Employers in Paraguay have several tax responsibilities, including contributions to the Social Security Institute (Instituto de Previsión Social - IPS) and income tax withholding.

Social Security Contributions (Instituto de Previsión Social - IPS)

Employers are required to contribute 16.5% of the employee's gross salary to the IPS. In addition to this, they must withhold an additional 9% from the employee's salary as the employee's contribution. These contributions must be remitted to the IPS on a monthly basis.

Income Tax Withholding (Impuesto a la Renta Personal - IRP)

Income tax in Paraguay follows a progressive scale. Employers are responsible for withholding this tax from employee pay and remitting it to the Subsecretaría de Estado de Tributación (SET). These payments are typically made on a monthly basis.

Other Potential Employer Taxes

Depending on the nature of the business, other taxes might apply. However, these are not directly related to employee compensation and are therefore outside the scope of this discussion.

Important Notes

Employers must register with the IPS, SET, and other relevant tax authorities. They are also required to keep detailed payroll records for tax calculation and auditing purposes. Non-compliance with tax obligations can result in penalties and interest charges.

Employee tax deductions can be categorized into several types.

Personal and Family Allowance

A set amount is deductible from the tax base, along with an allowance for each dependent. The amounts are adjusted annually.

Retirement Contributions

Contributions to authorized retirement funds are deductible up to a specified limit.

Educational Expenses

Certain education-related costs for the employee or dependents may be deductible.

Donations

Donations to approved charities are deductible up to certain limits.

Social Security Contributions

The 9% of gross salary that employees contribute to social security is partially tax-deductible.

Calculation Methods

Eligible deductions lower the employee's taxable income, resulting in lower income tax liability. However, specific limits and restrictions may apply to certain deductions.

Important Notes

Employees must keep supporting documentation for eligible deductions. Tax deductions are claimed when filing the annual income tax return.

In Paraguay, the Value Added Tax (VAT) is referred to as the Impuesto al Valor Agregado (IVA).

VAT Rates

The standard IVA rate in Paraguay is 10%. However, a reduced rate of 5% is applicable to certain transactions. These include the lease of real estate for housing, the sale of real estate, certain basic food items, agricultural, horticultural, and fruit products, and pharmaceuticals.

Exemptions

There are also services that are exempt from IVA in Paraguay. These include financial services, medical and health services, educational services, public transport, and certain cultural services.

Filing Procedures

Businesses providing taxable services in Paraguay are required to adhere to the following procedures:

1. Registration: Businesses must register for IVA with the Subsecretaría de Estado de Tributación (SET), the Paraguayan tax authority.
2. Invoicing: Businesses are required to issue tax invoices that comply with IVA regulations, including the IVA amount.
3. Periodic Filings: Regular IVA returns, usually on a monthly basis, must be filed. These returns report the VAT collected along with any eligible VAT credits.
4. Payment: The net IVA due must be paid to SET.

Important Considerations

VAT rules in Paraguay can be complex and the Paraguayan government may update its VAT laws and regulations. Therefore, it is important to stay informed about the latest changes.

Tax incentives are a significant tool for promoting economic growth and development. They come in various forms, each with its unique eligibility criteria and application process.

Maquila Regime

This regime offers partial or full exemption from corporate income tax and VAT on exported goods. It is available to manufacturing companies operating in free trade zones or under special customs regimes, focusing on exports. For details and application procedures, contact the Ministry of Industry and Commerce (Ministerio de Industria y Comercio - MIC).

Law No. 60/90 Incentives

Law No. 60/90 provides tax benefits like income tax and customs duty exemptions for investments in priority sectors. Businesses investing in specific sectors like manufacturing, agriculture, or tourism, particularly in less-developed areas, can benefit from this law. Minimum investment thresholds may apply. For details and application procedures, contact the Ministry of Industry and Commerce (MIC).

Job Creation Law

The Job Creation Law offers a corporate income tax exemption for a period, with potential extension. Companies establishing new factories in rural areas or generating a significant number of new jobs are eligible for this incentive. For details and application procedures, contact the Ministry of Labor, Employment, and Social Security (Ministerio de Trabajo, Empleo y Seguridad Social - MTESS).

Free Trade Zones

Free Trade Zones offer a reduced corporate income tax rate and exemption from certain taxes like VAT within designated free trade zones. Businesses operating within these zones, typically involved in manufacturing or international trade, can benefit from this incentive. For details and application procedures, contact the free trade zone authority or the Ministry of Industry and Commerce (MIC).

Important Considerations

Eligibility criteria and application processes can vary. It's crucial to understand the specific requirements and processes for each tax incentive before applying.