How to get permanent residency in Paraguay, investment opportunities and low taxes
Paraguay is a land of opportunities. Often called the heart of America. It is a landlocked country, bordered by Brazil, Argentina and Bolivia. It has a population 6.8 million people, which 60% are in the two main metropolitan areas. Asunción, its capital, and the border city of Ciudad del Este.
With hardly any restrictions to settle on it. A low and territorial based tax system and an affordable cost of living. The largest aquifer on the planet, abundant cheap fertile land and a constantly growing emerging economy with several untapped markets. With all this, Paraguay may be a place to consider to plant several flags. Keep reading.
Visas, Citizenship and Residency in Paraguay
Permanent Residency in Paraguay
Paraguay’s immigration policy is considerably liberal. Permanent residence permit can be obtained immediately.
To obtain permanent residency in Paraguay is not required even to have resided or visited the country previously. In an embassy or consulate, an individual must apply for a visa to enter the country (if applicable). Once done, the future resident must travel to Paraguay to process the application.
The economic requirements are anecdotal, a deposit of an amount equivalent to 35 minimum monthly wages, currently a total of PYG 24,554,600 (≈ USD 4,500). Deposit could be made in the Central Bank (non-interest bearing) or any commercial bank. Once the procedure is completed, the deposit can be withdrawn in full.
Residence permit may also be obtained, setting up a company with capital of the above-mentioned amount; or purchasing a property for agricultural production with a minimum of 10 hectares.
Those wishing to retire in Paraguay must prove a monthly income of 100 wages, currently PYG 7,015,600 (≈ USD 1,300). These will benefit from import duty tariffs exemptions on personal effects up to certain quantities and under certain requirements.
Employees, self-employed professionals, shareholders of Paraguayan companies, students and religious may also apply for permanent residence.
The necessary documents are: valid passport with entry visa (if applicable), proof of address, birth certificate, criminal record of the country of residence and Paraguay, certificate of civil status, certificate of life and residence, certificate of economic solvency, sanitary certificate and Affidavit of Compliance with Article 23 of Law 978/96.
The application takes a week to complete. Legal assistance is highly recommended, and totally necessary if you do not speak Spanish. It is possible during the whole follow-up process to delegate power of attorney to a legal representative. At Flag Theory, we have access to qualified Paraguayan immigration attorneys. Contact us for further information or get started immigrating to Paraguay.
The application fees are around USD 260. It is possible to include dependants, both parents, spouses and children.
In a minimum period of 3 months, the Immigration department will issue the residence permit and the documentation to apply for the Paraguayan cédula (permanent residence card). It is advisable to request the cédula in person, although a legal representative may also do so. The cédula allows to travel visa-free through all Mercosur members.
Permit renewal is not required, but it may be canceled if the resident is absent for a period of three years without justification.
Residency in Paraguay for Foreign Investors (SUACE)
For foreign investors, there is a special procedure under the Unified System of Opening and Closing Companies (SUACE). This is a one-stop shop to carry out the procedures related to company registration and residence permits application. Through this procedure, the permit issuance takes 20 days.
In addition to the general requirements, investors must submit a certificate issued by the Vice Ministry of Industry and Commerce of Paraguay accrediting their qualification to SUACE. In order to qualify an individual must justify an investment amount of PYG 50,000,000 (≈ USD 9,150). In case of company investment, the contributed capital must be at least PYG 150,000,000 (≈ USD 27,500).
Citizenship in Paraguay
According to the National Constitution of Paraguay, after three years of permanent residence, it is possible to apply for Paraguayan citizenship by naturalization. Looks easy? Well, the process is quite more complicated and local connections may play an important role.
Obtain a 2nd passport in Paraguay is not as straightforward as many say it is. Neither is there citizenship by investment, and there have been several scams offering it. The application may take years to process, the bureaucracy can be grueling and the application may be denied by The Supreme Court, especially for citizens of Middle East and Asia.
The law is not very clear and specific about the requirements to request Paraguayan citizenship by naturalization. But it will be imperative to show some ties to the country. Such as real estate or local company ownership, continuous fiscal residence or regular exercise of a profession. Applicant may also need to have a basic notion of Spanish and have a basic knowledge of the country’s history, geography and politics. It is recommended to have bank references issued by first class banks and certified copies of degrees. Although, attorneys will guide the applicant throughout the process, success is not guaranteed.
Once the application is made and all necessary bureaucratic procedures are carried out, the Supreme Court shall issue the ruling. It is said that the process takes about six months, but the reality is that it can be delayed in years. Naturalized citizen may apply for the passport after two years of obtaining the nationality.
According to the Paraguayan National Constitution, multiple nationality may be admitted through an international treaty by reciprocity of constitutional rank, between the States of origin and adoption. Currently, it is only in force a double nationality treaty with Spain. Although de facto it is rarely required the renunciation of nationality. As each case is handled individually, we recommend legal advisement.
