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.
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.
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:
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Severance payments
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Christmas bonus
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Education bonus
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Domestic interest paid on savings’ deposits
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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
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Compulsory social security contributions.
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Contributions to pension plans.
1.1.2.2. Main non-standard tax allowances and tax credits
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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:
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
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.
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.
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.