On January 25 2001 the president of Ecuador issued new regulations to implement the Investments Promotion and Warranty Law of 1997. The promotion of both national and foreign investment in Ecuadorian companies is seen as a matter of national priority.
Previous and current regulations permit direct foreign investment in all business sectors except for defence. Foreign investments have enjoyed special tax benefits, such as the free transfer abroad of net profits and funds obtained upon liquidation. Also, although foreign investments must be registered with the Central Bank, prior authorization is not required.
The president's new regulations compliment this favourable regime for corporate finance. Foreign investors may enter into 'foreign investment contracts'. These contracts allow foreign investors to clearly establish how their investments will be treated under the Investment Promotion and Warranty Law, avoiding contradictory provisions in other Ecuadorian laws. The general and specific warranties contained in foreign investment contracts must be approved and signed by the Ministry of Foreign Trade. This type of legal protection will be granted to (i) investments of at least $25 million or (ii) if under $25 million, investments that have been approved by the government because of their importance to the country's development.
Foreign investment contracts also receive certain tax benefits; the foreign investor will be subject to the tax rate that was applicable at the time the contract was formed for a period of 10 or 20 years (depending on the type of project) only if the amount of the foreign investment equals or exceeds $500,000. (Although the new regulations 'guarantee' these benefits, they can be terminated at any time.)
Finally, controversies between the Ecuadorian government and foreign investors shall be resolved by arbitration at:
- the International Centre for the Settlement of Investment Disputes (which is part of the International Bank for Reconstruction and Development);
- any arbitration centre that is created under a convention or treaty to which Ecuador is a party; or
- any of Ecuador's national arbitration centres.
Ecuadorian law must be applied in the arbitration proceedings.
These recent steps to provide foreign investors with the advantages and security they need to finance Ecuador's corporations are sure to have a beneficial effect on the Ecuadorian economy.
For further information on this topic please contact Pedro M Perez at Coronel & Pérez by telephone (+593 4 519 900) or by fax (+593 4 320657) or by e-mail ([email protected]).
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