Doing Business in Paraguay: Low Taxes & Faster Residency

Doing business in Paraguay is due to get easier, with the government seeking to significantly reduce the time it takes to gain residency and promote its low tax regime in order to encourage greater foreign investment.

According to Paraguay’s Finance Minister Benigno López, the almost two years it currently takes to gain permanent residency, “will be a lot less,” while the necessary investment will be established at a low enough rate to encourage investment that generates jobs.

Those conditions would combine with the country’s low tax regime to make Paraguay an even more attractive investment destination, López told Argentinian financial newspaper El Cronista.

“Here there is no history of confiscations or changes to the rules for investment,” he said, emphasizing Paraguay’s fiscal stability and consistent growth.

Whether you are considering company formation, registering a branch, or you simply want to hire staff through a professional employer organization in Paraguay, read on to find out how the country’s residency opportunities and taxation regime could be to your benefit.

Consistent growth & stability

López makes an important point regarding Paraguay’s fiscal stability. Because the nation known as ‘the heart of South America’ has consistently achieved a growth rate of 4 percent or higher over the past decade. As such, “resilient growth and relatively prudent fiscal settings” have seen the country rated as “stable” by Fitch.

The country also has free trade access to other key markets in the region, thanks to its membership in the Southern Common Market (MERCOSUR), with the government maintaining a pro-business regulatory framework.

With the country also having relatively low labor costs, doing business in Paraguay represents an attractive prospect to foreign investors seeking to expand into the region, especially given the government’s move to simplify gaining permanent residency.

Taxes to consider when doing business in Paraguay

If you are planning on doing business in Paraguay, you must understand the following corporate taxes in order to fully comply with the tax authorities and ensure the good health of your business:

Business income tax for small and medium businesses

In order to alleviate the tax burden on companies doing business in Paraguay, the government has established a streamlined corporate income tax, known as a ‘simple tax’ for medium-sized companies and a ‘very simple tax’ for small companies. These taxes are set annually, based on the amount of gross income obtained by the company the previous year.

Note that this fixed annual tax regime significantly reduces the amount of paperwork and bookeeping demanded by law.

Transfer pricing rules in accordance with the OECD’s standards

Paraguayan law enforces general transfer pricing rules based on the stipulations of the Organization for Economic Cooperation and Development (OECD). Entities affected by transfer pricing regulations are encouraged to engage with a trusted tax advisory firm able to perform a professional transfer pricing study.

Tax on dividends and profits for residents and non-residents

This tax is applied to profits, dividends, and income paid to the owner, consortium, partners, or shareholders of entities doing business in Paraguay, as well as to the permanent establishments of entities incorporated abroad. Note that the rate of this tax is 8 percent when the recipient of the profits is a natural, legal, or resident person in the country and 15 percent when the beneficiary of these profits is a non-resident, including parent companies abroad.

Taxes on personal services

The personal income tax (IRP) applies to income from capital gains and income derived from the provision of personal services. The IRP rate on capital gains is 8 percent, while the IRP rate on income derived from personal services is between 8 percent and 10 percent,, depending on the taxpayer’s net income.

Non-resident income tax

Paraguayan law implements a tax on the income of non-residents (INR) that is imposed on the income or profits obtained by natural persons, legal entities, and other non-resident entities doing business in Paraguay. The INR rate is 15 percent and is applied to net income generated within Paraguay.

Understand Paraguayan taxes with the help of Biz Latin Hub

Engage with an expert tax advisor to understanding corporate taxes when doing business in Paraguay. At Biz Latin Hub, our multilingual team of tax experts is ready to help successfully grow your commercial venture in Paraguay, and take advantage of the country’s business-friendly environment.  

Reach out to us now so we can start to help you improve your tax compliance in Paraguay.

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