Paraguay Tax Regime

Paraguay operates one of the simplest and most competitive corporate tax regimes in South America, built around a single flat-rate Business Income Tax (Impuesto a la Renta Empresarial, IRE) of 10% introduced under the 2019 tax reform (Law 6380). The regime is broadly territorial in character, taxing Paraguayan-source business income at entity level, with a further dividend distribution tax (Impuesto a los Dividendos y Utilidades, IDU) of 8% for resident and 15% for non-resident shareholders applying when after-tax profits are distributed. Value added tax is likewise levied at a flat 10% standard rate, one of the lowest in the region. The system favours simplicity over complexity: there is no consolidated group taxation regime, no formal thin-capitalisation rule beyond related-party pricing controls, and a comparatively light compliance calendar, making Paraguay a frequently used platform for regional trade, logistics and agro-industrial structuring.

1.1 Sources

Primary legislation includes Law 6380/2019 on the Modernisation and Simplification of the National Tax System, its implementing regulations (Decree 3182/2019 and related resolutions of the Undersecretariat of State for Taxation, SET), the VAT chapter of Law 6380, and the Customs Code for import-related levies.

1.2 Recent developments

Law 6380/2019 replaced the prior schedular system (which taxed commercial, agricultural and personal-services income separately) with the unified 10% IRE from fiscal years beginning 2020/2021, alongside a restructured VAT chapter and the IDU on distributed profits, charged at 8% where the recipient is resident and 15% where it is not. Simplified regimes were introduced alongside the general IRE: the IRE SIMPLE for taxpayers with prior-year income up to PYG 2 billion, permitting a simplified real-or-presumed net income calculation, and RESIMPLE for sole proprietors with gross income up to PYG 80 million, taxed by a small fixed monthly quota. The tax administration (SET) has continued to expand electronic invoicing (Sistema Integrado de Facturación Electrónica Nacional, SIFEN) compliance obligations, which are being rolled out progressively by taxpayer segment through 2026.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Rates and residence

Companies and other business entities are subject to the Business Income Tax (IRE) at a flat rate of 10% on Paraguayan-source income, profits or earnings derived from economic activities of a commercial, industrial, agricultural or services nature, including income from primary, secondary and tertiary sectors. The tax is levied on a broadly territorial basis: income, gains and returns generated by assets, rights and obligations located or exploited in Paraguay, and disposals of such assets, are taxable events, while foreign-source income of a resident company is generally outside the scope of IRE unless specifically brought within it. There is no separate concept of corporate fiscal residence displacing this source-based approach — the determining factor is the Paraguayan source of the income rather than incorporation or management location. Branches of foreign companies are taxed at the same 10% rate as domestic corporations on Paraguayan-source income.

Two simplified regimes sit alongside the general IRE. The IRE SIMPLE allows taxpayers with income accrued in the prior fiscal year not exceeding PYG 2 billion to settle tax on a real-or-presumed net income basis, whichever produces the lower liability, reducing bookkeeping burden for medium-sized businesses. RESIMPLE is available to sole proprietorships with gross income up to PYG 80 million, which instead pay a small fixed monthly sum (PYG 20,000 to PYG 80,000 depending on annual income) rather than computing net income at all. There are no other income taxes at the local or municipal level in Paraguay.

2.2 Dividends and participation

Profit distributions from a Paraguayan company to its shareholders attract the Dividend and Distributed Profits Tax (IDU) at 8% where paid to a resident individual or entity, and at 15% where paid to a non-resident, that being the rate article 43(2) of Law 6380/2019 sets for a non-resident recipient under the IDU itself rather than a separate non-resident income tax. The IDU is withheld by the distributing company at the time profits are made available to shareholders. Because IRE is levied on the company at 10% and IDU is layered on distribution, the combined nominal burden on distributed profits to a non-resident shareholder is materially higher than the headline corporate rate alone — proper structuring of the extraction (dividend versus reinvestment versus intra-group financing) is a first-order planning consideration. Paraguay has no formal participation exemption regime for holding structures; relief from double taxation on inbound dividends received by a Paraguayan parent is instead achieved through the narrow territorial scope of IRE itself, since foreign-source dividend income generally falls outside the tax base.

