ParaguayTax Obligations Detailed

Employer Tax Obligations in Paraguay for 2025 (as of February 5, 2025)

In Paraguay, employers face various tax obligations, including social security contributions, income tax withholding, and corporate income tax. This summary provides an overview of these obligations.

Employer Social Security Contributions

• Rate: 16.5% of the employee's salary.
• Basis: Calculated on all salary components, including cash and non-cash benefits, excluding the 13th-month salary and family allowances.

Employee Social Security Contributions

• Rate: 9% of the employee's salary.
• Basis: Same as employer contributions.

Income Tax Withholding (Employee)

• Rate: 10% (flat rate).
• Threshold: Applies to resident employees with annual income exceeding 36 times the monthly minimum wage (approximately $13,000 USD as of January 1, 2025).
• Basis: Income exceeding the threshold.

Corporate Income Tax (IRE)

• Rate: 10%.
• Basis: Taxable corporate income.
• Payments: Four advance payments based on the previous year's tax liability, followed by a final payment.
• Return: Due within four months of the fiscal year-end, the exact date depends on the Taxpayer Identification Number.
• Dividend Tax (IDU): 8% on distributed dividends or profits.

Value Added Tax (VAT)

• Rate: Generally 10%.
• Reduced Rate: 5% applies to specific items like basic foodstuffs, real estate sales and leases, and certain agricultural products.

Other Relevant Information

• Minimum Wage: Gs. 2,298,324.00 per month (as of 2025).
• 13th-month Salary: Mandatory, paid in December, equal to one-twelfth of the employee's total annual remuneration.
• Tax Year: Calendar year (January 1 to December 31).
• Payroll Frequency: Monthly (or more frequent).

In Paraguay, employers deduct income tax and social security contributions from employee salaries.

Income Tax (IRP - Impuesto a la Renta Personal)

• Tax Rate: 10%
• Threshold: Applies to annual income exceeding 36 times the monthly minimum wage (approximately 13,000 USD as of January 1, 2025). This threshold is subject to change based on annual minimum wage adjustments.

Social Security (IPS - Instituto de Previsión Social)

• Employee Contribution: 9% of gross salary. This includes 3% designated for the Pension Fund and the remaining for IPS.
• Employer Contribution: 16.5% of the employee's gross salary.

Other Deductions

• Other deductions may apply depending on the employee's specific circumstances, such as union dues or court-ordered deductions.

Employer Responsibilities

• Employers are responsible for calculating, withholding, and remitting both income tax and social security contributions to the appropriate authorities.
• It's crucial for employers to maintain accurate records of all payroll deductions.

Important Considerations

• The information provided is based on the current legislation as of February 5, 2025. Tax laws and regulations are subject to change.
• For the most up-to-date and personalized guidance, consult with a local tax advisor. This overview is for informational purposes only and should not be considered financial or legal advice.

In Paraguay, the Value Added Tax (VAT, known locally as IVA) is a consumption tax applied to most goods and services.

VAT Rates

• Standard Rate: 10%
• Reduced Rate: 5% (Applies to specific goods and services)

Reduced Rate Applicability

The 5% reduced rate applies to the following:

• Real estate lease for housing
• Sale of real estate
• Basic family products (rice, noodles, vegetable oil, yerba mate, milk, eggs, flour, iodized salt)
• Agricultural, horticultural, and fruit products (a wide range is specified, including common fruits like avocados, bananas, apples, oranges, and more)
• Livestock products (live animals and primary derivatives like meat, wool, leather)
• Pharmaceutical products registered with the Ministry of Public Health and Social Welfare

VAT Registration

There is no registration threshold for VAT in Paraguay. All businesses, regardless of turnover, must register for VAT if they conduct taxable transactions. This includes businesses making even a single sale. Businesses involved in import or export activities must also register, irrespective of turnover.

