Paraguay taxation: advantages, what to know, costs

Many people aspire to live abroad, and there is a growing expectation that the ideal country should not only be culturally and environmentally attractive, but also have a favourable tax regime. One example is Paraguay, which has the most favourable tax regime of the Mercosur countries. Find out who can benefit from Paraguayan taxation and how much tax you have to pay as an individual, company or digital nomad.

Paraguay taxation: who can benefit?

Paraguay's low tax rates, fast-growing economic environment and simple administrative processes all contribute to making the country an attractive destination for both business and self-employment. 

You can also set up a company in Paraguay as a foreigner. Setting up a business in Paraguay is considered easy worldwide, and running your business is cheap.

Image title: bird's eye view of the capital of Paraguay

Source: freepik.com

Resettlement in Paraguay as a foreigner, your income outside the country is tax-free. A your income from abroad remains tax-free even if you are not in the country. This is why Paraguayan taxation is particularly popular among digital nomads.

Paraguay taxation: returns and expenses

Paraguay taxation has changed since 2020. Basically, as a Paraguayan taxpayer, corporate tax, personal income tax and VAT rates are 10%.

Corporation tax

The corporate tax in Paraguay is 10%. If your company's annual income is less than 80 million guarani (PYG), which is currently HUF 3.9 million, you are subject to a preferential tax regime. Under this scheme, you pay a fixed amount per month according to a payment schedule set by the tax authorities. The monthly tax amount can vary from PYG 20 000 to PYG 80 000, depending on your previous year's income, as determined by the tax authority. The tax is payable quarterly, half-yearly or annually.

Taxation of sole proprietorships

In Paraguay, there is no special tax for self-employed people. If you start a business, you will also have to pay personal income tax 10% if your annual income is below 80 million guarani (PYG). This limit in HUF is currently HUF 3.9 million. Below this, the Paraguayan tax authorities will assess your tax on a monthly basis, which can be between PYG 20 000 and PYG 80 000.

In Hungary, on the other hand, you can opt for a fixed monthly KATA tax or be a flat-rate taxpayer. In case of a flat-rate tax, you will also have to pay 15% SZJA, 13% SZOCHO and 18,5% TB. Add to this that the part of your income not exceeding half of the annual minimum wage is exempt from tax. This is HUF 1 600 800 in 2024.

SZJA

In Paraguay, you only have to pay income tax of 10% if your monthly income exceeds 36 times the minimum wage, which is currently 13 000 $ per year.

Dividend tax

If you own a company and receive dividends or buy shares in a company that pays dividends, you will pay 5% tax on the dividends you receive.

There are no additional local taxes in Paraguay, such as business tax. However, you will be taxed on the income from the purchase of your property in the same way as in Hungary.

Paraguay taxation procedure

You should be aware that there is no double taxation agreement between Hungary and Paraguay. Thus Paraguayan taxation does not always exempt you from paying tax in Hungary. Before making a decision on taxation and establishment, it is always advisable to seek advice from a team of experts with a wide range of experience in both establishment and taxation.

Image title: tax expert at work

Source: freepik.com

Paraguay taxation for individuals

In Paraguay, the following income may be subject to personal income tax at the time of the annual return:

• If you take a job in the country, in a public institution or in the competitive sector.
• You buy shares and the company pays dividends.
• If you sell a property or shares, you will be taxed on the profit you make. In the case of real estate, you can deduct your expenses from your taxable income, while in the case of shares, only the profit is taxable.
• In Paraguay, there is no interest tax or commission tax on the capital acquired.

Paraguay company formation and taxation

In Paraguay, you can start a company as a foreigner without any restrictions, even with as little as $10 000 start-up capital. But it can be difficult to navigate the maze of red tape. It's worth asking an expert for help. 

You must make an online declaration of successful incorporation to the Paraguayan tax office, SET. You will then receive your company tax number, which you can use for invoicing, VAT, corporate tax and other tax transactions.

source: istockphoto.com

Tax benefits

Certain business income is exempt or taxed at a reduced rate. The most popular of these tax breaks is Maquila. This is a so-called re-export subsidy, which arises when you import your product into Paraguay, where some value is added. For example, you ship coffee from Brazil, which you then grind and package in Paraguay. This makes the product a product with a Paraguayan certificate of origin. (In Paraguay, it is enough to produce the 40% of the product locally to get a local certificate of origin.)

If you then sell the coffee abroad, because of the Maquila, only the value added in Paraguay is taxed on the whole activity, at a tax rate of 1%. The Maquila applies not only to production but also to services. 

In Paraguay, the import and export of goods, services or raw materials is duty-free.

Paraguay taxation for digital nomads

If you want to become a digital nomad, you must first apply for a residence permit and become self-employed to pay Paraguayan taxes. Later you can also obtain a permanent residence permit. Find out more about the digital nomad visa Resettlement in Paraguay in our article.

If you are looking for a peaceful night's sleep knowing that you are compliant with both Paraguayan and Hungarian tax laws, or if you have questions about Paraguayan taxation, then contact our team of experts.

Why choose the OrderOffshore team?

• The strategy that we represent and practice is the result of the work of a lawyer, tax advisor and several international specialists in international company law. 
• We guarantee fast, professional and legally sound solutions at a low cost and high quality.
• We have an indispensable network of contacts in Paraguay, including many renowned international tax planning and advisory firms.
• We focus on the best international tax solutions, so we keep you up to date with the latest information on Paraguay taxation and other alternatives.
• You can count on 100% discretion from us.
• If you want to grow your wealth more efficiently and safely, contact us for legal and personalised solutions and fill in the form or contact us.

Sources:

PwC Tax Summary - Paraguay - Corporate tax

PwC Tax Summary - Paraguay - Taxation of individuals 

Net Law Library website - Act CXVII of 1995 (Income Tax)

NAV website - Information booklets 2024 - 49. The social contribution tax 22.01.2024.

NAV website - Information booklets 2024 - 100. Basic rules for flat-rate taxation of self-employed persons 30.01.2024.

NAV website - Information booklets 2024 - 91. Health service contribution 23.01.2024