The International Monetary Fund’s prediction for Paraguay in 2014 is that “growth should be strong at 4.8 percent, annual inflation will likely rise from currently 4.4 percent to the Central Bank of Paraguay’s target rate of 5.0 percent, and the fiscal and current account deficits should be low. Overall, the risks to this outlook are balanced.”1
The first reason to invest in Paraguay consists of no restrictions to foreign ownership of local companies, remittance of profits and capital flow. The only requirement in this area involves anti-money laundering regulations which require justification of transfers above 10000 US dollars.
Secondly, the constitution of legal entities for commercial purposes in Paraguay is relatively quick and there is no minimum capital required by law to establish a legal entity. Residency of directors and trustees is required but may be obtained in a matter of weeks, with personal documentation depending on each specific case. Likewise, a national identity card would also be issued in a matter of weeks at a very low cost. Entities must be registered in the Paraguayan Public Records, and constitution is done before a public notary. Professional fees for a public notary are approximately between 0.75% and 2% of company capital. The costs for obtaining a taxpayer card (RUC) and municipality permits are low, compared with other countries in the region.
Third, the lowest taxation in the MERCOSUR. Corporate tax is 10% on reinvested earnings and 15% (effective rate 14.5%) on undistributed profits. If the company distributes profits to partners abroad, the rate is 30% (effective rate 27.3%). The VAT has a maximum rate of 10%. The excise tax at the highest rate does not exceed 13%.
Fourth, Paraguayan Law 60/90 foresees tax benefits for investments that involve: a) increasing the production of goods and services; b) creating permanent sources of work; c) promoting exports and replacing/substituting imports; d) incorporating technology capable of increasing efficient production and allowing for the best application of raw material, workforce and national energy resources; and e) the investment and reinvestment of capital good profit.
Fifth, the Maquila regime also establishes a unique tax regime for Maquila companies, at the rate of 1% on the value added locally2, or on the value of the invoice issued by order and on account of the headquarters, whichever amount is higher3.
Sixth, Paraguay has a free trade zone regime. The sale of goods and services from Customs Territory to the Free Trade Zones receives the same tax treatment that is granted to exportations (exemption of VAT). Commercial activities performed in the Free Trade Zones and the results obtained by the users are exempt of all national, departmental or municipal tax.
And – not a minor issue – the above fiscal benefits are cumulative.
To conclude: Paraguay is a small country with great human capital and endless opportunities for investment in diverse sectors such as infrastructure, real estate, agriculture, financial and insurance services.