Optimizing personal and business expenses at a certain level entails not only choosing a favorable location for conducting business but also selecting a jurisdiction where both the company and its owner will pay taxes.
Is Paraguay a tax-free country? This jurisdiction has the potential to become a promising destination to significantly reduce your personal and overall business tax burden. Under certain conditions, lowering the tax rate to 0% may be possible in Paraguay.
The government of Paraguay is making significant efforts to attract foreign professionals and investors to the country. It has become a popular destination for experienced entrepreneurs seeking to expand their brand presence in Latin American markets or establish a new source of income.
In addition to its growing economy, Paraguay offers an attractive living environment. This is due to the ease of obtaining tax residency and permanent residence for foreigners.
Undoubtedly, great expectations are also associated with Paraguay’s rapidly growing middle class, which contributes to the increase in purchasing power among the population and, consequently, business income growth.
Another reason for Paraguay’s popularity among tax nomads is its low tax rates.
All of these factors make Paraguay a promising location for digital entrepreneurs who are constantly seeking answers to questions about where to live, conduct business, and declare their taxes.
Want to know what it’s like to live in Paraguay? Explore our ultimate expat guide to this country!
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Do you pay taxes in Paraguay?
Paraguay boasts the lowest corporate income tax rate among Latin American countries, standing at 10%. In comparison, neighboring rapidly developing countries such as Brazil and Chile apply tax rates of approximately 34% and 25-27%, respectively.
This competitive advantage positions Paraguay as an attractive destination for business representatives from neighboring nations. Consequently, even the land market in Paraguay yields returns of up to 100% through the resale of plots within a few years.
The aforementioned corporate income tax rate is applicable to all companies, regardless of their income source.
Furthermore, Paraguay’s value-added tax (VAT) rate is also one of the lowest in Latin America, at 10%. Maintaining low turnover taxes contributes to creating a favorable environment for launching trading businesses in Paraguay.
The personal income tax rate in Paraguay is also relatively low. This tax is levied at a rate of 10%. For comparison, the individual income tax in Mexico can reach up to 35%, in Chile – 40%, in the United States – 37%, in the United Kingdom – 20%, and in Argentina – 35%.
For non-resident individuals earning income from activities within Paraguay, the personal income tax rate is 20% of the net income amounting to 50% of the projected income (service fees), resulting in an effective tax rate of 10%.
Due to the simplicity of the tax system and low rates, Paraguay represents an advantageous option for declaring income both in terms of tax compliance and achieving economic efficiency.
Paraguay operates under a territorial tax system. This means that there is no income tax on earnings obtained outside the country.
In other words, by becoming a tax resident in Paraguay and earning income outside its borders, you can legally avoid paying taxes. In some cases, it is not even necessary to permanently reside in Paraguay to benefit from this opportunity.
As mentioned earlier, the country’s value-added tax (VAT) is set at the standard rate of 10%. VAT must be paid on a monthly basis. According to the law, when registering a company in Paraguay, you are required to register as a VAT taxpayer.
Are you looking for an opportunity to increase the efficiency of your business and reduce tax payments? Discover the best business optimization and tax planning strategies in 2023.
Dividends paid to non-resident individuals or legal entities are subject to a 15% withholding tax. Paraguay residents pay 8% and are exempt from taxes on royalties and interest.
The financial year in Paraguay begins on January 1st and ends on December 31st. You must provide information about your income and settle tax payments within four months after the conclusion of the previous financial year.
The following taxes are applicable to businesses with employees or real estate:
- Payroll tax: employers are required to contribute a total of 25.5% of an employee’s income towards their social security: 9% is deducted from the employee’s earnings, while the employer contributes the remaining 16.5%.
- Property tax is levied annually at a rate of 1%. Additionally, a capital gains tax is applicable to certain types of property, calculated at an annual rate of 0.3% based on the property’s sale or transfer value.
In Paraguay, there are three tax systems in place, depending on the type of taxpayer:
- Commercial income tax (CIT). This tax applies to income derived from commercial, industrial, and service activities. The general corporate income tax rate is 10%. However, an additional 8% tax payment is required for dividend distributions. This tax is levied on the amount of dividends approved for distribution at the shareholders’ meeting, which is not mandatory if the funds are reinvested internally or used to increase the company’s capitalization.
- Agricultural income tax (AIT). This tax applies to income derived from agricultural and livestock activities. Agricultural income tax is also typically 10%, but the specific rate depends on the annual income.
- Little taxpayer income tax (LTIT). This tax is designed for taxpayers with annual income below PYG (Paraguayan guaraní) 100 million, which is approximately USD 15.5 thousand. The flat tax rate for this category is 10%.
The personal income tax system in Paraguay is divided into two groups:
- individuals residing in Paraguay
- individuals residing abroad.
Taxes for individuals residing in Paraguay
To qualify for this category, you must reside and earn income in Paraguay. The overall income tax rate for individuals residing in the country is 10%. These tax residents are required to have an annual income equal to or exceeding 36 times the minimum monthly wage, which is approximately USD 13,000. The minimum wage used to measure this amount is the one in effect as of January 1st of each year.
Taxes for individuals residing abroad
We are talking about individuals living abroad and earning income from activities in Paraguay. The formula for calculating the income tax for individuals residing abroad translates to an effective tax rate of 10%: 20% of the net income, which is 50% of the presumed income (service fees).
Want to know how billionaires reduce their tax burden? Read our article on unconventional tactics for this matter.
Easy permanent residency acquisition in Paraguay
Paraguay also offers an equally advantageous tax regime for foreign investors, attracting both businesses and individuals who approach Paraguay’s tax authorities intending to become residents and declare their taxes here.
To benefit from favorable income taxes in Paraguay, you need to become a tax resident.
Paraguay is perhaps one of the most accessible and affordable places to quickly obtain permanent residency. It is possible to get a temporary residency permit and then, after two years, apply for permanent residency. Additionally, to obtain permanent residency, you can invest income in the country’s economy by:
- depositing money into an account
- opening a company
- purchasing a land plot.
Family members can also apply for permanent residency alongside the main applicant. The required income and investments differ slightly depending on the chosen strategy and the number of individuals involved.
We offer assistance in obtaining a permanent residency in Paraguay in 3 stages:
- Acquiring Legal Permanent Residence in Paraguay: Stage 1
- Acquiring Legal Residence in Paraguay: Stage 2
- Acquiring Legal Residence in Paraguay and Citizenship of the Country: Stage 3
If you are ready to open your business in Latin America and want to take advantage of the benefits of the Paraguayan business environment, please send your inquiry to firstname.lastname@example.org or contact us using any of the convenient methods.
We will provide you with an individual solution for your business and tax residency needs, enhancing your earnings from international entrepreneurial activities.
Paraguay is an ideal tax environment for mobile individuals. The standard taxes in Paraguay and the limited residency requirements create perfect conditions for people who travel extensively and for small enterprises.
Get in touch! We will be glad to start working for your benefit.