Naturalized Paraguayan citizens may lose their citizenship status for “unjustified absence for three consecutive years or have decided on another nationality.” But it rarely happens.
Although officially there are no nationalities restricted, cases are handled on a case-by-case basis. For some nationalities, especially those of Middle East and Asia, the process is even more complicated.
Visa Requirements for Paraguayan citizens
The Paraguayan passport is considerably valuable, scoring the 37th in the last Visa Restrictions Index. Paraguayan citizens can travel visa-free or visa on arrival to 125 countries. Including Latin America, Schengen Area, Russia, Malaysia and Indonesia. In addition, they can apply for the electronic visa to travel to India and Australia, among others.
Temporary Residency in Paraguay
The Paraguayan temporary residence permit is issued to foreigners who are employees, independent professionals, religious or students. The maximum term is 1 year renewable to a maximum of 5 years.
The main requirements are: employment contract in the case of employees, university degree and affidavit of having regular income or employment contract in the case of independent professionals, belong to a religious congregation, and student certification.
Considering that costs and duration of the temporary residence application are similar to permanent residence. Beside the facilities and the little strict requirements that the last one requires. We recommend requesting the permanent permit directly.
Tourist Visa in Paraguay
Foreigners wishing to visit Paraguay must apply for a tourist visa at an embassy or consulate. Paraguayan Tourist Visas are usually granted for 90 days with the possibility of requesting a 90-day extension at the Central Migration Office (Asuncion). The issuance of the extension usually takes 30 days and the fee is USD 60.
Citizens and residents of Mercosur member states and associates can access Paraguay with the ID Card.
In addition to Mercosur countries, citizens of the following jurisdictions can access visa-free to Paraguay:
European Union, Andorra, Costa Rica, El Salvador, Guatemala, Honduras, Iceland, Israel, Japan, Liechtenstein, México, Nicaragua, Norway, Panama, Russia, South Africa, South Korea, Switzerland, Turkey, Ukraine.
Citizens of Australia, Canada, New Zealand, Taiwan and the United States can obtain a visa upon arrival, paying a fee between USD 100 and 140.
Living in Paraguay
If something stands out in Paraguay is its people. Paraguayans are among the warmest and happiest people in the world. Easy-going, hospitable, sociable and spontaneous. With a calm pace of life, away from stress and haste. The latest GallUp’s ranking How people live their life, positioned Paraguayans as the happiest people in the world.
A diverse population resulting from successive immigration waves of Italian, Catalan, Jewish, Arab, Japanese, German and more recently Chinese, Korean, Brazilian, Argentine, Chilean and Peruvian, mixed with the Guaraní native population. Makes this country culturally peculiar, different and attractive.
Paraguayans speak Spanish and Guaraní, the latter especially in rural areas. The knowledge of English is considerably scarce, so if you decide to live there you should have some knowledge of Spanish.
Paraguay has a subtropical climate, so humidity and heat is present throughout the year. With an enviable average of 7.7 hours a day and almost 3,000 hours of sunshine a year. Maximum daytime temperatures range from 25 ° C in winter to 40 ° C in summer. Rainfall is abundant during most of the year, which is accentuated in autumn and spring.
Asunción, the capital, has approximately 600,000 inhabitants and a metropolitan area of around 2 million people. A city with a cosmopolitan profile, with wide and tree-lined avenues, which has been developing considerably in recent years. Hotels, shopping malls, cinemas, theaters, entertainment centers and markets. As negative points, outdated and inefficient public transportation, chaotic traffic and untidiness.
Ciudad del Este is the second most important city. About 327 km from Asuncion, it is part of the triple border with Brazil and Argentina. Very busy, it is known for its large number of shopping malls, shops and markets. With Indian, Arab, Oriental and Brazilian population
On the other hand, Paraguay is synonymous with rural landscapes. The plains of the Chaco, the healing waters of Lake Ypacaraí, the waterfalls and the tropical forest of the Ybycuí National Park or Cerro Corá. You can also travel by boat through the tranquil waters of the Paraguay river, from Asuncion to the confluence with the Parana River, to enjoy the country’s nature.
Gastronomy is based on Indigenous, Spanish and to a lesser extent Italian and Portuguese influences. Its basic ingredients are corn and cassava. It abounds broths, stews and meat. The “tereré” is the most genuine of the country, present in all social gatherings. A drink made from yerba mate, water and ice, and served in a glass made with a cow’s horn.
Although Paraguay is considerable safe, being well below the average rate of violence and delinquency in Latin American countries. There are some places to be careful not to suffer robberies, such as leaving the bank, and urban areas to avoid, especially at night time.
Public health care, although free, is limited, particularly outside of Asunción. The facilities and equipment of public hospitals are improvable. There are several private centers with better medical care and facilities and much larger resources.
