The tax system in Ecuador

You can register by going to the nearest office with your cedula (ID Card), or, if you don't have one, with your passport bearing the relevant visa stamp. There you'll have to specify items such as your occupation. You will also need to provide an address as well as a notarized documentation stating you are either the owner of your lodgings (title deeds known as 'escrituras'), a tenant (rental contract), or a visitor living rent-free (this requires you to present a letter from the homeowner with a copy of their own cedula). If all goes well, you will receive your tax ID number (RUC).

Online filing

Your tax return must be filed with the SRI between February and March in the year following the tax year. Failing to make a return, filing it late, making a payment late, or submitting incorrect information, are all cause for penalties in the form of fines, interest payments, or even prosecution. Even so, please don't think that the SRI exists for the sole purpose of making your life miserable. The SRI has gone to great lengths to allow all workers to file returns and make payments online, thereby saving an estimated 120 trees each year. To file your return online, you must be in possession of a digital media program called DIMM that helps you fill out the form and sends it to the SRI online. You can either download DIMM online from the SRI website or get a copy at one of the SRI offices ' there you may record the program on a flash drive (USB). Up until recently, one could file a tax return on paper but the government is no longer allowing paper filing. If the process seems daunting, many law and accounting firms in the larger cities exist solely to help workers file and pay annual taxes.

Who's who of taxable expats

Expats need only pay income tax to Ecuador on money earned inside of Ecuador. It is important to note that anyone who has been living in the country for over 183 days within a calendar year, consecutive or nonconsecutive, will be considered a resident for tax purposes unless they can provide proof that their permanent home is abroad and that they do not intend to stay indefinitely in Ecuador. The law states that if you are a resident, you must pay tax on both income earned in Ecuador and abroad. However, most countries have tax treaties that certify that you don't pay tax on both incomes, in other words, you should not have to pay double taxes. Check with your home country taxing authorities. The SRI, possibly intent on preserving marital harmony, does not accept joint tax returns from married couples. No fighting over who gets to file the tax return! Each person is required to fill out their own individual form.

What's taxable?

Money earned through business, paid work, some capital gains, property rental income, as well as the totality of interest earned on savings: all qualify as taxable income amongst other sources of income. When filing your declaración de impuestos, you are allowed to claim certain allowances. Among items that can be exempted are donations to charity, interest on some forms of savings, and (reasonable) work-related expenses.

Income on employment

The self-employed must make an 'interim payment', which is a tax collected in advance. The payment is calculated from the individual's previous year's earnings, an amount that will be adjusted whenever a return is filed. Overpayment is either reimbursed by the tax office or deducted from the following year's interim payment. Shortfalls are, of course, made up for by the payee. Employers deduct their employees' payments monthly from their salaries, so they need not have to deal directly with the tax office. If you earn additional income outside your main job, make sure to file a tax return for that specific amount.

Tax is a notoriously finicky and tricky field in Ecuador. According to your own individual situation, you will in all likeliness want to look more closely into certain aspects of it, or else find an accounting or law firm to help you with the calculations and details. The following links should be of help.

Useful links:

DIMM tutorial
Servicio de Rentas Internas
Tax calculator
US Embassy in Ecuador ' Taxes
Taxes for a medium-sized company
General report on taxes in Ecuador, extracted from the PKF network of independent member firms
Legal referral website Legal 500's section on Ecuadorian taxes