InterAmTM Database
LEX MUNDI
A LAWYER’S GUIDE TO
Prepared
by:
PEREZ, BUSTAMANTE Y PEREZ
The information contained
in this publication is given by way of general reference only and is not to be
relied upon. No responsibility will be accepted by the authors or publishers
for any inaccuracy or omission or statement which might prove to be misleading.
You are advised to seek your own professional advice before proceeding to
invest or do business in
TABLE OF CONTENTS
I. THE COUNTRY AT A
GLANCE
A. General
B. Geography
C. Economic Indicators
II. GENERAL
CONSIDERATIONS
A. Political System
B. Legal System
C. Economic System
D. Court System
E. Financial System
F. Culture
A. General
B. Repatriation of Capital
and Remittance of Profits Abroad
C. Reinvestments
D. Foreign Investment
Restrictions
IV. SENSITIVE AREAS
V. DIRECT SALES
VI. EXPORTS
VIII. INTELLECTUAL
PROPERTY - LICENSING
A. Copyrights
B. Patents and Trademarks
C. Transfer of Technology
and Licensing
D. Antitrust
IX. DIRECT INVESTMENT
X. PURCHASE BY FOREIGN
CORPORATIONS OF BUSINESS IN
XI. BRANCHES
XII. INCORPORATION
XIII. EXCHANGE CONTROLS
XV. LABOR
A. Legal Framework
B. Limitations of
Foreigners
C. Special Rules
D. Termination of Labor
Contracts
XVI. DISSOLUTION
A. Insolvency and
Bankruptcy
B. Capital, Debts, and
Dissolution of a Company
XVII. INTERNATIONAL
RELATIONSHIPS
XVIII. DISPUTE
RESOLUTION
A. Arbitration Practice
APPENDIX - Government Offices &
Financial/Commercial Institutions
I. THE COUNTRY AT A
GLANCE
A. General
Official Name:
Area: 275,800 square
kilometers, approximately
Population: 11 million,
approximately, 57% of whom live in urban areas. 35% of the population is
estimated to be economically active.
Density: 37 inhabitants per
square kilometer
Languages: Spanish. Some
indigenous minorities speak Quichua and other native
tongues.
Monetary Unit:
Time zone:
B. Geography
Products from the Coastal
region are mainly destined for exportation. Traditional products are bananas,
cocoa beans, and coffee, as well as cattle breeding. In the past years, shrimp
culture has attained the second place among the country's exports.
The Colon Archipelago (
Products of the highlands
(Sierra) of great nutritional variety, including dairy cattle, meet the
country's domestic demand and reach border markets at
The main product of the
Eastern (Amazon) Region is oil; it makes up 45% of
Ocean transportation
facilities are available to reach ports in
The largest cities have
modern airports furnished with equipment and facilities to render good service
to domestic and international air traffic. A paved road network joins the major
cities.
Ecuador's economically
active population is divided into the following areas: agriculture, hunting,
and fishing, 11.3%; household work, 8.77%; trade, restaurants, and hotels,
3.79%; manufactured industries, 3.71%; construction, 2.71%; transportation and
communications, 1.76%; others represent less than 1%.
C. Economic Indicators
G.D.P (1988): US
$7,212,640,000.
Per capita income: US
$1,000.
Internal taxes (collected
in 1989): 827,994,100,000 sucres, equivalent to
approximately US $1,533,322,000.
Annual inflation rate
(1989): 64%, estimated.
External debt: US $11,000
million.
Exports (
Imports (
Net international monetary
reserve (as of July 1990): US $159,000,000.
II. GENERAL
CONSIDERATIONS
A. Political System
1. Constitutional System
2. Territorial Division
The territory of the
Republic is divided into provinces, counties, and parishes. At present, there
are 20 provinces, one of which is the Colon Archipelago (
3. State Bodies
The Head of State: The President of the Republic is
the Head of State and represents the nation as such.
The Legislative: Legislative power is exercised by
the National Congress consisting of twelve representatives elected by national
vote, two representatives elected per each province with the exception of those
having less than 100,000 inhabitants that elect only one representative, and,
in addition, one representative elected per every 300,000 inhabitants or
fractions of that number exceeding 200,000.
The Government: The government is exercised by the
President of the Republic. He directs the public administration and freely
appoints and dismisses Cabinet Ministers, heads of diplomatic missions,
governors, high ranking officials of the Armed Forces, and other civil
servants. He is in charge of preserving order within the country and of
safeguarding the external security of the Republic. The country's foreign
policy is determined by him, and he directs international relations, signs
treaties and other international conventions, directs the use of the Public
Forces when required by security considerations and the public service, and,
generally, he exercises the powers granted to him by the Political Constitution
and the laws. (1978 Polit. Const., arts. 73 to 91;
Law on the Administrative System, suppl. to Official
Gazette No. 1202 of Aug. 20, 1969 (1), arts. 5 to 20).