Education is another pending issue for Paraguay. The public education system has many shortcomings. Regarding private education, in Asunción there are a good number of International Schools that serve diverse nationalities, including American, German, French, Italian and Japanese.
Cost of Living in Paraguay
Go Banking Rates’ ranking placed Paraguay in the 8th of 112 countries with the lowest cost of living.
The rents are very affordable, a condominium of 80 sq. m. in the center of Asunción or Ciudad del Este would cost around USD 500 per month. In the metropolitan area, it would be 20% cheaper. In rural areas, you can find good houses with garden for less than USD 300 a month.
The basic basket, restaurant and transportation products cost on average 20% less than in Brazil and Chile, while 30% less than in Uruguay and Argentina and up to 50-60% less than in the United States or France. Paraguay has the lowest food costs on the continent, including meat, bread, rice, eggs, fruits, vegetables and alcohol. The costs of services, including water and especially electricity, are also much cheaper.
The lower cost of living is also reflected in the gastronomy, a meal in a mid-range restaurant in Paraguay costs less than USD 9 per person.
Regarding entertainment, have a beer in a pub costs on average less than USD 1, and go to see an international premiere at the cinema, about USD 6.
By adding monthly fees and enrollment, a year of schooling in a private school can cost from USD 1,500 to more than USD 7,000 in the most elite international schools.
Considering the average salary barely reaches USD 500, with a personal monthly income of USD 2,000-2,500 in Paraguay, a person may have a considerably high pace of life.
Invest in Paraguay
Economic Situation in Paraguay
Paraguay has traditionally been an agricultural economy. With a large informal sector with a high percentage of the population participating in subsistence agriculture. However, in recent years, it has begun a long-term industrial development. Becoming one of the most dynamic economies in South America. During the period from 2010 to 2015, it recorded an average annual GDP growth of 6.30% and a reduction of population under poverty line of more than 10 percentage points. Driven by the commodities price increase, favorable weather conditions, industrial development, increased foreign investment and a stable political situation.
Despite the recessions of its main trading partners in Mercosur, Argentina and Brazil. In 2016 Paraguayan economy grows at a 3.6% rate. Due to the behavior of its main economic sectors: a very good soybean harvest, increase of the veal export production and the increase of the hydroelectric generation.
2017 outlook is positive. The automotive and textile assembly segments in the country’s export and construction industries should help counteract the potential negative impact of the cold cycle of the ENSO climate phenomenon (“La Niña“) to the agricultural sector. In addition, the forecasted improvement in the Brazilian and Argentinean economy should increase Paraguayan exports. Together with the infrastructure projects budgeted by the Government and the maintenance of household consumption at a sustained level. Estimates foresee GDP growth at 3.5%.
Inflation is expected to remain at 2016 levels, 4.5%. With an increase in interest rates to try to control the rise in inflation linked to a future depreciation of the PYG.
The Government is adopting a prudent budgetary policy. In 2013, the fiscal responsibility law was approved to limit the budget deficit by 1.5%. Since then the deficit has remained below this limit. The growth of the economy has increased fiscal revenues, which have offset the low fiscal pressure, the high submerged economy and the increase in public spending on infrastructures. Currently the public debt is 25.5% of GDP. The last credit rating made by Standard & Poor’s’ was BB with a stable outlook.
Regarding its current account, the main exports are agricultural (75%): soy, feed, cotton, meat, edible oils wood and leather; And energy (25%). Brazil, the EU, Asia, Russia, China and US are its main customers.
Imports are mainly vehicles, consumer goods, tobacco, petroleum products and electrical machinery. Mainly from Asia, Brazil, Argentina, EU and US. The trade balance has been in deficit since August 2016. Despite the expected increase in exports, rise in oil prices and imports will maintain the balance of trade in negative.
Other important fact is that historically the Guarani (PYG) has been the most stable currency of the region. Currently it is experiencing a modestly depreciation trend, which is expected to continue during this year.
Investment Opportunities in Paraguay
In Paraguay, foreign investors have the same guarantees, rights and obligations as any local. There are no restricted areas, no discrimination, and there are no limitations.
Paraguay is considered by the Economic Commission for Latin America and the Caribbean (ECLAC) as the economy with the best ROI in all South America. It is a member of the Mercosur Free Trade Area, which has trade agreements with the Andean Community, Egypt, Israel, Palestine, Mexico, Cuba, India and the Southern African Customs Union (SACU), among others. In addition to negotiating the free trade agreement with the European Union, which could be signed in two years.
With over eight million hectares of available fertile land and abundant fresh water from one of the largest aquifers on the planet, the Guaraní. There are good business opportunities in the agricultural sector. Paraguay is one of the world’s top exporters of soybeans, soybean oil, chia and soy flour, yucca flour, corn, beef, wheat and the first exporter of stevia and organic sugar. In addition to exporting cotton, feed and leather products. Studies indicate that Paraguay could still triple its agricultural production. In a world where fresh water and food become increasingly scarce, Paraguay is in an ideal position for a prosperous future.
