There are an estimated 10,000 Americans living in Ecuador.
Ecuador was recently voted the best overall country for expats, and it’s easy to understand why – beautiful landscapes, good-quality free healthcare, and friendly people for a start. As an American expatriate living in Ecuador though, what exactly do you need to know regarding filing US expat (and Ecuadorian) taxes?
The good news is if you are paying income tax in Ecuador, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Husbands and wives must file tax returns separately in respect of employment income, business income, and income received from assets, which are owned individually. Income from jointly owned property and all other joint income are divided with each spouse reporting half.” - KPMG
The US and Ecuadorian governments share taxpayer info, and Ecuadorian banks pass on US account holders' account info to the IRS, so it's not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you're a US citizen, green card holder, or US/Ecuadorian dual citizen, and you have been living in Ecuador but you didn't know you had to file a US tax return, don't worry: there's a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don't delay though, in case the IRS comes to you first.
Ecuadorian taxes – what you need to know
If you are a foreign resident in Ecuador and all your income is sourced abroad, you don’t need to file or pay Ecuadorian income tax. You will be liable for US taxes on this income though, unless you can claim one of the exemptions outlined above.
For income sourced in Ecuador, tax rates range from 0 (up to around US$11,000) to 35% for income over around US$111,000.
There are several other personal taxes, including a property tax, and capital gain tax, however they are very low. VAT is 12%. Inheritance tax is higher though, at 35%.
If you do have to file an Ecuadorian tax return, the Ecuadorian tax year is the same as the US, with tax returns due by between 10th and 28th March, depending on your taxpayer identification number. Spouses must file separate returns. The Ecuadorian tax authority is called the Servicio de Rentas Internas.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Ecuador that you contact a US expat tax specialist.
At Bright!Tax, we have clients in over 150 countries worldwide. US expat tax is all we do and we are very good at it. If you have any questions regarding your personal situation, don't hesitate to contact us and we'll be happy to help.