Paraguay Individual Tax Guide

Paraguay

Asuncion GMT -3

EY

Edificio Citicenter

Av. Mariscal López 3794 esq. Cruz del Chaco Piso 6 1174 Asuncion Paraguay

Executive and immigration contacts

Gustavo Colman

+595 (21) 664-308

Fax: +595 (21) 608-985 Email: gustavo.colman@py.ey.com

Tanya Moreno +595 (21) 664-308

Fax: +595 (21) 608-985 Email: tanya.moreno@py.ey.com

Sven N Ratzlaff

+595 (21) 664-308

Fax: +595 (21) 608-985 Email: sven.ratzlaff@py.ey.com

This chapter reflects the general tax reform introduced in Paraguay by Law No. 6380/19 and its regulations.

A. Income tax

Who is liable. The personal income tax is imposed on national or foreign individuals who are residents of Paraguay. The following are also considered liable to personal income tax by the law:

• Undivided estates with the scope established in the law

• Parents, guardians or curators for the income obtained by those under their custody, guardianship or curatorship

• Persons of Paraguayan nationality by virtue of their status as the following:

— Members of Paraguayan diplomatic missions, including the head of mission and members of the diplomatic, administra tive, technical or service staff of the mission.

— Members of Paraguayan consular offices, including the head of the mission and the official or service staff thereof. Exceptions are made for honorary consuls or honorary con sular agents and their dependent staff.

— Members of the delegations and permanent representations of Paraguay accredited to international organizations or forming part of delegations or observer missions abroad.

— Officials or contracted personnel serving abroad who are not of a diplomatic or consular nature, unless they can prove their tax residency in the country in which they serve.

Income subject to tax

Income and capital gains, excluding income taxed by the Dividends and Profit Tax. Income subject to tax includes income and capital gains, excluding those taxed by the Dividends and Profit Tax (IDU, for its Spanish acronym). For this purpose, income and capital gains consist of income, in money or in kind, which comes directly or indirectly from patrimony, goods or rights,

whose ownership corresponds to the taxpayer of the tax. It also includes positive variations in the value of assets made by the taxpayer that do not come from income derived from the rendering of personal services. The IDU is levied on dividends or profits that are made available or paid to resident or nonresident individuals or legal entities that are owners, partners or shareholders of sole pro prietorships, all types of partnerships or consortiums. The appli cable rates are 8% if the recipient of the income is a resident of Paraguay and 15% if the recipient is a nonresident of Paraguay. Income subject to personal income tax includes income from the following:

• Dividends, profits, surpluses and any other benefits derived by shareholders or members of simple societies, cooperatives and societies or entities resident or constituted in the country, excluding income taxed by IDU.

• Interest or income paid by individuals, legal entities, entities or patrimonies resident in the country, derived from the following:

— Money deposits

— The investment of money in financial instruments, credit operations and contracts, such as the opening of credit, dis counts, documentary credit or money loans

— The holding of credit titles such as promissory notes, bills of exchange, bonds or debentures, or the holding of other public or private securities

— Price differences in repurchase agreements, regardless of the denomination given to them by the parties

— Other income obtained from the assignment of own capital, financial leasing, factoring, asset securitization and any type of credit, financing, capital investment or savings transaction

• Income generated by transparent legal structures, whether it comes from financial income, interest, valuation of goods and assets derived from the execution of trust business or invest ments made, excluding income taxed by the IDU.

• Royalties received in Paraguay or those coming from rights used in Paraguay. Among others, royalties include payments for the use or assignment of the use of copyright and related rights; industrial property rights; rights or licenses to computer pro grams or their updating; information relating to industrial, commercial or scientific knowledge or experience; personal rights susceptible to assignment, such as rights to images, names, nicknames and artistic names; and rights to other intan gible assets.

• Capital gains arising from the disposal of rights, shares or inter ests in a resident or nonresident entity, which give its owner the right to enjoy movable or immovable property located in Paraguay.

• Capital gains derived from the sale or assignment of real estate, including leasing, subleasing, as well as from the constitution or assignment of rights or faculties (prerogatives, authorities or licenses) of use or enjoyment thereof, whatever their name or nature.

• Capital gains arising from the disposal or assignment of mov able property, regardless of whether it is registrable, located in Paraguay, or in rem rights thereon.