They are also commercially exploited the quebracho, hardwoods, cedars and orange groves, which provide petitgrain, used in perfumes and condiments.
The cost of electricity is very low. Paraguay, thanks to its abundant water reserves, is a major producer. Its hydroelectric power plants (Acaray, Yguazú, Corpus Christi, Itaipú and Yacyretá) cover 100% of the country’s electric needs, in addition to exporting more than 90% of the energy generated mainly to Brazil.
Other sectors that present many opportunities are the textile manufacturing, consumer goods and services sector. With the purchasing power of Paraguayans growing, there is a considerable potential market. Although part of the population is earning less than USD 500 per month, there is a growing segment with high incomes to push the upper end of the market.
There is an untapped market in the mining and energy sector. In recent years, they have been found large deposits of titanium, uranium and gold. There are indications that on the country’s east there are the largest deposits of titanium in the world. Large-scale gold mining plants and exploratory uranium excavations are also being assembled. The country’s mineral exploitation is in the initiation phase, so there may be excellent possibilities in iron, diamonds, gas and oil.
Despite being one of the Latin American countries with the lowest volume of tourism, there are opportunities in this sector. Proof of this is the recent development of hotel infrastructures of the world’s leading chains in the capital. In addition, to the potential sustainable rural tourism. Currently the tourist industry is the seventh largest in the country. The Government together with the private sector have set a plan for tourism promotion with the aim of putting Paraguay on the international tourist circuit in 2018.
An average wage of less than USD 500 and a young population, more than 70% are under 30 years old, may be another incentive for the establishment of labor-intensive industries.
In addition, in a liberal business environment and tax-friendly country. No restrictions on the ownership of businesses and land by foreigners. Both corporate and personal income tax and value added tax rates at 10%. Besides several exemptions that we will see below.
As a negative point, infrastructures. Paraguay has minimum road and rail systems. The main means of transport of goods is fluvial. 80% of the country’s foreign trade is developed through the waterway formed by the Paraná and Paraguay rivers. Besides international air connections available through Silvio Pettirossi International Airport in Asuncion are limited. With 11 airlines operating, there are direct commercial flights only to Buenos Aires, Montevideo, Punta del Este, Lima, Panama City, Sao Paulo, Rio de Janeiro and Madrid. Guaraní International Airport has cargo direct flights from Hong Kong and Dubai.
60/90 act and its subsequent amendments grant, under certain requirements and conditions, various tax incentives for foreign investments:
- Exemption of taxes for the incorporation of companies.
- Full exemption from customs duties for capital goods directly applied in the industrial or agricultural production cycle.
- Withholding tax total exemption on the repayment of loans exceeding USD 5m.
- Exemption from the payment of taxes on remittances and payments abroad as interest, commissions and capital during an agreed term, for investments over USD 5m.
- Full exemption from taxes that affect dividends and profits from approved projects, for a term of up to 10 years for investments exceeding USD 5m.
Investments can be in the form of capital (including loans, etc.), equipment, brands, technology transfers, and the like.
The agency responsible for the promotion of foreign investments is REDIEX, of the Ministry of Finance of Asunción. Incentives under Law 60/90 are generally approved within 45 days of the request.
In addition, Paraguay has signed several bilateral and international investment protection treaties and recognizes international arbitration.
Maquila is a production system through which companies located in Paraguay can produce goods and services to be exported, on behalf of a mother company located abroad. Maquila companies can benefit from a very favorable tax regime:
- 1% Income Tax.
- Exemption from VAT payment.
- Suspension of import tariffs.
- Exemption from taxes on remittances of income and dividends abroad.
In addition to other additional tax exemptions such as exemption of fees on documents and acts, consular fees, 50% port and airport taxes, taxes on loans, tax on patents, municipal taxes, among others.
Any natural or legal person, national or foreign, may benefit from the program. In any type of business form. The project must be approved by the National Council of Export Maquiladora Industries (CNIME).
Free Trade Zones
Currently in Paraguay there are two free zones in Ciudad del Este, where both national and international companies can operate. The main objective of these free zones is the development of activities for the export, although the operations within the country are allowed. The companies located in these free zones enjoy several tax exemptions in addition to a special tax regime with an income tax rate of 0.5%.
Set Up a Company in Paraguay
As I said, there are no restrictions on foreign ownership of local companies in Paraguay. There are also no limits on remittances of profits and capital flows abroad.
The most common business forms among foreign investors are:
- Sociedad Anónima (S.A.): equivalent to a Stock Company. Minimum of two required shareholders, natural or legal persons. There is no minimum capital requirement, except for public companies. The capital is divided into bearer or nominal shares and these can be traded freely. Capital stock must be completely subscribed. The Commercial Act requires companies to establish a legal reserve of 20% of the share capital, constituted annually with at least 5% of profits. The appointed directors may be of Paraguayan or foreign nationality, but must be resident in Paraguayan territory. Supervision of the Administration and Management of the Company is in charge of one or more trustees.
