Doing business in Paraguay is set to become easier, with the government aiming to significantly reduce the time required to obtain residency and promote its low tax regime to encourage greater foreign investment.
According to Paraguay’s Finance Minister Benigno López, the almost two years it currently takes to gain permanent residency, “will be a lot less.” At the same time, the necessary investment will be established at a low enough rate to encourage investment that generates jobs.
Those conditions would combine with the country’s low tax regime to make Paraguay an even more attractive investment destination, López told Argentinian financial newspaper El Cronista.
“Here, there is no history of confiscations or changes to the rules for investment,” he said, emphasising Paraguay’s fiscal stability and consistent growth.
Whether you are considering company formation, registering a branch, or you simply want to hire staff through a professional employer organisation in Paraguay, read on to find out how the country’s residency opportunities and taxation regime could be to your benefit.
Consistent growth & stability
López makes an essential point regarding Paraguay’s fiscal stability. Because the nation known as ‘the heart of South America’ has consistently achieved a growth rate of 4 per cent or higher over the past decade. As such, “resilient growth and relatively prudent fiscal settings” have led to the country being rated as “stable” by Fitch.
The country also has free trade access to other key markets in the region, thanks to its membership in the Southern Common Market (MERCOSUR), with the government maintaining a pro-business regulatory framework.
With the country also having relatively low labour costs, doing business in Paraguay represents an attractive prospect to foreign investors seeking to expand into the region, especially given the government’s move to simplify gaining permanent residency.
Taxes to consider when doing business in Paraguay
Suppose you plan to do business in Paraguay. In that case, you must understand the following corporate taxes to fully comply with the tax authorities and ensure the good health of your business:
Business income tax for small and medium businesses
To alleviate the tax burden on companies doing business in Paraguay, the government has established a streamlined corporate income tax, known as a ‘simple tax’ for medium-sized companies and a ‘straightforward tax’ for small companies. These taxes are set annually based on the company’s gross income for the previous year.
Note that this fixed annual tax regime significantly reduces the amount of paperwork and bookkeeping demanded by law.
Transfer pricing rules by the OECD’s standards
Paraguayan law enforces general transfer pricing rules based on the Organisation for Economic Co-operation and Development (OECD) ‘s stipulations. Entities affected by transfer pricing regulations are encouraged to engage with a trusted tax advisory firm that can conduct a professional transfer pricing study.
Tax on dividends and profits for residents and non-residents
This tax is applied to profits, dividends, and income paid to the owner, consortium, partners, or shareholders of entities doing business in Paraguay, as well as to the permanent establishments of entities incorporated abroad. Note that the rate of this tax is 8 per cent when the recipient of the profits is a natural, legal, or resident person in the country and 15 per cent when the beneficiary of these profits is a non-resident, including parent companies abroad.
Taxes on personal services
The personal income tax (IRP) applies to income from capital gains and income derived from the provision of individual services. The IRP rate on capital gains is 8 per cent, while the IRP rate on income derived from personal services is between 8 per cent and 10 per cent, depending on the taxpayer’s net income.
Non-resident income tax
Paraguayan law imposes a tax on the income of non-residents (INR) that is levied on the income or profits earned by natural persons, legal entities, and other non-resident entities conducting business in Paraguay. The INR rate is 15 per cent and is applied to net income generated within Paraguay.
Source: Bizlatinhub
Note: Always verify the rules in place or being planned with a professional before making tax decisions.
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