The landlocked country of Paraguay may not be the first place you consider when expanding your business internationally. However, this South American powerhouse is becoming a popular choice for savvy entrepreneurs looking to increase their brand presence in LATAM markets, and, declaring your business taxes in Paraguay might just be your best option.
Setting up a business in Paraguay is an attractive option, this is because of its ease of access, and rapidly growing middle class boosting expenditure and growth. Paraguay’s straightforward tax requirements and relaxed stance on maintaining a presence in the country make it the perfect option for digital nomads. This is clear when deciding how to declare taxes in Paraguay.
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So, why conduct business in Paraguay?
Paraguay stands out as an advantageous destination for business endeavors, driven by several key factors. Declaring taxes in Paraguay is simplified and efficient, providing businesses with a transparent and straightforward tax regime. The country’s strategic location offers easy access to regional markets, fostering trade opportunities. It is simple to declare your business taxes in Paraguay.
A skilled and cost-effective workforce, combined with clear guidelines on how to declare taxes in Paraguay, enhances operational efficiency. Paraguay’s commitment to attracting foreign investment through streamlined procedures and incentives further bolsters its appeal to entrepreneurs. The nation’s stable economic environment, along with the straightforward process to declare taxes, instills confidence in investors. Overall, Paraguay’s favorable business landscape, supported by its simplified tax declaration process, positions it as an attractive hub for business growth and prosperity in South America. Continue reading to learn more about how to declare your business taxes in Paraguay.
What are the benefits of declaring your business taxes in Paraguay?
Paraguay has the lowest tax rate in Latin America, at 10%. Other booming economies such as Brazil and Chile apply a tax rate of around 30%. Paraguay is therefore considerably more competitive. This is important to take into account when you declare your business taxes in Paraguay.
The corporate income tax is applicable to all companies no matter what practices they are involved in. This will be the most constant cost and sits at a standard rate.
Furthermore, the value-added tax (VAT) rate is one of the lowest in Latin America. Maintaining low tax expenses facilitates a welcoming environment for setting up a trading business in Paraguay.
Paraguay’s non-resident personal income tax rate also sits at a comparatively low rate. This tax sits at a rate of 10%. Nearby, non-resident personal income tax in Mexico is 15-30%. Paraguay, therefore, is a considerably beneficial option for tax declaration in terms of standardization and cost efficiency.
Declare your Business taxes in Paraguay – What are corporate tax rates like?
Paraguay is an attractive country for commercial operations with regard to corporate tax. As every country differs in its tax rates, every country poses different opportunities. The same counts for Paraguay. It is essential to take this into account before you declare your business taxes in Paraguay.
Taxes in Paraguay have the following accounting rules and rates:
- Paraguay applies a standard income tax rate of 10%.
- The country’s VAT sits at a standard rate of 10%. These returns must be filed monthly. You are required by law to register for VAT when incorporating in Paraguay.
- Dividends distributed to non-resident individuals or entities are subjected due to a 15% withholding tax rate.
- The standard tax rate makes Paraguay’s tax system simple to navigate. Further to this, there is no income tax on revenue earned outside of the country. This offers competitive tax conditions for people and businesses with additional overseas income.
- The fiscal year in Paraguay starts on 1 January and finishes on 31 December. You must submit your taxes within 4 months of the end of the previous fiscal year.
The standard tax rate makes Paraguay’s tax system simple to navigate. Further to this, there is no income tax on revenue earned outside of the country. This offers competitive tax conditions for people and businesses with additional overseas income.
The fiscal year in Paraguay starts on 1 January and finishes on 31 December. You must declare your business taxes in Paraguay within 4 months of the end of the previous fiscal year.
Declare your Business taxes in Paraguay – Got employees or property?
The following taxes apply for businesses with employees or real estate:
- Employee-related tax: Employers must contribute a total of 16.5% of an employee’s income to the employee’s social security. Moreover, employers are obliged to withhold 9% of an employee’s income.
