Ecuador

The country profile includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by the employers. Results reported include the average and marginal tax burdens for eight different family types.

It also describes the personal income tax systems, all compulsory social security contribution schemes and universal cash transfers as well as recent changes in the tax/benefit system.

  

Ecuador 2013
Tax / benefit of single persons
		Wage level (% of average wage)	67	100	167	67
		Number of children	0	0	0	2
1.	Gross wage earnings		5 365	8 007	13 372	5 365
2.	Standard tax allowances		1 389	2 073	3 462	1 389
	Basic allowance		0	0	0	0
	Married or head of family		0	0	0	0
	Dependent children		0	0	0	0
	Deduction for social security contributions and income taxes		507	757	1 264	507
	Work-related expenses		0	0	0	0
	Other		882	1 316	2 198	882
3.	Tax credits or cash transfers included in taxable income		0	0	0	0
4.	Central government taxable income (1-2+3)		3 976	5 934	9 911	3 976
5.	Central government income tax liability (exclusive of tax credits)		0	0	0	0
6.	Tax credits		0	0	0	0
	Basic credit		0	0	0	0
	Married or head of family		0	0	0	0
	Children		0	0	0	0
	Other		0	0	0	0
7.	Central government income tax finally paid (5-6)		0	0	0	0
8.	State and local taxes		0	0	0	0
9.	Employees’ compulsory social security contributions
	Gross earnings		507	757	1 264	507
10.	Total payments to general government (7+8+9)		507	757	1 264	507
11.	Cash transfers from general government		0	0	0	0
	For head of family		0	0	0	0
	For two children		0	0	0	0
12.	Take-home pay (1-10+11)		4 858	7 251	12 109	4 858
13.	Employer’s compulsory social security contributions		593	886	1 479	593
14.	Average rates
	Income tax (7 / 1)		0.0%	0.0%	0.0%	0.0%
	Employees’ social security contributions (9 / 1)		9.5%	9.5%	9.5%	9.5%
	Total payments less cash transfers [(10-11) / 1]		9.5%	9.5%	9.5%	9.5%
	Total tax wedge including employer’s social security contributions [(10+13-11) / (1+13)]		18.5%	18.5%	18.5%	18.5%
15.	Marginal rates
	Total payments less cash transfers: principal earner		9.5%	9.5%	9.5%	9.5%
	Total payments less cash transfers: spouse		N.A.	N.A.	N.A.	N.A.
	Total tax wedge: principal earner		18.5%	18.5%	18.5%	18.5%
	Total tax wedge: spouse		N.A.	N.A.	N.A.	N.A.

Ecuador
Tax / benefit of married couples
	Wage level (% of average wage)	100-0	100-33	100-67	100-33
	Number of children	2	2	2	0
Gross wage earnings		8 007	10 650	13 372	10 650
Standard tax allowances		2 073	2 507	3 462	2 507
Basic allowance		0	0	0	0
Married or head of family		0	0	0	0
Dependent children		0	0	0	0
Deduction for social security contributions and income taxes		757	757	1 264	757
Work-related expenses		0	0	0	0
Other		1 316	1 751	2 198	1 751
Tax credits or cash transfers included in taxable income		0	0	0	0
Central government taxable income (1-2+3)		5 934	8 143	9 911	8 143
Central government income tax liability (exclusive of tax credits)		0	0	0	0
Tax credits		0	0	0	0
Basic credit		0	0	0	0
Married or head of family		0	0	0	0
Children		0	0	0	0
Other		0	0	0	0
Central government income tax finally paid (5-6)		0	0	0	0
State and local taxes		0	0	0	0
Employees’ compulsory social security contributions
Gross earnings		757	757	1 264	757
Total payments to general government (7+8+9)		757	757	1 264	757
Cash transfers from general government		0	0	0	0
For head of family		0	0	0	0
For two children		0	0	0	0
Take-home pay (1-10+11)		7 251	9 893	12 109	9 893
Employer’s compulsory social security contributions		886	886	1 479	886
Average rates
Income tax (7 / 1)		0.0%	0.0%	0.0%	0.0%
Employees’ social security contributions (9 / 1)		9.5%	7.1%	9.5%	7.1%
Total payments less cash transfers [(10-11) / 1]		9.5%	7.1%	9.5%	7.1%
Total tax wedge including employer’s social security contributions [(10+13-11) / (1+13)]		18.5%	14.2%	18.5%	14.2%
Marginal rates
Total payments less cash transfers: principal earner		9.5%	9.4%	9.5%	9.4%
Total payments less cash transfers: spouse		0.0%	0.0%	9.5%	0.0%
Total tax wedge: principal earner		18.5%	18.5%	18.5%	18.5%
Total tax wedge: spouse		0.0%	0.0%	18.5%	0.0%

The national currency is the USD. In 2013, the average worker earned USD 8007.43.

