Retiring in Ecuador – Low Cost, Low Taxes

Ecuador is one of the world’s premier retirement destinations, on the merits of its biodiversity, largely idyllic climate, sheer bountiful natural beauty and the relatively low cost of living, on a comparable global basis.  However, one oft overlooked consideration is the pending implication of tax policy in your newly selected expat home country, which will serve as your final relocation destination of choice.  The great news is that Ecuador shines in that arena as well ! Here are some reasons that you should consider retiring in Ecuador.

In addition to the bevy of retirement benefits that accrue to those entering their retirement years in Ecuador, such as high-quality, low cost healthcare; well-equipped hospitals with bilingual doctors (certain major city-centers only); 50% discounts on public transportation within the country; 50% off tickets for movies, cultural activities and sporting events; free domestic landline local phone service; 50% reduction on international flights offered by select airlines; and the recognizable (for many) USD as the core currency, Ecuador also offers excellent tax benefits to expats from most global nations.

For example, foreign income is not taxed in Ecuador.  So, payments from sources such as social security benefits (USA), IRA payments (USA, but also similar investment options in other countries) and private/public pension funds are received tax-free, from the Ecuador side of the equation.  If you do derive income from sources within Ecuador, as a qualified retiree, you are entitled to tax discounts, as well as discounts on the sales taxes, which serves as the predominant form of taxation in Ecuador.  In fact, a simple way to think of this is that about the only way you will incur a tax burden in Ecuador, as a retiree, is if you own and operate your own business within Ecuador and, even then, you will receive a significant tax break as a retiree for doing so!  Kind of a sweet deal.

Reviewing other potential taxes as a retiree, we first come across the already mentioned sales tax.  It is a 12% charge on consumption, which is the primary “tax of the realm” for Ecuador.  Also, as already mentioned, being a retiree entitles you to enjoy a deep discount on this tax, in the form of a monthly refund of prior tax payments.  Every retiree is eligible for a $250 monthly refund allowance.

With regard to the income tax from earnings within Ecuador, note that the first $8,500 earned is all tax free.  This is ideal for those that wish only to establish a side business, aimed at supplementing retirement income, rather than creating a full-blown active business enterprise.

The well known, certainly to USA residents, capital gains tax has, unfortunately, now also arrived in Ecuador, in terms of a home sale.  However, this is triggered mainly upon your choice to resell.  The tax is calculated based on the local municipalities assessed property value, when you first purchased the house and, then again, when you are ready to sell it.  A benchmark figure is 0.5% of the difference between purchase and sales price.  However, depending on the elapsed time between acquisition and sales, that figure can vary.  Shorter holding periods generally mean higher capital gains tax percentages.  Again, this is only triggered when, and if, you choose to sell your home in Ecuador.

Warning: As a side note to the capital gains tax for the sale of a home, please be advised that certain published sources often erroneously suggest that Ecuador has no capital gains tax, merely because it does not come at the Federal level, but rather at the Local Municipality level.  This is simply inaccurate and a throw-back to an era when Ecuadorian buyers/investors were thusly blessed without any capital gains tax at all.  However, the large influx of new retirees, families and investors that have found the genuine marvel that is Ecuador have created infrastructure requirements at the municipality level that could only be addressed by initiating the current capital gains tax, tied to new homeownership.  It was, sadly, a necessary evil, as Ecuador’s global popularity has exploded across expat classifications, from locales around the world.

Speaking of homes, property taxes in Ecuador are exceptionally low.  For example, property tax payments of $75 – $100 per year (yes…year…not month) for a more modest condo or house are not unusual.  For a more exclusive property, expect to pay between $150 – $300/year for property taxes.  How can this get any better?  Well, I have an answer for that.  A homeowner 65 and over can request, and often do receive, a discount on their property taxes!  Old adage, never hurts to ask.

Overall, that’s the only tax damage suffered in Ecuador.  Living in Ecuador as a retiree on a pension and/or social security benefits makes for a mostly comfortably life, from a tax perspective.  This, however, does not protect you from the rigors of the taxman in your country of origin.  If from the USA, remember that the taxman even follows you beyond the grave.  The relatively comfortable tax respite within Ecuador will be a much enjoyed and welcomed relief for the retiree, especially given some of the other wonderful retirement benefits enjoyed in Ecuador!