- Sociedad de Responsabilidad Limitada (S.R.L.): Similar to a LLC. A minimum of two partners up to a maximum of 25 with limited liability to their contributions to the company’s capital. There is no minimum capital requirement, which may also be incorporated in goods or fixed assets. The company capital must be fully subscribed and at least 50% paid-in. Shares cannot be freely traded. The Commercial Act requires a legal reserve of 20% of the capital, which will be constituted annually with at least 5% of the profits. The SRL cannot carry out banking, insurance, capitalization or savings activities.
- Empresa Individual de Responsabilidad Limitada (E.I.R.L): equivalent to an Unipersonal LLC. Owner is liable to the contributed capital, which has to be at least PYG 82,000,000 (USD 15,000).
- Branch office: Foreign companies that want to operate in Paraguay regularly, can open a branch or representation office with domicile within the country. These are authorized to carry out all the transactions that the company is capable in its own country. A branch must meet the tax and disclosure requirements of local businesses. A minimum allocated capital of USD 25,000 is required. The manager of the branch must be resident in Paraguay.
The formation of a company takes about 30 to 60 days, and its cost depends on the social capital and the services to be quoted with respect to its constitution and operation. The formation of a public company takes more time and is more expensive.
Foreign investors will be able to carry out the procedures for the incorporation of a Paraguayan company together with the procedures for requesting the residence permit through the one stop shop of the Unified System of Opening and Closing Companies (SUACE). Provided that certain conditions and certain amounts of invested capital are met.
Invest in Real Estate in Paraguay
There are no restrictions on foreigners for the purchase of both developed real estate and land. Except for Brazilians and Argentines who are prohibited from buying land near the borders. Nor are there any limits or restrictions on the repatriation of capital or profits.
Due to the growing need for development and investment in agribusiness, logistics and infrastructure, commercial and urban development. The real estate sector is undoubtedly one of the best investment opportunities. As we will see below.
Regarding the purchase of rural land, Paraguay has an abundant supply of fertile land located in the largest freshwater resource in the world, the Guaraní aquifer. Perfect for agriculture and livestock. Prices are still very low compared to other South American countries. You can find virgin land in southern areas like the Chaco, for USD 100 to 600 per hectare. These lands, fertile soil and usually covered by trees and bushes can be cleared for livestock or agriculture. Or as long-term investment as they have a great appreciation potential.
For developed croplands, in the Southern Cone you can find USD 5,000 to 10,000 per hectare. For land for livestock prices would be between USD 500 and USD 2,500. Depending on the area and accessibility to transport. These lands offer a 3% rental yield, in addition to the potential value increase.
With respect to urban areas, those of greater potential are in the coastal zone of Asunción, San Lorenzo and Luque. The last two with a huge untapped potential. A stable macroeconomic situation with good prospects, a young population that demands houses (70% is under 30 years) and the deepening mortgage credit is causing the massive arrival of investments in the sector.
After several years where the investment was concentrated in housing for the high purchasing power segment. Currently, with increased accessibility to mortgage loans, the most interesting opportunities lie in the middle-class segment.
With great potential for price increases, as they are still among the lowest in Latin America. The average price of the square meter housing in Asunción barely exceeds USD 1,000. In addition, rent yields are currently around 8%.
In short, Paraguay is an interesting destination in terms of real estate investment. Low land and construction costs, good returns, a low tax burden (no transfer tax) and an emerging market with the greatest growth potential throughout Latin America.
Paraguayan Capital Market
La Bolsa de Valores y Productos de Asunción S.A. is the Paraguayan Stock Exchange. Formed by approximately 92 registered emitters. Its progressive growth in recent years has been linked to the country’s positive macroeconomic development. Over the past 10 years, total value growth has been significant, growing at an average annual rate of 20%. This past year it increased by 10% and it is expected to continue this positive trend.
Despite the positive behavior, the key players of the Paraguayan stock market need more consolidation to be more reliable to the investor. Best solvency indexes and appropriate professionals. In addition, there is a shortage of products such as trust funds or investment funds to proceed with the securitization of credits or future cash flows in real economy projects such as livestock and real estate projects.
Anyone interested in investing in the Paraguayan stock market can open a brokerage account. Whether a natural person, legal person, resident or nonresident or offshore.
Banking in Paraguay
Paraguay has a state-owned bank and 15 private banks, of which 7 are foreign-owned or controlled. In addition, there are 12 financial institutions such as credit unions, and a representative office of a foreign bank.
