Are you seeking a tax-free country to grow your wealth? If so, Paraguay is the most suitable for you.
This South American country, bordered by Brazil, Argentina, and Bolivia, offers a favorable tax regime with its territorial taxation system, making it the perfect tax haven due to its low taxation. Furthermore, it is one of the safest countries in the region.
Paraguay’s economy is on the rise, with a GDP growth rate of 1.24% in March 2024, and GDP per capita was $6,415.43 by December 2023. The growing economy makes it an attractive destination for digital nomads, entrepreneurs, and globetrotters.
The country has simple tax requirements, including a 0% tax on income earned outside Paraguay and no wealth, gift or inheritance taxes. In this article, we cover Paraguay’s tax system along with its benefits and how to obtain a tax residency.
Paraguay´s tax benefits
Paraguay offers several tax benefits, making it an attractive destination for individuals and companies seeking favorable tax conditions:
- Taxable Income: Only Paraguayan-source income is subject to tax; foreign-source income is exempt.
- Corporate Income Tax (CIT): Foreign-source income is not taxed. Paraguayan-source income is taxed at a 10% rate.
- Personal Income Tax (PIT): Foreign-source income is exempt from tax. Paraguayan-source income is taxed at progressive rates ranging from 8% to 10%.
These features contribute to Paraguay’s reputation as a tax haven.
Tax System in Paraguay
Paraguay is known for its territorial tax system similar to other countries in the region like Panama, Costa Rica and with some nuances, the Dominican Republic, which offers significant benefits for tax residents. Under this system, residents are only taxed on income earned within Paraguay. This means that any income earned outside the country is exempt from Paraguayan taxes.
Tax Rates
All the following tax rates apply only to Paraguayan-source income:
Corporate Income Tax (CIT)
- CIT rate: 10%.
Personal Income Tax (PIT)
- PIT rate: 10%.
Value-Added Tax (VAT)
- Standard VAT rate: 10%.
- Reduced VAT rate: 5% (applicable to sale and rent of immovables, some medicines, and agricultural, horticultural, and fruit products).
Withholding Tax (WHT)
- Residents: 8% on dividends.
- Non-resident corporations:
- Dividends: 15%.
- Interest: 6% (banks/financial institutions), 15% (commercial entities), 30% (head office/direct shareholder).
- Royalties: 15% (commercial entities), 30% (head office/direct shareholder).
Capital Gains Tax (CGT)
- Corporate capital gains: Subject to the normal CIT rate.
- Individual capital gains: Subject to the normal PIT rate.
Other Taxes
- Net wealth/worth tax: Not applicable.
- Inheritance tax: Not applicable.
- Gift tax: Not applicable.
These favorable tax rates can result in very low or free taxes, depending on the sources of your income.
How to Obtain your Tax Residency in Paraguay?
The following is the step-by-step process of obtaining tax residency in Paraguay:
Secure a Residency Permit
To become a tax resident, the first is that you first need to secure a residency permit. Paraguay’s immigration policy is relatively open. Most nationalities, including Europeans, can enter with just a passport. However, some nationalities may need a visa for initial entry.
How Can You Apply For Permanent Residency in Paraguay?
Once in Paraguay, you can apply for a temporary residency permit, which is valid for two years. After the first two years, you can apply for permanent residency.
The requirements for a permanent residency include:
- Documents Needed: Birth certificate, marriage certificate (if applicable), and criminal record.
- No Additional Requirements: You do not need to own property, open a business, or have utility bills in your name.
Identity Card
After obtaining temporary residency, you can apply for your Paraguayan identity card, known as the “Cédula de Identidad.” This card is essential for various transactions within the country, including opening bank accounts.
Tax Identification (RUC)
With your identity card, “Cédula,” you can then apply for a tax ID number or “Registro Único de Contribuyentes” (RUC). This number is necessary for:
- Registering a business.
- Invoicing as a freelancer.
- Paying taxes.
- Requesting a tax residency certificate.
Tax Residency Certificate
A tax residency certificate is important if you need to demonstrate to other jurisdictions that you are a tax resident of Paraguay. However, Paraguay has limited international tax treaties, so the recognition of this certificate by other countries might vary.
Duration of the Tax Residency Process
The legal procedure involves three fundamental steps: the application for temporary residency, the issuance of a citizenship card, and the request for a Unique Taxpayer Registry (for a tax certificate).
The waiting times for each document range between 15 and 45 days, adding up to a total of approximately 3 months.
It is possible to stay in Paraguay during these 3 months or remain outside the country, only visiting its capital, Asunción, on the necessary days for the procedures.
Lastly, we want to warn about something happening in Paraguay that many clients have encountered issues with. It involves bribing the police and tax authorities to complete the entire process in a single 2-day trip to Paraguay.
This activity, which was once common in Paraguay, is currently being cracked down on, and can lead to criminal charges for the briber, the official accepting the bribe, and the resident who pays to obtain the ID illegally. Therefore, we strongly recommend following the legal procedure and staying away from these methods.
Maintaining Your Tax Residency in Paraguay
Maintaining Paraguayan tax residency is relatively flexible. Paraguay does not require you to spend a certain number of days in the country each year to keep your residency status.
- Residency Permit: You must visit Paraguay at least once every 3 years to keep your residency permit active.
- Tax Residency Certificate Requirements: To request a certificate, you must either have an active RUC or spend more than 120 days in Paraguay each year.
Active vs. Frozen RUC:
- Active RUC: Requires monthly VAT returns (even if no business activities).
- Frozen RUC: Does not require returns but does not qualify for a tax residency certificate unless you spend at least 4 months in Paraguay each year.
Permanent Residency and Citizenship
When your temporary residency expires, you can apply for permanent residency, which lasts for 10 years and requires a visit to Paraguay every three years. After three years of holding permanent residency, you can apply for citizenship.
Alternatively, you can obtain permanent residency by investing $70,000 and creating five jobs within two years.
How Can We Help You?
With hundreds of entrepreneurs and investors successfully relocated, Paraguay has become one of our top destinations due to its favorable tax rates and flexible residency requirements. Our extensive experience and dedication enable us to provide the most comprehensive residency service on the market in Paraguay, which includes:
Comprehensive residency package covering all procedures, fees, and documents required to establish tax residency, including:
- Temporary residency permit.
- Paraguayan ID card (Cédula de Identidad).
- RUC (Taxpayer Identification Number).
- Tax residency certificate.
- Document translation as needed for the residency process.
- Convenient transport: Taxi pickup from your accommodation for each appointment.
- Continuous support and follow-up: Assistance via email and WhatsApp to guide you through all steps and documentation.
International tax advisory service for individuals and businesses, including:
- Review of your current tax structure.
- Recommendations for the most legally efficient setup.
- Step-by-step guidance on severing tax ties with your previous country of residence.
Contact us to begin your Paraguay residency process
How can I become a tax resident in Paraguay?
Steps include:
- Secure a temporary residency permit (valid for 2 years).
- Apply for permanent residency after 2 years.
- Obtain a Paraguayan identity card (Cédula de Identidad).
- Apply for a tax ID (RUC).
What is the territorial tax system in Paraguay?
What are the key tax rates in Paraguay?
- Corporate Income Tax (CIT): 10%.
- Personal Income Tax (PIT): 10%.
- VAT: 10% (standard), 5% (reduced for certain goods).
- No wealth, gift, or inheritance taxes.
