Taxation of Cryptocurrencies in Income and Value Added Tax in Ecuador: Regulatory Analysis and Feasibility (Innova Science Journal)

Summary

• More than 10.000 types of cryptocurrencies exist worldwide, with Bitcoin being the most widely recognized and capitalized digital asset.p.4
• In September 2021, El Salvador adopted Bitcoin as an official legal tender alongside the United States dollar.p.7
• Ecuador maintains a general Value Added Tax (IVA) rate of 13 %, alongside specific items taxed at 0 %.p.9
• Legislation enacted in 2024 allows the President of Ecuador to modify the general IVA rate within a range between 13 % and 15 %.p.10
• The OECD approved the Crypto-Asset Reporting Framework (CARF) in 2023, aiming for the first automatic information exchanges in 2027.p.11

Key insights

1. Ecuador lacks specific tax regulation for cryptocurrencies, creating legal uncertainty regarding tax returns and payment obligations.p.1
2. While the Central Bank of Ecuador prohibits cryptocurrencies as legal tender or payment methods, purchasing and holding them for investment purposes is not illegal.p.2
3. Classifying cryptocurrencies as intangible digital assets provides the most appropriate legal framework for Ecuador without violating its monetary system.p.5
4. The absence of specific tax rules makes defining the taxable event and tax base for Income Tax on cryptocurrency operations extremely complex.p.8
5. Cryptocurrency transfers do not directly generate VAT (IVA) under current law because cryptocurrencies are not classified as tangible movable property.p.10
6. When cryptocurrencies are used as a payment mechanism to acquire taxable goods or services, the underlying commercial transaction remains subject to VAT.p.10
7. Adopting the OECD Crypto-Asset Reporting Framework (CARF) would allow Ecuador to enhance tax oversight without recognizing cryptocurrencies as legal tender.p.11
8. Comparative analysis shows diverse global regulatory models, ranging from El Salvador accepting Bitcoin as legal tender to the United States taxing cryptocurrencies as property.p.12