INVESTMENT CLIMATE

The center of great opportunities

Business Languages: Spanish (official) & EnglishCapital: Quito

ECUADOR

Area: 257,217 Km2

Time Zone: GMT -5 horasCurrency: US DollarPopulation: 16.7 M approx. (14.5 M en census 2010)

Nominal GDP: USD 100,871 M (2015 BCE)

M = millions

Access to a market of

300 millionpeople

EcuadorThe center of great opportunities

Multiparty Agreement with the European UnionIn process for approval

Trade AgreementsArgentina, Brazil, Chile, Cuba, Guatemala, Iran, Mexico, Paraguay, Uruguay, Venezuela and Nicaragua (signed).

Trade Agreements under negotiationSouth Korea, Cuba, El Salvador, Honduras and Turkey.

To begin NegotiationsCanada, Costa Rica, EFTA (Iceland, Liechtensten, Norway, Switzerland)

Double taxation treaties

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Ecuador in figures

Ecuador has achieved significant growth in the last decade

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Low externaldebt / GDP

GDP per capitaEcuador GDP per capita in 2015 was $6,196

Upper middleincome countryGross Net Income per cápita on Purchasing Power Parity (2015) $11,300

20.80% of GDP (February 2016)

InvestmentFDI flows show a growth of 24% up, from 2007 to 2015

UnemploymentOne of the lowest in South America 4,3% at September 2015

FBKFAnnual average of 25.1% of GDP (2007-2015)

Economic Social - Politic

Political StabilityDemocratic elections ratifications

Improved HDI 0.732, ranking eighty-eighth (88) of 188. From 2000 to 2015 Ecuador has climbed 5 positions, which places it in a high human development

Social Development

USD 8,000 millions9,200 km of new highways.Public investment in road network

USD 329 millions Invested between 2007-2015 which include 2 new airports, 10 refurbished, with air navigation systems optimization at airports nationwide.

USD 1,245 millionsPublic investment in 6 multipurpose water projects

USD 5,900 millionsIn hydroelectrical plants investment until 2015In 2017 is expected to have 8768 MW installed capacity

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60,000km Of optical fiber cable. ITC development presents a growth rate of 75% compared to 2007.

Strategic and Competitive infrastructure

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1.5$kilowatt per hour

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Costs of essential services for industries

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Definition of investment and investor rights in the Organic Code of Production, Trade and Investment

New and productive investment

Productive Investment Art. 13, literal a

Flow of resources to produce goods and services, to expand production capacity and generate employment in the national economy.

New Investment Art. 13, literal b

Flow of resources to increase the capital stock of the economy: through investment in productive assets that extends the future productive capacity, generates a higher level of production of goods and services or generates new jobs.

Essential elements Flow of resources Increase in capital stock in the economy through the acquisition of productive assets Generation of new goods or services / expansion of the productive capacity of existing Generation of new job sources

What is not investment for the purpose of OCPTI?

The change of ownership of productive assets which are already in operation.

The activity which only involves the distribution or marketing, in which there is no production of goods or services.

The granting of credit to acquire productive assets.

OCPTI features

Non discriminatory treatment Domestic and foreign investors have equal conditions for investment.

Legal security

Right to property

Investment contract

Domestic and foreign investors enjoy protection and security.

Right to property is guaranteed and all forms of confiscation are prohibited for domestic and foreign investment.

Contract up to 15 years, renewable once again, by the same original duration.

OCPTI features

Investor rightsArt. 19, Book II

Freedom of production and trade of legal goods and services;

Access to administrative procedures and control measures established by the State;

Freedom of import and export of goods and services except those limits established by the current law;

Free foreign Exchange outflow of regular earnings or profits once fulfilled the corresponding obligations;

Freedom to acquire, transfer or dispose of shares or property rights on investment;

Free access to national financial system and the stock market.

