Using an Agent or Distributor
Given that Ecuador is a small country, it is advisable to appoint one distributor or agent to handle the entire territory. For government sales, it is legally required to have a local presence in Ecuador, therefore having a distributor facilitates this process.
In selecting a distributor or agent, it is advisable to vet the candidates and perform due diligence accordingly. Likewise, U.S. firms should seek counsel from an Ecuadorian law firm to ensure that their distribution agreements provide appropriate protection. Ecuadorians want to know their supplier or business partner personally before deciding whether he or she is trustworthy. U.S. companies seeking agents, distributors, or representatives in Ecuador should consider contacting the U.S. Embassy’s Commercial Unit to request assistance in entering the Ecuadorian market.
Establishing an Office
The procedure for establishing an office is typically entrusted to local lawyers. Costs vary depending on the size of the company’s capital share. Foreigners may own an Ecuadorian enterprise in any industry except for those the government determines to be strategic. The U.S. Commercial Service’s Business Service Providers webpage provides a list of Ecuadorian attorneys - https://www.trade.gov/business-service-providers-americas
A step-by-step process to establishing an office in Ecuador can be found on the World Bank’s “Doing Business” report: https://www.doingbusiness.org/content/dam/doingBusiness/country/e/ecuador/ECU.pdf
Foreign investors starting a business in Ecuador most frequently establish local corporations, or local branches of offshore entities. Alternatives include limited liability companies, partnerships, and mixed economy companies (when including government participation). Corporations, branches, limited liability companies, and mixed economy companies are registered with and controlled by the Superintendent of Companies and governed by the Companies Law. The legal representative may be an Ecuadorian citizen or a foreign national with an Ecuadorian resident or commercial visa.
In 2020, following the enactment of the Organic Law on Entrepreneurship and Innovation, a new type of company called simplified joint-stock company (SAS) was created. The SAS aims at promoting formality among and development of entrepreneurs in Ecuador. An SAS can be composed of one or several natural or juridical persons, through a simplified procedure at no cost. The SAS may have one or more shareholders and has no minimum capital requirement. It can engage in any commercial activity, except for those regulated by specific legislation, for example: insurance, stock market, prepaid medicine, etc. This new structure allows other types of companies to become an SAS structure, unless they have a particular or special legal treatment. In addition, it allows restrictions on the transfer of shares to be established in the articles of incorporation. Shares can give multiple votes, helping to streamline corporate governance management for this type of entity.
Foreign companies may only be shareholders of Ecuadorian companies if their capital is represented by shares or stocks issued in the name of their partners or shareholders.
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
Franchising
Unlike other countries where they have established legal frameworks for franchises, Ecuador does not have a franchise law. Nonetheless, with the enactment of the new Commercial Code in 2019, there are provisions that regulate franchise contracts. According to article 558, a franchise is a contract in which one party, as owner of a business, trade name, trademark, or other form of identifying companies, goods or services, or of a good or service, grants to another party the possibility of commercially exploiting its intellectual property rights, trade secrets, among other rights, in exchange for an economic remuneration.
Under the Commercial Code, the franchise agreement must be written and may have all the necessary annexes to define the scope of the operation. These annexes, as a general rule, will be confidential. Likewise, an essential element that must be included in the contract is the remuneration (or royalties) in favor of the franchisor.
Although this contract may contain all the provisions that the parties deem necessary to ensure a proper exchange of information, the Code of Commerce established certain indispensable requirements:
- Precise identification of the parties;
- Description of the content and characteristics of the franchise;
- Duration of the contract, as well as the conditions for its renewal and modification;
- The determination of the remuneration or royalties to be received by the franchisor;
- Causes and effects of the termination of the contract;
- Indication of the territory in which the franchisee may operate;
- A clear description of the rights, goods or services being granted and the terms under which they are granted;
- The performance guarantees to be granted by the franchisee;
- The terms of confidentiality; and,
- The other terms and conditions to which the parties submit.
Regarding intellectual property, it is strongly advisable to protect brands, slogans, trademarks, and logos even before considering entering the Ecuadorian market. Ecuador is a first-to-file country. A trademark owner must file an application for trademark registration to obtain protection.
Finally, since there is no specific law regarding franchises in Ecuador, if necessary, the provisions of the Civil Code and the regulations applicable to intellectual property may be applied.
Additional information on franchising can be found in the “Leading Sectors” chapter.
Direct Marketing
Mass e-mailing, telemarketing, brochures, catalogs, text messages (SMS), targeted online display ads, and social media advertising are the most common forms of direct marketing used in Ecuador. Social media and streaming platforms have become a major direct marketing platform, especially because Facebook has 12 million users in the country, followed by YouTube with 11.7 million users, and Instagram with 5.75 million users in early 2023.
In May 2020, the Agency for Control and Regulations of Telecommunications (ARCOTEL) issued Regulation 074 for procedures to make the identification of the sender transparent in calls to subscribers, customers, or users of the SMA (Signaling Management Architecture), making telemarketers identifiable. Regulation 074 covers banking, tourism, sales, and proselytism.