The Tribunal Supremo Electoral (
The Office of the
Comptroller General of the State: controls the management of public resources, regulates
their accounts, and exercises control over the property of public sector
entities. (1978 Polit. Const., art. 113; Charter Law
on Financial Administration and Control, Official Gazette No. 453 of
Territorial Authorities: There is a Governor in each
province (except in the
B. Legal System
There is no customary law,
and custom is not deemed a law except in such cases when the law makes
reference to it (C.C. art. 2). Commercial usage may fill any gaps in the laws
when the acts constituting it are uniform, public, generally performed in the
Republic or in a specific location, and have been repeated for more than ten
years. (Comm, C., Suppl. to Official Gazette No. 1202 of Aug. 20, 1969, art.
4).
The Supreme Court
meeting in Plenary Session has the power - in the case of contradictory
decisions on the same point of law - to set forth an interpretation or
decisions to govern future cases, and it is generally obligatory unless the law
provides to the contrary. (1978 Polit. Const., art.
102: Charter Law on the Judiciary, art. 14). Legislation is published in the Registro Oficial, or Official
Gazette ("R. O.") (Law on Administrative System,
art. 136; Civil Code, art. 5). The most interesting court decisions are
published in the Gaceta Judicial and in the Fiscal
Court Bulletin.
The Civil Code came
into force in the Republic on
The Commercial Code
has been in force since
Any person with the
capacity to contract in accordance with the provisions of the Civil Code also
has the capacity to engage in trade. However, the following may not engage in
trade: (1) ecclesiastic corporations, members of religious orders, and the
clergy; (2) public officials who are forbidden to engage in trade by the Penal
Code, art. 266, with the exceptions established in the same article; and (3)
bankrupts who have not been reinstated.
Any person wishing to
engage in trade must be registered with the Commercial Registry.
Brokers, auctioneers, and ship captains must also be registered. The Commercial
Registry is kept by the County Registration Office. The registry is kept in a
single folio book, in which the following information is entered: registration
number of traders and marketable shares; commercial, industrial and
agricultural companies; as well as all other acts listed in Comm. C. art. 30.
Commercial Companies: There are five types of commercial
companies, as follows: Partnerships (en nombre colectivo), limited partnership or limited partnership with
shares (comandita simple o por
acciones), limited liability company (de responsabilidad limitada),
marketable share company or corporations (compañía anónima), and companies with mixed private and public
participation (economía mixta).
These five types of companies are legal entities. The law also recognizes
occasional companies (joint account companies) and de facto companies. (Company Law, Official Gazette No. 389 of July 27, 1977, art. 2).
There are also insurance, financial, and professional companies governed by
special laws.
Commercial Instruments: The Law on Bills of Exchange and
Promissory Notes (now a part of the Commercial Code) is based on The Hague
Convention of 1912 and on the draft by the Central Executive Council of the
Inter-American High Commission of 1916, adopted by the Congress of the Republic
of Ecuador on Dec. 5, 1925 with few unimportant amendments (present text: Comm.
C., arts. 410 to 489). The Law on Checks enacted on
C. Economic System
The 1978 Polit. Const. contains fundamental principles related to
the economy. The organization and operation of the economy should respond to
principles of efficiency and social justice to ensure a dignified living for
all Ecuadoreans, allowing them equal rights and
opportunities concerning production and consumption. Development within a
market economy seeks to increase production tending to the well-being and
progress of all Ecuadoreans. All kinds of abuse of
economic power are prohibited.
The Ecuadorean
economy operates through four sectors: (1) the public sector, made up of
State-owned enterprises; (2) the mixed-economy sector, made up of
privately-owned enterprises in association with public sector entities; (3) the
communitarian sector, made up of cooperatives, community enterprises, or
similar associations; and (4) the private sector (art. 46).
The State recognizes and
guarantees the right of property as long as it fulfills its social function
(art. 48).
Confiscation of all kinds
is prohibited (art. 47).
Taxes can only be
established, modified, or extinguished by a legislative action adopted by the
competent agencies (art. 53).
