Tax planning in Paraguay

Understand what territorial taxation actually covers

Law 6380 separates business income, personal income and other tax categories. Its personal-income source provision covers income from activities carried out in Paraguay, property located there and rights used economically there. Additional statutory rules can bring specified overseas activities within Paraguayan source.

A territorial description is a starting point, not the conclusion for an online business. A service delivered by someone working in Paraguay may require a different answer from interest on a genuinely foreign investment.

Distinguish the person from the company

Identify who earns the income and under which legal arrangement. A personally delivered service, a local enterprise, a foreign entity with local activity and a passive investment portfolio should not be combined into one generic zero-tax calculation.

The business-income law includes local branches, agencies and permanent establishments of foreign entities. A foreign incorporation does not eliminate the need to assess what the company is doing in Paraguay.

Residence elsewhere still matters

Obtaining Paraguayan immigration residence does not, on its own, terminate tax residence in Canada, Mexico, the United Kingdom or another country. A retained home, family, work and statutory departure rules can continue to matter.

US citizenship and certain other statuses also require a separate analysis. A local tax result does not automatically remove the tax or reporting obligations imposed by another jurisdiction.

Build a defensible working file

• Describe the activity, where it is performed and who contracts with the customer.
• Separate services, dividends, interest, gains and asset sales.
• Identify any local employees, agents, premises and management functions.
• Review business registration, invoicing, income tax, VAT and social obligations as applicable.
• Keep the evidence supporting residence, source and any foreign tax treatment.

What this draft does not resolve

A comprehensive current review of controlled-foreign-company or attribution provisions, corporate residence and departure charges is still needed before categorical comparison labels can be published. Those fields are marked for review.

We can help analyse the international arrangement and work with appropriate local professionals on the Paraguayan treatment. The objective is to establish which activities belong in which jurisdiction and then implement the registrations, contracts and ongoing administration that follow.

The main rates apply to different tax bases

The general IRE rate is 10% of net business income. Article 43 sets IDU at 8% for distributions to resident recipients and 15% for distributions to nonresidents, including the foreign head office. Whether and when a distribution is treated as made requires the separate article 44 rules.

For personal capital income and gains, article 60 states 8%, but article 59 determines the relevant base. For specified asset sales, the statutory calculation can use the lower of 30% of sale value and the supported actual difference, subject to its documentary conditions. An eight-percent headline does not always mean eight percent of gross sale proceeds.

Personal-service tax uses progressive bands

Article 69 applies 8% to the first Gs. 50 million of net service income, 9% to the next band through Gs. 150 million and 10% above that. These are marginal slices. The law separately says no payment is due where gross personal-service income does not exceed Gs. 80 million in the fiscal year, while specified formal obligations remain.

Keep the distinction between gross receipts, allowable costs and net taxable income. Personal capital and service categories are calculated separately under article 53; expenses and results cannot simply be shifted from one category to the other. Accurate records determine the practical value of the rates.

A foreign invoice is not a source determination

Article 48 includes activities performed in Paraguay and specified services performed outside Paraguay for IRE or IRP taxpayers. The latter is an express source extension. A client’s nationality, invoice currency and payment processor are useful facts, but none individually replaces the statutory classification.

A defensible implementation records who performs the services, where and under what contracts, then determines registrations, invoicing and taxes for that arrangement. Corporate ownership, beneficial ownership, foreign attribution and emigration questions still need their own jurisdiction-specific review; this guide does not infer an absence of rules merely because the general system is source-based.