Productive matrix model

Technology and eco-efficiency transverse axis

• Natural and strategicenabling conditions

• Prioritized sectors

• Legal framework:OCPTI and PPP law

• Business ethics

• Employment generation

• Technological transfer

• Added value

• Productive chain

• Increase exports

INVESTMENT

Incentives and benefits for investments

Prioritized investment sectors according to Productive matrix’s change strategy

To generate added Value To substitute imports

Petrochemical

Fresh, frozen and industrialized food

Agroforestry chain and processed products

Tourism

Foreign trade logistics services

Biotechnology and applied software

Pharmaceutical

Metalworking

Renewable Energy

Radios, TVs and mobile phones

Chemical products

Ceramic products Pesticides and agricultural products

Leather footwear

Garments and textiles Soaps, detergents, perfumes and toilet preparations

Home appliances

Basic chemical sustances

Cement products

Main tax and tariff incentives

Income tax• Exoneration for 5 years for new investments in priority sectors and

companies outside major cities (Quito and Guayaquil).• Exoneration for 12 years for basic industries.• Double deduction of annual depreciation expense for 5 years of

investment in new productive assets, to companies outside major cities (Quito and Guayaquil)

• Double deduction of depreciation and amortization expense corresponding to the acquisition of eco-efficient assets

• For Special Economic Development Zones, is reduced from 22% to 17% income tax.

• 10% reduction of income tax rate on the amount of profits reinvested in investments in productive fixed assets.

Taxes on foreign trade • Tariff exemption for imported goods and 0% VAT for imports from companies operating in Special Economic Development Zones.

Investment incentives for the areas affected by the earthquake

Income tax Productive investment: Exoneration for 5 years. Tourism sector: Up to 10 years of exoneration. Financial entities: 2 year exemption and reduction in

the value of the advance on income attributable to loans to affected areas and reduction in the value of the advance income tax 2016, in proportion to the amount of loans granted from 16 April 2016 until 31 December of the same year.

Taxes on foreign trade Tax exemption foreign Exchange outflow and tariffs imports in favor of taxpayers who have suffered an economic involvement in productive assets intended for production processes or service delivery (until May 2017).

Financing incentive The Ministry of Finance, with the resources obtained

through solidarity contributions may pre-cancel investments, invest or transfer such resources for loans granted by financial and non-financial institutions.

Normativa: Ley Orgánica de Solidaridad y de Corresponsabilidad Ciudadana

Stability through Investment Contracts

Subscription of Investment ContractsDescription

• 15 years on tax and tariff incentives applicable to investment project.

• Renewable up once (maximum for 30 years).

Stability

Optional agreements that the businessman can apply to ensure their new and productive investments greater than US $ 1 million and generating new direct jobs, primarily offers

the following incentives:

Tariff reduction

• The signing of the investment contract allows you to request reduction of tariffs for imported capital goods.

• Reducing tariffs may be total or partial.

• Establishes mechanisms for dispute resolution.

• Arbitration may be local and international.

Security

52012

92012-2013

192012-2014

632012-2015

822012-2016

Signed contracts

80% investment with foreign

capital

Subscription of Investment ContractsResults up to date

USD 5.217 millionsand 7.235 direct

jobs

Subscription of Investment ContractsProcess

CONTACT WITH THE INVESTOR- INVESTMENT

PROJECT PRESENTATION

12

3

4

5

6

7

START TIME 30 WORKING DAYS

ACCORDING OCPTI

INVESTOR KIT SENDING WITH THE REQUIREMENTS FOR

THE CONTRACT SIGNING

VERIFICATION OF DOCUMENTS TO BE DELIVERED ON THE

BASIS OF REQUESTED IN THE INVESTOR KIT

OFFICIAL DELIVERY OF MATERIALS REQUESTED

IN INVESTOR KIT

PREPARATION OF A REPORT TO BE

PRESENTED TO CPS

PROJECT APPROVAL BY THE COUNCIL OF THE PRODUCTION

SECTOR

CONTRACT SIGNING

• DRAFT PREPARATION• DRAFT APPROVAL BY

THE INVESTOR

30 DAYS

60 DAYS

External Financing incentives,Financial investment and Dividends

Incentives for External Financing, Financial Investment and Dividends

For external financing operations of financial or non-financial institutions, for a period greater than one year:

• No income tax is retained (interest).

• Free foreign Exchange outflow (5%)

• This includes capital as interest paid.

For investments in fixed deposits and fixed income instruments, period greater than one year:

• No payment of income tax on profits.

• Free foreign Exchange outflow (5%) in transfers abroad.

• This includes capital and financial returns.

For dividend payment abroad (Law on Environmental Development):

• Free foreign Exchange outflow (5%) in transfers abroad.

