Tax in Paraguay

Who is the tax authority and where do filings live?

Subsecretaria de Estado de Tributacion (SET), under the Ministerio de Hacienda, is Paraguay's tax authority [SC1]. Customs is administered by Direccion Nacional de Aduanas (DNA). SET operates through Direccion General de Grandes Contribuyentes for large taxpayers and regional offices. Filings flow through the SET Marangatu portal at www.set.gov.py. Tax disputes proceed through SET internal review (recurso de reconsideracion), the Tribunal de Cuentas, and Corte Suprema de Justicia. The credentialed Paraguayan tax-and-accounting professions are Contador Publico regulated by the Colegio de Contadores del Paraguay. Substantive law: Ley 6380 of 2019 (the Tax Reform Law / Modernizacion y Simplificacion del Sistema Tributario Nacional), Decreto 3107 of 2019 (regulation), Codigo Tributario, and successive amendments. Paraguay is a MERCOSUR member. The post-2019 Tax Reform under Ley 6380 substantially restructured the prior fragmented framework, introducing the unified IRE corporate tax regime (replacing IRACIS, IRAGRO, and other prior frameworks) and the progressive IRP framework. Ley 6380 also introduced transfer-pricing provisions effective 2021 and other modernisation measures aligned with international standards.

What is the tax year and when are returns due?

The individual tax year is the calendar year. Personal income tax (IRP) returns are due in March of the year following the tax year on a SET-published schedule based on the last digit of the RUC [SC1]. Wage earners' IRP is fully withheld monthly by employers under successive Resoluciones. Corporate fiscal years align with the calendar year (with limited exception); annual corporate IRE returns are due March of the year following fiscal year-end. IVA returns are filed monthly by the SET-staggered calendar based on RUC ending. Withholding tax (WHT) returns are monthly. The Sistema de Marangatu electronic invoicing (e-Kuatia) has been progressively rolled out since 2018, with e-Kuatia-issued documentation required for IVA-input-credit claims by registered taxpayers. Annual financial statements are required for in-scope corporations.

Who is a Paraguayan tax resident?

Under Article 5 of Ley 6380, an individual is tax resident in Paraguay if (a) physically present in Paraguay for more than 120 days during a calendar year, OR (b) maintaining their main centre of business or economic interests in Paraguay [SC2]. The 120-day threshold is one of Latin America's lowest residency thresholds (compared to typical 183-day frameworks regionally), making Paraguayan residency relatively easier to acquire. Residency does not affect the underlying territorial-source taxation principle: residents and non-residents are taxed only on Paraguayan-source income (rentas de fuente paraguaya) — this is a defining feature of the Paraguayan tax system that has historically attracted high-net-worth individuals seeking territorial-residency. Treaty residents may benefit from reduced withholding under bilateral treaties. Foreign nationals working in Paraguay on long-term assignments routinely meet the 120-day test from year one of assignment but only Paraguayan-source income is in scope. PE attribution under Paraguay treaty network and domestic Ley 6380 follows OECD Model definitions. Tax Residency Certificate procedure under SET provides foreign-residency-certificate counterparts.

What are the personal income tax rates?

The Impuesto a la Renta Personal (IRP) brackets following Ley 6380 are: 8 percent up to PYG 50,000,000 of annual taxable income; 9 percent on PYG 50,000,001-150,000,000; and 10 percent above PYG 150,000,000 [SC1]. The 8-10 percent IRP framework is among Latin America's lowest progressive rate structures. Investment income (rentas de capital — dividends, interest, capital gains) is taxed under the parallel Impuesto a la Renta de Capitales (IDU/IRP-Rentas de Capitales) at 8 percent flat (final). Employment income and self-employment income face the IRP progressive bands. Personal allowance applies under specific Articles for qualifying expenses. Mandatory IPS (Instituto de Prevision Social) social security at 9 percent (employee-side) plus 16.5 percent (employer-side). Specific deductions include qualifying medical expenses, educational expenses, and certain other categories. Salaried employees have most obligations satisfied through monthly employer-side withholding. Self-employed individuals face the same progressive rate structure with annual return-and-reconciliation. Non-resident individuals deriving Paraguayan-source income face flat WHT rates depending on category.

How does Paraguay's corporate tax work?

The corporate income tax (Impuesto a la Renta Empresarial, IRE) rate is 10 percent on Paraguayan-source taxable profit — one of the lowest in Latin America [SC2]. Specific industry rates: maquila (export-manufacturing) regime under Ley 1064 provides 1 percent flat on value-added in maquila operations — making Paraguay one of the most attractive maquila jurisdictions globally. Withholding tax on dividends to non-residents is 8 percent (treaty rates apply); royalties 15 percent default; technical-services 15 percent default; interest 15 percent default. Pillar Two implementation has not yet been transposed; in-scope MNE groups should monitor for legislative developments. Tax loss carryforwards: 5 years (with 20-percent annual offset cap); carryback unavailable. The IDU (Impuesto a los Dividendos y Utilidades) at 8 percent applies on dividend distributions and on the deemed-distribution of profits for foreign-shareholder branches. Special incentive regimes include the Free Zones framework, the Maquila regime under Ley 1064 with 1 percent flat tax on value-added, and Investment Incentives Law 60/90 providing graduated tax holidays. Transfer pricing under Ley 6380 follows OECD principles with documentation requirements introduced effective 2021. Group taxation is not available except via specific consolidated-return rules.

