The income tax system in Ecuador is pretty straightforward.

Every March everyone involved in commercial activity pays income tax “impuesto a la renta” based on the previous calendar year.

If you have a tax ID number “RUC” you will be liable for paying taxes, whether you be a sole proprietor or representing a corporation.

In Ecuador, as in the US, they use a sliding scale taxing a percentage of your earnings based on how much you earn.

In 2010, if you earned…

up to $8910…you pay $0 tax
$8910-11350…you pay 5% tax
$11350-14190…you pay $122+ 10% tax
$14190-17030… you pay $406+ 12% tax
$17030-34060… you pay $747+ 15% tax
$34060-51080… you pay $3301+ 20% tax
$51080-68110… you pay $6705+ 25% tax
$68110-90810… you pay $10963+ 30% tax
$90810-and up… you pay $17773+ 35% tax

You can legally deduct housing costs, health costs, clothing costs, food costs, and education costs with the proper, original receipts “facturas”.

If you are an employee, your only tax liability is the table stated above. If you own a business, in addition to the above income tax based off of earnings or profits “impuesto a la renta” you will have to pay an additional sales tax “IVA”, which is 12% of the total gross sales of your business.

Now, for all your business expenses in which you incurred paying sales tax yourself, you can write off that sales tax paid against the sales tax you owe, and pay the difference.

In Ecuador, if your gross sales are over $60000 in 1 year, you are required by law to keep detailed records of your accounting and affiliate yourself with the public organization called the IESS.

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