Ecuador

Last modification: 28 Sep 18
Introduction: 

Ecuador is made up of 24 provinces. They are Azuay, Bolivar, Canar, Carchi, Chimborazo, Cotopaxi, El Oro, Esmeraldas, Galapagos, Guayas, Imbabura, Loja, Los Rios, Manabi, Morona-Santiago, Napo, Orellana, Pastaza, Pichincha, Santa Elena, Santo Domingo de los Tsachilas, Sucumbios, Tungurahua, and Zamora-Chinchipe.

In April 2016, the Ecuadorian coast suffered an earthquake that measured 7.8 on the Richter scale. Damage to infrastructure hurt several industries, including tourism and shrimp farms. The total cost of the recovery has been close to $2 billion. To pay for this, the government imposed additional inheritance, capital gains, and production (VAT) taxes. GDP growth from 2015 to 2016 was -1.6%, mostly due to the devastating earthquake.

In April of 2017, Lenin Moreno was elected President of Ecuador by popular vote. His immediate challenge was to reengage the private sector to improve cash flow in the country. Ecuador’s economy returned to positive, but sluggish, growth.

In early 2018, the Moreno administration held a public referendum on seven economic and political issues in a move counter to Correa-administration policies, reduce corruption, strengthen democracy, and revive employment and the economy. The referendum resulted in the repeal of the taxes associated with the earthquake recovery and reduced restrictions on metal mining in the Yasuni Intangible Zone, a protected area, as well as several political reforms.

 

Thank you to contributors to the Ecuador WikiFleet page: BDO

Chapter 1: Economic and business environment

Demographics

16.3 million people (July 2017 est.)

Nearly half of Peru's population is concentrated in the interior in the Andean intermontane basins and valleys, with large concentrations also found along the western coastal strip; the rainforests of the east remain sparsely populated.

Capital

Quito (population of 1.61 million in 2010)

Major cities

1. Guayaquil (2.28 million in 2010)
2. Quito (1.61 million in 2010)
3. Cuenca (329,928 in 2010)
4. Santo Domingo (270,875 in 2010)
5. Machata (231,260 in 2010)

Languages

Spanish (Castilian) 93% (official),

GDP

US$98.6 billion (2017 est.)
US$6,049 per capita

Unemployment rate

5.8% (January, 2018)

Main industries

petroleum, food processing, textiles, wood products, chemicals

Agriculture
bananas, coffee, cocoa, rice, potatoes, cassava (manioc, tapioca), plantains, sugarcane; cattle, sheep, pigs, beef, pork, dairy products; fish, shrimp; balsa wood

Currency

U.S. dollar

Interest rate

6.67% (June, 2018)

Fleet Maturity Index (scaling)

 

Political key info

Although Ecuador marked 30 years of civilian governance in 2004, the period was marred by political instability. Protests in Quito contributed to the mid-term ouster of three of Ecuador's last four democratically elected presidents.

In late 2008, voters approved a new constitution, Ecuador's 20th since gaining independence. General elections were held in April 2017, and voters elected President Lenin Moreno.

Inflation

-1% (May, 2018)

Chapter 2 : Automotive market, segments & sales

Total Car park

The total car park in Ecuador is appoximately 2.33 million (one in every seven inhabitants, est. 2017 )

Imports have been on the rise since Ecuador's recession in 2016. While January-April imports from Colombia were 2,057 units in 2017 and 1,084 units in 2016, imports from Europe were 708 in 2017 and only 204 in 2016.

From January-April of 2018, the market share of cars being imported into the country increased six percentage points to 71%, while the market share of cars being assembled in Ecuador went down six percentage points to 29%. This trend is expected to continue in the short to mid-term.

Pricing
You’ll find prices for new cars to be about 20%-30% higher than in the U.S. For used cars, the markup is can be even higher, since most Ecuadorians can’t afford new cars. Also, we’ve observed that Ecuadorians buy cars, same as they do real estate, for investment purposes; they’d rather own a car than keep money in the bank as cars tend to hold their value in the country. 

New vehicle registrations (Cars, LCV, Trucks)

Sales in 2017 showed a 65% jump to 105,077 vehicles from only 63,555 units in 2016 (a recession year).

In 2017, Chevrolet led sales with 41,101 vehicles leaving dealer showrooms,  equivalent to 39.1% of the market.  The US automaker was followed by Kia with 18,223 units (17.3% of the market), Hyundai with 9,443 units (9.0%), Great Wall with 6,792 units (6.46%), and Toyota with 4,809 units (4.57%). 

As for 2018, the trend has been continuing as 43,756 vehicles were sold in the first four months of the year. Of this amount, 29,780 units - equivalent to 68.1% - were imported vehicles.

Other OEMs holding market share - in order - were Nissan, Hino, Ford, Mazda, Renault, Volkswagen, Chery, JAC, Citroen, and Zotye.