VAT Filing and Payment

• Frequency: Monthly
• Due Date: The due date varies depending on the last digit of the taxpayer's tax identification number. Specific dates for each digit are published by the tax authority.
• Method: Electronic filing is mandatory. The official platform is called "Sistema Marangatú." Taxpayers are responsible for completing and submitting their returns through this system.

Electronic Invoicing (e-Invoicing)

E-invoicing is mandatory in Paraguay. The rollout has been phased, with different groups of taxpayers required to comply at different times. As of January 2025, all newly registered legal entities are mandated to issue electronic invoices (except for withholding invoices) using either the free "E-Kuatia´i" system or the "E-Kuatia" system for medium and large enterprises.

VAT Exemptions

Several goods and services are exempt from VAT, including:

• Transfer of foreign currency
• Transfer of shares or quotas of capital stock
• Cession of credits
• Capital goods produced by domestic manufacturers under Law 60/90 (investment promotion)
• Books and newspapers (print or digital)
• Educational, cultural, or scientific magazines
• Goods donated to certain non-profit organizations (educational or sports-related) recognized by the Ministry of Education
• Certain basic food stuffs
• Agricultural produce and rent

Digital Services and VAT

Non-resident providers of digital services to consumers in Paraguay are subject to VAT withholding. Resident customers must withhold the VAT amount on payments and remit it to the tax authorities. A 4.5% digital services tax (collected as a withholding tax) also applies. Non-residents providing these services must register with the tax office (SET) and appoint a local tax representative.

Other Indirect Taxes

Paraguay also levies other indirect taxes, such as the selective tax on consumption (a type of excise tax) on specific goods like alcoholic beverages, tobacco products, and petroleum.

Please note that this information is current as of February 5, 2025, and may be subject to change. It's essential to consult with a tax advisor for personalized advice.

Paraguay offers several tax incentives to attract foreign investment and boost specific sectors.

General Tax Regime

• Corporate Income Tax (IRE): 10% on Paraguayan-sourced income. The 2020 tax reform broadened the definition of "Paraguayan-sourced income" to encompass certain foreign financial income.
• Personal Income Tax (IRP): Up to 10% on Paraguayan-sourced income, with progressive rates.
• Value Added Tax (VAT): Generally 10%. A reduced rate of 5% applies to essential goods and services, and a 1% rate is applicable in specific real estate transactions and imports intended for the shopping basket.
• No inheritance, gift, or wealth taxes.

Specific Incentive Regimes

• Law 60/90 (Investment Promotion Regime): Offers exemptions from corporate income tax, VAT, and import duties on capital goods, raw materials, and inputs for approved investment projects exceeding USD 5 million. Dividends and profits can also be exempt for 5-10 years. Exemption from withholding tax on interest, commissions, and capital paid to foreign entities for financing equal to or greater than USD 5 million for five years.
• Maquila Regime (Law 1064/97): A special regime for export-oriented manufacturing and assembly operations. It features a 1% tax on the value added in Paraguay (the "Paraguayan component"). Inputs are typically exempt from import duties and other taxes. Up to 10% of production may be sold in the local market after paying applicable taxes and duties.
• Free Trade Zones (Law 523/95): Offers various tax benefits, including exemptions from VAT and corporate income tax, for companies operating within designated zones. A unique tax of 0.5% on gross income applies to sales to third countries. Specifically beneficial for export-oriented manufacturing, maintenance services of machinery and electronic equipment, and the import/export of goods without modification.
• Capital Investment Law: Provides additional incentives for large investments (at least USD 13 million) by exempting withholding tax on dividends (IDU) for up to 10 years under specific conditions.

Double Taxation Agreements (DTTs)

• Paraguay has DTTs in place with Chile, Taiwan, and Uruguay.
• An agreement to avoid double taxation with Spain is in force starting January 1, 2025.

As of February 5, 2025, this information is current but subject to change. Consulting with a tax advisor is recommended for the latest details and applicability to specific situations.