How does Paraguay's territorial tax system work for expats with foreign income?

Question

Emigranto · Accepted Answer

Paraguay's territorial tax system is one of the main reasons expats, digital nomads, and retirees choose to relocate here. Here's a comprehensive explanation of how it works:

The Basic Principle:

Paraguay only taxes income that is generated within Paraguay. All foreign-sourced income is 100% tax-free. This is a legal, established system—not a loophole or gray area.

What's NOT Taxed (Foreign Income):

| Income Type | Tax Rate |
|-------------|----------|
| Remote work for foreign companies | 0% |
| Dividends from foreign investments | 0% |
| Rental income from property abroad | 0% |
| Pensions from other countries | 0% |
| Interest from foreign bank accounts | 0% |
| Capital gains on foreign assets | 0% |

What IS Taxed (Paraguayan Income):

| Income Type | Tax Rate |
|-------------|----------|
| Employment in Paraguay | 8-10% |
| Business income from local operations | 10% |
| Rental income from Paraguay property | 8-10% |
| Services to Paraguayan clients | 8-10% |

Tax Residency:

You become a tax resident if you spend 120+ days per year in Paraguay. However—and this is crucial—becoming a tax resident doesn't change the territorial nature of taxation. Even as a tax resident, your foreign income remains tax-free.

Practical Example:

A remote worker earning $60,000/year from a US company:
In the US: ~$12,000-15,000 in federal/state taxes
In Paraguay: $0 (all foreign-sourced)

Same person with $10,000 from a local Paraguayan client:
That $10,000 would be taxed at 8-10%
The $60,000 foreign income still = $0 tax

What You DON'T Have in Paraguay:
No wealth tax
No inheritance tax
No gift tax
No capital gains tax on foreign assets
No exit tax

Important Documentation:

To benefit from this system, maintain records showing:
Foreign client contracts
Payment receipts from abroad
Bank statements showing international transfers
Clear separation of any local income

US Citizens Note:

The United States taxes citizens on worldwide income regardless of where they live. Paragua

Income Type	Tax Rate
Remote work for foreign companies	0%
Dividends from foreign investments	0%
Rental income from property abroad	0%
Pensions from other countries	0%
Interest from foreign bank accounts	0%
Capital gains on foreign assets	0%

Income Type	Tax Rate
Employment in Paraguay	8-10%
Business income from local operations	10%
Rental income from Paraguay property	8-10%
Services to Paraguayan clients	8-10%