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.
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.
Local Taxes On Income
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.
Paying Taxes In Ecuador As A U.S. Citizen
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.
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 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.