The Consejo
Nacional de Desarrollo
(National Development Council) with headquarters in
D. Court System
Constitutional Judiciary: According to the 1978
Constitution, constitutional jurisdiction is essentially under the Court of
Constitutional Guarantees, made up of eleven members (art. 140). The following
are the Court's responsibilities: to ensure the observance of the Constitution;
to make observations regarding decrees, regulations or resolutions infringing
the Constitution and the laws; to take cognizance of complaints by any persons
regarding violations of the Constitution that attempt against the rights and
freedoms guaranteed therein; and to suspend wholly or partially the effects of
laws, regulations or resolutions that are unconstitutional in form or spirit
(art. 141).
Courts of Law in Civil,
Commercial and Labor Matters: Each province has the number of judges of the first
instance as determined by the Supreme Court. Judges of the first instance
exercise ordinary jurisdiction and hear civil or commercial cases in a first
instance as well as contentious and voluntary jurisdictional matters not
attributed to another jurisdictional authority.
The following authorities
exercise special or exclusive jurisdiction: (1) Labor judges hear and decide on
individual disputes arising from labor relations. Collective disputes (strikes
and lockouts) are heard by Conciliation and Arbitration Courts composed of five
members (vocales). viz. a
Labor Inspector or Sub-Inspector, who presides over the court, two members
appointed by the employer and two by the workers. Cases are heard in a second
and final instance by the Higher Conciliation and
The Higher Courts, which
operate in almost all provincial capitals, consist of one or more Divisions
according to the importance of the district. There are three judges in each
Division. There is also a Fiscal Attorney (Ministro
Fiscal) in each Court.
The Supreme Court of
Justice has its seat in the capital of the Republic. It is made up of a
President, five Chambers (or "Salas") with three judges justices
each, and the Fiscal Attorney (1978 Polit. Const.,
arts. 98 and 99; Charter Law on the Judiciary, Official Gazette No. 636 of
Sept. 11, 1974, arts, 12, 21, 36, 68, 73, 74, 77; Labor Code, Official Gazette
No. 650 of Aug. 16, 1978, arts. 468, 481, 553, to 556; Law on Leaseholds,
Official Gazette No. 681 of Sept. 28, 1987, art. 39, Code for Minors, Official
Gazette No. 107 of June 14, 1976, arts. 243 and 261).
Administrative Judiciary: There is
Contentious-Administrative and a Fiscal Court to hear
contentious-administrative petitions and contentious-taxation matters,
respectively (1978 Polit. Const., arts. 98 and 99;
Law on Contentious Administrative Jurisdiction, Official Gazette No. 338 of
March 18, 1968, art. 8; Tax Code, Suppl. to Official
Gazette No. 958 of Dec. 23, 1975. art. 221).
Prosecutions: Prosecutions are brought in the
first instance by an Assistant Attorney (Agente
fiscal) - there is one at each Criminal Court and
The Public Prosecutor's
Office (Ministerio Publico)
is exercised by the Attorney General of the Nation together with the Fiscal
Attorney and Assistant Attorneys. The Attorney General of the Nation is in
charge of the State's representation, judicial and legal advice, and prevention
and control of illicit drug trade (1978 Polit. Const.
arts. 110 to 112; Charter Law on the Judiciary, supra (b), arts. 3, 13, 23, 36,
63, 64, 81, 111 and 112; Organic Law of the Public Prosecutor's Office,
Official Gazette No. 871 of July 10, 1979, arts. 1, 3 and 41; Criminal
Procedure Code, Official Gazette No. 511 of June 10, 1983, art.4).
E. Financial System
The main legal provisions
on
1) Implementation of the
Monetary Regime Law (published in Official Gazette No. 56 of March 31, 1976) is
in charge of the Central Bank of Ecuador under Monetary Board control for
purposes of creating and maintaining the most favorable monetary, lending, and
money exchange conditions for the country's economic development.
2) The General Banking Law,
(Official Gazette No. 771 of September 15, 1987). The Office of the
Superintendent of Banks is in charge of supervising and inspecting State and
private banks, insurance and financing companies, and foreign currency exchange
firms. State banks, such as Banco Nacional
de Fomento, Banco de la Vivienda, and Banco de Desarrollo, have specific regulations of their own.
3) The
Companies Law, or Corporations Law (Official Gazette No. 389 of July 28, 1977)
Section B - Legal System, No. 6 - Commercial Companies. The Office of the Superintendent of
Companies is in charge of supervising and inspecting marketable share
companies, limited partnerships, mixed companies (with joint public and private
capital), foreign companies doing business in Ecuador, and the stock exchange.
4) The Law on Financial
Companies (Official Gazette No. 686 of May 15, 1987) whose main objective is
developing and financing industrial enterprises. Corporation Financiera Nacional, with a
similar object, is an autonomous State agency governed by a special law
(Official Gazette No. 494 of December 29, 1977).
