Foreign Investment
Other Forms of Investment
Shareholder Agreements
Doing Business
Privatization
Labour Legislation
The legal framework governing foreign direct investment in Paraguay consists of:
- the National Constitution of 1992;
- the General Investment Law 117 of 1991; and
- the Tax Incentives Law 60 of 1990.
Paraguay has entered into a number of bilateral and multilateral investment-related treaties, and is a member of:
- the United Nations Convention on the Recognition and Enforcement of Arbitral Awards;
- the Convention for the Settlement of Investment Disputes between States and Nationals of other States (ICSID);
- the Multilateral Agency of Investment Guarantees; and
- the World Bank, which deals with the guarantee of foreign investment for non-commercial risks.
Equally important is the subscription of two Foreign Investment Protocols between the four members of the Mercado Común del Cono Sur (MERCOSUR)(1) on the Promotion and Protection of Foreign Investment from (i) MERCOSUR countries (Protocol of Buenos Aires) and (ii) other countries (Protocol of Colonia).
Under the General Investment Law foreigners are treated as Paraguayan nationals and may engage in business as individuals or in partnership.
There is no limitation or restriction to foreign ownership and 100% equity ownership is permitted in those sectors which are not state monopolies. No registration of foreign capital is necessary.
Property rights
The right of property of national and foreign investment is expressly guaranteed. The Constitution also guarantees the right to private property, establishes the cases in which expropriation is admitted and provides for prior compensation.
Free exchange system
The General Investment Law guarantees a free exchange rate system. Thus, the foreign exchange regime allows the unlimited convertibility of local currency into foreign exchange and, coupled with the liberty of unlimited remittances of capital and dividends, debt services and royalties for the transfer of technology.
Free market
Domestic legislation establishes the assurance of a free competitive market which includes the liberty of production, commercialization, exportation and importation of goods and services, as well as the non-favourable treatment of commercial activities by the state.
Other viable forms of investment include:
- licensing agreements;
- international franchising;
- management contracts;
- turnkey contracts;
- product-sharing contracts;
- international sub-contracting; and
- build-operate-transfer agreements.
Shareholder agreements are valid but can be difficult to enforce. Remedy is usually in the form of damages awarded by the courts.
The following options are available for doing business in Paraguay.
Corporation (sociedad anónima)
The sociedad anónima (SA) is a unique form of business organization offering public share subscription. There is a minimum requirement of two shareholders who are liable for the company's debts solely to the limit of their investment. The creation of such organizations requires a notarized public instrument.
The SA's capital must be completely subscribed with a specific period. The SA may operate once it is registered in the public registries. Capital is issued in shares of equal par value. Shares may be issued at premium but no-par-value shares are not permitted. Bearer shares are permitted (but not for financial institutions, which must be organized as corporations with registered shares), as are registered shares, whether endorsable or not. Shares may be structured in different classes but have the same rights within each class. Shares are indivisible and the relevant bylaws may create multiple voting rights for certain classes of shares (up to five votes per share). Generally, an ordinary share endows one vote.
Shareholders of SAs are not subject to any nationality requirement. Key decisions are made at shareholders meetings.
The board of directors may be composed of just one person. Non-shareholders may be appointed as directors for a limited period with the option of re-election if the bylaws allow. Although there are no nationality restrictions for directors, most of them must be residents of Paraguay. Directors have unlimited joint and several liability for:
- the poor and/or defective performance of their duties;
- violations of the law;
- fraud;
- gross negligence; or
- abuse of powers.
Directors' remuneration is determined in the bylaws.
Limited liability company
Limited liability companies are private companies with between two and 25 partners whose liability is limited to the amount of their investment. There are no minimum or maximum capital requirements.
General partnership
A general partnership consists of two or more partners who are jointly and severally liable for the debts of the partnership.
Foreign company branch
In order to carry out business in Paraguay a branch of a foreign company must:
- establish a representative that is located in Paraguay;
- prove that it carries out business abroad;
- submit proof of the decision to establish a branch in Paraguay; and
- assign capital to finance the activities of the intended Paraguayan branch.
Joint venture
Although joint ventures have always been considered valid and legal forms of organization, no specific legislation governs them. The General Investment Law permits the organization of contractual joint ventures without legal personality between national and foreign, and public and private parties for any lawful purpose. The individuals or entities forming the joint venture are jointly and severally liable for the actions performed.
Law 1615/2000 on the Reorganization and Transformation of Public Entities and Reform and Modernization of Agencies of the Central Administration constitutes the principal legal framework for the transformation of state owned enterprises (SOEs). It establishes a regime that can be applied to all sectors wherein private participation is possible. However, to date only three SOEs have been declared privatizable:
- Antelco, the telephone service company;
- Corposana, the water and sewage company; and
- Fccal, the national railroad company.
Pursuant to Law 1615, the Executive Branch is empowered to privatize the authorized SOEs through the issuance of decrees. The entity in charge of privatization is the National Secretariat for State Reform.
As is the case with other Latin American countries, Paraguayan labour law is generous to employees, making labour-intensive industries costly.
The Labour Code of 1995 governs relations between workers and employees.
The Constitution contains a chapter on basic labour rights. Any type of discrimination is prohibited and all workers are entitled to the same employment opportunities.
For further information on this topic please contact Luis Breuer or Yolanda Pereira at Berkemeyer Attorneys and Counselors by telephone (+595 21 446706) or by fax (+595 21 449694) or by email ([email protected] or [email protected]). The Berkemeyer Attorneys and Counselors website can be accessed at www.berke.com.py.
Endnotes
(1) Argentina, Brazil, Paraguay and Uruguay.