Ecuador Foreign National Tax Summary 2024

Written by Chase, February 29th, 2024

Tax Time: It’s Tricky, No Matter Where You Live (Including Ecuador)

It’s been said two things are certain, death and taxes. It could also be said that taxes are rarely easy to understand no matter where you live.

Cuenca attorney Sara Chaca and CPA Jessica Figueroa started 2024 with a webinar to explore Ecuadorian tax laws and how they may apply to foreigners living as temporary or permanent residents. Maintaining a savings account or CD, buying or selling property, reporting assets and income, and even moving money out of Ecuador all come with some potentially sticky requirements.

And, as in other countries, the laws are always changing. Most notably, the tax incurred for moving money out of the country – on the decline in recent years – is moving back up in April, from 3.5% to 5%. That means wiring $100,000 out of the country will incur a $5,000 tax.

“In Ecuador, the tax system operates on national and local levels. The main source of revenue comes from income taxes and sales taxes,” Figueroa said. “And there are other taxes and fees that we pay in municipalities.”

The most visible tax foreign residents encounter is the value added tax (IVA), a sales tax on most goods and services. At 12% to start 2024, the tax is due to rise to 15% in April. Those 65 and older may request a refund (there is a limit, $110 per month, although that may rise with the new tax rate). Those refunds stopped being processed in late 2023, although there are indications processing may restart in April for some and later all.

Personal income tax reporting and payment, as in many countries, can be complicated. But it is only required for income sourced inside of Ecuador. Foreign residents working and generating income inside Ecuador have the same responsibilities as Ecuadorian citizens.

The good news is one of the most common forms of income foreign residents earn inside the country is income from savings accounts and CDs. Interest on savings accounts is not taxable, nor is interest on CDs held for at least 183 days, the pair explained.

Taxes are filed individually, not as married couples as in other countries, but there are ways to balance income to legally maximize tax benefits.

Other notable tax issues include the requirement to report assets held abroad above $230,000 per person (although those assets are not currently taxed) and income from overseas employers. So far, for digital nomads earning income from jobs abroad there are no established tax laws or reporting requirements.

It should be remembered, none of Ecuador’s tax rules change or alleviate tax reporting and payment laws for foreign residents in their home countries. Living in another country probably won’t get anyone out of paying taxes somewhere.

Buying and selling property in Ecuador, opening bank accounts and CDs, establishing a business, moving money out of the country, and the delicate dance of hiring an Ecuadorian to perform routine work around the house come with their own complications.

Chaca explained even the process of opening a bank account can vary. Some banks, typically cooperatives, will open accounts with just a passport, without requiring residency. Other banks will not. But remember, moving money out of the country, whether from closing an account or selling property, will encounter the exit tax. In the case of selling properties, there are ways to limit tax liabilities, but they require careful calculations in advance, she said.

And in the case of property, annual property taxes vary widely depending on the municipality. There are also taxes for both selling and buying property, Chaca said.

Opening a business, paying business taxes, and even hiring routine household help come with conditions. To avoid a sticky situation, Chaca advised regular household help should provide a receipt for each payment, indicating work as a contractor, not as an employee entitled to health insurance, social security, bonuses, and vacation. There is a government entity specifically created to protect the rights of employees and a worker’s situation should be made clear.

“In Ecuador, things work differently. You need to make it clear if that person is a contractor or your employee,” Chaca said.

Whether buying a property, dealing with an inheritance, exchanging crypto currency, opening or running a business or service, or even managing bank accounts and moving money can be tricky, just like anywhere else.

Of course, no presentation can or should be construed as legal advice. Every situation is different. When in doubt, it’s best to consult a professional attorney and an accountant.

A video of the presentation and the slide deck offered by Chaca and Figueroa are available online.

Attorney Sara Chaca, attorney and CEO at EcuadorVisas can be contacted here and accountant Jessica Figueroa, owner of Accro Corp., is available by email at info@accrocorp.com. Both speak fluent English and have extensive experience working with the expat community.