Joint Ventures/Licensing
Two or more parties may enter into a contract to carry out a particular business activity. No obligation exists to record this contract in the Mercantile Register. Although the parties must have a written contract, a public deed is not required. According to the Companies Law, a joint venture may be considered as an association or a participation agreement.
Under the Companies Law, a business entity may give others (associates) the right to participate in its business, but these rights are limited to obtaining information on the funds contributed, the profits made, or losses incurred. Associates are liable to third parties (including bankruptcy) up to the amount of their participation (made in cash, equipment, knowledge, among others) percentage in the business agreement. The terms of the contract of association regulate all other matters.
In Ecuador, this type of joint venture occurs primarily when foreign corporations are contracted as associates to carry out specific projects with government entities. It is normal for foreign corporations entering into this type of agreement to establish a local branch.
The Commercial Code regulates joint ventures and establishes the minimum clauses that contracts must have and their main characteristics. Although the Code only regulates the contractual joint venture, it does not imply that in Ecuador other modalities are not allowed, such as corporate joint venture through a new company, corporate joint venture through an existing company, and international joint venture.
For tax purposes, the contractual joint venture is considered as a company, so it must be registered in the single taxpayer’s registry (RUC). In the case of a corporate joint venture, the tax obligations go hand in hand with the type of company adopted. Any joint venture is subject to antitrust legislation since its creation may require prior authorization by the competition authority.
In Ecuador, the Organic Code for the Social Economy of Knowledge, Creativity, and Innovation governs licenses for intellectual property (IP) – patents, trademarks, copyrights, and related rights. Andean Community Decisions related to intellectual property (291, 345, 366, 351, 391, 423, 448, 486, 632, and 682) are the legal framework for IP licenses within the Andean Community Countries (Bolivia, Colombia, Ecuador, and Peru). IP licenses are private contracts between parties setting out the relevant details, territory, timeframes and royalty payments.
Companies must register intellectual property licenses with the National Service of Intellectual Rights (SENADI) (https://www.derechosintelectuales.gob.ec/) for the Tax Authority (SRI) to recognize entitlement for payments of royalties and enforce licenses. Intellectual property licenses are usually registered within six months following submission to SENADI. To register such agreements with SENADI, companies must notarize the license agreement, and also obtain an apostille of the documents if those have been granted abroad. For more information on apostille of documents, please see https://ec.usembassy.gov/u-s-citizen-services/notarials/apostille/.
Companies must also register Technology Transfer Agreements (TTAs) with SENADI. If a TTA includes capital investment, it is also considered to be a foreign investment agreement and must be registered at the Ecuadorian Central Bank (BCE) (http://www.bce.fin.ec/).
Express Delivery
Post offices and couriers are located in all major Ecuadorian cities. In general, mail sent via the national postal service takes several days to reach its destination, including about 10 business days to reach the United States. On July 13, 2022, the public company Correos del Ecuador closed its operations and transferred its assets to the new postal operator Servicios Postales del Ecuador. The remaining backlog of packages is the responsibility of the new operator.
For more information, pricing and information on services please visit: https://www.serviciopostal.gob.ec/wordpress/#search
Several international couriers have offices in Ecuador, including DHL, FEDERAL EXPRESS and UPS
Customers receiving packages from overseas, weighing over two kilograms, will need to pick up packages at customs. The Ecuadorian government calculates import taxes according to the declared value of the package; these fees can be quite high. In addition, packages are subject to a 12 percent value-added tax (IVA) and a 0.5 percent children’s tax.
For a package to be duty free, it must comply with the following:
- Maximum weight: four kilograms (exactly 8.8 lbs.)
- Maximum FOB declared value = $400 (according to the receipt(s) which must accompany the box)
- Must not be in the prohibited list: No pressurized containers, tobacco, weapons, medicines/drugs, live animals, seeds, plants, perishables, cleaning solutions, or lighters and matches
- Must be for individual, not commercial use, with an accumulated value of $1600 per year
For the most up-to-date information about import duties on packages that exceed the 4×4 limits, please see the customs website: https://www.aduana.gob.ec/envios-courier-postal/
In general, it is difficult to send commercial samples due to the applicable duties and rigorous technical requirements.
Due Diligence
U.S. companies should take care in selecting their Ecuadorian partners. In performing due diligence, U.S. companies should seek the services of a reputable local lawyer and contact the Commercial Unit at U.S. Embassy Quito.
U.S. small- and medium-sized businesses can save time and money by contracting with U.S. Embassy Quito to perform an International Partner Search (IPS) to find pre-qualified global partners who express interest in their products and services. U.S. Embassy Quito’s Commercial Unit can generate a customized International Company Profile (ICP) to evaluate your potential business partner. Researched and prepared by our trade specialists, ICPs enable U.S. small- and medium-sized businesses to assess overseas companies more effectively. To contract for an IPS or an ICP, contact Ecuadorcommercial@state.gov