Properties for Sale in Ecuador

Tax and Offshore Investment in Ecuador

Tax regimes vary greatly throughout Latin America. While some countries are investor friendly, others are not so open. There are several benefits (i.e. retirement programmes, tax discounts) but also some tax obligations. In this section we provide an analysis of the different tax structure in each country where January First Real Estate lists properties. This information may be very important for you to choose you retirement destination or where to invest. Keep in mind that there are related visa and residence issues which are discussed in Visa/Residence Requirements. In case you need more information or have doubts on any of these issues, the specialised staff in January First Real Estate will be glad to answer all your questions, click here.

Real estate assets are, without doubts, one of the most secure and profitable ways of investment. There are two main reasons for this:

1. Properties always tend to increase their value in the long term.
2. They generate an income for their exploitation (rental/yields).

Taxes and Costs in Ecuador

Income Tax (impuesto a la renta)
Income tax is administered by the Servicio de Rentas Internas. Foreigners who do not reside in Ecuador are subject to a flat tax of 25% on the gross income generated from within the country. It is withheld by the tenant.

Financial Transactions Tax
January 1st 2000, a 0.8% Financial Transactions Tax was enforced. This tax is levied when making deposits into checking or savings accounts maintained at institutions comprising part of the Ecuadorian financial system, when making an investment, when cashing checks, and when remitting money abroad, through the national financial system or any other means.

Municipal Property Tax
(Impuesto de propiedad de bienes inmuebles or impuesto a los predios urbanos)
The municipal government administers municipal property tax. In Ecuador, this tax is of major importance and accounts for 45% of the total municipal property tax collection. The tax rates are progressive from 0.025% to 0.5%, varying annually in order to cope with inflation.
This tax is levied on land and buildings based on official appraisals reflecting the property’s commercial sale value or the cadastral value. Allowable deductions are mortgage loans for the acquisition, construction or improvement of the property between 20% and 40% of the principal but it must not be more than 50% of the property’s cadastral value. This deduction is available upon request.
As of 2000, the base tax is approximately US$4, on a base value of US$300. Any excess over the base value will be subject to an additional tax of 1.6%.

Capital Gains Tax
Gains on the occasional sale of real property are exempt from income tax.

Municipal Tax on Capital Gains
(Impuesto a las utilidades en la compraventa de predios urbanoso plusvalía)
Capital gains derived from the sale of urban properties are subject to a particular municipal tax at a flat rate of 10%. The taxable gain is computed by deducting the following from the property’s selling price: acquisition costs, improvement costs, betterment levies, and currency depreciation as noted by the central bank’s report. An additional deduction of 5% of the net gain can be deducted for each year the property was held by the owner starting from the second year of acquisition. Consequently, no municipal tax is due if the property was held for more than 20 years.
As with any other transaction made through the national financial system, the 0.8% Financial Transactions Tax will be levied on the total proceeds of the sale of real property.

Corporate Route
However for corporations, capital gains are taxed as normal income.

Living There
Individual income tax is levied on each individual’s income from all sources worldwide. Expenses and costs incurred in obtaining, maintaining, and preserving the revenues subject to the tax are deductible. There are no special deductions with regards to the number of children, marital status, age, etc.
Exemptions are applicable to individuals receiving salaries. Thus, exemptions include: dividends, additional benefits, and profit sharing.
The income tax rates for the fiscal year 2006 are as follows:

2006 Income tax
Taxable Income (US$) / Marginal Tax Rate
Up to US$7,680 / nil
US$7,680 – US$15,360 / 5% on band over US$7,680
US$15,360 – US$30,720 / 10% on band over US$15,360
US$30,720 – US$46,080 / 15% on band over US$30,720
US$46,080 – US$61,440 / 20% on band over US$46,080
Over US$61,440 / 25% on all income over US$61,440

Rental Income
Rental income earned by residents is taxed at the ordinary progressive income tax rates. However, the taxable income is computed by deducting the following from the gross rent: interest expense, insurance premiums, taxes charged on the property, depreciation allowance, and 1% of the property’s cadastral value.

Ecuador, make your dream investment come true.