Ecuador is a land of rich cultural and historic attractions, nestled amongst a backdrop of natural wonders. From the tropical rainforests to whitewater rafting down the Amazon, Ecuador has become a popular destination for American expats. But what are the impacts on filing US taxes abroad when living in Ecuador? We have all top tips you need to know!
1. How Working in Ecuador Impacts US Expat Taxes
Americans living in Ecuador, or in any other country, must file US expat tax returns each year. The US also requires that you include all worldwide income on your expat tax return, including any income that is also subject to Ecuador taxes for expats.
While you are taxed on your worldwide income, there are several important deductions and credits available to help offset your income tax. There are a few ways to avoid dual-taxation that you may qualify for:
- Foreign Earned Income Exclusion (FEIE)
- Foreign Tax Credit
- Foreign Housing Exclusion
If you meet either the Physical Presence test or the Bona Fide Residence test you can exclude up to $108,700 of your 2021 foreign earnings on your US tax return (and $107,600 in 2020). The Foreign Housing Exclusion was created to help offset the oftentimes higher cost of living overseas. This exclusion allows you to deduct a certain amount of your living expenses—the actual amount is tied to the current year’s FEIE, as well as where you are living.
The Foreign Tax Credit reduces your US tax dollar for dollar on what you pay in taxes to Ecuador. Your Foreign Tax Credit will be limited to only those earnings which are subject to US tax. That means that any Ecuador tax on your excluded Ecuadorian earnings (excluded by the FEIE, the Foreign Housing Exclusion, or because of Ecuadorian tax rules) will not be included in the calculation of your US Foreign Tax Credit.
2. Who is a Resident of Ecuador?
You are considered a resident of Ecuador if you are present for at least 183 days in a calendar year or more, either consecutive or in different fiscal years.
3. Is Foreign Income Taxed Within Ecuador?
Residents are taxed on their worldwide income while non-residents are only taxed on their Ecuadorian-sourced income.
4. Ecuadorian Income Tax Rates
Rates for residents are progressive on income. Non-residents pay a flat rate.
Tax Rates in Ecuador on Income (2021):
- Up to USD 11,212 – 0%
- USD 11,212.01 up to 14,285 – 5%
- USD 14,285.01 up to 17,854 – 10%
- USD 17,854.01 up to 21,442 – 12%
- USD 21,442.01 up to 42,874 – 15%
- USD 42,874.01 up to 64,297 – 20%
- USD 64,297.01 up to 85,729 – 25%
- USD 85,729.01 up to 114,288 – 30%
- USD 114,288.01 and over – 35%
5. US – Ecuador Tax Treaty
The US and Ecuador do not have a tax treaty so double-taxation is a possibility. It is best to talk with a tax professional who can help you save the most money when filing your US taxes abroad.
6. Americans Living in Ecuador: Filing US Taxes Abroad in Ecuador
Tax returns are due between March 10th and 28th for Americans living in Ecuador (and all others), with the exact due date depending on the ninth digit of the taxpayer’s identification number or individual ID. You may not be required to file a return if 100% of your gross income was withheld by your employer. Married persons are taxed separately- not jointly- on all income.
7. Social Security in Ecuador
The Social Security institute of the government manages the system, and all private, public and foreign employees (as well as self-employed professionals) are covered by social security legislation. Expats must contribute—they must ask their Ecuadorian employer to register them when they begin working. Once you are contributing to the system, you may not continue to receive coverage from your home country.
8. Other Taxes in Ecuador
Capital gains are generally taxed as ordinary income. Occasionally, capital gains on investment shares and immovable property are tax-exempt. Inheritance and gift taxes range from 0-35% based on the total amount.
Need More Advice About Filing US Taxes Abroad While Living in Ecuador?
If you have additional questions about filing US taxes abroad or Ecuador taxes for expats, please contact our expert CPAs and IRS Enrolled Agents.