Paraguay - Taxation

In 2003 the basic corporate tax rate was 30%, but there are a number of exceptions. Reinvested income and investment in reforestation are taxed at 10%, and stock exchange companies are taxed at a reduced rate of 15% until 2008. Cultural activities like education and book publishing for educational purposes are exempt from income tax. Priority activities encouraged by the government can qualify for a tax rate of 1.5% for periods of five to ten years. Companies under the "maquila" regime pay a special tax of equal to 1% of value-added. The tax of companies in free zones (FZs) is 0.5% of gross income in lieu of all other taxes. Paraguay's general fiscal incentives package for foreign investors includes a 95% reduction in corporate tax for five years, renewable to 10. Dividends to resident shareholders are not taxed, but profits and dividends paid to nonresident shareholders are subject to an additional 5% tax. Branches of foreign companies established in Paraguay, apart from the maquila, FZ, and investment incentives regimes are subject to a 35% corporate income tax. There is a license tax payable by all persons and entities engaged in permanent forms of business. Remittances to nonresidences are subject to a 5% withholding tax. Capital gains on all assets are taxed at 30%.

Paraguay only directly taxes "high-level" executives on their income, but this may be handled through the corporation tax if the company only deducts the amount of executive salaries held to be tax-exempt under the law. If the company deducts all executives' salaries, individual executives are subject to income tax. Social security taxes total 26% of payroll, with 16.5% from the employer and 9.5% from the employee. All land and buildings are also subject to an annual property tax proportional to the fiscal valuation of real estate.

The main indirect tax is Paraguay's value-added tax (VAT) with a standard rate of 10%.

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