Source: International Tax Review (ITR)

Carlos Jorge Vargas and Rodrigo Gómez Sánchez of Mascareño Vargas – Asesores provide an in-depth analysis of Paraguay’s appeal to foreign investors, emphasizing its competitive tax framework and other incentives that position the country as a prime destination for international business expansion.

Paraguay distinguishes itself in Latin America with a stable, low-tax regime designed to attract foreign capital. This is complemented by incentives such as simplified regulations, favourable tax rates, and special programmes like the maquila regime, free trade zone (FTZ) system, and capital investment incentives. These policies underscore Paraguay’s strategic appeal for wealth planning, project structuring, and operational growth in the region.

Key Features of Paraguay’s Tax Framework

Under Law No. 6380/2019, Paraguay has modernized and simplified its national tax system, offering clear benefits to foreign investors. Highlights include:

Direct Taxes:

• Corporate Income Tax (IRE): 10%.
• Withholding Tax (WHT): 8–15% on dividends, depending on shareholder residency, with lower rates under double tax treaties (DTTs).
• Non-Residents Income Tax (INR): 4.5–15% on foreign supplier payments for Paraguayan-source income.

Indirect Taxes:

• Value Added Tax (VAT): 10%, with a reduced 5% rate for specific cases.
• Excise Tax: 0–50% on certain imported goods or domestic production.

Special Tax Regimes

Maquila Regime

Established under Law No. 1064/1997, this regime promotes industrial production and service provision for export. Key incentives include:

• A single 1% tax on Paraguayan added value or export gross value.
• VAT exemption on exported goods and services, with input VAT refunds.
• Customs duties suspension for raw materials and goods imports.
• Exemption from transfer pricing rules for operations with foreign parent companies.

Free Trade Zones (FTZs)

Defined by Law No. 523/1995, FTZs allow duty-free entry and exit of goods, fostering large-scale export and industrial activities.

• FTZ users pay a unified tax of 0.5% on gross export income.
• Exemptions from VAT, customs duties, and shareholder IDU on dividends.
• Transactions between FTZ users and related foreign entities are not subject to local transfer pricing rules.

Capital Investment Regime

Law No. 60/90 incentivizes capital investment with benefits such as:

• IDU and customs duties exemptions for projects exceeding $13 million.
• VAT exemptions on imported capital goods and inputs.
• Flexibility to reinvest profits into capital assets.

Conclusion

Paraguay’s competitive tax regime, coupled with its economic stability, low inflation, and growing double tax treaty network, positions the country as a regional investment hub. The maquila, FTZ, and capital investment regimes offer tailored benefits for industrial production, export-focused activities, and technology adoption.

While Paraguay’s tax policies remain attractive, ongoing global developments, including the OECD’s global minimum tax initiative, may prompt revisions. Balancing these international commitments with domestic growth incentives will be key to maintaining Paraguay’s appeal as a leading investment destination.

For detailed guidance on leveraging Paraguay’s fiscal incentives, investors are advised to assess their business strategy and consult tax experts.

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