After having talked about Costa Rica, Panama and Nicaragua, it’s Paraguay’s turn, another great option for those who want to get rid of the weight of the State and live tax-free, an option that many of the Tax Free Today readers have asked after in the past.
My opinion of the country is mixed. On the one hand, you can live there without paying taxes, but on the other, as is often the case, not all that glitters is gold and Paraguay also has its disadvantages.
It´s a small country without access to the sea, located between Brazil, Bolivia and Argentina, in the heart of South America. Large rivers pass through the country which makes it one of the countries with the highest water content in the world. Blessed with a tropical climate and extensive pastures, many of Paraguay’s emigrants have chosen a self-sufficient way of life in harmony with nature. What you won´t find are many leisure options or chances to go out.
Paraguay is undoubtedly one of the most provincial countries of South America, if not of the world. Very few people can picture themselves living there for a long time. Although if what you´re looking for is peace and tranquillity, then that changes things.
Young people, on the other hand, will soon get bored of the country, but they won´t find it easy to leave, because of the long and costly flights.
It´s one of the cheapest countries in the world, and it´s relatively safe compared to neighbouring countries. Its many cultural and natural attractions attract attention. Cooking there is slightly more diverse than that of other countries in the area.
Paraguay’s isolation has it´s disadvantages and advantages. It maintains a low profile on the world stage, it is an ecosystem that can be developed largely free of external influences and allows you to live life as you wish. Of course, this not only attracts nice people.
Paraguay is not only a popular refuge for National Socialists who fled after the Second World War, but also for today’s petty criminals. That’s something that you should take into account when doing business there.
On the other hand, Paraguay is a very corrupt country, in which they have a very informal way of doing things, often based on under the table payments. Therefore, legal security isn´t especially high.
Scammers there have it easy thanks to the large amount of false information about Paraguayan residency circulating on the internet. Just like with Panama, this country doesn´t have to be the best option for your real residence, but it can be for your fiscal one.
You don´t have to rent a house to obtain residency in Paraguay, which makes things much easier.
The tax system in Paraguay
Whether you want to live long term in Paraguay or if you´re just looking for a good residency on paper, the Paraguay tax system is a great incentive to choose this country.
Like Panama, Paraguay also has territorial taxation according to which only income obtained within the country is taxed. All foreign income is tax-free, which makes residency there ideal for entrepreneurs and investors who aren´t tied down anywhere.
Even if you obtain local income, taxation is not especially problematic thanks to the 10% tax rate on almost all income brackets. This tax is only applied when your annual income is 120 times that of the minimum wage (around $39,000). Only 8% is applied when your income is 72 times that of the minimum wage (decreasing by 12 times annually, reaching up to 36 times of the minimum wage in 2019).
Only half of the normal income tax applies (5%) on domestic dividends. Likewise, capital gain yields are only taxed at 10%, while local interest yields are tax-free.
10% of income tax is applied to domestic businesses income, as long as their profits don´t exceed 500 million guaranies. This is around 89,000 US dollars.
In addition, national income is taxed with corporate tax, also at a rate of 10%, only in this case 5% of dividend tax is added on the distribution of dividends.
Losses can be transferred for up to five years in Paraguay, and the possibilities of deduction before taxes are usually quite generous. Therefore, you can deduct all household and leisure expenses incurred within Paraguay for example.
Social security is only relevant for employees and amounts to 9% for workers and 16% for employers. Social security can be totally deducted from taxes. There are no inheritance or donation taxes, but there is 10% VAT.
However, you can live in Paraguay completely free of taxes if you´re an entrepreneur or investor and you´re not tied down anywhere.
The MERCOSUR document as a gateway to South America
One of the main reasons for having Paraguayan residency on paper is undoubtedly the fact that it is a member of the MERCOSUR association.
Broadly speaking, we could very briefly say that the “Common Market of the South” is a kind of South American Union, but that there are only advantages. Mercosur is on its way to becoming an internal common market, which reciprocally grants residents of different member countries free entry and facilitation for residency.
