Legal Compliance in Paraguay for a Secure Investment

Paraguay: Where fishing is as popular as football; home to a waterfall twice the width of Niagara Falls and the habitat of the giant guinea pig. Any foreigner would easily recognize Paraguay’s unique features.

Nevertheless, what may be easy to miss is the multitude of investment opportunities at present in Paraguay. To name a few: there is the quickly expanding cannabis industry, the energy sector and agricultural trades. This is supported by Paraguay’s central location between the South American powerhouses of Argentina and Brazil.

Furthermore, Paraguay’s membership in the MERCOSUR community has been looking forward to the “historic agreement” it has made with the European Union. This agreement aims to create a new trade network to “bring Europe and South America closer together in a spirit of cooperation and openness”.

However, to place a secure an investment in the many opportunities Paraguay has to offer, one must comply with the country’s legislation and any procedures which are to be followed for an investment. Here is a short introduction to corporate legal compliance in Paraguay.

Legal Entity Compliance in Paraguay – Law 117/91: Equal opportunities for foreign investors

A good starting point with legal compliance in Paraguay would be to look at law 117/91. This law stipulates that foreign investors have the same guarantees, rights and obligations as would have a Paraguayan investor. This means there are no restricted areas or no limitations for foreign investors.

Law 60/90: Custom duties for certain goods or services

If you are looking to invest in Paraguay, consider the benefits provided under Decree law 60/90. The purpose of Law 60/90 is to increase capital investments of domestic and foreign origin. In doing this, any investments which fall under this law will be exempt from custom duties for the importation of capital goods, raw materials and inputs allotted to the domestic industry, foreseen in the investments project.

This exemption from custom duties will last for a term of 7 years when the investments arise from the incorporation of capital goods for domestic origin, and a term of 10 years whenever they are established in areas of preferential development (those determined by the plans and programs prepared by the Technical Planning Secretariat). However, before indulging in these benefits you must present an investment project alongside a time-line. This will be approved by the government within 45 days of application.

Law 5542/15: Investment guarantees and promotion of employment, economic and social development

Law 5542/15 serves to facilitate and guarantee a bonus for investments, including foreign investments. It does this through the stability of income tax rate, equal treatment and legal security for companies established in Paraguay.

Alongside this, the law outlines additional benefits from additional income tax rates regarding the distribution of profits for up to 50% reduction of the withholding tax rate on dividend remittances abroad. Businesses must get their investment project approved, and execute their investment contract.

Ley 523: Free trade zones

Free trade zones are areas authorized by the government for which certain activities in these areas result in a reduction of customs duty tax.

To become a “user” of these areas, you must not have declared past bankruptcy. Furthermore, requirements to establish a business in a free trade zone include registering your company in the corresponding local Public Registries as well as adding the expression “User of Duty-Free Zone” to their corporate name.

The Maquila Regime: Bringing foreign investment closer to local manufacturing

The Maquila regime, which is regulated by Law 1064/97, is a regime where a local company signs a contract with a foreign entity (known as a Matriz) to produce goods or services for export. The benefits which result from a Maquila regime include the suspension of all applicable taxes and duties on raw materials and other inputs to the Maquiladora from any local or foreign supplier. To enjoy the benefits of the Maquila regime, an individual or company must obtain a license for a Maquila export program. To do this the Maquiladora must file an application for a Maquila program to the Maquila Council with details of the estimated operation. Once the program is approved, it can be modified as necessary. To add to this, there are no restrictions as to the minimum/maximum production when applying to make use of the Maquila regime.

The Maquiladora must file an application for a Maquila Program to the Maquila Council with details of the estimated operation. Once the program is approved, it can be modified as necessary.

Environmental regulations: green Paraguay

Paraguay has been at the forefront of producing renewable energy in Latin America and is proud to have 100% of its electricity produced by hydroelectricity plants. So, it is no surprise that Paraguay has put a big asterix on environmental laws. For example, anybody performing industrial or agricultural activities must file an Environmental Impact Assessment at the local Ministry of Environment to obtain an environmental license. Those who don’t meet their obligations under environmental laws such as those established in Law 294/96 and Law 1561/01 may face harsh criminal sanctions.

Permanent residence permits for foreign company directors

If you are interested in becoming the director of a Paraguayan company you must first obtain permanent residency in Paraguay. The documents required for this consists of a copy of an identification document and proof of legal entrance into the country issued by the immigration´s authorities at the control posts. All of these must be original documents.

Work with Biz Latin Hub

Want more information on investing in Paraguay? At Biz Latin Hub we deliver professional advice regarding any inquiries concerning Paraguayan and Latin-American law. If you’re looking to invest in a business or thinking about setting up shop in Paraguay, consider working with one of our solicitors or lawyers to handle any paperwork or gather further information concerning your business needs.

To do this contact us now, we provide a full range of back-office and market entry services, as well as regular updates regarding business in Paraguay and other Latin American countries.

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