If you wish to acquire a real estate in Ecuador, you need to understand the tax implications too. If you think that buying a property or owning one will increase your net worth – you are right. But when you are calculating your expected profits, you may want to consider the taxes that you have to pay too. That way, you can determine if you will really be profiting from this investment or not.
Your taxes will be paid to the government and whatever you will pay will depend on the specific conditions of your real estate ownership. The tax obligation will also depend on how you will use your property. It is very important that you identify the specific tax or taxes that you need to pay off so you will not get into trouble with the Ecuadorian government. After all, this is where they get funds for their budget. You can expect that they will come after you if you forget to pay your taxes for any real estate in Ecuador that you own.
Different taxes that you will encounter when owning Ecuador real estate
So what are the taxes that you are obliged to pay when you are dealing with Ecuador real estate?
Just like in the US, the taxes that you will pay for will be based on the transaction, municipal value, location or how you intend to use the property that you own. In terms of the municipal value, it is usually 2% of the market value of the property – at least this is true in Ecuador. When it comes to the location, there is a difference if your real estate in Ecuador is located in a rural or urban area.
But for the sake of identifying the tax obligations that you need to familiarize yourself with, here are the important ones that you need to know.
Transfer tax. When you buy the property, you are charged with a registration tax so you can transfer the property under your name. This is what is known as the transfer tax. It is usually 1% of the municipal value that is indicated in the deed. This can only be shouldered by the buyer and not the seller.
Property tax. This is applicable for real estate in Ecuador that is used for residential and commercial purposes by the owner themselves – although both follow different schedules. This is based on the value of the property and the current rate in both the city and rural areas. For instance, the annual property tax in Quito will be higher than that in Loja. You should also check for tax discounts for homeowners who are aged 65 and above.
Rental Income tax. If you bought real estate in Ecuador for rental purposes, any income that you derive from that will be considered as a regular income. That means it will be charged according to the amount that you earned. The Ecuador government follows a progressive rate – that means the bigger the income, the higher the rate. So you can expect to pay taxes of up to 25% of the net income that you got from your rental property.
Capital Gains tax. In the event that you want to sell the property that you own in Ecuador, any net gain that you got from it will be subjected to taxes of up to 25%. The gain will be computed based on the difference between the municipal value of the property and your selling price.
Gift or Inheritance tax. The gift tax is only applicable if the recipient of the gift wants a legal transfer of property under his/her name. Otherwise, it will not be taxed. For inheritance tax, it will only be levied progressively – between 5% and 25%, depending on the income tax rate.
Consider these taxes when you are buying real estate in Ecuador. Make sure they are met as needed so that any transaction that involves your property will not be questioned by the Ecuadorian government.
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