- Real estate tax: Real estate is subject to a 1% annual tax. Surtaxes apply for specific types of property at an annual rate of 0.3% on the transfer of property.
Declare your Business taxes in Paraguay – Focusing on corporate income tax
Before you declare your tax in Paraguay, it is important to know that income tax in Paraguay is taxed according to the resource principle. There are three tax systems in Paraguay, depending on the type of taxpayer, as follows:
- Commercial income tax (CIT). This tax is meant for income from commercial, industrial, and service activities. The general income tax rate of 10% applies. However, dividend distributions require an additional 5% tax. This tax must be paid on the amount of dividend approved for distribution at the shareholder meeting.
- Agriculture income tax (AIT). This tax is meant for income from agricultural and cattle activities. The tax rate also generally sits at 10%, however, the specific rate depends on yearly income.
- Little taxpayer income tax (LTIT). This tax is for taxpayers with an annual income of less than 100 million Paraguayan guaraníes (PYG). A single tax rate of 10% applies.
Declare your Business taxes in Paraguay – Paraguayan personal income tax
The personal income tax (PIT) system in the Latin American country is divided into two groups. These groups are:
- Individuals resident in Paraguay
- Individuals living abroad.
Individuals living in Paraguay
To be eligible for this group you must be living and working in Paraguay. The general PIT rate is 10% for individuals residing in the country. These residents have to have an annual income equal to or higher than 120 monthly minimum salaries. The salary amount used to measure this is that which is in force on January 1st of every year.
A PIT rate of 8% is applied to individuals whose annual income is lower than 120 monthly minimum salaries. The amount taxable is the income equal to or higher than 48 minimum salaries in fiscal year (FY) 2018. The amount taxable will be reduced by 12 monthly minimum salaries per year until FY 2019. Afterward, the final minimum amount will be 36 monthly minimum salaries (approximately USD 13.000 annually).
Individuals living abroad
This group is for individuals living abroad and deriving profits from activities performed inside the Paraguayan territory. The formula for calculating PIT for individuals abroad translates into an effective tax rate of 10%.
Ideal tax environment for people on the go
Paraguay’s stock-standard taxes and limited requirements for being in the country facilitate perfect conditions for people and small businesses who travel. On the ground, expanding to Paraguay offers equally beneficial tax treatment to foreign investors. For these reasons, people and businesses are turning to Paraguay to declare their taxes.
Common Questions when understanding accounting and taxation in Paraguay
Based on our extensive experience these are the common questions and doubts from our clients when looking to understand accounting and taxation in Paraguay.
The corporate tax rate in Paraguay is 10% on net profits.
Businesses in Paraguay are subject to taxation based on their net profits. The tax rate is 10%, and it is calculated on the difference between total revenues and deductible expenses.
The tax administration authority in Paraguay is known as the Subsecretaría de Estado de Tributación (SET). It is responsible for enforcing tax laws and regulations in the country.
Companies in Paraguay are required to follow the Normas de Información Financiera (NIF), which are based on International Financial Reporting Standards (IFRS) adapted for the local context.
The equivalent of a CPA in Paraguay is a “Contador Público.” This designation is awarded to certified public accountants who have met the necessary qualifications and requirements.
Yes, Paraguay has adopted IFRS for financial reporting. Entities, especially those of significant size, are required to prepare their financial statements following IFRS principles. However, small and medium-sized enterprises (SMEs) have the option to use simplified accounting standards.
Biz Latin Hub can assist you in doing business in Paraguay
Besides the many business opportunities surfacing with its growing middle class, Paraguay offers considerable tax benefits. These benefits can give your company a competitive edge in international markets. To get there, you’ll need support from experts who understand local financial and legal requirements.
If you’re ready to establish your business in Latin America and want to take advantage of the Paraguayan business environment, contact our Biz Latin Hub financial experts. We offer customized market entry and back-office business solutions. Get in touch with our team of experts for personalized assistance.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.