One tax everyone pays is the Value Added Tax. This is known throughout Latin America by its Spanish acronym IVA (and
always pronounced EE-vah). In plain English, this is a sales tax. As in most countries outside the US, the marked price
includes tax, and is never added on at the register.
You’ll also be subject to a “capital outflow” tax of 5% on all outbound transfers. The threshold for this is
transactions that exceed three times the minimum wage (US$1,260 for 2020). You can avoid this when you sell your home.
This is entirely legal, if you take payment outside of Ecuador.
There is a capital gains tax on the sale of property. It’s calculated as 0.5% on the change in municipal value (rather
than the actual gain). It’s usually negligible.
Ecuador has a graduated income tax on Ecuadorian-source income, ranging from 10% to 35%. The current tax law actually
says it applies to “all income”. This is slightly misleading. There is no regulation to collect tax on personal income
generated from outside Ecuador, so expats don’t pay it. This makes Ecuador a great place to work as a Digital Nomad or some other online venture.
Property taxes are among the lowest in the world. Even on a large house, it’s unusual
to see an annual tax bill higher than US$200 per year.
If you are older than 65 and have a property worth less than U.S.$190,000 you are exempt from paying property tax.
Ecuador does not tax locally. There are no state or council taxes to pay. The budget
for these comes from the collective pool and distributed by the government.
If you are a U.S. citizen or if you hold a green card, you must file a U.S. tax return each year. It doesn’t matter how
much you pay in Ecuador, or anywhere else.
The tax year in Ecuador runs from January 1st until December 31st. You are given a
date during April to pay the previous years taxes. Exactly when you need to pay varies from company to company. The rate
of tax you need to pay will be between 12 and 18 percent of your profits.
If your company is in Ecuador but generates profits abroad, you will still have to pay
taxes on them in Ecuador. Although there are some exemptions, this means that owning an Ecuador business is not always
the most appealing option.
If your company loses money, you can carry the losses forward for a period of up to five years. These can be offset at a
maximum of 20% per year. Businesses are not allowed to carry back losses.
Top 3 Strategies For Profiting From An Overseas Rental Investment A friend recently bought a property in a busy resort. As is often the case, he and his wife really bought to fulfill a dream... while rationalizing the purchase with the "rental income" argument. They planned to rent the property out when they were not in residence, to defray costs. But that didn't work out. After two years, they'd only rented the place a couple of weeks. It's not the...Read more