Paraguay has never been or is an offshore hub. It can be difficult for a non-resident or foreign company to open a bank account. Normally banks require the residence permit. Although in some cases they may admit a local trustee. The accounts can be opened in USD or Guarani, and in leading banks EUR or GBP. You may be asked to provide proof of the origin of funds deposited at the time of opening the account. All steps, documents and correspondence will be made in Spanish.
Paraguay is not a big financial hub either, it is not the ideal destination for wealth management or very sophisticated banking operations. But opportunities can be found in investment banking and high deposit yields in credit unions.
The transportation or transfer of more than USD 10,000 to Paraguay from abroad must be reported. However, according to IMF assessments, these reports are rarely collected or controlled.
Most banks in Paraguay offer internet banking, which includes balance inquiries, transaction reporting and payment initiation services. Its use is limited due to the low Internet penetration rate among Paraguayans. Leading banks also offer Mobile Banking.
Paraguay has agreed to implement the OECD’s international standard of exchange of information on request and to work towards a practical timeframe to implement the standard of automatic exchange of financial information (AEOI), but there is still no deadline on which commitment will be made.
Paraguay has reached an IGA agreement in substance with IRS to implement FATCA under Model 2 but is still not signed and not in force. However, most Paraguayan banks, especially those foreign-owned, request the filing of IRS forms and report annually the bank information of their American clients.
Taxes in Paraguay
Corporate Income Tax
Paraguay has a territorial tax system. Only income from Paraguayan-source of resident and non-resident companies are taxable. Income from abroad are not subject to corporation tax, except interests, commissions, and capital gains of resident companies, which are considered Paraguayan-source income and are taxable.
Corporations, sole proprietorships, associations with or without legal personality and other private entities of any nature are subject to corporation tax. Public companies, autonomous entities, decentralized entities and other Paraguayan entities of any nature are also subject. In addition to persons or entities domiciled abroad and their branches, agencies or establishments that carry out business activities in the country.
A resident company is considered to be one in which its address or central management takes place in Paraguay, unless the bylaws of the corporation indicates otherwise. Also, they are considered resident companies with permanent establishment in Paraguay, branches, agencies or subsidiaries of foreign companies, companies that have factories, industrial plants or livestock, mining or natural resources extraction activities, civil construction assembly activities that exceed 12 months.
There are three systems of taxes in Paraguay depending on the nature of the taxpayer:
- Commercial Income Tax: 10% of annual net income from commercial, industrial and service activities. In addition, an additional 5% tax is applied on the distribution of profits.
- Agricultural income tax: 10% of the annual net income of agricultural and livestock activities. 15% if income is remitted abroad.
- Small Taxpayer Income Tax: Single tax of 10% of annual net income. Taxpayer must have an annual net income of less than PYG 100,000,000 (≈ USD 18,300).
Distribution of dividends to residents and non-residents is taxed at a 5% withholding tax. An additional 15% tax applies to dividends paid to non-residents. Dividends received from resident or non-resident entities are usually not taxable.
Capital Gains derived from the sale of fixed assets, immovable property and securities (except those representing government or municipal debts) are taxed as ordinary income at the general corporate rate. Foreign currency exchange gains are also taxable at the same tax rate.
Foreign entities and individuals may be subject to withholding tax on their Paraguayan-source income, including payments made by the branch or subsidiary.
- Dividends: 15% of dividend distributions paid to non-resident entities or individuals.
- Interest, commissions and royalties: effective tax rate 30% of the total remitted abroad by non-resident entities. When the payment is not made directly to the parent or the shareholders that have control of the local subsidiary the rate will be 15%. In the case of royalties paid to a non-resident individual, withholding tax will be 10% (Personal Income Tax). A 6% withholding tax applies to payments made to a financial institution.
- Branch Remittance: 15% additional to the benefits transferred by a branch office or subsidiary to the foreign head office. Added to 10% of the corporate tax, plus 5% in the distribution of benefits, they make a total effective rate of 30%.
- Technical Service Fees: 15% of the fees for technical assistance services provided by non-resident companies. If they are provided by the parent company or direct shareholder 30%.
- Personal services fees rendered by non-resident individuals are subject to personal income withholding tax of 10%.
- VAT: 10% VAT withheld on royalties and other services provided to nonresident companies or individuals.
For tax purposes a branch and its parent company are differentiated entities. There are several exemptions for foreign investors, explained above.
Paraguay has an agreement to avoid double taxation with Chile that reduces distribution of dividends and interests’ payments withholding tax to 10%.
Tax losses cannot be transferred or reinstated in Paraguay. Except activities under the agricultural income tax, which can be offset with net income of future years to a maximum of 5 years.
The maximum deductible depreciation rates range from 2.5% for urban buildings to 25% for computer equipment. Depreciation of goodwill is not deductible.
Fixed assets should be revalued annually based on the increase in the price index. Capital gains from revaluation are not taxable income.
Interest on loans of Paraguayan origin may be deductible.
Interest expenses on loans to Paraguayan taxpayers may be considered as deductible expenses.
