Expat Tax in Ecuador
OVDP Program and Compliance for Expatriates in Ecuador
While Ecuador is not necessarily a traditional destination for expatriates from the United States, it is quickly becoming a destination of choice. Particularly with baby boomers who are considering spending their retirement abroad, Ecuador offers an appealing destination yet they often forget expat tax in Ecuador. Outside of its capital, Quito, and perhaps Ecuador offers an extremely competitive cost-of-living while still providing many of the services & amenities that Americans expect. High-quality medical care is available in Ecuador at costs that are merely 10 to 20 percent of what one would expect to pay in the U.S. Home prices and property taxes are also extremely low in Ecuador. The country also offers all senior citizens aged 65 years or older, discounts on their utilities, entertainment events, and airfare. Seniors are also exempted from waiting in lines at places like the bank, the supermarket or the airport.
However, despite the many benefits Ecuador presents, there are drawbacks and tax considerations an expatriate must make. While Ecuador does not tax Social Security income, Americans who rely on Medicare are not covered while in Ecuador. Furthermore, those considering retiring to Ecuador must also consider their U.S. tax obligations including their duty to file taxes, pay taxes, and disclose certain foreign financial accounts. The failure to satisfy these obligations can result in significant fines, penalties or even a prison sentence.
U.S. Taxpayers Must File and Pay Taxes on their Worldwide Income
The United States is one of two nations that taxes its citizens and others with sufficient connection to the U.S. of the basis of their worldwide income. Like a taxpayer living in the United States, a U.S. expatriate living in Ecuador must file and pay taxes. However, many taxpayers become caught up in their overseas adventure and can forget to satisfy these obligations until it is already too late. Others may conflate the automatic two-month extension to file with an extension of time to pay. To be clear, there is no extension of time to pay. While expatriate taxpayers do not have to file their taxes until June 15, they still must pay their taxes by the April 15 deadline. What this often means is that an expatriate taxpayer must make an estimated tax payment to the IRS to avoid penalties for late payment. The Tax Law Offices of David W. Klasing, P.C. can help you maintain compliance with this obligation while leveraging provisions to mitigate double-taxation like the foreign income exclusion.
Taxpayers and Expatriates Must Disclose Certain Foreign Financial Accounts
Due to perceptions of Americans avoiding paying their fair share of taxes through use of foreign accounts, trusts and other entities the U.S. Congress has enacted or strengthened foreign account disclosure laws including the Bank Secrecy Act. It is through this legislation that the obligation to file a Report of Foreign Bank Accounts (FBAR) and FBAR tax compliance urgency arises. US taxpayers must disclose certain covered foreign financial accounts in an FBAR filing by June 30 if the balance or aggregate balance of the foreign accounts exceeds $10,000 at any time during the tax year.
Failure to satisfy one’s FBAR obligations can result in significant fines, penalties, interests, and a possible prison term. However the extent of the penalties that can be imposed turn on whether the IRS agent or investigator perceives the conduct as willful. A willful act can include intentionally avoiding learning of the obligation, intentionally disregarding the obligation to minimize tax, and structuring transactions so they do not trigger reporting requirements. If it is believed that your noncompliance was voluntary or intentional, upon conviction, a penalty of whichever is greater; 50 percent of the account balance or $100,000 can be imposed. If the FBAR failures were part of a larger scheme to evade tax or defraud the U.S. government, additional criminal tax charges may be filed.
Offshore Voluntary Disclosure may mitigate the Consequences of your Noncompliance
Typically, taxpayers who come forward voluntarily to make a thorough disclosure of all tax compliance failures will face reduced consequences. Taxpayers can make disclosures through the Offshore Voluntary Disclosure Program (OVDP). If the disclosures are properly made, the IRS will typically decline to refer the matter for criminal investigation or prosecution. However, there will be some costs to correct past non-compliant acts and come back into the tax system.
The experienced Tax Attorneys and CPAs of the Tax Law Offices of David W. Klasing, P.C. can explain your tax problems, the potential civil and criminal consequences you face, and potential means of resolving the tax issue. To schedule a reduced-rate consultation, call our firm at 800-681-1295 or contact us online today.