Paraguay offers the most affordable low-tax solutions in the MERCOSUR. The best news is that income is taxed in Paraguay according to the territorial system of taxation, foreigners residing in Paraguay are subject to tax on the income of Paraguayan source. Most of the citizens and residents of Paraguay do not have to pay income tax because their annual income does not reach the more than taxpayer-friendly minimum limit.
How much is the income tax in Paraguay and how can you become a Paraguayan tax resident?
Obtaining the Permanent Residence Permit of Paraguay is a simple, fast and straightforward process. There are more and more applicants who choose to be a permanent resident of Paraguay because of the tax benefits. The South American country is a classical onshore (not offshore) low-tax jurisdiction, where the permanent residents can maintain their resident status without physical presence, and their foreign sourced income can be tax exempt!
If the permanent resident does not live in Paraguay, then the income earned in other countries is not taxable. (Please ask official advice before planning tax operations in Paraguay!)
Which incomes are taxable in Paraguay?
- Revenue from Paraguayan sources arising from the conduct of commercial, industrial or service other than personal activities
- Revenue from the sale of properties when the activity is regular, except in the case of commercial companies who must compute the income derived from the sale of assets, whether or not performed routinely
- Revenue generated by the asset, except generating activities related to the activities taxed by the income tax Agricultural Activities, Small Revenue Service
- Taxpayer and personal character goods
- All income obtained by persons or companies and entities incorporated abroad or their branches, agencies or establishments in the country.
- Income from activities: extractive, rabbit breeding, poultry farming, beekeeping, sericulture, floriculture, and forestry
- Income derived from consignees of goods
- Revenues from the following activities:
- Car parking vehicles,
- Transfer of intangible property, such as trademarks, patents, and privileges,
- Construction, renovation, and demolition,
- Financial intermediation,
- Funeral and related activities,
- Hotels, motels and the like,
- Insurance and reinsurance,
- Leasing of real estates provided that the landlord owns more than one property,
- Repair of goods in general,
- Rent of properties and rights,
- Rental and exhibition of films,
- Surveillance and the like,
- Transport of goods or persons,
- Travel agency,
- Washing, cleaning, and dyeing of garments in general.
- Dividends and profits obtained in the character of shareholders or partners of entities conducting activities under Income Tax Commercial, Industrial or Revenue Service and Agricultural Activities.
Who must pay tax in Paraguay?
Sole proprietorships, partnerships with or without legal personality, associations, corporations and other private entities of any nature.
Public enterprises, autonomous bodies, decentralized entities and mixed companies.
Domiciled individuals or entities incorporated abroad and their branches, agencies or establishments that perform taxable activities in the country.
How much is the corporate income tax in Paraguay?
The overall tax rate is 10% (ten percent) on profits in Paraguay!
When distributing profits, the rate of 5% (five percent) on credited or paid, owners, partners or shareholders net amounts is further applied. That tax is charged to the entity residing in the country
The parent company, its partners or shareholders domiciled abroad must pay tax on profits or dividends, accredited by branches, agencies or establishments in the country, at the rate of 15% (fifteen percent) on accredited the net amounts paid or remitted.
Domiciled individuals or entities incorporated abroad with or without a branch, agency or establishment located in the country will determine the tax by applying the sum of the above rates on income derived, regardless of the aforementioned agencies, branches or establishments.
Paraguay Income Tax from agricultural activities
Income dealt with:
- Income from the agricultural activity in the country for primary, plant or animal products through the use of land, capital, and labour, such as:
- Breeding or fattening, cattle, sheep, and horses
- Production of wool, leather, bristles and embryos
- Agricultural, horticultural and fruit production
- Milk production
- Ownership, possession, usufruct, leasing or ownership of rural properties even when they are not in any activity is performed.
Which revenues are tax exempt in Paraguay?
The tax does not include income from activities that involve the manipulation, processes or treatments, when performed by the producer for the preservation of those goods, as neither can those involved in the Income Tax Commercial Activities, industrial or Services, the Small Taxpayers Income and Income from personal services.
You can read here about the Maquila Paraguayan reexport low-tax regime! It is the most beneficial low-tax scheme in the Mercosur, there is only 1% tax on the value added in Paraguay. No customs, no additional taxes.
Personal Income Tax in Paraguay
The taxable incomes from Paraguayan sources coming from the realization of personal income-generating activities, such as:
- The exercise of professions, trades or occupations or personal services of any kind, either independently or as an employee, whether in public or private institutions whatever the name of profit or remuneration.
- 50% (fifty percent) of dividends, profits and surpluses obtained during character of shareholders or partners of entities conducting activities under Income Tax
- Commercial, Industrial Activities or Services and Revenue Agricultural Activities distributed or credited, as well as those coming from cooperatives.
- Capital gains from the occasional sale of property, transfer of rights and the sale of securities, shares, and corporate capital.
- Interest, fees or returns of capital and other income not subject to Income Tax in Paraguay
- Commercial, industrial or service activities, income from agricultural activities and income of small taxpayers.
Any other income from Paraguayan sources during the fiscal year, provided that the total of them were more than thirty (30) minimum monthly wages (equivalent to approximately US $ 12,000).
Personal Income Tax Rates in Paraguay
Taxpayers must apply the general rate of 10% (ten percent) on the net taxable income when their income exceeds ten minimum monthly wages, or 120 minimum salaries in the fiscal year and 8% when their income they were inferior to them.
- The filing of the personal income tax return and the payment of the tax in Paraguay is in March of each year.
- The VAT (value added tax) is 10% in Paraguay.
Please, always ask professional advice (your accountant or lawyer) before optimizing your income tax in Paraguay!
Read here all the detailed information about the Paraguay Tax Reform 2020!
If you want to obtain the Permanent Residence Permit of Paraguay, you can find here all necessary information:
More info on investment and cost of living in Paraguay here: