Country Name: Paraguay
Currency: Paraguayan Guaraní (PYG)
Primary Tax Authority: Subsecretaría de Estado de Tributación (SET) – Undersecretariat of State for Taxation
Key Legislation:
- Income Tax Law (Ley de Impuesto a la Renta)
- Value Added Tax Law (Ley del Impuesto al Valor Agregado – IVA)
- Corporate Tax Reform Law (Ley de Reforma Tributaria)
Fiscal Authority Allocation
Centralized Fiscal System:
Paraguay operates a centralized tax system, with the Subsecretariat of State for Taxation (SET) responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), and value-added tax (VAT). Local governments have limited taxing authority, primarily collecting property taxes and fees.
Corporate Income Tax (CIT)
Standard Rate: 10%
Paraguay levies a flat corporate income tax rate of 10% on the net taxable income of resident companies. Non-resident companies are taxed on Paraguay-sourced income only.
Corporate Forms and Taxation:
- Limited Liability Company (Sociedad de Responsabilidad Limitada – SRL): The most common corporate form, subject to the 10% CIT rate.
- Corporation (Sociedad Anónima – SA): Typically used by larger businesses, taxed at the standard 10% rate.
- Branches of Foreign Companies: Subject to the same CIT rate of 10% on Paraguay-sourced income.
Exemptions and Incentives:
- Free Trade Zones: Companies operating in Paraguay’s free trade zones benefit from CIT exemptions, VAT exemptions, and customs duty reductions.
- Agricultural Incentives: Paraguay provides tax incentives for investments in agriculture, including CIT exemptions for qualifying agricultural activities.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 10%
Paraguay applies a VAT rate of 10% to most goods and services. A reduced VAT rate of 5% applies to essential goods such as basic foodstuffs, medicines, and hotel services.
Exemptions:
Exports, education, and healthcare services are exempt from VAT. Exports are zero-rated, allowing businesses to reclaim VAT on input costs related to exported goods.
Personal Income Tax (PIT)
Flat Rate: 8% or 10%
Paraguay has a dual-rate personal income tax system for residents and non-residents, with rates applied based on the type of income and income level:
- Up to 120 times the minimum monthly wage: 8%
- Above 120 times the minimum monthly wage: 10%
Personal income tax is applied only to Paraguayan-sourced income for residents and non-residents.
Dividends:
Dividends paid to resident and non-resident shareholders are taxed at 8% if the shareholder is an individual, or at 15% if the shareholder is a legal entity.
Additional Mandatory Contributions
Social Security Contributions:
Both employers and employees are required to contribute to Paraguay’s social security system, which covers pensions, healthcare, and unemployment benefits.
- Employer Contribution: 16.5% of gross salary.
- Employee Contribution: 9% of gross salary.
Withholding Taxes
- Dividends: 8% (individuals), 15% (entities)
- Interest: 6% to 30%, depending on the type of payment and recipient.
- Royalties: 15%
Withholding taxes may be reduced under Paraguay’s double taxation agreements (DTAs).
Transfer Pricing Rules
Paraguay has implemented transfer pricing regulations based on OECD guidelines. Related-party transactions must comply with the arm’s-length principle, and documentation is required to support the pricing of cross-border related-party transactions.
Special Tax Regimes
- Maquila Program: Paraguay offers a special tax regime for companies operating under the Maquila program, which is designed to promote exports. Maquila companies are taxed at 1% of the value-added component of the goods or services exported.
- Free Trade Zones: Companies operating in designated free trade zones benefit from CIT, VAT, and customs duty exemptions.
Other Taxes
- Real Estate Tax: Property taxes are levied by local governments and generally range from 0.5% to 1.5% of the cadastral value of the property.
- Capital Gains Tax: Capital gains are taxed as ordinary income, subject to the CIT or PIT rates (10% or 8%/10% for individuals).
- Excise Duties: Paraguay imposes excise duties on products such as alcohol, tobacco, and fuel.
Double Taxation Agreements (DTAs)
Paraguay has signed several double taxation agreements (DTAs), primarily with countries in Latin America and Europe. These treaties help prevent double taxation and reduce withholding taxes on dividends, interest, and royalties.
Local Taxes
Local governments in Paraguay are responsible for collecting property taxes and various local fees. However, income tax and VAT are administered by the central government through the Subsecretariat of State for Taxation.
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by March 31st of the following tax year. Personal income tax returns are due by the same date. The tax year in Paraguay follows the calendar year.
Penalties for Late Filing:
Penalties for non-compliance or late filing include interest on overdue taxes and fines. Interest on unpaid taxes is typically calculated at 2% per month, plus potential penalties depending on the severity of the delay.
Recent Developments
Digital Services Tax:
Paraguay is considering implementing a digital services tax (DST) aimed at taxing foreign companies providing digital services within the country. This initiative follows global trends to ensure that digital platforms contribute to local tax revenues.
Green Energy and Agriculture Incentives:
Paraguay has introduced tax incentives to promote investment in renewable energy projects and sustainable agriculture. These include CIT reductions for green energy investments and exemptions for environmentally friendly agricultural practices.
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