Special Economic Development Zones

They are delimited areas of the country, identified as a customs destination for new investments transfer activities and disaggregation of technology and innovation, industrial diversification and logistic services

Special Economic Development Zones

ZEDE Eloy AlfaroLocation: ManabíPetrochemical, Industrial and Logistics

ZEDE YachayLocation: ImbaburaTechnology, Logistics and Industrial

ZEDE ELOY ALFARO

ZEDE PosorjaLocation: PosorjaLogistics, Industrial

ZEDE POSORJA

Special Economic Development ZonesIncentives

Incentives for companies located in SEDZ

• 17% rate of the Income Tax

• Exemption from the payment of tariffs on foreign goods entering such areas, for the performance of authorized processes

• 0% rate of VAT on importation of goods intended exclusively for the licensed area or incorporated in one of the processes of productive transformation developed there

• Tax Credit in the VAT paid on the purchase of raw materials, supplies and services from the national territory that are incorporated in the production process.

• The exoneration of the Currency Outflow Tax on imports of goods and services related to their authorized activity

• The exoneration of the Currency Outflow Tax for the payment of external financing operations.

MSMEs Incentives

MSMEs Incentives

TRAINING

• Technical training directed at the research, development and technological innovation.

• Up to 1% of wages and salaries

IMPROVE PRODUCTIVITY AND BUSINESS DEVELOPMENT

• Technical assistance and market analysis of competitiveness; assistive technology process design, product, adaptation and implementation of processes, packaging design, development of specialized software.

• Up to 1% in sales.

PROMOTION

• Travel expenses, lodging and commercial promotion for access to international markets, such as business conferences, participation in international fairs.

• Up to 50% of promotional expenses.

MSMEs, for 5 years will have the right to deduct a 100% additional of expenses related to the following items:

Environmental Incentives

Environmental Incentives

Depreciation and amortization that correspond to the acquisition of machinery, equipment and technologies for the implementation of mechanisms for cleaner production, mechanisms for the generation of renewable energy (solar, wind or similar) or to the reduction of the environmental impact of the productive activity, and to the reduction of greenhouse gas emissions.

Are deductible with the additional 100%:

Art 10.7 LORTI (Art. 24.1 COPCI

Incentives in depressed areas

Incentives for companies which invest in depressed areas

For the calculation of income tax will have an additional 100% deduction of costs for wages, salaries and social benefits by generating new employment in depressed areas for 5 years.

Ej: Cantón Pujilí, Cotopaxi• 16km (15 min) from Latacunga airport• 9.7km (9 min) of the Panamericana Sur• 99 km (1h20m) from Quito

Ej: Cantón Salitre, Guayas• 52 km (55 min) from airport and port of Guayaquil • 38 km (24 min) from Babahoyo and E25 road

Private – Public Partnership PPP Incentives

Private – Public Partnership PPP Definition

Legal Financial SchemeAgreed between a public delegator entity and a private investor (or more) entity for the provision of infrastructure

Supported in ServicesThey differ from traditional public works for the long-term provision of services of general interest.

BalanceThey have adequate risk distribution, and financing can be public, private or mixed.

RemunerationIt may cover through the payment of end users of the service, or through deferred payments during the life cycle of the project by the delegating entity

Private – Public Partnership PPP Type of projects

New work• Construction• Equipment• Operation and maintenance

Existing Public Work• Rehabilitation or improvement,

operation and maintenance• Equipment• Operation and maintenance

Construction and merchandising• Real estate housing projects of social

interest• Urban development works

Research and development• In which the State participates directly

and with private sector attendance• Other qualified as priorities by the

Committee

Private – Public Partnership PPP Prioritized sectors

Provision of goods, works or services in areas of general interest:

Infrastructure Urban DevelopmentReal estate projects

Roadways PortsAirports

Hydropower Alternative energies

Strategic sectors

Utilities: by exception

Private – Public Partnership PPP Advantages

FOR THE STATE FOR PRIVATE• Satisfy service or public work

• Shared risk, risk transfer

• Tax Relief

• Possibility to Access indirectly to funding

• Utilities coverage guarantee at long term

• New investment opportunities now available

• State sponsorship for private investment projects

• Independence in financing and progress in work or operation

• Attractive tax benefits

• Legal security in their contractual relationship

Private – Public Partnership PPP Incentives

• Tax income exemption for 10 years from the first fiscal revenue.

