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Taxes In Ecuador

Taxes In Ecuador: What You Need To Know

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Taxes In Ecuador: What You Need To Know

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Ecuador experienced an oil boom from 2005 to 2014, resulting in ambitious infrastructure projects and multibillion-dollar initiatives to improve health and education and reduce crime and poverty.

The initiative transformed a once-struggling country into one of Latin America’s highest-ranking countries for standard of living.

Most importantly, expats have caught on to this country’s incredible natural beauty and high quality of life, with thousands of North Americans and Canadians already calling Ecuador home.

Kathleen Peddicord

Reviewed By Kathleen Peddicord

Kathleen is the Live and Invest Overseas Founding Publisher. She has more than 30 years of hands-on experience traveling, living, and buying property around the world.

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Table Of Contents

Sales Tax

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.

The tax rate in Ecuador is 12%, which is the second-lowest in South America. Elsewhere IVA rates range from 10% (Paraguay) to 22% (Uruguay).

Capital Outflow Tax

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.

The sale of property has a capital gains tax. It’s calculated as 0.5% on the change in municipal value (rather than the actual gain). It’s usually negligible.

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Income Tax

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.

Above all, 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 Tax

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.
And, if you are older than 65 and have a property worth less than U.S.$190,000 you are exempt from paying property tax.

Local Taxes On Income

Ecuador does not tax locally since they don’t have state or council taxes to pay. The budget for these comes from the collective pool and distributed by the government.

Paying Taxes In Ecuador As A U.S. Citizen

U.S. citizens or green card holders, must file a U.S. tax return each year. It doesn’t matter how much you pay in Ecuador, or anywhere else.

Business Tax In Ecuador

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% of your profits. And, 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.

Carrying Losses

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.

Kathleen Peddicord

Reviewed By Kathleen Peddicord

Kathleen is the Live and Invest Overseas Founding Publisher. She has more than 30 years of hands-on experience traveling, living, and buying property around the world.

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Table Of Contents

Taxes In Ecuador- FAQs

Submit Your Own Questions

Spanish is the official language of Ecuador. It’s essential for business and any interactions with the government. Also, Ecuador’s second language is Quichua, the indigenous language still spoken by over 10 million Native Americans in the Andean region.

However, English is spoken in expat or tourism-related business.

In short, Ecuador is a great place to work as a Digital Nomad or some other online venture. For instance, the country does not have regulation to collect tax on personal income generated from outside Ecuador, so expats don’t pay it.

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