SRI Cracks Down on ISD Tax Evasion in Foreign-Financed Imports
Enforcement Action
The Servicio de Rentas Internas (SRI) — Ecuador's tax authority — has launched an intensified enforcement campaign targeting evasion of the Impuesto a la Salida de Divisas (ISD), the 5% tax applied to capital outflows including payments for imported goods financed through foreign credit facilities, according to Boletín Contable and SRI communications.
| ISD Parameter | Detail |
|---|---|
| Tax rate | 5% of capital outflow value |
| Applicable transactions | Foreign payments, import financing, dividend remittances, royalties |
| Key change (Jan 2025) | ISD payments no longer creditable against income tax |
| Enforcement focus | Foreign-financed imports, split invoicing |
| Estimated evasion | $150-$250M annually |
Regulatory Context
The ISD was introduced in 2007 as a capital control measure to reduce dollarization-era outflows. It has undergone several modifications:
| Year | Change | Impact |
|---|---|---|
| 2007 | ISD introduced at 0.5% | Capital outflow monitoring |
| 2008-2011 | Progressive increases to 5% | Revenue maximization |
| 2012-2024 | ISD payments creditable against income tax | Effective rate reduced |
| January 2025 | Tax credit eliminated | Full 5% cost imposed |
| 2026 | Enforcement intensification | Evasion schemes targeted |
The elimination of the tax credit in January 2025 was a critical inflection point. Previously, importers paying ISD on foreign-financed purchases could offset those payments against their annual income tax liability, reducing the effective cost to near-zero for profitable companies. With the credit removed, the full 5% cost now applies, creating a strong incentive to evade.
Evasion Schemes Under Scrutiny
The SRI has identified several common evasion structures:
| Scheme | Mechanism | SRI Response |
|---|---|---|
| Split invoicing | Under-declaring import value to reduce ISD base | Cross-referencing customs declarations with international trade databases |
| Offshore intermediaries | Routing payments through third-country entities to obscure outflow | Beneficial ownership disclosure requirements |
| Transfer pricing manipulation | Inflating costs of intercompany services to shift profits offshore | Transfer pricing audits expanded |
| Crypto-mediated transfers | Using cryptocurrency to move value without triggering ISD | Digital asset monitoring regulations (proposed) |
| Loan restructuring | Converting trade payables to intercompany loans with different tax treatment | Substance-over-form analysis |
Revenue Impact
The ISD is a significant revenue source for the Ecuadorian treasury:
| ISD Revenue | Value |
|---|---|
| 2024 collection | ~$1.3 billion |
| 2025 collection (est.) | ~$1.4 billion |
| Estimated evasion | $150-$250 million |
| Share of total SRI revenue | ~7-8% |
| Share of non-oil fiscal revenue | ~10-12% |
Closing the evasion gap would yield $150-$250 million in additional annual revenue — a material contribution to the fiscal consolidation targets under the IMF EFF program.
Import Sector Impact
For legitimate importers, the post-credit ISD represents a meaningful cost increase:
| Import Scenario | Pre-Jan 2025 | Post-Jan 2025 |
|---|---|---|
| $1M import, foreign financed | 5% ISD, offset by income tax credit → effective cost ~0-1% | 5% ISD, no credit → effective cost 5% |
| Annual import cost impact ($10M importer) | ~$0-$100K | ~$500K |
| Margin compression | Minimal | 3-5 percentage points |
Sectors most affected include:
- Automotive — vehicle and parts imports from Asia, US, Europe
- Technology/electronics — consumer and industrial equipment
- Pharmaceuticals — active ingredients and finished products
- Industrial machinery — capital equipment imports
- Consumer goods — appliances, textiles, processed foods
Business Community Response
The Cámara de Comercio de Guayaquil and Fedexpor (export-import federation) have argued that the ISD — particularly without the tax credit — functions as an import tariff that raises costs for domestic businesses and consumers, distorts trade, and undermines Ecuador's competitiveness within the Andean Community.
The business community has advocated for:
- Gradual ISD rate reduction (from 5% to 2-3%) over 3 years
- Sector-specific exemptions for essential imports (medicines, agricultural inputs)
- Restoration of the tax credit mechanism with appropriate controls
- Alignment with WTO commitments (the ISD's classification as a non-tariff barrier is disputed)
What to Watch
- SRI audit results — the enforcement campaign's first-round findings, expected mid-2026, will quantify discovered evasion
- Constitutional challenges — several business groups have signaled potential legal challenges to the tax credit elimination
- IMF program interaction — ISD revenue is factored into fiscal targets; any rate reduction would require compensatory measures
- Import volume data — a sustained decline in formal imports could indicate trade diversion to informal channels or reduced economic activity
- National Assembly proposals — legislation to modify ISD rates or restore credits; any bill advancing through committee would be market-relevant
- Regional competitiveness — Colombia and Peru do not impose equivalent capital outflow taxes; comparative cost analysis may influence policy review
Source: Boletín Contable