Both other accrued and withholding taxes are deductible.
There are no transfer pricing rules that require compliance with certain conditions or minimum prices for the purposes of tax deductions, except for imports and exports.
There are no thin capitalization rules in Paraguay.
Controlled Foreign Companies
There are no CFC rules in Paraguay.
Foreign tax credit and relief
According to the territorial principle, credits for taxes paid abroad are not allowed.
As I mentioned in investment opportunities chapter, there are several tax exemptions for foreign investments under certain conditions, as well as an almost total exemption for companies involved in international trading and the existence of two free trade zones in Ciudad del Este.
Personal Income Tax
Paraguay applies the principle of territoriality in its income tax. Therefore, both residents and non-residents only Paraguayan-source revenues are taxable:
- 100% of the remuneration received in relation to employment or professional services
- 100% of real estate capital gains, transfer of rights, bonds and shares or capital contributions
- 50% of dividends and profits obtained as shareholders or partners of organizations. If such organizations are not subject to corporation tax, 100% of the income will be taxable.
- 100% of the income obtained from interest, commissions or royalties if these have not been subject to corporation tax.
- Other income of Paraguayan origin provided they exceed 60 minimum monthly salaries within a tax year.
The amount taxable is the income equal to or higher than 60 minimum monthly wages (PYG 1,964,507, USD 360), which will be reduced by 12 per year to 36 in 2019.
Any individual who stays in the country more than 120 days per calendar year in the previous 12 months is considered tax resident.
The general income tax rate is 10%. There is a reduced rate of 8% for people who earn less than 120 times the monthly minimum wage (PYG 1,964,507, USD 360).
50% of Paraguayan income of non-residents will be taxable at a rate of 20% on net income. Resulting in an effective tax rate of 10%.
Individuals who do not contribute to the social security system can deduct up to 15% of the gross income they deposit into a savings account in financial institutions, credit unions, investments in Paraguayan publicly traded companies and retirement funds.
It may also be deducted the employment expenses necessary to obtain income, certain family expenses and donations to entities recognized by the authorities.
Paraguay has concluded tax treaties with 6 countries:
- Argentina, on air, land and river transportation.
- Uruguay, on air transport.
- Chile, on air and ground transportation and on income taxes.
- Taiwan, on income taxes.
- Germany, on air transport.
- Belgium, on air transport.
Social Security Contributions
The monthly contributions to social security are 9% and 16.5% by the employee and the employer, respectively. In the case of financial institutions, the employee contributes 11% and the employer 17%.
The sale of goods, the provision of services (excluding those rendered as employees), interest commissions and loan surcharges, and the importation of goods are subject to Value Added Tax (VAT).
The overall tax rate is 10%. A reduced rate of 5% will apply to contracts for the transfer of property and transfer of immovable property, the sale of agricultural products in their natural state and animals and the sale of pharmaceutical products.
The purchase of real estate is subject to 5% VAT. If the transaction is in cash or the payment is in a term equal to or less than 24 months, the taxable amount is 30% of the sale price. If the transaction is carried out in a period exceeding 24 months, the taxable amount is 30% of the amount paid monthly. Investments in afforestation and reforestation are exempt at 50% of the tax applied to the value of the property.
They are exempt the sale of foreign currency and public and private securities, interest on such securities, inheritance and cession of credit, books, magazines and newspapers, products of artistic or popular value and the sale of goods or services provided by non-profit organizations recognized by the authorities.
An additional tax is applied to the sale of the following products: cigarettes (20%), mineral water, juices and soft drinks (5%), beer (9%), champagne and equivalents (5%), other alcoholic beverages (11%), jewelry, watches and precious materials (5%), weapons and ammunition (5%) and appliances, telephones and toys (1%).
Real Estate Tax
1% per annum of the cadastral value of the property.
0.5% if the property is rural, less than 5 hectares and is used for agriculture or livestock.
Large tracts of land in rural areas are subject to an additional tax determined on a percentage basis to a proportional tax of 0.5% to 1% on the fiscal value of the stretches with areas ranging from 10,000 to 60,000 or more hectares.
Improvements of buildings and constructions of rural properties are not part of the tax base.
There is no tax that specifically taxes the transfer of tangible and intangible goods.
In Paraguay, it is applied the Mercosur common tariff regime. Duty tariffs range from 0%, for example for raw materials, to 20% for vehicles.
In addition, imports of products are subject to port charges (0.65-1.50%), valuation services (0.5%), consular fees (USD 50 per document), Indian contribution fee (7%), System utilization fee (from USD 15).
There are no taxes on acts and documents in Paraguay.
Paraguay may be a place to consider for planting several flags.
Despite of the bureaucratic requirements, permanent residency in Paraguay can be obtained immediately without minimum stay, with as little as US$ 5,000 deposit. De jure, citizenship can be achieved in 3 years, but de facto it uses to not be like this. If you are seeking for a fast and 100% guaranteed 2nd passport, consider other countries.
