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Ecuador - Taxation
Taxable income includes income earned from a business, from employment, some capital gains, income from renting out property and interest earned on savings. There are a number of allowances that individuals can claim when they file their tax return (declaración de impuestos), such as donations to charity, interest on certain types of savings and reasonable work related expenses. Married couples are not permitted to file a joint tax return and must complete individual forms.
Workers will have their tax payments deducted by their employer each month, so they do not need to deal directly with the tax office. If they have a second form of income outside their employment, then they will need to declare this amount and file a tax return. They will also have contributions to the social security system deducted from their salaries. This is an amount of 9.35% of their salary. Income from share dividends may also be taxed at source at a rate of 25%. This may be higher than the tax rate (tasa de impuestos) a worker would normally pay so can be used as a tax credit.
Those who are self employed will find that they have to pay some tax (impuestos) in advance. This is called an ‘interim payment’ and is an estimated tax payment based on the calculation from the previous year. When the return is filed the amount is adjusted, with any shortfall made up by the individual or any overpayment returned by the tax office or offset against the following year’s interim payment.
Individual income tax rates are progressive and start at 5%. These increase gradually to 35% which is the top rate of income tax in Ecuador. There are personal allowances (deducción fiscal) to take into consideration and those on a low salary may find that they do not have to pay tax.
There is a real estate tax (impuesto sobre la propriedad) which ranges from 0.025% to 0.3% for a rural property (based on the value of the property) and 0.025% to 0.5% for those in towns and cities. There are some surtaxes which are set by the local authority and will vary depending upon the area you are in.
Inheritance taxes are payable in Ecuador and this can be up to 35%. The rate will vary depending upon the amount that has been bequeathed and the relationship between the benefactor and the beneficiary. Capital gains are classed as standard income and there are no wealth taxes in the country. VAT (Impuesto al Valor Agregado) is payable at a rate of 12% on some goods and services, although there are some which are exempt, such as basic foodstuffs. Stamp duty and capital duty are not payable.
There are a number of tax treaties in place with other countries, particularly those in Southern and Central America. These help to prevent workers being taxed twice on the same income, as the residency status of some people may mean that they are also expected to pay tax in their home country. However, it also means that information on expat workers is shared between countries, so that nobody is able to evade their tax liability.
A tax return must be filed between February and March in the year which follows the tax year. There are fines and interest payments applied to those who file the returns late or make late payments and those who fail to file a return may be subject to prosecution. There are also penalties for submitting incorrect information. Details on filing a tax return can be obtained from the Internal Revenue Service. The department is contactable by telephone or through their website and forms and information can be downloaded. Returns can be filed online and payments can be made this way too.
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