In recent years, Public Investment has been the driving force of the economy in Ecuador. However, the current economic situation has prompted government authorities to shift their approach regarding the necessary investment policy to maintain the same level of project execution in the country. Now, it's the private sector's turn to seize the opportunity and openness that the government is offering through various tools and benefits.

Incentives from the Production Code

The Production Code in Ecuador offers the following types of incentives:

1. General Incentives
2. Sector-specific Incentives
3. Specific Incentives for innovation, export, and green production
4. Productivity improvement incentives for Micro, Small, and Medium-sized Enterprises (MSMEs) and actors in the popular and solidarity economy (AEPS)
5. Incentives for territorial development

GENERAL: Applicable to all productive investments in the country, whether new or existing.

SECTOR-SPECIFIC: Prioritized sectors, strategic import substitution, export promotion, new businesses, and those opening up their capital.

FOR INNOVATION, EXPORT, AND GREEN PRODUCTION: Additional deductions for Income Tax calculation based on expenses and investments in:

• Technical training focused on research, development, and technological innovation.
• Improving company productivity.
• International promotion expenses for the company and its products.
• Purchase of machinery and equipment for cleaner production and implementation of renewable energy systems (solar, wind, etc.), or for environmental impact mitigation.

FOR PRODUCTIVITY IMPROVEMENT: Micro, Small, and Medium-sized Enterprises (MIPYMES) and actors in the popular and solidarity economy (AEPS)

• Creation of the National Guarantee Fund to allow the State to provide co-guarantees for private financing, sharing the risk.
• Mandatory inclusive purchases by the State for MSMEs and AEPS.
• Special regime to access the stock market.

FOR TERRITORIAL DEVELOPMENT: Companies investing in depressed and border areas can benefit from additional deductions.

These benefits are supplemented by a Government Decree that opens the doors to investments and private sector participation. The construction of works and projects in strategic sectors involving private sector investment and participation is facilitated by the Regulation of the Public-Private Collaboration Regime, promulgated through Executive Decree 582. This Decree establishes rules for a "private promoter" to generate projects in strategic sectors and public services, which will be approved by the "public promoter."

With the issuance of this Decree, private companies can invest in strategic sector areas, providing public services such as electricity, roads, port and airport infrastructure, and railways, both in new projects and those already in execution.

The regulation is based on Article 100 of the Organic Code of Production, and it's important to note that the Decree specifies that this must undergo a bidding process. The regulation includes 18 requirements that private proposers must meet to participate in public sector projects, whether new or already underway. Once the private initiative is deemed to be of public interest, government entities or public companies have 180 days to conduct supplementary studies and necessary validations.

Other tools to encourage active private sector participation in Ecuador's economy and Public Procurement.

Article 27 of the Regulation to the Public Procurement Law provides for the possibility of financing proposals offered by bidders themselves or investors, state organizations, or financial or credit institutions to cover the entire project or complement part of it. In this case, the offered financing will be one of the aspects to evaluate and qualify when determining the best cost under the law.

The current Constitution of the Republic states that the State will establish public companies to manage strategic sectors, provide public services, sustainably use natural resources or public assets, and develop other economic activities. However, the following article clarifies that "The State may delegate participation in strategic sectors and public services to mixed companies in which it holds a majority of shares. Delegation shall be subject to national interest and shall respect the deadlines and limits established by law for each strategic sector." Moreover, "The State may, exceptionally, delegate to private initiative and the popular and solidarity economy, the exercise of these activities, in cases established by law."

The Organic Law of Public Enterprises contemplates associative capacity, by which public companies, for the fulfillment of their business objectives, can establish any type of association, strategic alliances, mixed economy companies with public or private sectors at the national or international level, or in the popular and solidarity economy sector. It's important to note that the selection of private participation in these types of associations must be through a public tender, with the exception of associations with public companies from the international community or their subsidiaries.

All it takes from the entrepreneurs, including foreign companies, is an interest in doing business in Ecuador. To protect their businesses and investments, they should seek the necessary legal advice to participate in these projects. If you or your company are interested, do not hesitate to contact us. At LÓPEZ RIBADENEIRA, we have a team of expert professionals ready to assist you.

The LÓPEZ RIBADENEIRA firm also offers comprehensive and full-service advisory and management to foreign companies and/or individual investors who wish to do business in Ecuador. This includes assisting in the formalization of the most suitable corporate structure for their interests in our country, utilizing tools and benefits available to investors, identifying and guiding through pre-contractual processes and business opportunities, as well as obtaining all necessary permits for the intended activities from various public entities. This comprehensive service encompasses company incorporation, guidance on the entry of resources and capital goods into Ecuador intended for production with special tax treatment, hiring personnel, compliance with corporate and tax obligations, participation in public procurement processes, and structuring administrative contracting arrangements that may involve obtaining financing for foreign companies coming to our country. Additionally, it involves legal advice and support throughout the operations of the company or investor in our country.