In practice, this means that with a Paraguayan ID card (cedula) you have full freedom of movement in almost all of South America and don´t need an additional passport.
The cedula alone is enough to travel through South America, similar to what happens with the EU’s ID card.
Paraguays ID card is associated with residency. This means that it has nothing to do with your nationality and is perfectly compatible. We obtain even more freedom of movement with this Paraguayan ID. If they rejected your passport for example, for whatever reason, you could travel with the ID card. It is, therefore, a very good precautionary measure for moments of crisis.
Permanent residence in Paraguay also makes it possible to immigrate more easily in the long-term to other Mercosur countries.
For now this is limited to Paraguayan citizens only, but it may be extended to permanent residents. Therefore, Paraguay can be an excellent gateway to other South American countries, although in general these are usually still very open to the immigration of European citizens.
Local investments with high interests in cooperatives
There are many interesting investment opportunities in Paraguay, but there are also some in which you have to tread carefully. Without a doubt, you should think twice before investing in rainforest reforestation or certain real estate projects. However, a real opportunity of obtaining high yields with an assumable risk is with local banking cooperatives.
These so-called “cooperatives” offer interest rates that you could only dream of finding in Europe. You can currently reach a 17% interest yield with cooperatives. It should usually start from a somewhat smaller amount, but even then returns remain very high. In addition to this, the risk of losing money is relatively small.
Anyway, there is a downside. You can only invest in cooperatives if you have fixed residency in Paraguay. So, those who wish to take advantage of the possibility of making high-yield investments in Paraguay must first obtain permanent residence.
Conditions and costs of permanent residence in Paraguay
Paraguay is among some of the non-EU countries where it´s easiest to obtain permanent residence throughout the world. Unlike what happens with Panama, the program is not limited to certain nations, but there is only one program to obtain permanent residence. From experience, applicants of African or Arab origin are often rejected.
Permanent residence in Paraguay is no longer for life, but it is valid for 10 years, after which it has to be renewed. It´s also said that permanent residence will soon have to be renewed every two years.
No minimum stay is currently imposed, and it´s very similar to Panama with the renewal being every two years. You´re also not required to own or lease housing, which considerably reduces expenses.
Generally, the only condition to immigrate is to prove that you have 24,500,000 guaranies in a local account. This would currently be 3,675 Euros. This amount will be blocked until residency is granted after 3 or 4 months, after which it can then be used freely.
Processing everything through my partner, the total amount of fees and costs of lawyers amount to €2,000 per adult and €1,000 for each underage child. These fees must be paid separately by each member of the family; however, the capital deposit only applies to adults.
But in practice immigrating to Paraguay is somewhat more difficult and not only because of the long and expensive flights to the country.
In order to prepare all the necessary documents we should make enough time for ourselves.
The following documents must be sent to the Paraguayan embassy in the country of origin for legalization:
- Original and legalized birth certificate
- Original and legalized marriage/divorce certificate (if applicable)
- Legalized police certificate of good conduct
You can obtain other documents, such as passport certification, the health card, photographs, the Interpol certificate and others, locally in Paraguay. Moreover, in order to open a bank account in Paraguay it´s necessary to submit a reference from our own bank.
Once all the documents have been legalized, you can then make the arduous trip to Paraguay and continue with the process there. Generally, you can apply for permanent residency over the course of a week. Anyway, it´s recommended that you allow yourself some more time.
The processing of the application lasts around 3 or 4 months. You can then pick up the Paraguayan document on your second visit to Paraguay, or alternatively, for a minimum additional expense, get an attorney to get it and send it to you. The lawyer will also provide the address for service if we don´t have a property of our own.
Ultimately, this means that emigrating to Paraguay only entails the fairly affordable one-off expense of €2,000, plus a bank deposit of €4,100 per person. In this case there aren´t even any running costs, which makes this option very attractive regardless of your income level.
If you´re interested in Paraguayan residence, get in touch with us if you want help with the procedures.