• The prizes of lotteries, raffles, draws, bingos and similar events held in Paraguay.

• The incorporation free of charge to the patrimony of the tax payer of movable and immovable assets located in Paraguay or rights that must be complied with or exercised in the country.

• The total or partial redemption of shares or quotas of entities resident or incorporated in the country, on the portion exceed ing the capital contributed, as well as reserves, whatever their denomination, excluding income taxed by IDU.

• Any unjustified increase in capital (a capital increase with no verifiable source).

Income derived from the provision of independent personal ser vices and in a labor relationship. Income derived from the ren dering of personal services of Paraguayan origin is deemed to be income that comes from personal work, professional or otherwise, performed by a resident in a relationship of dependence or not, consisting of any type of consideration, remuneration or income, whatever its denomination or nature. This includes income from the following:

• Remuneration originating from the provision of independent personal services.

• Salaries, wages, bonuses or per diems not subject to accountability and other remunerations in any concept, paid by indi viduals, public or private entities, binational entities and autonomous patrimonies, to their representatives, officials or employees in Paraguay or in other countries.

• The salaries, wages, bonuses and other remunerations of crew members of air, river or sea vessels and land vehicles, provided that such vessels or vehicles have their base port in Paraguay or are registered or recorded in the country, regardless of the nationality or domicile of the beneficiaries of the income and the countries between which the traffic takes place.

• Remunerations, salaries, commissions, per diems not subject to accounting, representation expenses, gratuities or remunera tions paid or accredited by entities with or without legal person ality resident in the country to members of their boards of directors and other management or advisory bodies.

• Income corresponding to retirement incentive schemes estab lished for public officials.

• Any other remuneration received in money or in kind, in con sideration of an independent personal service and in a relation ship of dependence under the Labor Code.

Every individual is liable for tax on income derived from personal services, once the total gross income taxed under that heading, computed as from 1 January of that year, exceeds PYG80 million. The person who reaches this amount settles this tax on the total gross income received minus deductible expenses incurred in the first fiscal year following the day on which the amount is reached.

Exempt income. Income derived from the following activities is exempt:

• Interest on public debt securities issued by the state through the Ministry of Finance and by municipalities.

• Income and capital gains derived from the sale of property by expropriation.

• Income and capital gains from the sale or disposal of movable property, provided that the sum of these in the year does not exceed PYG20 million.

• Exchange differences arising from the holding of foreign cur rency or from deposits or credits in such currency.

• The 13th salary required by the Labor Code.

• Compensation for dismissal adjusted to the legal minimum. Compensation established in collective bargaining agreements is not considered adjusted to the legal minimum. Therefore, the amount that exceeds the legal minimum is not exempt.

• Remuneration that diplomats, consular agents and other official foreign representatives of countries or international organizations accredited to the Paraguayan government receive for the perfor mance of their functions, on condition of reciprocity.

• Ex gratia or non-contributory pensions.

• Interest and profits from the sale of stock market bonds placed through the stock exchange regulated by the National Securities Commission.

• Interest, yields and profits coming from greater value obtained from the negotiation of titles and securities through the stock exchange regulated by the National Securities Commission, including debt titles issued by issuing companies authorized by such entity.

• Returns from the valuation of the participation quota or the higher value from the negotiation or liquidation of the same of patrimonial investment funds foreseen in Law No. 5452/2015.

• Interest, commissions or yields for deposits or capital place ments in banking and financial entities in the country, governed by Law No. 861/1996, as well as in cooperatives and mutuals that carry out savings and credit activities.

• Prizes under PYG500,000 won in lotteries, raffles, drawings, bingos and similar events held in Paraguay.

• Remuneration received as a scholarship holder under national scholarship programs abroad promoted by the national govern ment, intended to cover subsistence and travel expenses.

Capital gains. For details regarding the taxation of capital gains, see Income subject to tax.

Deductions. Individuals may deduct expenses from income derived from the provision of independent personal services and in a labor relationship. Expenses are fully deductible if they are supported by documentation that complies with the tax rules. Deductible expenses incurred in Paraguay include, among others, the follow ing:

• Food

• Clothing

• Rent of the house and the maintenance of the same, whether owned or rented

• Purchase of furniture, household appliances and household goods

• Entertainment allowances

• Other personal expenses

For other income and capital gains, excluding income taxed by IDU, no deductions are allowed.

