Recently the first 16 assembly programmes ('maquila') were approved by the relevant authorities in various sectors including electronics, petroleum products, pesticides, textiles and recycled plastics. These programmes are production-sharing operations between local companies and companies from Brazil, Argentina, Uruguay, America and France, among other countries.

Modelled on the Mexican 'maquiladora' or 'twin plant' programme, the Paraguayan maquila programme is founded on competitive domestic labour costs, a readily available and abundant electricity supply, taxation that is recognized as the lowest in the region and an accessible location that is near South America's largest markets. All combine to provide a comparative edge that the legal framework seeks to promote.

The programmes are designed to assist in redirecting investment towards the manufacturing sector and in upgrading existing technology.

Maquila programmes are based on Law1064/97 on the Maquila Export Industry and its implementing Decree 585/00. The law's stated purpose is to promote the establishment and regulation of the operation of companies that are dedicated to industrial manufacturing or to performing services that utilize local labour and other national resources to transform, manufacture, repair or assemble merchandise using imported materials, in order to subsequently re-export this processed merchandise.

Companies wishing to take advantage of the system must register with the National Council for the Maquila Export Industry (CNIME), which handles all contract and programme approvals and permits. The system is designed to facilitate operations for local and foreign parties, simplifying import and export processes, easing drawback guarantee requirements and visa requirements for foreign personnel, and providing a simple and convenient tax system.

Under the maquila programme, the following may be imported:

  • machinery, equipment, tools and parts required for operations;
  • quality control and measuring and testing equipment;
  • personnel and management training and development material;
  • safety and pollution control systems;
  • telecommunications and computer hardware and software for exclusive use of the maquila industry;
  • containers and trailers; and
  • primary material and products for processing.

While the programme makes use of the existing temporary admission system, it sets terms that are suitable for maquila programmes, allowing primary material for processing or repaired items and containers to be admitted for a six-month period, beginning from the date of delivery from customs. Machinery and equipment are admitted for the length of the programme under which they are imported. The six-month period may be renewed for no longer than six months. Processed products may be temporarily re-exported in cases where maquila contracts or programmes contemplate the performance of certain processes outside the country. The products may be re-exported for a period of up to 12 months (this period is renewable). Byproducts and waste may be re-exported, and such exports are treated in the same manner as exports of processed products. Exports may be carried out by third parties.

Drawback bonds guaranteeing eventual payment of taxes and duties may be extended in the form of mortgages, chattel mortgages or insurance policies issued by a local insurance company. Maquiladoras may extend a global or floating bank guarantee or insurance policy covering eventual obligations arising from successive imports and exports under maquila programmes. Bonds are exempt from the 1% interest charge that is otherwise applicable to guarantees extended to customs. Maquiladoras may bring in foreign workers or technicians, who may remain in the country for the term of the approved programme. Regulations create a special category of visa to be granted by immigration authorities and initially applied for before the National Council for the Maquila Export Industry. Although regulations give foreign workers the option of being paid either in Paraguay or in the country of the contractor, and the option to contribute to social security in Paraguay or abroad, harmonizing these provisions with existing legislation will require further effort. This may be facilitated by the fact that the existing tax system does not contemplate personal income tax.

The tax system envisaged by the law provides for the payment of a single income tax of 1% assessed on the total value added within the country, and sweeping exemptions from all other national, regional or municipal taxes that may be applicable to the importation or exportation of goods and products under a maquila programme. Difficulties attached to the determination of the value added within the country led the authorities to establish that the 1% tax would be levied on the amount invoiced by the local sub-contractor to the foreign contractor, the presumption being that the invoice value is equal to the value added within the country. Thus, invoice value would include all costs associated with the process plus the profit margin of the sub-contractor. Companies that operate maquila programmes on an idle capacity basis will deduct income generated from their total annual income used to calculate regular income tax, which is 30%. Maquiladoras are structured as cost centres.

Exemptions are granted on the following:

  • customs duties and taxes;
  • consular duties;
  • indigenous peoples tax;
  • state port and airport service charges;
  • charges for implementation of automatic clearance system;
  • any other existing or future taxes, duties or contributions assessed on the importation or exportation of goods falling under the scope of the maquila system;
  • all taxes, duties and contributions assessed on guarantees required from companies or third parties in relation with the maquila system; and
  • all taxes, duties and contributions assessed on funds directed to financing maquila operations.

Companies dedicated exclusively to maquila operations enjoy the following further exemptions:

  • exemption from municipal tax on businesses, industries and professions;
  • exemption from construction tax relating to industrial or service facilities for maquila operations; and
  • exemption from contributions directly assessable on the maquila process;
  • exemption from value added tax assessed on leasing or rental of machinery and equipment (the regular value added tax rate is 10%).

Taxes will be due on any product that is sold in the country, which may be up to 10% of the total value of exports during the previous year, as well as on any machinery that is imported on a definitive basis. Also, manufacturers may make use of other investment incentives and of the many bilateral investment treaties signed with other countries.

For further information on this topic please contact M Yolanda Pereira Z at Berkemeyer Attorneys and Counselors by telephone (+595 21 446706) or by fax (+595 21 449694) or by e-mail ([email protected]). The Berkemeyer Attorneys and Counselors web site can be accessed at

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