Expat Tax Guide for Americans Living in Ecuador

Living as a US Expat in Ecuador

Ecuador has rich cultural and historical attractions nestled against natural wonders. From the tropical rainforests to whitewater rafting down the Amazon, Ecuador has become a popular destination for American expats.

Adjusting to the slower pace of life and relaxed attitudes towards time may take some getting used to, but with an open mind and willingness to embrace new experiences, expats can quickly settle into their new home. With a growing expat community and low cost of living, Ecuador is an increasingly popular destination for those looking for a new and exciting way of life. 

But what are expat taxes like for US citizens living abroad in Ecuador? Read on to get answers to all your questions!

Ecuador at a Glance

What Are Expat Taxes like for Americans Living in Ecuador?

For US citizens living in Ecuador, taxes can be a bit complicated. The United States is one of the few countries that taxes its citizens on their worldwide income, regardless of where they live. This means that US citizens living in Ecuador are still required to file tax returns with the IRS and report their foreign income, even if they don’t owe any US taxes. 

In addition to federal taxes, US citizens living in Ecuador may also be subject to local taxes, depending on their individual circumstances. This can include taxes on property, business income, or other sources of Ecuadorian income. 

To avoid double taxation, US citizens living in Ecuador can take advantage of the Foreign Tax Credit, which allows them to offset any US taxes owed on their foreign income with taxes paid to the Ecuadorian government. Additionally, US citizens living in Ecuador may also be eligible for the Foreign Earned Income Exclusion, which allows them to exclude up to a certain amount of foreign-earned income from their US taxes. 

On top of your US tax obligations, you will probably also have to file an Ecuadorian tax return.

Who Has to File Taxes in Ecuador?

Ecuador’s tax system follows a territorial principle, imposing varying tax obligations on residents and non-residents. Residents must file taxes on their global income only if they meet specific income thresholds, while non-residents are obligated to file taxes on their Ecuadorian income only. However, non-residents earning income from Ecuador may be obligated to pay taxes even if they do not meet the threshold.  

Tax residents of Ecuador include individuals who have lived in the country for over 183 days within a year or established permanent residency. They must file an annual tax return that includes information on their global income and deductions. Tax residency criteria and income thresholds are dependent on individual circumstances and may vary by tax year. 

If your entire income comes from an Ecuadorian employer, your income tax will be withheld from your wages, and you will not need to file a separate tax return. However, you will need to file a return if you receive other forms of income, such as:

• Self-employment Income
• Foreign Income
• Rental Income
• Capital Gains

Who Qualifies as a Tax Resident in Ecuador?

Understanding the criteria for tax residency in Ecuador is crucial due to the differing tax regulations for residents and non-residents. To be classified as a tax resident, an individual must be present in Ecuador for at least 183 days within any 12-month period, with no requirement for these days to be consecutive. Failure to meet this criterion will classify an individual as a non-resident. 

What Types of Taxation Does Ecuador Have?

Income Tax

In Ecuador, residents are taxed on their worldwide income at progressive rates ranging from 0% to 37%. (All amounts are given in USD.) below, you can see the 2022 Ecuadorian income tax rate.

Non-residents are taxed on their Ecuador-source income at a flat rate of 25%.

Social Security Tax

Like the US, Ecuador maintains a social security system funded by a payroll tax. Typically, employees will contribute 9.45% of their salary, while employers will contribute 12.15% of their total payroll.

Capital Gains Tax

Capital gains are generally taxed as ordinary income. Certain capital gains on investment shares and immovable property are tax-exempt.

Inheritance Tax

Ecuador taxes inheritance at progressive rates ranging from 5% to 35% based on the value of the bequest. Bequests below a certain threshold are exempt from this tax. For the tax year 2022, the exemption threshold is $72,750.

Value-Added Tax

Ecuador levies a value-added tax (VAT) on certain goods and services. The standard rate for this tax is 12%.

Real Estate Tax

Real estate is taxed at the municipal level. The rate for this depends on the municipality, generally ranging from 0.025% to 0.3% of the commercial value of the property.

Corporate Income Tax

Ecuador’s residence-based taxation system applies to corporate income as well as individual income. Resident business entities are taxed on their worldwide income, while non-resident business entities are only taxed on Ecuador-source income. The standard rate for the Ecuadorian corporate income tax is 25%.

Essential Tax Forms for US Expats in Ecuador 

As a US expat living in Ecuador, there are several essential tax forms that you will need to be aware of when filing your US taxes. The most crucial form is the US tax return, which must be filed annually; reporting your worldwide income is Form 1040. 

If you earn income in Ecuador, you will also need to file Ecuadorian tax returns. This typically includes Form 102, which reports your income, expenses, and deductions to the Ecuadorian tax authorities. 

Additionally, if you have foreign financial accounts in Ecuador with a combined value of over $10,000 at any point during the year, you must file FinCEN Form 114, also known as the FBAR (Foreign Bank Account Report). This form reports information about your foreign financial accounts, including bank accounts, brokerage accounts, and mutual funds. 

Credits & Deductions Available to Expats Living in Ecuador 

As an expat living in Ecuador, you may be eligible for certain credits and deductions when filing your taxes. One of the most significant deductions is the foreign earned income exclusion, which allows you to exclude a portion of your foreign income from US taxation. 

Additionally, if you pay taxes in Ecuador, you may be able to claim a foreign tax credit on your US tax return, which can help reduce your US tax liability. You may also be eligible for deductions related to moving expenses, such as the cost of transportation, lodging, and meals incurred during your move to Ecuador. 

It’s essential to work with qualified expat tax professionals like Greenback, who can help you identify all available credits and deductions and ensure that you are correctly reporting your income and expenses. By taking advantage of these tax benefits, you can minimize your tax liability and keep more of your hard-earned money. 

When Are Taxes Due in Ecuador?

Like in the US, the Ecuadorian tax year is the same as the calendar year. It begins on January 1 and ends on December 31. For expats who receive only employment income from an Ecuadorian employer, there is no need to file an Ecuadorian tax return. If you receive other forms of income, you must file a return. This return is due in March, though the exact day will vary depending on the ninth digit of your Ecuadorian tax identification number.

Does the US Have a Tax Treaty with Ecuador?

No. There is currently no US-Ecuador tax treaty. This leaves Americans living in Ecuador at risk of being taxed twice on their income. Fortunately, the IRS provides several tax benefits to help expats avoid double taxation.

Does the US Have a Totalization Agreement with Ecuador?

No. The US and Ecuador do not currently have a totalization agreement in place. This means that Americans who live and work in Ecuador may be required to contribute to both nations’ social security systems.

Navigating Tax Compliance for US Expats in Ecuador

This guide should have provided you with a comprehensive answer to the question of what expat taxes American citizens living in Ecuador are required to pay. However, if you still have any remaining questions or uncertainties, we are available to provide further clarification and guidance. Please don’t hesitate to contact us if you require any additional information or assistance.

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