Paraguay Tax System Explained for Foreign Entrepreneurs

Paraguay, nestled in the heart of South America, is rapidly becoming a hotspot for foreign entrepreneurs due to its highly competitive tax system. With a 4.2% GDP growth in 2025 and foreign investments reaching $875 million in 2024, Paraguay's economic stability offers a fertile ground for business ventures. Its territorial tax system imposes no tax on income earned outside the country, a significant draw for international companies.

Executive Summary

Paraguay's tax system is characterized by simplicity and competitiveness, making it an attractive location for foreign entrepreneurs. With a corporate income tax (CIT) rate of just 10%, a value-added tax (VAT) rate of 10%, and no taxes on foreign income, Paraguay provides a unique opportunity for businesses looking to optimize their tax burden. The country's membership in Mercosur and free trade agreements with major economies like the USA and the EU further enhance its appeal. This article explores the key components of Paraguay's tax system and the benefits it offers to foreign entrepreneurs.

Why Paraguay?

Paraguay's business-friendly environment is underpinned by several key factors:

• Low Operational Costs: Operating a small business in Paraguay costs approximately $500-$1000 annually in taxes and administrative fees, significantly lower than neighboring countries.
• Political and Economic Stability: With a stable government since 2013, Paraguay saw a 15% increase in exports in 2025, driven by key sectors like soy and meat.
• Market Access: As a member of Mercosur, Paraguay enjoys preferential trade terms with Brazil and Argentina, contributing 30% and 20% of its GDP, respectively.

Key Elements of Paraguay's Tax System

Corporate Income Tax (CIT)

Paraguay's CIT rate stands at a competitive 10%, one of the lowest in Latin America compared to Brazil's 34% and Argentina's 35%. The system taxes only Paraguay-sourced income, with foreign earnings, such as those from e-commerce or investments, exempted from taxation. For businesses under the Maquila program aimed at exports, the tax rate drops to 1% on value added.

Value-Added Tax (VAT)

The standard VAT rate in Paraguay is 10%, with reduced rates of 5% on essential goods like food and medicine. Exports are VAT-exempt (0%), and raw material imports for the Maquila industry are duty-free. In 2024, VAT revenues accounted for 40% of the national budget.

Other Taxes

Investments exceeding $13 million qualify for a 20-year tax stability guarantee.

How to Establish a Business in Paraguay

The process of setting up a business in Paraguay typically takes 6-12 days and costs around $500-$1500. Registration can be done online via SUACE (a one-stop shop), which includes obtaining a RUC (tax identification number) and commercial registry. Foreigners can establish a business without local partners (100% foreign ownership is allowed).

1. Choose a Legal Structure: SRL (limited liability company) requires a minimum capital of $1 and can be established within 24-48 hours.

2. Register the Company: Complete the online process via SUACE; RUC is issued within a day, costing $200-$300.

3. Open a Bank Account: Available at banks like Itaú or Banco Continental; requires a passport and RUC, set up within 1-2 days.

Special Benefits for Investors

• Maquila Regime: Offers a 1% tax on exports, employing 500,000 people by 2025, with a 20% annual growth rate.
• Free Trade Zones (FTZ): Provide 0% duties on imports/exports and various incentives in Villeta and Alto Paraná.
• Tax Residency: Achievable after three years of residency or investment; exempts global income from taxation.

Paraguay plans additional incentives for tech and agriculture sectors by 2026, aiming to attract $1.2 billion in FDI. Consulting with experts like Zentra can help tailor tax structures to your business needs.

For personalized support in optimizing your tax strategy, reach out to Zentra.