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Paraguay Territorial Taxation: Requirements for Tax-Free Residency

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residencia fiscal en Paraguay

Paraguay, situated in the heart of South America and bordering Argentina, Brazil, and Bolivia, is one of the hidden gems of international taxation.

Its most notable feature is that it belongs to the select group of countries with territorial taxation, thereby opening up multiple opportunities to pay fewer taxes.

Moreover, Paraguay offers a series of other vital advantages for Tax Nomads: cost of living, ease of obtaining residency and access to citizenship, minimal requirements, and enormous flexibility.

With this article, you will gain an in-depth understanding of the benefits Paraguay has for you, as well as the requirements, processes, and peculiarities of life in the country.

Benefits of Tax Residency in Paraguay

As previously mentioned, Paraguay is a jurisdiction with territorial taxation, and thus, its tax residency exempts individuals from any taxes on income that is not earned WITHIN Paraguay.

It is important to emphasize that this territorial advantage only applies to personal income, as currently, companies in Paraguay do not benefit from it.

Therefore, it is advisable to operate through companies and structures outside the country with Paraguayan tax residency.

But territoriality is not everything. Paraguay itself offers very competitive tax incentives:

  • Personal Income Tax: 10%
  • Capital Gains Tax: 10%
  • Corporate Tax: 10%
  • VAT: 10%
  • Gift Tax: 0%
  • Inheritance Tax: 0%
  • Wealth Tax: 0%
  • No exit tax
  • No CFC Rules

So, with Paraguayan tax residency, depending on the source of your income, you will end up paying very little or NO TAXES at all.

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Requirements to become a Tax Resident in Paraguay

We understand that this tax residency is top-notch. But is it difficult to obtain?

It’s one of the easiest!

I’m going to go into great detail in this section because I want you to fully understand how it’s achieved and why it’s so beneficial.

Residency Permit

First, to become a tax resident of Paraguay, you obviously need a valid residency permit in the country.

Paraguay’s immigration policy is very open, and many nationalities (including Europeans) can enter the country for the first time with just their passport.

Other countries may require a visa for this initial entry.

After arriving in the country, you can proceed to apply for a temporary residency permit:

  • It is valid for 2 years, and in its last 3 months, it allows you to apply for permanent residency.
  • The requirements to obtain it are as simple as providing some documents (birth certificate, marriage certificate if applicable, and criminal record).
  • No other ties to the country are necessary, such as having a property available, opening a business, or utility bills.

Identity Document and Tax Identification (RUC)

Once you obtain temporary residency, you can apply for your Paraguayan identity document, known as the “Cédula de identidad”.

This document is essential for your transactions and life in the country, as well as for opening bank accounts.

With your Cédula, you can apply for your other identification: your tax ID!

This is the “Registro Único de Contribuyentes” (RUC), which identifies you as a “taxpayer.”

With it, you can register a business, invoice as a freelancer, pay taxes in Paraguay, and… request your tax residency certificate!

Tax Residency Certificate

This document is especially useful if you are a Tax Nomad and need to prove that you are no longer a tax resident in other tax-heavy jurisdictions because you are now a taxpayer in your new tax residency.

The downside is that Paraguay does not have many international tax treaties.

This does not invalidate the document within Paraguay, but recognition of it by other countries may vary.

Therefore, it is important to get thorough advice to ensure that in your case, the change of tax residency is secure.

How long will it take to obtain tax residency in Paraguay?

This question has three different answers depending on how you manage the procedures for your residency.

As you have seen before, the process to achieve it has four stages: temporary residency, identity card, tax identification, and tax residency certificate.

These procedures can require up to 6+ months of presence in Paraguay if you handle them personally.

If you hire the services of an agency in the country, most providers can complete the process (up to the tax residency certificate) in about 3 to 4 months, requiring you to be present in Paraguay at the beginning of the procedure and in the third/fourth month.

However, at Tax Nomads, in addition to the service with standard times, we also have a local agent who, through an express procedure, offers the COMPLETE PROCESS in just 50 days with only one initial stay in Paraguay for 3 days.

Obviously, express processes have a higher cost compared to standard ones (or doing everything yourself), but you will have the option to choose what suits you best, and in any case, all options are very affordable.

How to Maintain Tax Residency in Paraguay

At this point, you would have already obtained your residency and tax residency in Paraguay, and you might be wondering, what now?

Paraguay does not require you to have any other ties to the country or to spend a certain number of days per year to maintain your residency. This makes it one of the most flexible tax residencies.

However!

THERE ARE CERTAIN ASPECTS TO KEEP IN MIND

Paraguay can revoke your residency permit if you go more than 3 years without visiting the country.

If you wish to change your temporary residency permit to a permanent one, you will need to visit Paraguay at the end of your second year of temporary residency.

If you need Paraguay to issue you a tax residency certificate in any given year (for example, if you need to present it to another country), you must meet at least one of these two requirements:

  • Have an ACTIVE RUC (tax identification number).
  • Spend more than 120 days in the country that year.

So, if your plan is to rarely set foot in Paraguay, you must have your RUC active to be entitled to your tax residency certificate.

What does “Active” mean?

Your RUC in Paraguay can be active or “frozen.”

Being active means submitting monthly VAT returns (even if they are blank, because you do not have any business in Paraguay).

Being frozen exempts you from any returns, but you won’t get a tax residency certificate unless you spend 4 months per year in the country (which is the day criterion for being a tax resident in Paraguay).