5) There are stock exchange
corporations operating in
F. Culture
Obligatory education
includes six years of elementary school and the first three years of secondary
school (comprising children of six to fourteen years of age). Public education
is free of charge. Parents have the right to give their children the education
they may deem convenient. Freedom of education is guaranteed. (Constitution Arts. 26 - through 28 - Law on Education and Culture,
Official Gazette No. 461, November 11, 1977).
The oldest public
universities are the Central University of Ecuador in
The
The literacy rate is 84%.
A. General
On
By Presidential Decree No.
3095, promulgated in Official Gazette No. 738 of
Foreign investment in
We will refer basically to
"direct foreign investment", namely, such investments made from abroad
by foreign investors in freely convertible currencies or in physical assets
intended for the capital stock of an enterprise. A direct foreign investment,
as a general rule, is either permitted, restricted, or
prohibited, depending on the sector where the investment is to be made.
On the other hand, a direct
foreign investment may be made in Ecuadorean
companies (companies organized in
A foreign investment may be
made through: (i) incorporation of new Ecuadorean companies, (ii) a capital increase in existing Ecuadorean companies, in several forms, (iii) purchase of
shares from foreign, sub-regional, and local investors, (iv) establishment or
registration of branches of foreign companies, and (v) increase of capital
allocated to branches of existing foreign companies.
Companies are classified,
for investment purposes only, as follows:
National Enterprises: companies incorporated in
Mixed Enterprises: companies incorporated in
Foreign Enterprises: companies incorporated or
established in
As a general rule, only
direct foreign investment is regulated and investments in other companies, made
by enterprises incorporated or established in
It should be noted that
this regime, like the previous one, always makes reference to enterprises and
not to companies. Under this concept, foreign investments in one-person
enterprises are authorized.
Foreign currency exchange
in
B. Repatriation of
Capital and Remittance of Profits Abroad
As a general rule, there is
no time limitation in
Remittances of profits
abroad are subject to the following rules:
- A general limit of 30%
net annually (after income tax withholding), calculated on the investment registered
in a foreign currency.
- A limit of 40% net
annually, if the enterprise exports 40% or more of its annual production.
- A limit of 40% net
annually, in the case of enterprises engaged in low-income housing
construction.
- Unlimited, if the enterprise
exports 80% or more of its production to third country markets (outside of the
Andean area).
- Unlimited, for
enterprises involved in the tourist sector.
C. Reinvestments
Reinvestments are accepted
in Ecuador and do not require any authorizations except a formal communication
to the authorities giving notice of such reinvestments for statistical purposes
only, and subsequent registration of such reinvestment at the Central Bank of
Ecuador.
Remittances of profits
abroad are subject to 36% income tax, while reinvestments of such profits are
subject to 25% income tax.
D. Foreign Investment
Restrictions
As mentioned before,
foreign investment is either permitted, restricted, or
prohibited in
Foreign investment is
prohibited in the following sectors: commercial radio stations; commercial TV
stations; publication of newspapers and magazines and other mass media; public
utilities such as potable water, sewage, electric power, telephone, mail, and
telecommunications; domestic transportation; publicity and advertisement.
Sectors where foreign
investment is restricted to up to 49%: Fisheries, banking, financing companies,
insurance and reinsurance companies. In the construction sector, foreign
investment is restricted up to 19% only.
In the remaining sectors of
the economy, such as agriculture, agroindustry,
industry, tourism, mining and oil, foreign investment is permitted up to 100%.
IV. SENSITIVE AREAS
In general terms, foreign
investors or foreign enterprises or branches are treated in
There are several types of
visas and it is not always possible to change from one visa to a more
advantageous one when the person is already in
Copies are not always
accepted, even though a recent Presidential Decree tried to give them legal
validity.
V. DIRECT SALES
In general, any item may be
imported. At present, imports of vehicles are forbidden as they are assembled
in the country, but spare parts and pieces for vehicles can be imported.
Products are classified
under a code called "Importation Tariff" following the "Brussels
Tariff Nomenclature", and the "Andean Pact Nomenclature", or
"NABANDINA". At the same time, items are divided into three different
categories, or lists: List 1 (which is divided in List l-A and List l-B), List
2, and Special Class.
LIST l-A: covers products classified
as "indispensable";
LIST l-B: covers products
classified as "useful";
LIST 2: covers products
classified as "luxury"; and
SPECIAL CLASS: basic
commodities.
In order to import any
goods, a permit granted by the Central Bank of
A permit may be granted to
persons who do not fulfill these requirements in exceptional cases only.