2.3 Income determination and deductions

Taxable net income is computed from Paraguayan-source gross income less costs and expenses necessary to produce and maintain taxable income, following the general deductibility principle together with a list of specifically permitted and disallowed items. Deductible items include ordinary operating costs, salaries and statutory benefits, financial expenses subject to the arm's-length and thin-capitalisation-style limits described below, and depreciation of fixed assets computed on a straight-line basis over useful lives set by regulation (typically buildings 20–40 years, machinery 5–10 years, vehicles 5 years, computer equipment 3–5 years). Non-deductible items include expenses not documented by a valid tax invoice, income tax itself, and expenditure disproportionate to the taxpayer's activity. Inventory is generally valued at cost using accepted methods (FIFO or weighted average); the LIFO method is not permitted.

2.4 Interest limitation

Interest and financial expenses paid to related parties are deductible only to the extent they satisfy arm's-length pricing and do not exceed prescribed debt-to-equity style parameters set by SET regulations; interest in excess of these limits, or paid on debt considered excessive relative to the paying company's equity, is treated as a non-deductible distribution rather than a financing cost. Interest paid to unrelated domestic financial institutions is generally deductible in full, subject to standard business-purpose and documentation requirements. Related-party charges of all kinds (interest, royalties, services) are additionally subject to transfer pricing scrutiny under section 2.8.

2.5 Losses

Tax losses may be carried forward for a limited number of years (generally up to five subsequent fiscal years) to offset future taxable income, subject to caps on the proportion of annual income that can be absorbed by carried-forward losses in some sectors. There is no loss carryback. Losses are forfeited on certain changes of ownership combined with a change in the principal business activity, mirroring international anti-abuse practice.

2.6 Group taxation

Paraguay does not have a formal fiscal consolidation or group relief regime: each entity files and pays IRE on a stand-alone basis, and losses of one group company cannot be offset against the profits of another. Groups commonly manage this through careful intra-group service and financing agreements priced at arm's length, since informal loss-pooling through non-arm's-length transactions is subject to challenge under the general anti-avoidance and transfer pricing rules.

2.7 Controlled foreign companies

Paraguay does not operate a dedicated CFC attribution regime of the kind found in OECD/EU jurisdictions. Because IRE is source-based, undistributed profits of a foreign subsidiary are not taxed in Paraguay in the hands of a Paraguayan parent; taxation of the Paraguayan shareholder arises only when profits are actually distributed and only to the extent the distribution is treated as Paraguayan-source income under the applicable rules. This makes outbound holding structures comparatively simple to operate, though substance and transfer pricing rules still apply to intercompany charges.

2.8 Transfer pricing

Law 6380 introduced formal transfer pricing rules requiring related-party transactions (including with parties in low-or-no-tax jurisdictions) to be priced on an arm's-length basis, applying OECD-consistent methods (comparable uncontrolled price, resale price, cost-plus, transactional net margin and profit split). Taxpayers exceeding regulatory thresholds must prepare contemporaneous transfer pricing documentation and file an informative annex with the annual IRE return; SET can adjust the tax base where pricing is not at arm's length. Special attention applies to transactions with related parties resident in jurisdictions Paraguay treats as low- or no-tax for these purposes.

2.9 Incentives

Paraguay offers several long-standing investment incentive regimes alongside the low headline IRE rate. Law 60/90 grants significant customs and tax exemptions (including exemption from IRE on returns during the exemption period) for qualifying capital investment projects, domestic or foreign. The Maquila regime (Law 1064/97) allows manufacturing-for-export operations to pay a single 1% levy on value added in Paraguay in lieu of ordinary corporate and import taxes, and is widely used for export-oriented manufacturing. Free trade zones offer similar consolidated low-rate treatment for qualifying export and logistics activity. These regimes are a central reason multinational manufacturing and assembly operations locate production in Paraguay.

