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Tax Obligations in Ecuador

Mar 08, 2013

Tax Obligations in Ecuador

When you start the process of moving your life to another part of the world, there are just so many other exciting aspects to think about and prepare for then the tax situation in your new home.

It is, however, a part of life, no matter where you live. But the good news is that taxes in Ecuador are quite a bit different from taxes in North America.

For example, unless you own and operate your own business in Ecuador, being a foreigner carries very little tax liability. As long as your income is coming from a source outside of the country, you are not required to report it within Ecuador.  

Sales Tax in Ecuador

Most of your purchases in Ecuador will have a 12% VAT (value-added-tax), this is how the majority of Ecuador’s tax income is produced.

An interesting side note… when you’re visiting Ecuador to scout out your location, you can apply for a refund on the sales tax. It’s as simple as keeping your receipts, picking up a form at one of the International airports and submitting it. You do need to provide your credit card number and your passport number though, enabling you to follow the status of your refund online.

Also, once you’re a retired resident of Ecuador – and age 65 or over – you will automatically be eligible for a $250 monthly refund of the VAT.

Income Tax in Ecuador

As a foreign resident of Ecuador, you will not be taxed on income you receive that originates from outside of the country. Therefore, social security, pension or retirement savings that are coming from your home country will not be taxed in Ecuador.

In the event that you work in Ecuador, collecting a paycheck, income taxes will be charged. The income tax rate in 2012 was 23%, but the first $8500 you make in Ecuador is not taxed at all. Something to keep in mind if you wish to find only part-time work to help subsidize your foreign income…

Capital Gains Tax in Ecuador

This tax applies to you if you own your home in Ecuador and then sell it. The tax is calculated based on the municipal property value when you purchased the house and then again when you sold it. Theoretically, the amount is 0.5% of the difference between purchase and sale price, but depending on how much time elapsed between the purchase and sale; you may be eligible for fee discounts. Typically, the shorter the time, the higher the capital gains tax will be.

As a whole, living in Ecuador on a pension or social security income you’re receiving from your home country won’t cost you much. Of course, you’re still required to pay taxes back home, but considering the low cost of living in Ecuador; it’s not such a bad trade-off.

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