The Report includes estimates of the tax wedge over the whole of the income distribution ordered by deciles of total labour income of formal wage earners derived from the household surveys.

	Deciles of Incomes
	1	2	3	4	5	6	7	8	9	10
Local currency (USD)	3 361	4 037	4 243	4 758	5 519	6 387	7 541	9 394	12 003	23 021
Dollars in PPP1	6 110	7 341	7 714	8 651	10 034	11 612	13 711	17 080	21 823	41 857
Ratio to the minimum wage2	0.9	1.1	1.1	1.2	1.4	1.7	2.0	2.5	3.1	6.0
← 1. Calculated using the implied conversion rate (National currency per current international dollar in purchasing power parity) published by the IMF in the World Economic Outlook dataset.
← 2. Ratio of the income decile to the official minimum wage of the country.

1. Personal income tax system

The fiscal year is the calendar year.

1.1. Central government income tax

The personal income tax in Ecuador is applied to employment, self-employment and investment income. Employment income encompasses all wages, compensation or benefits in-kind received under a written or verbal contract.

The main exemptions are:

• Severance payments

• Christmas bonus

• Education bonus

• Domestic interest paid on savings’ deposits

• Payments due to illness and disability

1.1.1. Tax unit

Members of the family are taxed separately.

Ecuadorians are liable to personal income tax on their worldwide income. Non-residents however, are only liable on the Ecuadorian-source income. For tax purposes, an individual will be considered as a resident if their stay in Ecuador exceeds 183 days in the year.

1.1.2. Tax allowances and tax credits

1.1.2.1. Standard tax allowances and tax credits

• Compulsory social security contributions.

• Contributions to pension plans.

1.1.2.2. Main non-standard tax allowances and tax credits

• Up to 50% of the taxpayer’s income due to personal expenses on housing, nutrition, education, clothing and health. The expenses are limited to 1.3 times the minimum exempt income established by the personal income tax schedule. The taxpayer is required to furnish invoices for the claimed expenses.

1.1.3. Tax schedule

The annual income tax liability was calculated on the taxable income according to the following schedule in 2013:

Income (USD) up to	Marginal rate (%)
10 180	0
12 970	5
16 220	10
19 470	12
38 930	15
58 390	20
77 870	25
103 810	30
above	35

1.2. State and local taxes

No state or local taxes are levied on wages.

2. Compulsory social security contribution to schemes operated within the government sector

2.1. Employee contributions

Program	Marginal rate (%)
Old age, disability and death program	6.64
Unemployment insurance	2.00
Farmer’s social insurance	0.35
Organic law for the disabled	0.10
Administration expenses	0.36

Employee social security contributions are levied on gross wages. The lower earnings threshold is the minimum wage (USD3 816 in 2013). There are no upper ceilings to the contributions.

2.2. Employer contributions

Employers are required to contribute to the following public programs.

Program	Marginal rate (%)
Old age, retirement and disability program	3.10
Healthcare	5.71
Work injury	0.55
Unemployment insurance	1.00
Farmer’s social insurance	0.35
Administration expenses	0.44

The contribution rates for the employer are applied to the payroll.

3. Universal cash transfer

3.1. Amount for spouse and for dependent children

None.

4. Main changes in tax/benefit since 2013

The thresholds to the personal income tax schedule are uprated each year. The 2016 schedule is shown below. The tax rates remained unchanged.

Annual personal income tax schedule for 2016
Income (USD) up to	Marginal rate (%)
11 170	0
14 240	5
17 800	10
21 370	12
42 740	15
64 090	20
85 470	25
113 940	30
above	35

5. Memorandum items

5.1. Identification of an AW

The data refer to the earnings of workers within the formal sector. The average worker’s wage was calculated using microdata from the national household surveys.