2.10 Pillar Two

Paraguay has not adopted Pillar Two model rules (income inclusion rule, undertaxed profits rule or a qualified domestic minimum top-up tax) and is not a signatory implementing jurisdiction as of mid-2026. Multinational groups with Paraguayan operations that are within scope of Pillar Two under a parent or intermediate jurisdiction's rules should nonetheless model the interaction between Paraguay's 10% IRE (and the incentive regimes in section 2.9, which can produce an effective rate below 15%) and any foreign IIR/UTPR or QDMTT charge that may apply at group level.

2.11 Branch income and reorganisations

Branches and permanent establishments of foreign companies are taxed at the same 10% IRE rate as domestic corporations on Paraguayan-source income, computed on the same basis as a resident company, but a second charge sits on top of it: article 40 of Law 6380/2019 brings the permanent establishments of entities constituted abroad within the Impuesto a los Dividendos y a las Utilidades (IDU) itself, rather than within the separate non-resident income tax, and article 43(2) sets the rate at 15% where the recipient is a non-resident, expressly including amounts obtained by the head office abroad. Article 6 of Decree 3110/2019 fixes the trigger at the crediting or the remittance of the profits in favour of the head office, whichever is earlier, so the charge does not wait for an actual repatriation, and article 41 makes it a single and definitive payment in the hands of the non-resident. Where the whole after-tax profit is credited or remitted, the combined burden is 10% IRE plus 15% IDU on the remaining 90%, an effective 23.5%, which materially narrows the case for operating through a branch rather than a subsidiary. Domestic mergers, spin-offs and corporate reorganisations are subject to general transfer and capital gains rules; there is no comprehensive tax-neutral reorganisation regime comparable to those found in more developed OECD systems, so restructurings should be modelled transaction-by-transaction for IRE, IDU and VAT consequences.

3.1 Residence and rates

Individuals are subject to the Personal Income Tax (Impuesto a la Renta Personal, IRP) on Paraguayan-source income; the regime, like IRE, is territorial in orientation. Employment income, income from independent personal services and other personal income categories are taxed under IRP at rates that are low by regional standards, with a basic progressive scale historically ranging up to 10% on income exceeding annual thresholds, and a reduced flat rate available for certain income categories such as dividends received by individuals from Paraguayan sources (see section 3.2) and independent professional services. Substantial non-taxable minimum thresholds and deductible personal expenses (documented through invoices) reduce the effective burden for middle-income earners considerably.

3.2 Capital income and dividends

Dividends and profit distributions received by resident individuals from Paraguayan companies are subject to the IDU at 8%, withheld at source by the distributing company, which is generally a final tax on that income stream. Capital gains realised by individuals on the disposal of Paraguayan assets are generally brought into the IRP base as personal income, while gains outside the scope of Paraguayan source rules fall outside the tax net given the territorial design of the system. There is no separate wealth tax or comprehensive capital gains tax schedule distinct from the ordinary personal income categories.

3.3 Social security and payroll

Employers and employees contribute to the Social Security Institute (Instituto de Previsión Social, IPS): employees contribute approximately 9% of gross salary and employers contribute approximately 16.5%, funding pensions, healthcare and related benefits. Payroll withholding of IRP is generally modest given the low effective personal rates and generous deductible-expense mechanics, and employers are responsible for monthly remittance of both social security contributions and any IRP withheld from employment income.

3.4 Inbound individuals

Paraguay levies no net wealth tax and no general inheritance or gift tax, and the territorial design of both IRE and IRP means that foreign-source income and gains of individuals resident in Paraguay are generally not subject to Paraguayan tax unless remitted through or otherwise connected to a Paraguayan source. This combination — low headline rates, territorial taxation, and the absence of wealth and inheritance taxes — has made Paraguay an increasingly used residency and re-domiciliation jurisdiction for internationally mobile individuals and family offices, subject of course to the tax rules of the individual's other jurisdictions of connection.

