Do I Pay Taxes in Ecuador as a US Citizen?

The Complex Answer

US taxes: Yes, always (US taxes citizens worldwide) Ecuador taxes: Maybe (depends on tax residency and income) Double taxation: Usually avoided through tax treaties and credits

Let's break it down.

US Tax Obligations

You Can't Escape US Taxes

US citizens must file US tax returns regardless of where they live.

This includes:

• Worldwide income
• Ecuador income
• Social Security benefits
• Investment income
• Rental income
• Everything

But: Foreign Earned Income Exclusion (FEIE)

Huge benefit for expats:

Exclude up to ~$126,500 (2026 amount) of foreign earned income from US federal taxes.

Requirements:

• Must be outside US 330+ days per year (Physical Presence Test)
• OR Bona fide resident of Ecuador (Bona Fide Residence Test)
• Income must be "earned" (not passive)

Example:

• Earn $80,000/year doing remote work from Ecuador
• Outside US 340 days
• Exclude entire $80,000 from federal taxes
• Save $12,000-18,000 in federal taxes

What's NOT Excluded by FEIE:

❌ Social Security income (still taxable to US) ❌ Pension income (still taxable) ❌ Investment income (dividends, interest, capital gains) ❌ Rental income from US property

But: Standard deduction and lower brackets may reduce tax significantly.

State Taxes

Depends on your state:

No state income tax (best):

• Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Alaska, Tennessee

Easy to terminate residency:

• Most states if you establish Ecuador residency

Difficult to terminate:

• California, New York, Virginia (may claim you're still resident)

Action: Establish clear ties to Ecuador, terminate state ties before leaving.

Ecuador Tax Obligations

When Are You Ecuador Tax Resident?

Tax residency triggered by:

• 183+ days in Ecuador per year (most common trigger)
• OR having "principal economic ties" in Ecuador

Ecuador tax residents pay tax on worldwide income.

Ecuador Tax Rates (2026)

Progressive rates:

• $0 - $11,700: 0%
• $11,700 - $14,930: 5%
• $14,930 - $18,590: 10%
• $18,590 - $22,250: 12%
• $22,250 - $29,570: 15%
• And up to 35% on high incomes

What's Taxed in Ecuador:

If you're Ecuador tax resident: ✅ Ecuador employment income ✅ Foreign employment income ✅ Investment income worldwide ✅ Rental income worldwide ✅ Business income worldwide

Common exemptions:

• Social Security / foreign pension income often partially exempt
• Personal exemptions reduce taxable income

If You're NOT Ecuador Tax Resident:

Only Ecuador-source income is taxed:

• Ecuador employment
• Ecuador rental income
• Ecuador business income

Not taxed:

• Foreign income
• US income
• Remote work for US company

Avoiding Double Taxation

US-Ecuador Tax Treaty

Good news: US and Ecuador have tax treaty preventing most double taxation.

How it works:

• Pay tax in one country
• Get credit in the other
• Usually don't pay full tax to both

Example:

• Earn $50,000
• Pay $8,000 Ecuador tax
• Owe $10,000 US tax
• Get $8,000 foreign tax credit
• Pay only $2,000 to US
• Total tax: $10,000 (not $18,000)

Foreign Tax Credit (FTC)

US allows credit for foreign taxes paid.

Use FTC when:

• FEIE doesn't cover all income
• You have passive income
• You exceed FEIE limit

Can't use FEIE and FTC on same income (choose one).

Common Tax Scenarios

Scenario 1: Retiree with Social Security

Income:

• $24,000/year Social Security

US taxes:

• Taxable in US (FEIE doesn't apply to SS)
• But: Standard deduction + lower brackets = minimal tax
• Likely $0-2,000 federal tax

Ecuador taxes:

• Foreign pension often partially exempt
• If partially taxable, likely $0-1,000
• Foreign tax credit offsets

Total tax: $0-3,000

Scenario 2: Remote Worker

Income:

• $80,000/year remote work for US company

US taxes:

• Use FEIE to exclude $80,000
• Federal tax: $0
• FICA (Social Security/Medicare): Still owe if employee
• If contractor: May not owe FICA

Ecuador taxes:

• If tax resident: Owe Ecuador tax on $80,000
• After exemptions: ~$12,000 Ecuador tax
• Use Foreign Tax Credit on US return for protection

Total tax: ~$12,000 (all to Ecuador)

Scenario 3: Investor/Rentista

Income:

• $40,000/year investment income (dividends, interest)

US taxes:

• FEIE doesn't apply (passive income)
• Owe US tax: ~$4,000-6,000

Ecuador taxes:

• If tax resident: Also taxable in Ecuador
• ~$4,000 Ecuador tax
• Foreign Tax Credit prevents double taxation

Total tax: ~$6,000

Tax Strategies (Legal)

1. Maximize FEIE

If you're working, stay outside US 330+ days to qualify for FEIE. Saves $12,000-35,000.

2. Time Your Tax Residency

If you spend <183 days in Ecuador:

• Not Ecuador tax resident
• Only Ecuador-source income taxed
• Keep worldwide income untaxed by Ecuador

But: Can't apply for permanent residency if absent too much.

