Income Tax Ecuador…

“Kathleen, thank you for noting that Mexico taxes the worldwide income of residents. Does Ecuador do this as well? If so, does Ecuador have a tax treaty with the United States?

“Thank you for the light you bring to this topic.”

— Joan H., United States

Yes, Ecuador is another country that taxes its residents on their worldwide income…unless that income was subject to tax elsewhere.

On the face of it, this can be interpreted to mean that a U.S. citizen would not be liable for income tax in Ecuador, as his worldwide income is already liable for tax in the United States.

Say he’s living in Ecuador but earning income outside Ecuador that would be taxable in the States. However, he’s exempt from U.S. tax on the first US$91,500 of that earned income, thanks for the Federal Earned Income Exclusion. As this income is not subject to tax in the States…it could, in theory, be subject to tax in Ecuador. I’m trying to find someone I trust to confirm this point one way or the other and will report back when I do.

That’s the theory.

However, because this is Ecuador (a country where the formal requirements for something like taxation can differ dramatically from the reality of how you deal with your local tax situation), we asked an American friend who lived for several years in Cuenca, Ecuador, for his take on all this.

“The reality when I was there,” he replied, “was that tax laws were not enforced, or enforceable, except to do with local income. That may have changed…”

Here’s the most important thing to understand about all this international tax stuff: It gets real complicated real fast, especially if you’re an American. That’s why I make the point again and again that one of the first things you should do once you’ve focused your live, invest, or retire overseas plans on a particular jurisdiction is to seek expert tax help, both in that new foreign country and in your home country. You need two advisors, as it is unrealistic to expect an international tax expert in the States, for example, to be able to counsel you expertly on your tax obligations and liabilities in any other jurisdiction.

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“Ms. Peddicord, my wife and I are English expats living in France at the moment. I would like to move to Panama. There was an American gated community high in the mountains outside Panama City called Altos del Maria that I researched some years ago. Do you know this place? Would you have any comment on it?”

— Mike S., France

Altos del Maria and Cerro Azul (another similar development in the mountains outside Panama City by the same developer–who is Panamanian, not American) are private communities with three big advantages: a much more pleasant climate than that in Panama City (lower temperatures and less humidity); quick, easy access to the capital (you can visit for a day, and certainly these are both easily accessible weekend getaway spots); and low prices (you can buy a lot for as little as US$25,000, and developer financing is available).

One big disadvantage is that, in either of these places, there’s little to do. If you build a house with a pool, you could spend your afternoons in it. Or hiking, for example. Both communities represent real escape, which has its pluses and its minuses.

The other disadvantage I see is that both these communities have developed over many years (Cerro Azul over 30 years), with virtually no enforced zoning or planning. I’m told that Altos del Maria is making an effort now to impose building standards, but my reaction to both places when I’ve visited has been…what a shame. Nice settings in both cases…that have been littered with random structures of every size, shape, description, and color. A McMansion might sit alongside a tiny local-style house painted purple or even a camping set-up. The overall effect, again, is disappointing.

Still, as pleasant-climate, low-budget options within easy access of Panama City, both communities are worth a look.

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