Taxes

Taxes in Paraguay

Paraguay's tax system is one of its biggest attractions for expats, particularly the territorial taxation that exempts foreign income.

The Territorial Tax System

How it works:

• Only income generated within Paraguay is taxed
• Foreign-sourced income is completely exempt
• This is legal and well-established, not a loophole

Examples of tax-free income:

• Remote work for companies outside Paraguay
• Dividends from foreign investments
• Rental income from property abroad
• Pensions from other countries
• Interest from foreign bank accounts
• Capital gains on foreign assets

What IS taxed:

• Income from Paraguayan employment
• Business income from Paraguay operations
• Rental income from Paraguay property
• Services provided to Paraguayan clients

Tax Rates on Local Income

Personal Income Tax brackets:

• First 120 minimum wages: 8%
• Above 120 minimum wages: 10%

Tax Residency

You become a tax resident if:

• You spend 120+ days per year in Paraguay

But remember:

• Tax residency doesn't change territorial taxation
• Even as tax resident, foreign income remains exempt
• You may need to file returns showing no local income

What Paraguay Doesn't Have

• No wealth tax
• No inheritance tax
• No gift tax
• No capital gains tax on foreign assets
• No exit tax

This makes Paraguay attractive for wealth preservation.

Practical Considerations

For Remote Workers:

1. Keep documentation that clients are foreign
2. Receive payment in foreign bank accounts
3. Transfer to Paraguay only what you need for expenses
4. Maintain records of work performed

For Business Owners:

• If you sell to Paraguayan customers, that income is taxable
• Consulting for foreign clients = tax-free
• Hybrid situations require careful structuring

For Retirees:

• Foreign pensions 100% tax-free
• Social security from abroad tax-free
• Investment income from abroad tax-free

Filing Requirements

• Tax year: Calendar year (Jan-Dec)
• Filing deadline: Varies by tax type
• You may need to register for RUC (tax ID) even if no local income
• Professional assistance recommended for first filing

Important Notes

US Citizens: The US taxes citizens on worldwide income regardless of residence. Paraguay's system helps, but US citizens still have US obligations. Consult a cross-border tax specialist.

Documentation: Keep thorough records of:

• Foreign client contracts
• Payment receipts from abroad
• Bank statements showing transfers
• Any local income separately

Why This Matters

A remote worker earning $60,000/year:

• In the US: ~$12,000-15,000 in taxes
• In Paraguay: $0 (if all foreign-sourced)
• Plus lower cost of living = significant wealth accumulation