Tax exemptions in foreign trade: an analysis of Free Trade Zones and ZEDEs in Ecuador

Abstract

This study aimed to analyze the effectiveness of tax exemptions granted to Free Trade Zones and Special Economic Development Zones (ZEDEs) in Ecuador during the period 2022–2024, in order to verify their alignment with the principles of equity and tax efficiency established in the Constitution and the Tax Code. A qualitative, legal-critical, and descriptive-exploratory approach was adopted, based on documentary analysis of current regulations, official tax reports, foreign direct investment reports, export statistics, and institutional documents issued by the Central Bank of Ecuador, the Internal Revenue Service, and the Ministry of Production, Foreign Trade, Investment, and Fisheries. The results revealed a disconnect between the fiscal cost assumed by the State and the economic benefits generated by these special regimes. A sustained decline in foreign direct investment and a marginal impact on exports and job creation were observed, despite the expansion of tax incentives. Furthermore, the absence of effective control mechanisms, periodic evaluation, and performance measurement was identified, which limited the objective verification of the economic return of the exemptions. It was concluded that the tax incentives have not fully achieved their objectives of attracting investment, boosting foreign trade, and creating jobs, thus violating the constitutional principles of tax equity and efficiency. Consequently, the need for legal reforms was raised, aimed at incorporating periodic technical audits, verifiable performance indicators, and greater inter-institutional coordination to guarantee the effectiveness of the tax benefits.