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In Paraguay, the most obvious tax incentive is the Maquila, but the Free Trade Zones also offer significant tax incentives for all types of commercial, industrial and service operations. The “duty-free tax” rate in the Paraguayan Free Trade Zones is only 0,5%.

The tax exemption in the Free Trade Zones applies to the companies formed in the DFZs (duty-free zones, the same as the Free Trade Zones) and the remittance of profits or dividends to third countries. The Free Trade Zone companies also enjoy the exemption for the payment of royalties, commissions, professional fees, interests and any other remuneration for services, technical assistance, technological transfer, loans and financing, leasing of equipment and any other service rendered from third countries to the Users of Duty-Free Zones.

The Paraguayan Free Trades Zone’s aim is the develop the commerce, the connections with foreign markets. In the meantime, onshore (within the country) activities are also allowed.

The legal framework behind the tax incentives of the Paraguayan Free Trade Zones is the Law No. 523/95, ‘which authorises and establishes the Free Trade Zone Regime’.

There are two entities in the structure, the “user”, who is carrying out the commercial, industrial or service activities. Meanwhile, the “concessionaire” provides the infrastructure for the freight operations.

Taxes of the Paraguayan companies in the Free Trade Zones

• Companies established in a free trade zone with activities focused exclusively on exports pay a single flat tax of 0,5% of the total value of gross export income, known as “duty-free tax”. It will be collected from the total amount of the gross revenues for sales to third countries. This duty-free tax will be settled and paid with the formalisation of each export dispatch note.
• Companies established in the Free Trade Zone with business activities abroad and Paraguayan national territory as well are subject to the general Paraguayan Corporate Income Tax of 10% of the proportion of products sold in the country.
• The profit of commercial, industrial and service activities in the Free Trade Zone is exempt from all national, municipal or state tax, except the tributary regime.
• Another essential issue to secure the structures of the investors, any change in the tax legislation in the future will not apply (to the investors, who chose to submit to the system established in the present regulation), unless they wish to be subjects of the new tributary regime.

There are currently two free trade zones located in Ciudad del Este, the Alto Paraná region close to the border with Brazil and Argentina), in which national and international companies actively operate.

Other Paraguayan tax incentives

The Investment Law 60-90

This regulation’s objectives are to promote and increase both domestic and foreign capital investment in Paraguay. Fiscal benefits are granted to natural and legal persons living in the country (permanent residents and locally registered companies), whose investments are in accordance with the economic and social policy of the Paraguayan government.

The covered investments in Paraguay can benefit from:

• Total exemption of tax and municipal taxes levied on the creation, registration and records of companies and enterprises.

• The import of capital goods, raw materials and inputs for the local, Paraguayan industry enjoy total exemption from customs duties and other similar fees, including internal taxes.
• When the investment is financed by a foreign financial institution, there are no taxes on the payments made to the financial institution for investments higher than five million US dollars.
• For investments higher than five million US dollars, there are no taxes to be paid when utilities arising from the project are distributed.

Law No. 5542 /15 (Law of Investment Guarantee)

The Law on Investment Guarantee ensures that for those companies that comply with the regime:

• It’s guaranteed that the rate of income tax does not change over a 10 – 20 year period (depending on the amount of the investment).

• Foreign investors in Paraguay enjoy similar benefits as the local entrepreneurs, fair treatment is guaranteed by the law.

Additional Tax Incentives in Paraguay

The Capital Market Law (No. 1,284/98) introduced incentives for the issuance of bonds abroad.
Under the Export Incentives Regime, exports are VAT exempt. A Temporary or Provisional Admission Regime is also in place, which exempts imports from import tariffs and VAT.
The regulation recognises a tax credit for pre-production stages.

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