• Free foreign Exchange outflow (5%) on imports, financing and dividend payments.

Taxes

The projects under the PPP model have a tax and tariff treatment similar as if it would be executed by the State

Tariff reduction

• Exemption of tariffs on imports related to the project.

• VAT exemption on imports related to the project.

• Stability on essential aspects of the development of investment and applicable incentives.

• Possibility to turn to national or international arbitration in case of disputes.

Security

Fiscal sustainability

Risk distribution

Value for money

Interests respect and right users

Property rights

Coverage and social inclusion

For the structuring, approval and implementation of public projects under the PPP mode should apply these Principles and Guidelines:

Private – Public Partnership PPP Guidelines established by law

Private – Public Partnership PPP Approval procedure

DELEGATOR ENTITY

DECLARES OF PUBLIC INTEREST THE PROJECT

PREPARES TECHNICAL, LEGAL AND FINANCIAL STUDY

REQUESTS PROJECT APPROVAL AND IMPLEMENTATION OF INCENTIVE

PRE-CONTRACTUAL PHASE

CHECK THE LEGAL, TECHNICAL AND ECONOMIC STUDY AND COMPLIANCE PPP GUIDELINE , AND ISSUES REPORT FOR THE COMMITTEE

APPROVES OR REJECTS THE PROJECT AND LEGAL BENEFITS

CONTRACTUAL PHASE

PPP COMMITTEESECT. TEC. PPP DELEGATOR ENTITY

PRIVATE MANAGER SELECTION PROCESS AND ALLOCATION

SIGNING CONTRACT MANAGEMENT DELEGATE

Additional information

Investor route

Pre investment - Research Support and Technical Assistance

Post Investment

Follow up investmentsSpecialized scheduleSpecialized consultancy• Investor’s Guide• Specialized information• Sectoral profiles

Site visits

Expert advice on the implementation process in the country• Due diligence• Investment contract (optional)• Attention and channeling difficulties

Linking with public and private sector

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Articulation for the internationalization of business through our institutional services

RUTA DEL INVERSIONISTA

Investment climate promotion• Investment projects• OCPTI• PPP Law• Investment contracts

Matchmaking with local actors

It is the set of services provided to potential investors to facilitate the installation of the project.

What is PRO ECUADOR route FOR THE INVESTOR?

Investor file

Investment promotion tools

http://www.proecuador.gob.ec/wp-content/themes/proecuador/cambios2014/descargas/GuiaInversionista2016-min.pdf

Project catalog:

Investor’s Guide:

https://www.dropbox.com/sh/bcy4h03qzrigh72/AACRe-2T-GBMty6plVf7Pckza?dl=0

Investor’s form:

Investor’s kit:

PPP Law:

https://www.dropbox.com/sh/hy1b0xffe3e7n3k/AAB0tJrKrh-dt3r_LcG8iYJsa?dl=0

https://www.dropbox.com/sh/lptbu2072lbs96i/AADTdnXT5zzmf8YUSS6hwQrIa?dl=0

https://www.dropbox.com/sh/esrk68fn1d3rknf/AAAIwILYv7UrB1yFKM6qEdv_a?dl=0

Strategic sectors

Coordinator of Strategic Sectors Ministry focuses on management for rational, sustainable and efficient exploitation of mining, hydrocarbons and water resources, and the effective provision of public telecommunications services and electricity; generating maximum social benefit and economic impact with minimal environmental involvement, aimed at guaranteeing the rights of the population.

BASIC INDUSTRIES

MININGOIL

BIOENERGY2 ProjectsUSD 1.155 MM

ELECTRICITY AND RENEWABLE ENERGY

WATER RESOURCES TELECOMMUNICATIONS

Investment intentions notification procedure for Strategic sectors

Company

Intention letter- offer + NDA

Sectorial Ministry and/or MICSE

Proposal evaluation + analysis responsibilitySectorial Coordinator

Ministry

Optional: commitments instruments sign: MOU,

termsheet, othersCompany + Sectorial

Ministry and/or Coordinator Ministry

NegotiationCompany + Sectorial

Ministry and/or Coordinator Ministry

Sign contractCompany + public party