What Tax Advisers Should Tell US Clients Moving to Latin America

As Latin American nations push for greater global integration, they’re crafting policies to attract remote workers, investors, and entrepreneurs. US tax advisers should counsel clients looking to move to the region on the nuances of cross-border taxation and help them avoid overlooking tax obligations. Ecuador’s and Costa Rica’s laws are instructive examples.

Under Ecuador’s temporary fiscal residency program, people can live in the country for up to five years and pay taxes only on income sourced within Ecuador if they either invest $150,000 in local real estate or productive activities or prove earnings of at least $2,500 a month from abroad. In the first case, the investment must remain for a minimum of five years. In the second, the individual is required to enroll in the national social security system.

Costa Rica also has tax incentives for US citizens living abroad. Under the Digital Nomads Law, remote workers who are nonresidents can earn income from abroad without paying local taxes.

Though these countries offer appealing tax incentives, US clients should still be aware of their US tax liabilities. The US taxes its citizens and tax residents on worldwide income regardless of residency abroad.

All US individuals who work abroad—regardless of whether they have a US or foreign employer—or are self-employed may qualify for certain exclusion benefits. The foreign earned income exclusion, or FEIE, for 2025 allows an exclusion of up to $130,000 of foreign-earned income.

A foreign housing exclusion also may be available. To qualify for these exclusion benefits, the client must have a tax home abroad and meet either the physical presence test (at least 330 days abroad in 12 months) or the bona fide residence test (a facts-and-circumstances test to determine if one has effectively settled in the foreign country).

Depending on the facts, if foreign income is also taxed locally, the adviser will need to decide whether the FEIE or the foreign tax credit provides a better tax outcome for the client.

When working abroad, US Social Security and Medicare issues become complicated and depend on various factors, including whether the taxpayer is working for a US or foreign employer. The issues must be carefully examined because the overseas work may impact the taxpayer’s ability to qualify for US Social Security benefits later in life.

If your client lives in a country with a totalization agreement, they may be exempt from paying US Social Security taxes. Neither Ecuador nor Costa Rica has negotiated a totalization agreement with the US, which means that US persons working in either of these countries with a local employer may face dual contributions to the US Social Security system and Costa Rica’s or Ecuador’s social security system.

Ecuador’s Social Security contribution is mandatory for employees in the local workforce and is withheld from their paycheck. That said, individuals working independently or foreign nationals who invest at least $150,000 to qualify as digital nomads generally aren’t required to pay these contributions.

A US income tax return must be filed to claim any exclusion benefits, and other forms may be required to report foreign investments or foreign business activity.

Advisers also should counsel their clients on all applicable Report of Foreign Bank and Financial Accounts obligations. If a taxpayer’s foreign financial accounts exceed $10,000 total across all foreign accounts at any time during the year, an FBAR is mandatory. Not filing can lead to hefty penalties.

When advising US clients who marry in Latin America or those who establish permanent residence there, it’s crucial to consider community property laws because many countries in the region, including Ecuador and Costa Rica, incorporate these principles into their legal systems. Ensure your clients are aware that marrying a foreign citizen (or establishing permanent residence) in a community property jurisdiction has US tax implications.

Community property rules generally mean that assets and debts acquired during marriage are automatically shared between spouses, regardless of who earned or incurred them. For a US citizen marrying a citizen of another country, the worldwide tax system could extend to the latter’s share of assets and certain income.

Some countries allow couples to opt for a different property system. Couples can sign pre- or post-nuptial agreements to establish what works best for them. These agreements are legal documents and must be carefully drafted and processed through the proper legal channels to be valid. Don’t let your client walk down the aisle before they have thoughtfully weighed the potential tax implications.

US tax advisers should work with local tax professionals to ensure they can properly advise how local tax breaks will impact their client’s US tax obligations. Clients should know what they’re signing up for.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Virginia La Torre Jeker is admitted to the NY Bar and US Tax Court, specializes in US international taxation, and has been living and working in Asia and the Middle East since 1986.

Sofía Larrea, an international tax attorney based in Ecuador, specializes in US and cross-border taxation and is admitted in Ecuador, California, and the US Tax Court.

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