Rates. The applicable rate for income and capital gains is 8%. The tax corresponding to income derived from the provision of personal services is determined by applying progressive rates linked

to a scale of net income. For such purposes, the rate corresponding to each section of the scale is applied to the portion of net income included in that section. The following are the progressive tax rates:

Net income Rate (%)

Up to PYG50,000,000 8

From PYG50,000,001 to PYG150,000,000 9 Equal to or higher than PYG150,000,001 10

Relief for losses. The negative results derived from the expendi tures provided in the law will not be subject to compensation or carryover in the following fiscal years, with the exception of the acquisition of real estate, including the construction, remodeling or renovation of a home.

B. Social security

Social security tax is levied on employees’ compensation. Employ ees pay contributions at a rate of 9% (11% for banking employees), and employers at a rate of 16.5% (17% for banks), on employees’ compensation.

Totalization agreements. To provide relief from double social security taxation and to assure benefits coverage, Paraguay entered into totalization agreements with several countries, including, among others, Argentina, Bolivia, Brazil, Chile, Ecuador, Spain and Uruguay.

In practice, the Paraguayan Social Security Institution is very formal regarding the documents and deadlines required for issu ing Certificates of Coverage for foreign individuals.

C. Tax filing and payment procedures

The tax year in Paraguay is the calendar year (1 January through 31 December).

Individuals must file a tax return by March of the following year. The exact date depends on the taxpayer’s Tax Identification Number.

D. Tax treaties

Paraguay has entered into double tax treaties with Chile, Qatar, Taiwan, the United Arab Emirates and Uruguay to avoid double taxation on income tax, including personal income tax.

E. Residence permits

All foreigners wishing to maintain residency in Paraguay must obtain residence permits. The Paraguayan migratory legislation does not provide for work visas. Individuals may enter as tourists for a maximum period of 90 days (renewable). During this period, they can start the process to obtain temporary or permanent resi dence permits.

Temporary residence permits allow their holders to reside in Paraguay. They are valid for a period of one year and may be renewed for a period of up to five years. The generally required documents to reside in Paraguay are the following:

Identity card or passport from the country of origin

Birth certificate

• Marriage certificate or divorce decree (to demonstrate civil status)

• Police or criminal records (from the age of 14) from the country of origin or residence during the previous five years

• Police records certificate for foreigners issued by the Department of Informatics of the National Police (from the age of 14)

• Health certificate from the Ministry of Health, mentioning psychophysical health and confirming absence of infectious diseases

• Certificate of life and residence, issued by the police depart ment of the current domicile in the country

• Certificate of entrance and permanence in Paraguay

• Consular visa for countries that require it (verified by the Paraguayan Ministry of Foreign Affairs)

• Two passport-size photos (2.5 cm x 2.5 cm) in color

• Professional and/or technical title (legalized) or an official education certificate

• Proof of maintenance (for adults)

An individual with temporary residence must renew his or her permit each year.

For obtaining permanent residence, the following additional items are required:

• Proof of economic solvency, which can be made in the form of a deposit of 350 daily wages (PYG30,817,850 [approximately USD4,540]) in the National Development Bank (Banco Nacional de Fomento), or of a university degree

• Signed affidavit with the promise to obey Paraguayan laws, signed before a notary public

Foreigners with permanent residence must obtain a Paraguayan Identity Card, which must be renewed every 10 years.

All original documents must be valid and also filed with two complete copies authenticated by a notary public. The documents in foreign languages (except Portuguese) must be translated into Spanish (including the passport) by a translator certified by the Paraguayan Supreme Court of Justice. Documentation from the country of origin or residence must be endorsed by the Paraguayan consulate abroad and legalized by the Ministry of Foreign Affairs in Asunción or apostilled.

F. Work permits

Neither permanent nor temporary residents need to obtain a work permit in Paraguay. The residence permit is sufficient for per forming gainful activities in the country.

G. Family and personal considerations

Family members. Family members of a working expatriate must have separate permits to reside in Paraguay. However, the family members may file jointly with the working expatriate for resi dence permits. The dependents of a working expatriate may attend schools in Paraguay without student visas.

Driver’s licenses. International driver’s licenses are permitted in Paraguay.