Governments all around the world are increasingly turning to free trade zones (FTZs) as a means of improving economic growth and investment, and Paraguay is not behind.
Paraguayan Law 523/95 entered into force in 2002 and authorizes the establishment of free trade zones (FTZs). Paraguay has two Free trade zones located in the Alto Paraná region (northeastern region, near the border of Brazil and Argentina). And the Paraguayan Free Trades Zone aims at developing commerce, and connections with foreign markets.
These Free trade zones in Paraguay, permit all types of commercial, industrial, and service activities to be carried out. And the legal framework governing such zones offers various advantages in terms of tax exemptions, as well as a unique tax regime with an income tax rate of 0.5%.
Taxes of the Paraguayan companies in Paraguay Free Trade Zones.
- Companies founded in the Free Trade Zone with business activities abroad and Paraguayan national territory are subject to the common 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 Paraguay Free Trade Zone is exempt from all national, municipal, or state taxes, except the fiscal regime.
- Another important case is securing the structures of the investors, any change in the tax legislation in the future will not apply, unless they want to be subjects of the new taxation regime.
Other Paraguayan tax incentives: the Investment Law 60-90
The framework of economic investment was affirmed in Law No. 60/90, which offers some unique tax exemption benefits to foreign and local investors.
The advantages of the Law No. 60/90 may be available for Cash, financing, Capital goods, Transfers of licensing rights, and some other investments.
The investment incentives included in Law No. 60/90 that remain authorized after tax law revision (Law No. 2421/04) are exemptions from specific fiscal, municipal, and customs duties taxes.
When the amount of financing for an investment is proportional to or over USD 5 million, it will be exempt from withholding tax on interest, commissions, and capital that has to be paid to financial or banking entities abroad, and this benefit is for five years.
If the investment is at least USD 5 million and the project is authorized by the tax authorities, the dividends and profits gotten from the project are tax-exempt. The indicated exemption is granted for five years and may be extended to ten years.
Paraguay Law No. 5542 /15 (Paraguay Law of Investment Guarantee)
The Law on Investment Guarantee confirms that for those companies that comply with the regime, it’s guaranteed that the rate of income tax will not change over a 10 – 20 year period.
Also, foreign investors in Paraguay will enjoy similar advantages as the local entrepreneurs.
Extra Tax Incentives in Paraguay
- Exports are exempt from specific customs duties and VAT.
- A Capital Market Law created incentives for the issuance of bonds abroad.
- Under the Export Incentives Regime, exports are exempt from VAT.
Also, a Temporary or Provisional Admission Regime is in place, which exempts imports from import tariffs and VAT.
Although in Paraguay, the most obvious tax incentive is the Maquila ( a regime subject to the special tax treatment of 1% at a tax rate that applies to the value added within Paraguayan territory), the Free Trade Zones also offer considerable tax incentives for all types of commercial, industrial and service operations.
Are you interested in establishing a company and enjoying the benefits of the Paraguayan tax incentives? – Let’s go ahead and contact your Damalion expert now.