As a tax resident, offshore revenues are not taxable and you will only pay 10% of your Paraguayan net income. In addition, living in Paraguay is cheap, with good climate and a considerable quality of life.
If you are looking for a camp base in South America to set your company and do business internationally, Paraguay is one of the best places of the region to incorporate in tax terms, where you can get an almost corporate tax free company. Regarding banking, Paraguay is not a large financial hub, but it may be a good place to diversify some savings and find acceptable yields.
As an investor, Paraguay is a growing market with several business opportunities, with untapped sectors and a low tax burden (10% tax + 5% on dividend distribution). Including several exemptions for foreign investment and free trade zones. In addition to an urban real estate sector with great potential and interesting yields, and an endless number of cheap fertile lands with abundant water.
As negative, set up a company is a slow bureaucratic process, unless it qualifies for the SAUCE. Infrastructures are deficient, and despite being a low tax jurisdiction, there is an additional 15% withholding tax on profits distribution to non-residents, whether entities or individuals. So if you are thinking to do business and incorporate a company in Paraguay, consider to apply for a resident permit, as you will reduce your tax burden on dividends received to 5%.
If you are willing to internationalize in Paraguay, you can get started immigrating or incorporating now. If you want to consider other options, you can find more valuable information at our PT Society, an Offshore “Do-It-Yourself” library that can lead you to take action. You can also compare jurisdictions and apply for a new residency and 2nd passport, incorporate a company or open an offshore bank account with our free tools: incorporations.io / passports.io / bankaccounts.io. If you need customized advisement, you can contact us or check our consulting services to discuss options, design and execute your internationalization action plan, considering the most suitable possibilities according to your personal and corporate needs and priorities.
How can I get permanent residency in Paraguay?
You can get permanent residency in Paraguay immediately without having even lived in the country. Mainly, you will have to deposit USD 5,000 in the Central Bank or a Commercial Bank, and file several documents.
How long takes the permanent residence permit application in Paraguay?
Once you have prepared all documents, you will need around one week to file them. After at least three months, you will receive your permit and the necessary documents to apply for the cédula (permanent residence card).
Is there any requirement to maintain the Residency in Paraguay?
You will have to visit Paraguay at least one time every three years. Otherwise your residence permit may be revoked.
How can I obtain citizenship in Paraguay?
According to the National Constitution of Paraguay, a foreign citizen may apply for citizenship by naturalization after three years of permanent residence. The reality is that the process is complicated, low and exhausting bureaucratic. It may be delayed in years, and the application may be denied. In addition the law is not so clear and specific about the requirements.
Does Paraguay allow dual citizenship?
According to the Constitution, multiple citizenship is only allowed under international treaties. Currently, there is only one treaty in force with Spain. Although de facto it is rarely required the renunciation of previous citizenship.
Do I need a visa to travel to Paraguay?
You would travel visa-free, if you are from Latin America, Europe, Russia, Japan and South Korea, besides other nationalities. If you are American, Canadian, Australian, New Zealander or Taiwanese you can apply for a visa upon arrival.
How much do I need for live in Paraguay?
For Western standards, Paraguay is really cheap. Considering the average salary is below USD 500, with USD 2,000-2,500 you may have a high pace of life.
What is the economic situation in Paraguay?
Considerably good. Currently, its economy is growing at a 3%+ annually.
What are the investment opportunities in Paraguay?
Considering its large amount of fertile land and abundant fresh water, agricultural and real estate sectors are the sectors attracting more foreign investment. It also has untapped interesting sectors such as urban real estate, tourism, mining, industry and services.
Can foreigners buy real estate in Paraguay?
There are no restrictions on foreigners for the purchase of both developed real estate and land.
What is the real estate market situation?
Rural land is still cheap despite its price is appreciating. Prices of urban real estate are increasing and middle-class housing demand is growing due to the recent accessibility to mortgage loans.
How is performing Paraguayan Stock Market?
This past year it increased by 10% its global value and it is expected to continue this positive trend.
Can a foreigner own a company in Paraguay?
Yes. No restrictions or limitations for foreign investors in Paraguay.
Can I open a bank account in Paraguay without being resident?
It may be difficult. Most banks ask for the cédula (permanent residency card) to open a bank account.
Is Paraguay a high tax burden country?
Not really. Paraguay only taxes local-source income. Foreign-source income is not taxable. In addition, both V.A.T., Personal and Corporate Income taxes rates at 10%. Corporate Income effective tax is 15% if profits are distributed. However, there are several tax exemptions for foreign investors, provided that they comply with certain requirements and investment amounts.
Any other question? E-mail us at [email protected].
This article does not intend to be legal, tax or investment advice. Contact us, and we may refer you to a lawyer in Paraguay, who can give you the proper advise according to your personal and corporate circumstances.