is levied on the supply of most goods and services by individuals and companies that habitually make supplies subject to this tax and on imports into Ecuador. A business receives an input tax credit for VAT paid by it on purchases of goods, including fixed assets, and services used to produce taxable supplies.

A single rate of 10% applies. An enterprise that produces goods for export does not have to charge VAT on its supplies of these goods but is entitled to recover VAT paid by it on purchases of raw materials and components used in the production of the goods. In the case of other exempt supplies and transactions, VAT paid on associated purchases may not be recovered. Exempt supplies include supplies of basic food products, medicines, books, magazines, newspapers, and agricultural products. Exempt transactions include capital contributions in kind to companies, sales of businesses in which assets and liabilities are transferred, transfers of assets upon inheritance or the liquidation or merger of a company, donations to nonprofit organizations, and share transfers.

Social Security Contributions. Employers and their employees must make contributions to the social security system to provide for old-age pensions, medical benefits, unemployment and disability pay, and various other benefits. Generally, these contributions are 12.15% of payroll cost for employers and 9.35% of normal remuneration for employees. In addition, for each person who has completed a full year's employment by 30 June, employers must pay an amount equal to one-twelfth of the person's earnings between 1 July and 30 June (excluding bonuses and compulsory profit-sharing) into a reserve fund managed by the social security system.

Foreigners temporarily assigned to Ecuador -- and their employers -- are not entitled to any exemptions from contributions to the social security system and payments to the reserve fund.

Municipal Taxes. The municipalities levy several taxes.

Tax on total assets. Tax on total assets (impuesto sobre activos totales) is levied annually on the total business assets less current liabilities and contingencies of business enterprises. The rate is 0.15%. If an enterprise carries on activities in more than one municipality, the tax is allocated among the municipalities based on the contribution to gross income of the activities conducted in each.

Real estate taxes. The municipalities levy annual real estate taxes on urban and rural property (impuestos a los predios urbanos y rurales) based on the property's officially appraised value less specified deductions. The rates are relatively low. If a taxpayer owns several properties, the values are grouped by municipality, and the rates are applied to the group totals.

Capital gains tax. Gains from occasional sales of urban real estate are subject to a municipal capital gains tax (impuesto a las utilidades en la compraventa de predios urbanos y plusvalía de los mismos) at progressive rates varying from 10% to 42%. A deduction of 5% of the gain is allowed for each year of ownership, starting from the year following the year of acquisition. Companies dealing in real estate may credit the tax against corporate income tax due. Other companies may deduct it as an expense for corporate income tax purposes.

Transfer tax. A transfer tax (impuesto de alcabala) is levied on all transfers of real estate, as well as transfers of ships and airplanes. The tax base is the higher of the contract price and the appraised value of the property. Rates vary up to a maximum of 14.25%.

Inheritance and Gift Tax. A 10% tax is applied to inheritances, gifts, and bequests in excess of S/29.2 million.

Contribution to Superintendent of Companies. Most types of business entities must pay an annual fee to the superintendent of companies based on total assets at a rate not exceeding 0.1%.

Excise Duties. Excise duties are imposed on alcoholic beverages, tobacco, soft drinks, mineral water, and purified water. Rates range from 5% to 260%, depending on the type of product.

Export Taxes. A special tax of 0.5% is levied on the free-on-board value of all exports, except exports of petroleum products. In addition, customs duties are levied at various rates on exports of many products, either as ad valorem duties or as specific duties per unit.