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