Paraguay's Tax Environment: Simple Compliance For Global Business

A diversified economy has allowed economic expansion in recent years, driven by record agricultural production. Agriculture is so vital to Paraguay that the ruling party declared during the 2018 election that they would not raise taxes, as the farm sector is so crucial.

It is also one of the largest net exporters of clean energy in the world, the largest exporter of organic sugar, and the sixth-largest producer of soybeans. This is an economy ready for the next generation of sustainable business.

But Paraguay is not just an agricultural nation; it's become a favoured destination for maquila services, a place for manufacturing plants that import and assemble duty-free components for export. These services allow plant owners to take advantage of low-cost labour and only pay duty on the value-added parts, causing the Paraguay tax environment to become of interest to global businesses looking to take advantage of these opportunities.

Paraguay tax system

The Paraguayan tax system is governed by Law 125/91, amended by Law 2421/04 and by Law 5061/2013. Taxes on company incomes include:

Tax on income from commercial and industrial activities (IRACIS) Tax on agricultural income (IRAGRO) Small business tax (IRPC) Personal income tax (IRP) There are also two indirect taxes: VAT, and selective consumption tax (ISC). It's ranked 127th in the world for ease of paying taxes.

Any income from property or rights within the national territory is subject to tax. It's worth noting any yields from capital abroad and exchange differences are considered sourced in Paraguay when the investing or beneficiary institution is based in Paraguay. The fiscal year follows the calendar year in Paraguay. Foreign tax credits are not applied to local tax payments in Paraguay.

Paraguay has several treaties to avoid double taxation with Argentina, Uruguay, Chile, Germany and Belgium regarding transportation and with Chile and Taiwan on income taxes.

Corporate tax

Corporations and commercial enterprises are taxed on their Paraguay-sourced income at 10%, the lowest corporate income tax of the region. Any income earned from farming activities in Paraguay is subject to IRAGRO, which is calculated at a rate of 10% of the tax base.

Entities set up as a branch are subject to dividend withholding tax of 5%, and to a 15% withholding tax on remittances to the head office.

There is a special tax regime for small businesses and the self-employed, applying to commercial, manufacturing and...