There are two kinds of
permits:
Occasional Import Permit: Granted by the Central Bank of
Permanent Import Permit: Granted by the Central Bank of
Imports of goods can be
made under:
Temporary Admission
Regime: When goods
introduced into the country are to be re-exported; and
Definitive Admission
Regime: When goods
are not to be re-exported.
An importer code number is
granted by the Central Bank of
A guarantee is deposited in
the Central Bank and is returned upon submittal of the Import Declaration,
which ensures the introduction into the country of all of the imported goods
and the application of the entire sum requested in foreign currency.
All imports are subject to
taxation as set forth by Monetary Board regulations and by Customs Tariffs,
excepting such products that are exempted by law. Imports are also subject to
the 10% VAT (added value tax) imposed on goods to be marketed in the country.
In order to collect 80% of
ad valorem duties imposed on imports and the monetary
stabilization surcharge that is imposed upon presentation of the import permit,
the Central Bank of
The procedure for importing
goods into the country is the following:
Once the import permit is
obtained, foreign currency is obtained at the Central Bank of
Direct sales are always
subject to taxation, excepting sales carried out by the public sector for
community works, provided that they are considered necessary for the country's
development. Either a natural or a juridical person can act as a sales
representative in the country.
The
VI. EXPORTS
Exports have been
classified into three groups: Petroleum, traditional products, and
non-traditional products.
Petroleum is classified in
a separate group since it is a special export not sharing the characteristics
of the other two groups. Revenues produced by petroleum exportation exceed
those produced by exports of traditional and non-traditional products together.
Traditional products are:
bananas, coffee, cocoa beans, and sugar. All other exports are classified as
non-traditional and are divided into two groups: primary products (related to
agriculture, cattle breeding, pisciculture, and
mining) and industrialized products (relating to chemicals and pharmaceutical
products, food, and manufacturing) .
The following entities
control the processes required for exportation:
- Ministry of Industries,
Commerce, Integration, and Fishing;
- Central Bank of
- Ministry of Finance and
Public Credit; and
- Other financial
institutions such as banks, finance corporations, FOPEX.
A permit must be obtained
at the Central Bank of
Exporters can be either
natural or juridical persons registered with the Chamber of Commerce or the
Mercantile Registry, and affiliated with the corresponding Production Chamber.
Permits may be exceptionally granted to persons who do not meet these requirements
in the case of occasional exports. An exporter code number is granted by the
Central Bank of
There are three classes of
export permits:
Provisional Permit: It has a 30-day term from the date
of issuance, and such term may be extended solely by the Monetary Board.
Comprehensive
Provisional Permit:
It has a 90-day term from the date of issuance.
Definitive Permit: It has a 90-day term from the date
of issuance, and such term may be extended prior to shipment of the goods.
In order to obtain any one
of the above mentioned export permits, a pro forma invoice must be presented
specifying the quantity, description, and unit price of the items to be
exported as well as the full address of the importer, date of the negotiation,
and sales contract.
Exporters are obliged to
sell the foreign currency corresponding to the
Export policies derive from
the Law on Industrial Development. The Law on Agricultural and Forestry
Development is specifically aimed at developing agricultural production and, in
addition, it contains different provisions favoring exportations. The General
Customs Law also sets forth provisions supporting exportation. In addition, the
Laws on Development of Small-Scale Industry and Handicrafts, on Fishery
Development, on Regional Industrial Development, on Monetary Regime, and the
list of investments in specific exportation areas issued by the Ministry of
Industry, Commerce, Integration and Fishing, contain
provisions regarding exportation development.
However, the above
mentioned laws which provide for the legal framework of exportation policies do
not have the exclusive purpose of developing exportation of products to other
countries.
The North and South
dialogue that has been taking place during the past twenty years has given rise
to a special system of preferential tariffs which includes codes to rule
technology transfers, tax exemptions for certain exports, regulations for
behavior of multinational enterprises, and programs for classifying markets of
raw materials or for executing agreements.
The
The problems that certain
basic commodities are facing in the international market are a market glut,
technological innovations that tend to reduce costs and substitute products,
and competition from other countries. Due to the integration of markets, any
decision in relation to economic policies made by a country or a block, such as
the
There are several
arrangements to organize sales in
- Traveling salespersons
who are employees of a foreign supplier. They depend directly from the head
office, and are subject to and protected by local labor laws.
- Local agents and
distributors. They are not employees, and are protected by Law No. 1038-A.
- Local branches or
subsidiaries of a foreign supplier hiring their own employees. The supplier
would have to organize a subsidiary, or to domicile a branch in
- The main reason to choose
among these alternatives would be the importance of the operation and the
degree of control that the foreign supplier wishes to have.