Paraguay withholds tax on outbound payments primarily through the IDU on dividends and the Non-Resident Income Tax (INR) on other categories of Paraguayan-source payments to non-residents, including interest, royalties and services fees, generally computed on a deemed net income basis (a statutory presumed profit percentage of gross payment) to which the standard rate is then applied, producing materially lower effective withholding than the nominal top rate might suggest. Paraguay's tax treaty network remains limited compared with its regional neighbours — it has a small number of double taxation agreements in force (including with Chile and Taiwan) and participates in the Latin American Integration Association (ALADI) framework — so most cross-border payments are governed by Paraguay's unilateral domestic withholding rules rather than treaty-reduced rates.

Because Paraguay's few treaties do not cover most trading partners, structuring of cross-border payment flows typically focuses on Paraguay's own domestic mechanisms — the presumed-net-income withholding bases, the Maquila and Law 60/90 incentive regimes, and free trade zone treatment — rather than on treaty shopping. Withholding agents (Paraguayan payers) are responsible for remitting INR and IDU to SET, and documentation of the recipient's status is required to apply the correct presumed-income percentage.

5.1 General anti-abuse and substance

SET applies general anti-avoidance principles under the Tax Code, empowering the administration to disregard artificial forms and re-characterise transactions according to their true economic substance where structured principally to reduce tax. The transfer pricing rules described in section 2.8 operate as the primary formal anti-avoidance tool for cross-border related-party dealings, with heightened scrutiny for payments to related parties in jurisdictions Paraguay treats as low-or-no-tax.

5.2 Low-tax jurisdictions and disclosure

Paraguay maintains an administrative concept of low-or-no-tax jurisdictions for transfer pricing and anti-avoidance purposes, triggering enhanced documentation and pricing scrutiny for transactions with related parties resident there. Paraguay is not a party to the OECD/G20 BEPS Inclusive Framework's more extensive minimum standards to the same degree as larger economies, and does not currently impose DAC6-style mandatory disclosure of cross-border arrangements or public country-by-country reporting; multinational groups with a Paraguayan constituent entity should nonetheless expect information exchange under bilateral and multilateral instruments to which Paraguay is a party, including exchange-of-information arrangements coordinated through regional and international tax bodies.

6.1 VAT

Value added tax (Impuesto al Valor Agregado, IVA) is levied at a standard rate of 10%, one of the lowest standard VAT rates in Latin America, with a reduced rate of 5% applying to specified essential goods and services including basic foodstuffs, pharmaceuticals, and residential leases, and to interest on financing. Registration is required for businesses carrying out taxable activities; input VAT on business purchases is creditable against output VAT, with net liability remitted monthly. Exports are zero-rated, supporting Paraguay's export-oriented Maquila and agricultural sectors. Monthly VAT returns are filed electronically through SET's Marangatu system.

6.2 Transaction and other taxes

Paraguay imposes a Selective Consumption Tax (Impuesto Selectivo al Consumo, ISC) — an excise-style levy — on specified goods such as fuels, tobacco, alcoholic beverages, and vehicles, at rates that vary significantly by product category. Real estate transfers are subject to a registration and transfer tax at the municipal and notarial level rather than a dedicated national transfer tax. There is no net wealth tax, no general inheritance or gift tax, and no separate stamp duty regime of the scale seen in some neighbouring jurisdictions, reinforcing Paraguay's positioning as a low-friction jurisdiction for holding and operating structures. Customs duties apply on imports under the common Mercosur external tariff, subject to exemptions under the Maquila and Law 60/90 incentive regimes.

