Paraguay Tax & Business Guide - Deloitte

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Basic facts
Population 6.2m Inflation 6.8% (2005)*
Main languages Spanish, Guarani GDP per head US$1,200
Currency Guarani (PYG) GDP growth 3.0% (2005)*
Economic communities Latin America Integration Association, WTO
GDP sources 22.3% agriculture, 20.7% industry, 57.0% services
*Economist Intelligence Unit.
Political environment

Paraguay is a constitutional republic. The president is directly elected for a five-year term and appoints a Council of Ministers. There is a bicameral Congress that comprises a 45-member Senate and 80-member Chamber of Deputies.

The next presidential and congressional elections are due in April 2008.
Foreign trade and investment
Exports US$3.2bn (2005)* Imports US$3.9bn (2005)*
*Economist Intelligence Unit.

Leading export markets: Uruguay, Brazil, Argentina and Italy.

Major exports: Soybeans, feed, meat products and cotton.

ParaguayÌs foreign-investment laws are among the most liberal in Latin America. National treatment of foreign investors is guaranteed, as is full repatriation of capital and profits. Privatisation, however, has been slow.
Business and financing
Business forms Corporation (sociedad anonima), branch of a foreign corporation (sucursal)

Foreign and domestic private entities may establish and own business enterprises. Foreign businesses do not need to be associated with Paraguayan nationals for investment purposes. Private entities may freely establish, acquire and dispose of interests in businesses.
Labour environment
Unemployment rate 16.0% (2005)* Minimum wage PYG 1,219.795 (monthly)
*Economist Intelligence Unit.

The minimum wage for the private sector is PYG 1,219,795, although this rate is to be raised when annual inflation exceeds 10%. There is no official minimum wage for the public sector.
Taxation
Corporate tax
Main rate 10%

Paraguayan companies and branches of foreign companies are taxed only on income sourced in Paraguay. There is no taxation of foreign-source income. Companies pay tax on business income at 10%. The profits of a foreign branch or agency are subject to an additional 15% branch profits tax. Capital gains on the sale of immovable property are included in taxable income. Foreign companies without a presence in Paraguay are taxed by withholding on their Paraguayan-source income (including capital gains on shares) at a presumed profit of 50% of the gross amount.

Dividend distributions are subject to the main business income tax of 10% on net income, as well as a 5% surtax. Dividends paid to foreign shareholders are subject to a 15% withholding tax.
Individual tax
None

Individual income tax on salaries and other income was introduced in 2006, at a top rate of 10% on employment income, interest, capital gains from property and on 50% of dividends received from Paraguayan companies. The law will not enter into effect until January 1st 2007.

Individuals earning business income are required to pay tax at the same rate as companies. Individuals engaged in farming are subject to a separate tax of 10% or 2.5%, depending on the size of the land.
Capital gains
Gains on immovable property are taxed as income

Capital gains derived by companies on immovable property are included in taxable income for business income tax purposes. Capital gains derived by individuals on the sale of immovable property are subject to a 10% capital gains tax as from January 1st 2006.
Indirect tax
VAT standard rate 10% Lower rate 5%

Value-added tax (VAT) is compulsory for all companies and unincorporated businesses whose taxable turnover exceeds a certain amount. The standard rate is 10%, with a lower 5% rate applying to supplies of basic foodstuffs, pharmaceutical products, interest and commissions on loans, and the transfer of the right to use goods or immovable property. Exports are zero-rated. Exemptions include raw farm products, some fuels, foreign currency, books and newspapers.
Tax administration and compliance
Tax year Companies: accounting period; Individuals: calendar year

Businesses subject to the business income tax must make four quarterly advance payments of tax, each amounting to 25% of the tax for the previous year. Exceptionally, advances paid during 2006 must be made at the rate of 15% based on the income tax of the previous year. Taxpayers engaged in farming make two advance payments amounting to 50% of the tax paid in the previous year. Tax returns must be filed within four months after the year-end (three months for small taxpayers). The final tax payment is due at the time the return is submitted.
Additional tax information
Withholding taxes Dividends 15%, Interest and Royalties 15% (ie 50% of 30%).
Tax treaties Paraguay has signed agreements for the avoidance of double taxation of income from international shipping and/or air transport with Uruguay, Chile, Belgium, Germany and Argentina.
Dividends Individuals pay tax on 50% of dividends received from Paraguayan companies. Non-residents are taxed by way of withholding at a rate of 15%.
Revenue protection There is no transfer-pricing or anti-tax haven (CFC) legislation.
Groups There is no provision for group taxation.
Incentives Exporters (maquiladoras); assembly operations; forestry.
Other taxes Customs duties, Excise tax, Immovable property tax, Stamp duties.