Many digital nomads look at tax residency in Paraguay because of the advantages it offers. In this guide we won’t only have a look at the advantages but also at the process and some attention points.
Tax Residency in Paraguay at a Glance
- Easy process to obtain residency permit
- Flexible criteria to qualify as tax resident
- Benefit from a territorial tax regime
- Low taxes on local income
- Option to benefit from the IRA Simple – a simplified regime with low taxes on your revenue
Benefits of Being a Tax Resident in Paraguay
The benefits of being a tax resident in Paraguay can be found on the tax benefits you can get out of it.
Territorial Tax Regime
Paraguay applies a so-called territorial tax regime. This basically means that you only pay taxes on local source income. Income from foreign sources is exempt from taxes in Paraguay.
Therefore, it’s important to understand the difference between local and foreign income as it isn’t always as easy as you would think.
Paraguay luckily has a flexible approach to what they consider foreign income. This is interesting as you don’t have to pay taxes on this income.
If you have a foreign business you use to structure your activities, the authorities accept this as foreign source income.
Theoretically, there is the risk that your business could have a permanent establishment in Paraguay but if you don’t actually spend much time in the country that’s not so much of an issue. Furthermore, this doesn’t seem to be a focus area of the tax authorities in any case.
Tax Residency in Paraguay: Low Income Tax Rates
If you do have income that is taxable in Paraguay, the tax rates are rather low.
The personal income tax rates start at 8% for the lowest income and the maximum rate is 10%. So, even have you some income from local sources, the money you lose in taxes will be relatively low compared to many other countries.
Nevertheless, as a freelancer, you even have the option to pay taxes on your turnover instead of on your profit. This regime is called the Impuesta a la Renta Empresarial Simplificado or IRE Simple.
The interesting part is that to determine your taxable basis, they only take into account 30% of your revenue. This means that your actual tax rate is only 3% of your revenue; 10% tax rate multiplied by 30%.
In order to qualify, your revenue needs to be under 2 billion Paraguayan Guarani (around kEUR 245).
The corporate income tax rate in Paraguay is also a flat 10% but most companies can also use the IRE Simple.
The rate for VAT is also 10% but it only applies if you do transactions within Paraguay.
Social Contributions in Paraguay
When assessing the taxes one has to pay in a country, many digital nomads overlook social contributions. In Western countries social contributions even can take a bigger bite out of your income than actual income taxes.
In Paraguay, employers (16,5%) and employees (9%) do need to pay social contributions.
Yet, social contributions are optional for freelancers.
Requirements for Obtaining Tax Residency
There aren’t many requirements for obtaining tax residency in Paraguay. However, the first step is to get residency in Paraguay and for that you need certain documents.
In order to apply for a residency permit in Paraguay the following documents from your home country:
- Criminal background check
- Birth certificate
- Marriage certificate (if applicable)
These documents need to get an apostille in the country of issuance in order to confirm their legality. After that, they also need to be translated to Spanish, the official language of Paraguay.
Furthermore, you do of course need to bring a valid passport along when visiting the country.
How to Get Tax Residency in Paraguay?
In order to get tax residency in Paraguay, you need to go through a few steps.
Gather Necessary Documents
The first step is to gather all necessary documents in order to apply for a Paraguayan residency permit. you can find a list of these documents above.
Apply for Temporary Residency
Once you got all documents in place, you can actually visit Paraguay to apply for a temporary residence permit.
You will need to visit the local police station and the immigration office to submit your application. I would always recommend to go through this process with an experienced advisor so you don’t make any mistakes.
After applying you will need to wait for about 45 to 90 days for the authorities to review your application. If everything goes well, you can pick up your temporary residency card and temporary residency certificate. You will need to visit the country again in person for this.
With these documents, you can now apply for your Paraguayan ID card or Cedula.
In order to keep your temporary residency valid, you need to visit the country at least once every twelve months.
After two years, you can even upgrade your temporary residency to a permanent residency which is valid for 10 years. In order for your permanent residency valid, you need to visit once every three years. Furthermore, you need to renew your Cedula when it is about to expire.
As you can see, the physical presence requirements in Paraguay are very low as you don’t need to spend a minimum amount of days in the country. This makes it an interesting option for many digital nomads.
Nice to know is that Paraguay is part of MERCOSUR together with Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Peru, Uruguay and Venezuela. These countries have an agreement (1) in place that makes it easier to travel between the different countries. This means that you could get easier access to those countries than before.
Request Tax Number & Meet Conditions for Tax Residency
Once you have your Cedula, you can apply for a tax number with the Registro Unico de Contribuyentes (RUC).
In order to be considered at ax resident, you also need to make sure you meet the conditions for tax residency.
An individual is considered tax resident if he or she is a resident of Paraguay. According to a literal reading of the law, this means you need to spend 120 days in the country. However, the Paraguayan tax authorities apply a flexible approach whereby they also accept an individual as a tax resident if he or she has a tax ID and files (empty) monthly VAT returns.
This is important because if you qualify as a tax resident, you can obtain a tax residency certificate. This is proof you are a tax resident in Paraguay and can help you avoid paying taxes in any other country.
How to Maintain Tax Residency in Paraguay?
In order to maintain tax residency in Paraguay you don’t need to do so much:
- Make sure to keep your Cedula valid by visiting the country in time;
- File monthly VAT returns or spend at least 120 days in the country.
So, if you want to keep your flexibility or you don’t plan to spend a lot of time in Paraguay, you still have the option to obtain tax residency.
Nevertheless, you do need to watch out you don’t trigger tax residency in any other country. The fact that you have tax residency in Paraguay could help you with this but it doesn’t give any guarantee. The reason for this is that Paraguay only has a few double tax treaties in place (Chile, Taiwan, United Arab Emirates, Uruguay and Qatar).
How is Paraguay for Digital Nomads?
More and more digital nomads are familiarizing themselves with Paraguay. Most of the time, this is driven by the tax benefits the country can offer. At the same time, the country doesn’t have strict physical presence requirements.
Nevertheless, because of this more and more nomads are visiting the country, even if it is only briefly to get their paperwork done. This creates an increasing digital nomad nomad community in the country.
Moreover, the country offers a peaceful lifestyle at a very affordable cost of living. The locals are also very welcoming towards foreigners although the level of English isn’t great and Spanish is the main language.
One attention point is probably that there aren’t so many international flights into the country which makes it a bit harder to reach.
Need help? Work With Me
Due to the territorial tax regime you can create a tax setup whereby you pay little to no tax on your income. This sounds, of course, very good to us digital nomads.
Nevertheless, there are some attention points to take into account because of which it might be better to pay a little bit of taxes by registering your business in Paraguay. Furthermore, there might be other options out there which suit your situation better.
Over the years, I assisted hundreds of digital nomads with optimizing their tax setup. If you also need assistance, you can always reach out.
