The France-Ecuador tax treaty: 15 % on dividends and royalties, 10 % or 15 % on interest

The France-Ecuador treaty caps dividends and royalties at 15 %. For interest, the cap is 10 % for certain sources of interest and 15 % in other cases. This document also indicates what it does not cover.

A 1989 agreement, without time limit

The convention was signed in Quito on March 16, 1989, along with a protocol. It entered into force on March 25, 1992, and applies to income received from January 1, 1993. Article 29 stipulates that it remains in force indefinitely. The administrative list does not mention any amendments; Ecuador is not included in the list of conventions modified by the MLI.

The ceilings and key rules

Interest rates: two rates depending on the source of the interest

The maximum limit is 10% of the gross interest if it originates from financing the sale of industrial, commercial, or scientific equipment, from any type of loan granted by a bank, or from financing public works. In other cases, it is 15%. The bank loan therefore depends on the lender's creditworthiness.

Article 11 § 3 exempts these interest payments in the State from which they originate in three cases: the debtor is the State or a local authority; the interest is paid to the State, a local authority or an organization wholly owned by them; the loan falls under intergovernmental cooperation for an economic and social development program, with the prior agreement of the borrower's State of residence.

Capital gains: the 25 rule %

Article 13, paragraph 1, makes capital gains on immovable property taxable in the State where the property is situated. Paragraph 2 extends this rule to shares in a company or legal entity whose assets consist primarily of immovable property, provided that the legislation of that State applies the same tax treatment to them as to immovable property; immovable property used in the company's business operations is excluded. Paragraphs 3 and 4 address permanent establishments, fixed bases, ships, and aircraft. According to paragraph 5, other capital gains are taxable only in the State of residence of the transferor.

Point 6 of the protocol prevails for substantial participation in a company resident in France: if the transferor, alone or with related persons, directly or indirectly holds securities giving entitlement to 25 % or more of the profits, the gains are taxable in France.

Avoiding double taxation

Article 23 provides for a credit on both sides. In France, an amount equal to the tax paid in Ecuador is credited against French tax, up to the limit of the portion of French tax corresponding to the income taxed in Ecuador. Ecuador applies the same mechanism.

Article 4 considers as resident any person subject to tax by reason of their domicile, residence or place of management; for a natural person resident in both States, it applies the permanent home, the centre of vital interests, the habitual residence, and then nationality.

What this sheet does not cover

The convention only covers income taxes: neither wealth nor inheritance taxes are addressed. Remuneration for technical services (protocol § 5), Ecuadorian domestic taxation, and the mutual agreement procedure are not covered.

What changes depending on your situation

• Your residence as defined in Article 4.
• The origin of the interest: equipment sales, bank loan, public works, or other case.
• The level of participation in the capital of a French company, for the 25 % rule.
• The number of days spent in each state during the fiscal year.

The applicable limit depends on the facts of your case, and no outcome is guaranteed.