7.1 Filing, assessment and audit

The Paraguayan tax year is generally the calendar year, though certain sectors (such as agriculture) may use a different fiscal year aligned to their production cycle. IRE returns are filed electronically with SET through the Marangatu online platform, with the annual return and final payment due within four months of fiscal year-end for most taxpayers. SET conducts risk-based audits drawing on electronic invoicing data generated through SIFEN, which is being progressively extended to cover all taxpayer segments, materially increasing the transaction-level visibility available to the tax administration. The general statute of limitations for assessment is five years from the filing due date, extended in cases of fraud or non-filing.

7.2 Rulings, appeals and penalties

Taxpayers may request binding rulings (consultas vinculantes) from SET on the tax treatment of specific transactions. Administrative appeals against assessments proceed first within SET and then to the Tax and Customs Court (Tribunal de Cuentas) and ultimately the Supreme Court on points of law. Penalties for late filing, late payment and understatement include surcharges, compensatory and punitive interest, and — in cases of significant fraud — criminal tax liability under the Criminal Code's tax evasion provisions. Voluntary correction of returns before the commencement of an audit generally attracts reduced penalties.

Advance or instalment payment obligations can apply to larger taxpayers based on the prior year's liability, in addition to the final annual settlement. Because SET increasingly cross-checks filings against SIFEN electronic invoice data in real time, timely and accurate invoicing has become as operationally important as the return filings themselves.

9.1 Entity choice

The Sociedad Anónima (SA) is the most widely used vehicle for foreign investment, offering limited liability and flexible share capital with no onerous minimum capital requirement in practice; the Sociedad de Responsabilidad Limitada (SRL) suits smaller, closely held operations with a cap on the number of partners. Branches of foreign companies are permitted and taxed identically to domestic SAs on Paraguayan-source income. Simplified individual regimes (IRE SIMPLE, RESIMPLE) are commonly used by smaller domestic operators and are generally not relevant to inbound foreign investment structures.

9.2 Structuring and incentives

Manufacturing and assembly operations serving regional or global export markets should evaluate the Maquila regime (1% levy on Paraguayan value added in lieu of ordinary IRE, VAT and import duties) and free trade zone status, both of which can reduce the effective total tax burden well below the headline 10% IRE rate. Capital-intensive greenfield investment may qualify for Law 60/90 customs and tax exemptions during an approved investment period. Because Paraguay's treaty network is thin, groups routing dividends, interest or royalties through Paraguay should model the domestic IDU/INR withholding exposure directly rather than assuming treaty relief will be available, and should maintain contemporaneous transfer pricing documentation for all material related-party flows.

9.3 Worked effective-rate illustration

A Paraguayan operating company earns Paraguayan-source EBITDA of USD 2,000,000, with depreciation of USD 300,000 and arm's-length third-party interest expense of USD 100,000, both fully deductible. Taxable profit is 2,000,000 − 300,000 − 100,000 = USD 1,600,000. IRE at 10% is USD 160,000, leaving after-tax profit of USD 1,440,000. If the full after-tax profit is distributed to a non-resident parent, IDU/INR withholding of 15% applies: 1,440,000 × 15% = USD 216,000. The combined tax burden on the distributed profit is 160,000 + 216,000 = USD 376,000 against pre-tax profit of USD 1,600,000, an effective combined rate of 376,000 / 1,600,000 = 23.5%. If instead profits are reinvested (no distribution) or routed through the Maquila regime for the manufacturing portion of activity, the effective burden falls closer to the 10% entity-level rate (or the 1% value-added levy under Maquila), illustrating why distribution policy and regime election are the two most consequential planning levers in Paraguay.

9.4 Compliance

Expect mandatory electronic invoicing under SIFEN (phased by taxpayer segment through 2026), monthly VAT filing, annual IRE settlement within four months of year-end, transfer pricing documentation above regulatory thresholds for related-party transactions, and IDU/INR withholding administration on all outbound payment flows. Statutory accounting records must be maintained in Guaraní and be available to SET on request; foreign-currency transactions are translated at official exchange rates for tax purposes. Given the still-developing formal guidance in some technical areas (thin capitalisation parameters, low-tax jurisdiction lists), taxpayers commonly seek binding rulings for material or novel transactions.