Top 5 brands (total market)

1. Chevrolet (41,101 units) 39.1% market share
2. Kia (18,223 units) 17.3% share
3. Hyundai (9,443 units) 9.0% share
4. Great Wall (6,792 units)
5. Toyota (4,809 units)

Used car market/renewal cycle

The average age of a vehicle in Ecuador is 16.2 years

New cars up to one year (3.6% of the national fleet)
1-5 years (28.9%)
5-10 years (21.4%)
10-15 years (10.4%)
15-20 years (8.7%)
20-25 years (9.2%)
25-30 years (3.2%)
30-35 years (4.1%)
more than 35 years (10.5%)

Chapter 4: Taxation & legislation

Ecuador

The basis of company car taxation in Ecuador is reflected in this overview. Different types of taxes are considered here: taxes related to the registration of the vehicle, income taxes and VAT aspects. Expected future developments are also briefly listed, if any.

1. Car taxation

1.1. Annual circulation tax

Taxable event

 

Taxable person

 

Tax due

 

 

Taxable period

Ownership of a vehicle

 

The owner of the vehicle

 

The amount of the tax due depends on the purchase price of the vehicle.

 

The annual circulation tax is due on a yearly basis

1.2. Contamination tax

Taxable event

 

 

Taxable person

 

Tax due

 

 

Taxable period

Ownership of a vehicle

 

 

The owner of the vehicle

 

The contamination tax is calculated based on the CO2 emission and the cylinder capacity of the vehicle.

 

The contamination tax is due on a yearly basis

2. Income taxes

For income tax purposes, following costs are deductible: depreciation, fuel, maintenance, spare parts, insurances of the vehicle, as long as the vehicle is used to carry out activities charged with income tax. Depreciation must be calculated considering the useful life of the vehicle.

3. VAT

12% VAT must be charged on each transfer of property of a vehicle.

3.1. Deduction

ü VAT can be used as a tax credit if the vehicle is used in the production and commercialization of other products and services charged with VAT.

ü For income tax purposes, the input VAT is deductible incurred on the costs of vehicles insofar these vehicles are used for the performance of taxable activities and if it was not used as tax credit.

3.2. Hire purchase

ü Hire purchase is charged with 12% VAT

3.3. Leasing

ü Leasing must be charged with 12% VAT. Leasing expenses are deductible for income tax purposes with as a maximum amount, the amount of depreciation of the vehicle.

4. Company car

4.1. VAT due on private use of company cars

ü Not applicable. VAT is only due on the purchase/rent price in case of a supply or lease of the vehicle .

4.2. Company car in personal tax returns – benefit in kind

ü It must be considered as a taxable income in the hands of the person who receives the car.

5. Income taxes – drivers’ personal taxation

5.1. Private car in the personal tax return

5.1.1. Private use

ü Expenses related to the professional use of the vehicle are deductible on the condition that these expenses are related to activities that result in taxable income. For example depreciation, fuel, maintenance, spare parts. etc.

ü Any income gained from the supply or lease of a car must be taxable as income tax

6. Special schemes (if any)

6.1. Tax exemptions

ü Vehicles for disabled people are tax exempt according to the degree of disability

7. Electric vehicles

ü Electric vehicles are charged with 0% VAT when the purchase price does not exceed US$ 35.000

ü Custom duties are not due on electric vehicles , when the purchase price does not exceed US$ 40.000

 


Source: BDO (2018)

In terms of import tariffis, cars coming from Colombia already benefit from a 0% import tarriff, while Europe has a gradual tarriff reduction scheme which started on January 1, 2017, set to reach 0% by 2023. 

Chapter 5: Car policies

First of all, Ecuador tends to be harder on cars than North America or Europe. For example, due to the poor grade of gasoline, catalytic converters burn out sooner. And because of the rougher roads, shocks and suspension parts wear out faster, so prepare your policy accordingly.

In Cunca, you’ll see signs with a big white E on a blue background. These serve to tell you that you’re in a paid parking zone and must put a parking card on your dashboard properly marked for the period to plan to be there up to the limit of two hours.

Paid parking spaces are identified by dashed white-painted lines. Don’t park outside these lines or where the lines are yellow. You can also park in parqueaderos (private parking lots) for about the same price in most neighborhoods. In general, they’re safer than the street, but sometimes a bit difficult to get in to and out of.

Chapter 6: Funding methods

Bank Financing

The ideal condition for lenders in Ecuador calls for a 40% down payment, a loan period of 36 months, and an annual interest rate of 15%-16%, according to the country's
automotive association (AEA).

Those who what to finance 100% of the vehicle will have to provide a guarantee with an asset or assets valued at 150% of the total amount of the debt. Approximately 70% of new cars are purchased with financing.

Pichincha and Austro banks account for 53% of the credit offered in the market, followed by Produbanco, Internacional, Amazonas, Guayaquil, Loja and other financial institutions.

Dealership Financing

Generally, terms include a 25% down payment and a lending - through a third party bank - with a period of 60 months. Interest ranges from 12%-16%. Trading in a used car could be used as part of the payment. 