There is no difference
between agents and distributors under Ecuadorean law.
- There are no legal or
regulatory limitations for using an agent in
- The general duties and
powers of agents will be those stated in the contract signed between the
principal and the agent.
- The agent may have or not
the legal representation of the foreign company. Legal representation includes
the authority to answer claims presented against the principal. The agent
cannot be personally prosecuted as a result of acts performed or obligations
acquired on behalf of the principal. Representation of a foreign company is
granted through a power of attorney, which can be revoked by the company. The
extent of authority depends on the wording of the power of attorney.
- There is no exclusivity
established by the law for distributors or agents of a foreign company.
Therefore, several distributors or agents can be appointed.
- Remuneration should be
established in the contract. The most common practice is a commission based on
sales. Nevertheless, any other form of remuneration may be freely established.
There are no restrictions or limitations on the amount of the remuneration.
Taxation: according to the Ecuadorean Taxation Law, corporations that are incorporated
in Ecuador or branches of foreign companies domiciled in Ecuador must act as
withholding agents for all payments made to individuals or to other companies.
Nevertheless, if the company that makes the payments is not domiciled in
Law for the Protection of
Agents and Distributors of Foreign Enterprises issued by Supreme Decree 1038-A
of
a) Under Article 3 of the
law, neither party may unilaterally terminate one of these agreements, or amend
it or refuse to renew it at the expiration of the contractual term, except for
a cause duly proven before a competent judge. Causes for termination are the
following:
- Default of legal or
contractual obligations;
- Any action or omission
seriously affecting the other party's interests; and
- Bankruptcy, insolvency,
liquidation of the distributor, or termination of its activities.
b) Under Article 4,
indemnities are determined according to the following criteria:
(i)
The cost of the representative's investment to acquire and arrange for space,
purchase of equipment, facilities, furniture and tools, to the extent that they
are not easily and reasonably usable for any other operation in which the
representative may be normally engaged.
(ii) The cost of the
merchandise and/or raw materials, parts, components, supplies, accessories, and
advertising materials which the representative has purchased and whose sale
cannot be profitably effected.
(iii) The goodwill value
("plusvalia") of the representative's
business, or any part thereof, which may be attributed to the representation.
Such goodwill or accumulated value is determined by taking the following
factors into consideration:
- The time that the
representative has performed the representation.
- The current volume of
sales or distribution of the goods, and their proportion in the
representative's business.
- The proportion in the
market that the representative may have obtained in
- Other factors as may
reasonably help to establish the amount of said goodwill value in a fair way.
VIII. INTELLECTUAL
PROPERTY - LICENSING
A. Copyrights
The Law on Copyrights
(Official Gazette No. 149 of August 14, 1976) protects the rights of authors of
literary, artistic, and scientific works. Title to a copyright derives from the
creation of the work, and it is not necessary to register, deposit, or to do
any other formality in order to obtain protection by the law. Works of authors
that are not domiciled in
B. Patents and
Trademarks
The State grants patents of
invention to new creations that are susceptible to industrial application and
to those that improve such creations. Patents are granted for a maximum
ten-year period. Industrial drawings or models can also be registered. This
registration covers the right of exclusive use during five years. Symbols that
are novel, visible, and sufficiently distinctive may be registered as
trademarks or service marks; this registration lasts five years and may be indefinitely
renewed. (Law on Exclusive Patents on Exploitation of Inventions, Official
Gazette No. 195 of October 19, 1976; Law on Trademarks, Official Gazette No.
194 of October 18, 1976; Decision No. 85 of the Cartagena
Agreement Commission (Andean Pact). Official Gazette No. 304 of March 28, 1977;
International Classification of Patents, Drawings and Industrial Models and
Trademarks and Service Marks, Official Gazette No. 65 of August 25, 1981,
Regulations for application of Decision 85, Official Gazette No. 223 of July
1985; conventions executed by Ecuador at the Fourth Inter-American Conference,
Buenos Aires 1910, Official Gazette No. 242 of August 5, 1985; Ecuador is not a
signatory of the 1883 General Convention of Paris.)
C. Transfer of
Technology and Licensing
Transfer of technology is
governed by Decision 220 of the Cartagena Agreement
Commission (Official Gazette No. 723 of July 7, 1987) and Decree No. 3095
(Official Gazette No. 738 of July 29, 1987).