What about IVA (VAT)?

The standard IVA rate is 10 percent under Ley 6380 [SC3]. Reduced rate of 5 percent applies on basic foodstuffs, pharmaceutical products, agricultural products, and specified other categories. Zero-rated supplies include exports of goods and services. Exempt supplies include healthcare, education, financial services, residential rental, and several other social-policy categories. Registration is required regardless of turnover for businesses subject to IVA. Reverse-charge mechanism applies on imported services and B2C cross-border digital services from foreign suppliers under the digital-services framework introduced via Resolucion 87/2021 — Paraguay was a regional follower (rather than first-mover) on cross-border-digital-VAT. The e-Kuatia electronic invoicing system has been progressively expanded since 2018 with progressive rollout reaching all VAT-registered businesses. Excise Duty (Impuesto Selectivo al Consumo, ISC) applies on alcohol, tobacco, fuels, and specified other goods at varying rates. Customs-VAT on imports collected at the border by DNA. Bad-debt VAT relief is available under specific conditions.

How are cryptoassets taxed?

Paraguay has not enacted dedicated cryptoasset taxation. Banco Central del Paraguay (BCP) has issued advisory communications stating cryptoassets are not legal tender [SC2]. The Crypto Bill (Ley sobre regulacion de la Industria de la Criptomineria y la Comercializacion de Criptoactivos) was approved by Congreso in July 2022 but vetoed by the Executive on energy-policy grounds (the Bill would have provided specialised pricing for Bitcoin mining operations using Paraguayan hydroelectric power, raising domestic-energy-allocation concerns); subsequent revised drafts have been under Congreso consideration through 2024. Cryptoasset gains by individuals fall under existing Capital Gains category under territorial principle: Paraguayan-source taxable, foreign-source excluded — creating a unique tax-positioning opportunity for Paraguayan-resident crypto holders whose crypto activity is conducted on foreign exchanges. Mining operations conducted in Paraguay (where low-cost hydroelectric power has attracted significant Bitcoin mining — Paraguay's Itaipu Dam jointly with Brazil and Yacyreta Dam jointly with Argentina provide substantial low-cost hydroelectric capacity) are business income at corporate rates pending dedicated framework. Receipt of crypto as employment compensation is taxable under standard PIT framework where the employment is Paraguayan-source. NFTs and stablecoins fall under the same case-by-case treatment.

What is the treaty network and what are the audit triggers?

Paraguay has approximately 8 active double tax treaties [SC4]. The treaty network covers Chile, Taiwan (ROC), Spain, Uruguay, UAE, Qatar, Belgium, and a small number of other counterparties. Paraguay is a MERCOSUR member but the bloc has no multilateral tax convention. Paraguay has not yet signed the OECD MLI as of late 2024. Audit triggers include: disproportionate IVA credits relative to declared output; transfer-pricing non-compliance under Ley 6380 transfer-pricing provisions (TPD documentation thresholds aligned with OECD principles, introduced effective 2021); undeclared bank deposits flagged via expanding CRS exchanges (Paraguay adopted CRS framework under successive amendments effective from 2020); and the e-Kuatia framework. Standard SOL is 5 years from filing deadline; 10 years for fraud or non-filing.

What are the common penalties and pitfalls for foreigners?

The Paraguayan penalty framework imposes administrative-fine sanctions for late filings (escalating fixed penalty plus default interest), failure to file (escalating penalty plus assessment-by-SET-estimate exposure), incorrect declarations (50-100 percent of underreported tax depending on intent), and failure to maintain accounting records (escalating administrative fine plus assessment-by-SET-estimate exposure) [SC5]. Default interest accrues at the prevailing rate plus statutory margin on unpaid tax. Tax-evasion criminal exposure under specific provisions carries fines and imprisonment for grossly-significant evasion. Common foreign-national pitfalls: (1) the 120-day residency threshold is among Latin America's lowest — frequent-business-traveller foreign nationals can readily acquire Paraguayan residency; (2) the territorial-source taxation principle creates planning opportunities for foreign-source income; (3) the post-2019 Ley 6380 Tax Reform substantially restructured the prior framework — practitioners should track the post-reform regulatory developments; (4) the Maquila 1 percent flat tax under Ley 1064 has specific eligibility requirements; (5) IDU (8 percent on dividend distributions and deemed-distribution for branches) layers atop the underlying corporate framework; (6) Transfer pricing requirements introduced effective 2021 create new compliance overhead for in-scope groups; (7) Pillar Two has not yet been transposed but in-scope MNE groups should monitor for developments; (8) the Crypto Bill remains in Congreso consideration following 2022 veto — Paraguayan-resident crypto holders should track regulatory developments particularly given the country's significant Bitcoin-mining industry; (9) the limited treaty network (8 DTCs) means most cross-border flows face full domestic withholding rates without treaty relief; and (10) the SET cronograma based on RUC last digit requires careful calendar tracking.