Tax residency in Paraguay for digital nomads is a trending topic these days. Many nomads look at Paraguay as their ideal solution to have their tax residency. In this article, we’ll discuss the advantages and attention points for setting up tax residency in Paraguay for digital nomads.
Living in Paraguay
In order to become a tax resident in Paraguay, it is important to first make sure you have the right to live in Paraguay. Yes, this is important even if you don’t plan to spend much time in the country.
Obtain residency permit
For most digital nomads this means they will need to obtain a residence permit or ‘Cedula’ in Paraguay. In order to apply for your ‘Cedula’ you will need to gather some documents from your home country. You will need your birth certificate, marriage certificate (if applicable), criminal record and your passport.
First, you will get a temporary residence permit for two years. After those two years, you could apply for a permanent residence permit.
Additional benefit of residency permit
Once you have your residence permit of Paraguay, you can also use it to your advantage to travel more. Paraguay is a member of the MERCOSUR countries together with Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Peru, Uruguay and Venezuela. These countries have an agreement 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. In any case, I would advice you to double check before travelling and to bring your (original) passport.
Paraguayan tax rules
Most nomads pick Paraguay as their country of tax residence because of its beneficial tax rules. We’ll now dive deeper into those.
Tax residency in Paraguay
After receiving your residence permit or ‘Cedula’, you will have to apply for a Paraguayan tax ID in order to be considered a tax resident of Paraguay. The tax ID will enable you to file tax returns. Nevertheless, according to its legislation Paraguay actually only considers you a resident taxpayer if you spend more than 120 days in the country.
Tax residency in Paraguay for digital nomads: tax rates
Paraguay applies what we call a territorial tax regime. That means that Paraguay only taxes Paraguayan-source income or income you generate locally. This means that with the right structure in place and if you organize yourself well, you could basically exempt almost all of your income from taxes.
For income that does qualify as Paraguayan-source income, the general income tax rate is 10%.
Tax residency in Paraguay for digital nomads: social contributions
If you register yourself as a freelancer or you are the director of a business, social contributions are optional.
Value added tax is charged at a 10% rate. However, VAT only applies if you offer goods or services within the territory of Paraguay. If your clients are based abroad, you don’t need to charge them VAT.
Tax residency in Paraguay for digital nomads: attention points
From everything what I set out before, it seems like Paraguay could fit the bill perfectly for many nomads. Nevertheless, there are also some attention points to think about.
First of all, Paraguay currently only has a double tax treaty with Chile and Taiwan. That means, it doesn’t offer as much protection as having your tax residence in a country which does have an elaborate network of double tax treaties. You can read more about double tax treaties in the article I dedicated to this topic.
Another attention point is that your current bank might not provide services to residents of Paraguay. Consequently, you might need to find a solution to do your banking somewhere else.
Tax residency in Paraguay for digital nomads: conclusion
Due to the territorial tax regime you can create a tax setup due to which 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 which could mean that Paraguay isn’t ideal for your situation. If you want assistance for your specific situation, you can always schedule a call.