Contracts on licenses for
patent exploitation or use of trademarks, provision of industrial technology,
technical-industrial cooperation or specialized technical services are examined
by and submitted to the previous approval of the Ministry of Industries,
Commerce, Integration and Fishing (MICIP). Once the contracts are approved by
MICIP and signed by the parties, they are protocolized
before a Notary Public and registered with the Central Bank and the National
Industrial Property Bureau.
These contracts must
contain the following clauses:
Identification of the
parties; determination of contractual objectives indicating the exclusiveness
or non-exclusiveness thereof, and whether sub-licensing is admitted;
description of technological contribution, and identification of patents and
trademarks; contract value of each one of the elements involved in the
contract, conditions and currency of payment; contract term which cannot exceed
five years (this term may be renewed); obligation of foreign contractor to pay
taxes caused by contract execution; provisions guaranteeing the quality of the
products or services; obligation that any conflicts arising between the parties
are to be subject to national jurisdiction and venue; and causes for
termination.
The MICIP does not
authorize contracts on foreign technology transfer or on patents if they
contain restrictive clauses, such as those providing that:
The supply of technology
brings about the obligation for the receiving enterprise of purchasing capital
goods, semi-manufactured products, raw materials or other technologies from a
specific source, or of permanently employing the personnel indicated by the
enterprise that supplies such technology (exceptional cases may be considered
by the MICIP); the licensor reserves the right to fix sales prices;
restrictions on production volumes and structure or the use of competitive
technologies; purchase option in favor of the supplier; compelling the licensee
to assign to the supplier any inventions or improvements obtained by the use of
said technology; making it obligatory to pay royalties for non-utilized
patents.
No clauses can be accepted
if they prohibit or otherwise limit the exportation of products, except in
exceptional cases duly qualified by the MICIP. License agreements on
exploitation of foreign trademarks cannot contain restrictive clauses such as:
Limitation to export to
specific countries the products manufactured under the respective trademark;
the obligation to use raw materials, semi-manufactured products and equipment
furnished by the owner of the trademark or its affiliates (in exceptional
cases, the MICIP may accept clauses of this type); establishment of sales or resales price; obligation to pay royalties for non-utilized
trademarks, or to permanently use the personnel indicated by the trademark
owner.
Technological contributions
or licenses comprised in technology transfer contracts grant rights to
payments, if provided for in the contracts, which may adopt one or more of the
following forms: a) an initial fixed payment, or partial fixed payments previously
established for the years of the contract's term; b) a royalty; and c) fees.
The MICIP may approve such payments if it deems that they are not excessive.
Intangible technological contributions cannot be calculated as a capital
contribution; accrued royalties may be capitalized after payment of the
corresponding taxes.
D. Antitrust
The Constitution prohibits
the abuse of economic power, including unions and groups of companies that tend
to dominate the domestic markets, to eliminate competition, or to arbitrarily
increase profits (Art. 45).
The Law on Companies
prohibits the formation and operation of companies contrary to the public order
and those that tend to create a monopoly (Art. 3).
Law No. 107 on Consumer
Defense (Official Register No. 520 of September 12, 1990) prohibits and imposes
penalties on suppliers who join other suppliers to sell their products at
prices higher that the official prices.
In
IX. DIRECT INVESTMENT
Types of investment methods
in
- purchase
of stock or assets on existing companies;
- registration
of a branch;
- creation
of a subsidiary; and
- joint-venture
company, or partnership.
The two types of companies
most frequently used in
In the following sectors,
equity ownership by foreigners is subject to limitations and a joint-venture
with a local investor is required: banking, financing companies, insurance and
reinsurance, fishing, and construction.
No registration fees exist
in
The time frame for
registration of foreign investment is between 60 to 90 days.
The two substantial
administrative requirements for foreign investments are: the obligation to
obtain an authorization for foreign investment issued by the Ministry of
Industry, Commerce, Integration and Fishing (MICIP), and the obligation to
register the investment with the Central Bank of
According
to Art. 6 of the
Law on Companies, registration in
- Any company doing business
in
- When a foreign company is
doing regular business in the country or is performing public works or
rendering public services, it must comply with the provisions of the Law
regarding the establishment of a branch.
The Ecuadorean
Law on Companies considers that it is not necessary to appoint an attorney in
fact if the foreign company is not going to carry out business in the country
regularly; but, if doing business regularly, it will be required to establish a
branch in
A company must be
registered in Ecuador prior to executing any contract with the Government or
any governmental agency, as well as prior to hiring local labor, opening bank
accounts, importing equipment, obtaining work permits, and importing or
exporting materials.
As it was mentioned above,
a company must be registered in
No financial restrictions
are imposed on foreign-owned companies in
Intercompany agreements such as licenses, rental
agreements, technical assistance, management contracts, leases, etc. are
permitted.
