Modernising and simplifying the Paraguayan tax system

The Law No. 6.380/19 on modernising and simplifying the Paraguayan tax system was passed on 25 September 2019.

The main changes introduced in this tax reform, with effect from 1 January 2020, are:

Corporate income tax (Impuesto a la Renta Empresarial) (IRE)

The IRE unified the previous Income Tax on Commercial and Industrial Activities and Services (IRACIS) and the Income Tax on Agricultural Activities (IRAGRO), with the aim of simplification and applying the same rules, retaining the main points of each.

Other changes include:

The tax base is extended, with the concept of "Paraguayan sources"
Tax losses carried forward are now allowed for up to five years.
Transfer pricing regulations are also introduced
There is a new limitation of expenses deductions
The single rate of 10% is maintained; however, the distribution of profits, dividends or income from corporations to beneficiaries will be taxed separately by the tax on dividend and income (IDU) at 8% (previously taxed at 5% of IRACIS and 5% by the IRP).

Two special schemes were introduced for Small and Medium Enterprises (MIPYMES).

A simplified regime for medium-sized enterprises of sole proprietorships (SIMPLE): for those whose gross income accrued in the previous tax year does not exceed the amount of PYG 2,000,000,000 (approximately USD 322,000).
A simplified scheme for small businesses of sole proprietorships (RESIMPLE): for those whose gross income accrued in the previous fiscal year is up to PYG 80,000,000 (approximately USD 12,900)

Dividend and income tax (IDU)

This taxes dividends, profits or returns made available or paid by corporations to individuals, corporations and other entities resident in the country or not, such as owners, consortia, partners and shareholders.

The rate is 8% when the beneficiary is resident in the country and 15% when the recipient is non-resident, to be applied on the dividend or profit amount, without any deductions.

Personal income tax (IRP)

One of the main points introduced in the IRP by this reform is to separate income received by the individual as follows:

Income and Capital Gains
Income derived from the provision of Personal Services

The tax calculation must be determined separately for each of the income categories, without the possibility of allocating expenses or profits from one to the other.

In the case of capital gains, the rate to be applied is 8%.

The tax charge on income from personal services is determined by applying progressive rates linked to a net income scale, as follows:

Segment	Net amount	Applicable rate
1	Up to PYG 50,000.000 (approx. USD 8,000)	8%
2	From PYG 50,000.000 to PYG 150,000,000 (approx. USD 24,100)	9%
3	over PYG 150,000.000 (approx. USD 24,100)	10%

Non-Resident income tax (INR)

This tax is another innovation, taxing Paraguayan source income received by non-residents from performing taxable activities included in the IRE and the IRP. The INR includes income from digital services, which were always taxed based on their effective utilisation in the country, including entertainment services or gambling. A rate of 15% on net income is expected, although this will depend on the activity carried out by the taxpayer.

Value added tax (VAT)

No significant modification was made to the VAT structure, maintaining the overall rate of 10% and the differentiated rate of 5% for basic food basket and medicine products. In the case of land and buildings rentals, those intended for use in a trade are taxed at the rate of 10%. However, the rate of 5% is maintained for those intended for family residence.

The previous system of VAT credit refunds is eliminated for export operations of soybean and its derivatives, with some exemptions.

Excise tax (ISC)

The range of the prescribed rates in Section I "Tabacos" and Section II "Alcoholic Beverages" is expanded, including the tax on beverages high in sugar, canned foods high in calories, and luxury goods.

Oscar Guillén
oscar.guillen@bdo.com.py

Enrique Benítez
enrique.benitez@bdo.com.py