3. Structure Income Properly

• Earned income: Use FEIE
• Passive income: Use Foreign Tax Credit
• Optimize based on your income mix

4. State Tax Planning

Terminate state residency before leaving:

• Change driver's license
• Register to vote in Ecuador (if eligible)
• Move mail forwarding
• File part-year state return

5. IRA/401k Distributions

If retiring early, structure retirement account distributions carefully:

• Roth IRA: Tax-free (even abroad)
• Traditional IRA: Taxable but may be lower bracket
• Time distributions for low-tax years

Ecuador Tax Compliance

Filing Requirements:

If Ecuador tax resident:

• File annual tax return (Declaración de Impuesto a la Renta)
• Due: March/April following tax year
• File online: SRI (Ecuador IRS) website

What to report:

• Worldwide income
• Foreign assets over $50,000
• Foreign bank accounts

Need Help?

Hire Ecuador accountant:

• Cost: $200-500/year for simple return
• Necessary if you don't speak Spanish
• They handle SRI filing

US Tax Compliance

Annual Filing Requirements:

Form 1040: US tax return (always required)

Form 2555: Foreign Earned Income Exclusion (if using FEIE)

Form 1116: Foreign Tax Credit (if using FTC)

FBAR (FinCEN 114): If foreign accounts exceed $10,000 combined

• Due: April 15 (October extension)
• Penalties for non-filing: Severe

FATCA (Form 8938): If foreign assets exceed threshold

• Thresholds: $200,000-600,000 depending on situation

Penalties for Non-Compliance:

FBAR penalties: Up to $10,000 per violation (or 50% of account) FATCA penalties: $10,000+ per form Tax evasion: Criminal charges possible

Don't skip these forms. Hire expat tax professional.

Hiring Tax Professionals

US Expat Tax Specialist:

Need someone who understands:

• FEIE and FTC
• Ecuador-US tax treaty
• Foreign account reporting

Cost: $500-1,500/year

Recommended services:

• Greenback Expat Tax Services
• MyExpatTaxes
• Bright!Tax

Ecuador Accountant:

For Ecuador tax return:

• Cost: $200-500/year
• Find through expat community
• Should speak some English (ideally)

Total tax prep cost: $700-2,000/year

Worth it to avoid penalties and optimize taxes.

IESS and Social Security

IESS Contributions (Ecuador Social Security):

Required for visa holders:

• Monthly payment: $80-100
• Based on declared income
• Covers healthcare

Tax deductible? Yes, in Ecuador

US Social Security:

If paying IESS, do you still pay US Social Security?

Depends:

• Employee of US company: Yes, owe FICA
• Self-employed: May owe self-employment tax
• Retiree: No longer paying in

Totalization Agreement: US-Ecuador agreement prevents double social security taxes in most cases.

Capital Gains

US Capital Gains:

US stocks/property:

• Taxable to US
• Rates: 0-20% depending on income
• FEIE doesn't apply

Ecuador property:

• Owned 2+ years: 0% Ecuador tax
• Owned <2 years: Up to 35% Ecuador tax
• Report to both countries, use treaty

Ecuador Capital Gains:

Selling Ecuador property:

• Held 2+ years: Tax-free!
• Held <2 years: Progressive tax up to 35%

Strategy: Hold Ecuador property 2+ years before selling.

Retirement Account Distributions

Roth IRA:

• Tax-free in US
• Usually tax-free in Ecuador (treaty)
• Best option

Traditional IRA / 401k:

• Taxable in US
• May be taxable in Ecuador (depends on treaty interpretation)
• Still often better than working income

Pension/Annuity:

• Usually partially taxable both countries
• Treaty prevents full double taxation

Consult tax advisor for your specific situation.

Common Myths

Myth: "I don't have to pay US taxes if I live abroad"

False. US citizens always file and may owe taxes.

Myth: "Ecuador won't find out about my US income"

False. FATCA requires US banks to report to Ecuador. Don't risk it.

Myth: "I can just not file"

Terrible idea. Penalties are severe. Always file.

Myth: "Having Ecuador visa means I pay Ecuador taxes"

Not automatic. Tax residency is separate from visa residency.

Myth: "I'll definitely pay double taxes"

Usually false. Treaty and credits prevent most double taxation.

Our Recommendation

1. Hire Professionals

Don't DIY taxes as expat. Too complex, too risky.

Budget $1,000-2,000/year for both countries.

2. Plan Before You Move

Meet with expat tax specialist BEFORE moving:

• Understand your specific situation
• Plan state tax termination
• Structure income optimally

3. Stay Compliant

File everything required:

• US return
• FBAR
• FATCA
• Ecuador return (if tax resident)

4. Keep Records

Document everything:

• Days in/out of US and Ecuador
• Income sources
• Foreign taxes paid
• Professional advice received

5. Review Annually

Tax laws change. Review with professional each year.

Tax Planning Timeline

Before Moving:

• Consult expat tax specialist
• Terminate state tax residency
• Understand FEIE requirements
• Plan income structure

First Year in Ecuador:

• Track days outside US (for FEIE)
• Keep all income records
• Open Ecuador bank accounts (report on FBAR)
• Determine if Ecuador tax resident

Annual:

• File US return by April 15 (June 15 auto-extension for expats)
• File FBAR by April 15
• File Ecuador return (if resident) by March/April
• Review situation with tax pro

Need Help?

EcuaPass can:

• Connect you with expat tax specialists
• Recommend Ecuador accountants
• Explain tax implications of different visa types

But: We're not tax advisors. Always consult licensed professional.

Contact us: WhatsApp: +593-096-284-8410

Don't let tax confusion stop your Ecuador move. With proper planning and professional help, expat taxes are manageable. Most expats pay same or less total tax than they did in the US.