X. PURCHASE BY FOREIGN
CORPORATIONS OF BUSINESS IN
Foreign corporations are
allowed to purchase local companies. The method to do this is by acquiring
shares, and it must be done through certain procedures and complying with minor
formalities.
Foreign corporations are
allowed to acquire all of the assets of a local company.
Foreign investment is
prohibited in commercial radio and TV stations, publications of newspapers or
magazines and other mass media, as well as in public utilities such as potable
water, electric power, telephone, mail, communications, domestic transportation
and advertising. Foreign investment is limited in sectors such as banking,
financing companies, insurance and reinsurance companies, fishing, and
construction.
There are no antitrust laws
in
A 10% added value tax (IVA)
is imposed on transfers of assets. No tax is imposed on transfers of stock if
made at face value, but if the stock is sold at a premium, the seller must add
this premium to his income tax in the year in which the transaction was made.
XI. BRANCHES
Branches of foreign
companies are permitted in
There are no significant
differences between Ecuadorean companies and foreign
branches as regards to tax liabilities or other obligations.
A 25% corporate tax exists
in
As mentioned before, no
exchange control exists in
In order to register a
company or to establish a branch, an authorization for foreign investment must
be obtained from MICIP. Besides, the Office of the Superintendent of Companies
must authorize the company to establish a branch.
The following documents are
required to establish a branch:
a) incorporation
charter;
b) bylaws;
c) certificate
of good standing granted by an Ecuadorean Consul;
d) a
general power of attorney granted to an Ecuadorean
citizen or to a foreigner with permanent residence in
e) a
minimum capital to be allocated to the branch. Currently, it is approximately
US $60,000 (sixty thousand dollars).
All of the above documents
should be duly authenticated by an Ecuadorean Consul.
The branch must be
registered before business begins. It has already been explained that companies
cannot do business in
XII. INCORPORATION
The two types of companies
mostly used by foreign investors are: companies by shares, and partnerships.
Requirements are the
following:
a) An application is
presented to the Minister of Industries, Commerce, Integration and Fishing
(MICIP) for foreign investment authorization.
b) The bylaws are
informally presented to the Superintendent of Companies for his comments and
approval.
c) The paid-in capital is
deposited in a bank account opened in the name of the new company, where it
will remain in deposit until the company is duly organized. At least 25% of the
subscribed capital must be paid-in.
d) After these steps have
been completed, a public deed is executed whereby the company is incorporated.
e) The deed is presented to
the Superintendent of Companies for his approval.
f) The Superintendent of
Companies orders the company to be registered with the Mercantile Registry, and
to join either the Chamber of Commerce or the Chamber of Industry, as the case
may be.
g) The Superintendent of
Companies orders that an excerpt of the company's incorporation charter be
published in a local newspaper.
h) Upon completion of all
the above described steps, the Superintendent enters the new company in his
registry.
i) The first stockholders meeting is held and the company's officers are appointed.
j) The appointment of the
company's legal representative is registered.
k) After receiving evidence
of registration of the appointment, the Superintendent of Companies authorizes
the bank to release the funds held in deposit (see (c) above).
l) Until the subscribed
shares are fully paid-in, the company may issue provisional share certificates
only. After the capital is fully paid-in, (within a time limit of two years),
the company issues the final share certificates.
There are no regulatory
differences between a closely held corporation and a publicly held one. A
publicly held corporation must be registered with the stock exchange, and the
company must for this purpose comply with certain requirements and follow a
very simple procedure. There are very few publicly held corporations in
Capitalization
requirements for Ecuadorean corporations range
between S/ 500,000 (five hundred thousand sucres) to
S/ 2,000,000 (two million sucres). Most branches of foreign companies
need a minimum of S/ 50,000,000 (fifty million sucres).
Bylaws of companies can be
very broad in
No tax or other incentives
are granted to corporations in
XIII. EXCHANGE CONTROLS
The following transactions
are made through the official market:
- Proceeds of exports of
public sector entities, such as sales of oil belonging to PETROECUADOR (the
State oil company).
- Income in foreign
currencies obtained by any public sector agency.
- Proceeds of external
credits obtained by the public sector.
- The value of imports made
by the public sector.
- Repayment of public
sector debt.
- Purchase and sale of
foreign currencies relating to activities of exploration, exploitation,
transportation and marketing of hydrocarbons.
- Proceeds of private
sector exports.
- The value of private
sector imports.
- Repatriation of profits
and capital of foreign investments registered and negotiated through the
official market.
Other transactions not
mentioned above must be made in the free market.