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Talking to people living in Ecuador (those born there) gives the impression that there is no income tax. The truth is that there is an income tax, but that many, if not most citizens live on a low enough income to avoid it. It starts at 5% on incomes over $6,800 (this is as of 2007). Since the minimum wage works out to about $2,000 per year, and many people earn close to that, income tax is simply not a part of life for many families. The income tax is progressive in Ecuador, going as high as 25% on annual incomes of $54,400 and up.
The IVA
One of the primary ways that government is funded in Ecuador is through the "IVA" or "Impuesto Valor Agregado." This is a sales tax of 12% on most goods and services. Real estate sales are exempt from this tax. In our experience, it seems that many vendors either include the tax in their quoted prices, or just don't bother to collect it.
Real Estate Transfer Tax
Real estate sales are generally subject to a transfer tax of 1% of the assessed commercial or municipal value of the property. This is usually a small fraction of the true value of the property.
Real Estate Capital Gains Tax
You pay tax on the gain when you sell real estate in Ecuador, but only on the net gain in assessed municipal value. For example, if you bought a house for $85,000 (municipal value of $2,125), and later sold it for $135,000 (municipal value of $3,375), you would pay tax on the difference in municipal value ($1,250). This "gain" is subject to the usual income tax rates (up to 25%). In other words, the most you'll pay on your $50,000 gain is $313 in tax.
Rental Income
Renting out half of your duplex is one way to make living in Ecuador cheaper. The rent, however, is treated as ordinary income, subject to income taxes up to 25%.
Property Tax
Property taxes vary in the different provinces and cities. As of 2007, property taxes on a house that is worth $100,000 in Cuenca are about $65 annually. In nearby rural areas, a $30,000 property would have taxes of about $7 per year. Property taxes may be one of the cheapest parts of living in Ecuador.
Ecuador Travel Home Page | Living In Ecuador - Some Notes On Taxes