It will depend on your profile:

  • If you plan to spend time in Paraguay, establish a certain base there, and enjoy the low cost of living, freezing the RUC would be a viable option.
  • If you prefer to live outside Paraguay and only “pass through,” it is highly recommended to keep the RUC active.

Whatever your case may be, you can contact us as we offer a full range of services.

Permanent Residency and Citizenship in Paraguay

In the last 3 months of your temporary residency permit, you can travel to the country to obtain your permanent residency permit.

This permit will be valid for 10 years, and to maintain it, you only need to visit Paraguay once every 3 years.

One notable aspect of permanent residency is that after 3 years, it allows you to apply for Paraguayan citizenship.

Lastly, it is possible to obtain permanent residency directly (without the 2 years of temporary residency) through Paraguay’s investment residency program:

  • Investment of $70,000 over 2 years
  • Creation of 5 jobs within those 2 years
asunción paraguay residencia fiscal

Living in Paraguay

Climate

Paraguay has a subtropical climate characterized by two main seasons: a warm and humid season from October to March, and a cooler, drier season from May to August.

Overall, temperatures tend to be warm as winters are not particularly cold (averaging around 10°C), and summers can reach up to 40°C.

It is recommended to visit the country in spring or autumn, when the weather is more moderate and extreme weather phenomena such as droughts or floods (which are not uncommon in Paraguay) can be avoided.

Cost of living

This is undoubtedly one of the greatest attractions for Tax Nomads.

Paraguay has a lower cost of living compared to its surrounding countries (20-25% lower).

Compared to Spain or destinations in Europe, Paraguay is up to 60-70% cheaper.

Currently, the minimum wage is around €350 per month, and its GDP per capita is twelve times lower than that of United States.

It is possible to find decent apartments in Asunción (the capital) for €300 per month.

Safety

Paraguay is considered a relatively safe country compared to some of its neighbors in South America.

However, like most destinations in Latin America, its crime rate is clearly higher than in European countries.

Some factors contributing to this high crime rate include drug trafficking, an inefficient judicial system, and undertrained police forces.

Interesting factors

In Paraguay, there are public healthcare and education systems, but their private counterparts offer significantly better services.

The political landscape is predominantly “right-wing,” and the current government considers it important for the country to be attractive to entrepreneurs and investors.

The official currency is the Guarani (PYG), but the use of the US Dollar is widespread.

Paraguayans are known for their hospitality and joyfulness. The official language is Spanish, and their proficiency in English is improving above the average of other countries.

Our review on Paraguay Tax Residency

We consider Paraguay a “low-cost” and flexible option for tax residency.

Among its main advantages, we find territorial taxation, low internal tax pressure, low cost of living, minimal requirements, and opportunities to obtain an additional nationality.

Its main disadvantage is the lack of widespread double taxation treaties, which could complicate severing ties with countries that have aggressive tax authorities.

It wouldn’t be our first choice for a Tax Nomad looking to leave a high-tax jurisdiction for the first time if they don’t intend to establish certain roots in the country.

However, it does represent one of the best options for digital nomads, perpetual tourists, or Tax Nomads who have already left their high-tax jurisdiction for another country.

Paraguay thus joins the list of countries with territorial taxation and is an option to consider alongside others such as the Dominican Republic or Panama.

If you want to obtain tax residency, set up a company in Paraguay or wish to receive a comprehensive analysis of your situation to discover your best options, simply fill out the form below and let us know your case and needs.

Contact us

In Paraguay, the main taxes include Personal Income Tax (10%), Capital Gains Tax (10%), Corporate Tax (10%), VAT (10%), and other taxes such as Donations, Inheritance, and Wealth Tax do not exist.

Territorial taxation exempts income earned outside of Paraguay from taxes, making the country attractive for minimizing tax burdens.

Tax residency in Paraguay can be attractive to tax nomads, entrepreneurs, and those seeking benefits such as territorial taxation, low taxes, flexibility in requirements, and a reduced cost of living.

It can also be of interest to those looking to obtain another passport.

To obtain tax residency in Paraguay, the process involves 4 stages: temporary residency, identity card issuance, tax identification (RUC), and tax residency certificate.

Presence in Paraguay for a certain number of days is required to complete the procedures.

After two years of temporary residency, one can apply for permanent residency, which is valid for 10 years and allows for citizenship application after three years.

There is also an investment residency program where an investment of $70,000 over two years and job creation can expedite the process.

 

The process to obtain tax residency in Paraguay consists of four stages within a period of 2 months.

Presence in Paraguay will be necessary every 2-3 weeks during those two months.

The time to obtain residency may vary, but it can be expedited through express procedures, especially if one plans to be present during the process.

Yes, in Paraguay it is possible to be a tax resident without the need to spend long periods of time in the country.

 

Additional ties such as owning a home are not required, and there is no specific number of days per year that you must spend in Paraguay to maintain tax residency.

However, there are certain aspects to consider, such as the possibility of losing your residency permit if you go more than three years without visiting the country.

Furthermore, if you wish to obtain a tax residency certificate in a particular year, you will need to have an active RUC (tax identification number) or spend more than 120 days in the country during that year.

Obtaining a Paraguayan passport follows a process related to residency and citizenship.

First, you must obtain permanent residency in Paraguay, which requires having held temporary residency for at least 2 years (or accessing the accelerated process for permanent residency through investment).

After three years with permanent residency, you can apply for Paraguayan citizenship.


Paraguay is relatively safe, but it has a crime rate higher than the average in European countries.

Caution is advised, especially in urban areas, due to factors such as drug trafficking and limitations in the judicial system and police.

Despite these challenges, many residents live safely in Paraguay.

Where your tax freedom starts

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