Consortium

First of all, it is necessary to have a minimum of US$800 (locally currency) to enroll in the program. It usually involves 120 people in the group each paying a monthly fee and a lottery involving two cars awarded per month. Once a car is acquired, there is no down payment but the loan period is 72 months.

Corporate Client

Credit from dealers is given directly to business clients. For example, a company may pay 60% of the value of the car and then settle the remaining 40% directly with the dealer in a years time. 

Chapter 7: Fuel

Average gasoline price per liter: US$0.39 
World average: US$1.17
(est. August 1, 2018)

Ecuador is among the 10 countries worldwide with the lowest price of gasoline and this is mainly due to government subsidies on the fuel. Besides encouraging the sale and use of cars with combustion engines, it hinders the sale of electric vehicles. 

Chapter 8 : TCO components

Like many other countries, TCO is highly affected by the cost of fuel, maintenance, and parking. Other expenses are registration and environemental tax (cars more than five years old and cars with engines more than 2.5 liters). Moreover, it is key to have a private and secure parking space for your vehicle. 

Chapter 9: Safety, insurance and telematics

To drive in Ecuador, you need to go through a licensing process that requires you, as of early 2015, to take a driving test and a written exam in Spanish. There are short-cuts to the process, but they require local contacts.

As for buying a car, it is fairly straightforward. Possible challenges are the language barrier (for foreigners), difficultyy finding a trustworthy mechanic, and slightly different purchase procedures. If you buy a stolen car, it is confiscated. If there are outstanding fines on the car, you have to pay them.

Registration (matrícula) on a newer car can easily run in the $300-$700 range.

Safety

In terms of safety, Peru is pushing to keep up with standards seen in more advanced countries. Among the safety features required in the country are assisted direction, Isofix child-safe seats, three-point seatbelts with visual and sound alerts to assure usage, ABS brakes, electronic stability control, headrests on all seats, front and side impact collision protection, air bags, windows, and front and rear bumpers.

Insurance

In 2017, car insurance represented 24% of the insurace market in Ecuador.

Full coverage usually includes vehicle impact and/or rollover damage, fire and/or lighting, explosions, falling buildings, aircraft crashes or parts thereof, projectile impacts, landslides, riot and strikes, malicious damage, theft, and breaking glass.Being total loss or partial loss. 

Policies need to specify whether or not civil liability is included, meaning the coverage of other people or objects that have been affected by the accident. One must need to double check whether or not the insurance also includes civil liability, meaning the coverage of persons and objected affected by the accident involving your car. 

Mandatory third-party liability insurance: Every victim of traffic accidents that took place in the national territory has full rights to access the service provided through the Public System for Payment of Traffic Accidents. Exclusions of any nature are not permitted, except those expressly indicated in its Regulation. Likewise, the State, through the System, will assume the expenses of the victims of traffic accidents, according to the conditions and limits established for the regulations. (Source: Mapfe 2017) 

Liability insurance, also known as SOAT, covers medical expenses in case of an accident; anyone injured in a crash is taken to the nearest medical facility and SOAT covers the costs. It’s quite reasonable, averaging around $50 per year. You can also buy collision insurance, but it’s not required. This full-coverage insurance would cost around $1,400 annually - on average -  for a used Toyota Prius. 

 

Chapter 10: Environment

Considering the high purchase price of electric vehicles (EV) in Ecuador, financial incentives are crucial. Among them are the exemption of import taxes, in addition to exemptions or rebates on value-added taxes (VAT) for these types of vehicles.

Non-financial incentives are also key to pusthing EV. In the city of Guayaquil, the local goverment has mandated a minimum percentage of parking spaces reserved for EVs in public parking lots. 

Proposal of the country's automotive companies association AEADA:

Create a National Plan for Fuels and Clean Vehicles which works hand-in-hand with the United
Nations' Clean Fuels Alliance; Emphasize systemic work on fuel quality and subsidies; Stimulate the transition towards new emission standards for new vehicles; Strengthen regulation and policies on scrapping and other issues; Renovate fleet vehicles wich have high levels of emissions as well as those which have reached their useful life; Create incentives to stimulate the building of electric vehicle recharge infrastructure; introduce innovative clean and safe technologies.

Electric Cars

A total of 116 electric vehicles (EV) were sold in 2017, up 6.4% year-over-year.
EVs, Hybrid vehicles, EV recharging units, and electric batteries do not pay IVA or valued added taxes.
Hybrids, however, could soon be paying a 12% tax, according to news released on July 24, 2018.

A total of 3,390 hybrids were sold in the country in 2017.
 

Chapter 11: Mobility

Ecuador’s roads are much improved from just a few years ago. The manageable size of the country, the low price of gasoline, and the ease of navigating on well-paved roads makes it ideal for traveling long distances.

For urban transport,
Ride-hailing services such as Uber and Cabify are actually illegal in Ecuador, so other public transport options are needed.

Car sharing is one option in the country, one being Cuenca Car Share which assures a late-model vehicle which is well maintained, safe, and insured.

 

Chapter 12: Key trends to watch