Tax on property income in Ecuador
Taxation Researcher | May 08, 2020
Effective Tax Rate on Rental Income
|Click here to see a worked example|
|Source: Moores Disclaimer|
Nonresidents are taxed only on their Ecuadorian-sourced income. Married couples are taxed separately.
INCOME TAX (impuesto a la renta)
Foreigners who do not reside in Ecuador are generally subject to income tax on their gross income generated from within the country. The income tax is levied at a flat rate of 25%.
Rental income earned by nonresidents is subject to income tax is levied at a flat rate of 25%. It is withheld by the tenant.
Gains on the occasional sale of real property are exempt from income tax.
Municipal Tax on Royalty
Municipal tax on royalty is levied at 10% on the capital gains realized from the sale of urban properties. Tax base is calculated by deducting the following from the sales price or market value of the property: acquisition costs, improvement costs, 5% of the earnings realized for each year the property was held prior to the sale.
Municipal Property Tax (impuesto de propiedad de bienes inmuebles or impuesto a los predios urbanos)
Municipal property tax is levied on land and buildings based on official appraisals reflecting the property’s commercial sale value or the cadastral value. The tax rates are progressive from 0.025% to 1%, varying annually in order to cope with inflation.
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.
All income and capital gains earned by companies are subject to corporate income tax at a flat rate of 25%. Income-generating expenses are all deductible to arrive at the taxable income.
Depending on the transaction type, income is liable to withholding taxes. Gross income from lease transactions is subject to 8% withholding tax, which is credited against income tax liability.
If the profits are capitalized (i.e. expansion of capital) before 31 December of the assessment year and with the condition that the capitalization of profits must be completed the following year, the corporate income tax is levied at the rate of 15% on the amount reinvested.