TAXES in ECUADOR
The Cuenca Chamber of Commerce hosted a seminar on Ecuadoran taxes this week. The law firm of Cordero Moreno & Corral graciously simplified this complicated topic for us Gringos. Their English was also excellent. So here is my attempt to simplify their simplification. Oh yes, please check with your own financial planner and attorney…
Ecuador’s tax system is similar to that of the US with required self-reporting and filing of tax returns to SRI (IRS), VAT (think “sales taxes”), property taxes. They also have a 5% expropriation tax on money leaving Ecuador (coming soon to the US) to keep money from leaving the country. Ecuador’s inheritance tax takes the form of an income tax paid by the beneficiary.
You may presently carry $10,000 in cash out of the US without reporting it; Ecuador allows only $1,000. Banks may withhold the 5% tax and charge a fee for this “service” on transfers out of Ecuador.
Nearly all income must be reported to the Ecuadoran government on the annual income tax returns due the following March (date based the ninth digit of your cedula). This applies even if you have no tax due! Opps, now we may all have a problema!
Practically speaking, I suspect the government will not waste time auditing gringos with no potential tax liability in order to impose a $40 fine for not reporting.
Most of us will have no income taxes to pay due to the exemptions, deductions and tax rates. Deductions include social security taxes in Ecuador and half of your expenses for food, medical expenses, clothes, housing (rent, mortgage, maintenance only) up to $12,000. Printed facturas (receipts) with your name and cedula number are required. Receipts on thermal paper will self destruct in 90 days as the ink fades. Ask Super Maxi for a receipt on regular paper if you have high income and expect to pay income taxes.
Exemptions from taxation are given on CD’s of over year maturity, foreign (US, etc) earned income, and presumably US, Canadian, European social security retirement payments. Taxes start after $9,210 per person income. This amount triples at age 65! So a couple over 65 would have to earn nearly $28,000 each to have income tax due.
Income Tax rates for 2011 started at 10% on over $9,210 in income and increase in brackets to a maximum of 35% on income over $93,890. Estimated taxes are due in July and September. Keep tax records for seven years.
Captial gains on the sale of a house are ten percent. This is reduced by five percent for each year of ownership, so the tax would be half after ten years. Alcabala or transfer tax is 1.2% paid by the buyer on a home purchase.
* Avoid large transfers of money in the banking system.
* Do not transfer money to Ecuador which you will transfer again to another country
*Be aware that children can not be disinherited. Ecuadoran law protects all children at all ages!
* For small professional earnings you may obtain a “RUC Rise” at SRI and simply pay a few dollars tax at any bank monthly. No reporting requirements! See my previous blog.
Maybe I got most of this right. I welcome your comments!