For those knowledgeable about credit notes, savings in income tax payments can equate to thousands, or even millions, of dollars, explains our partner company Fiduvalor.
Credit notes are issued by the Internal Revenue Service and are used to pay taxes. They don’t have an expiry date, nor do they accrue interest. Rather, they are traded on the stock exchange based on price, usually at a discount.
For example, a business receives a notification from the Internal Revenue Service which informs that they been authorised for a credit note for the Tax on Foreign Currency Transactions (ISD) for the value of US$1 million. The company can sell this credit note immediately through Fiduvalor.
The person and/or company that buys it can use it to pay their income tax for its nominal value, in this case US$1 million, whilst the company which sells it has immediate liquidity. For the buyer this means saving up 10 points (10% discount) because they acquire the credit note for a value of US$900,000.
WHY DO ISD CREDIT NOTES HAVE A HIGHER PENALTY?
There are two types of tax credit notes that can be traded on the stock exchange:
1. Credit Notes for the Tax on the Exit of Foreign Currency:
According to the Executive Order 1109, ISD credit notes can only be used to pay income tax. For this reason, ISD credit notes have a greater discount and/or penalty depending on the date on which they are traded. These discounts (%) can be seen on the graph below.
As shown by the graph, the discount on the ISD credit notes is increasingly smaller as we get closer to the end of the final trimester of the tax year, as the payment of income tax approaches, whilst in the first months of the tax year the discount tends to be greater.
2. Regular credit notes:
Regular credit notes can be used to pay VAT (value-added tax) in full or partially, fines from the Internal Revenue Service, equity tax, and income tax.
WHY ARE CREDIT NOTES ISSUED?
The Internal Revenue Service uses credit notes, instead of physical money, to pay tax returns to companies and/or people. One advantage of credit notes is that they can be traded through Quito’s stock exchange.
For more information get in touch with Fiduvalor, who handles all the necessary processes for a successful credit note negotiation.