PARAGUAY Law and Practice Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
Mascareño Vargas – Asesores Capitan Juan Dimas Motta 245 esquina Andrade 001408 Asunción Paraguay Tel: +595 981 547 839
Email: mva@mv-a.com.py Web: www.mv-a.com.py
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Businesses in Paraguay predominantly adopt a cor - porate form, as it offers limited liability for owners and a general, clear legal framework. The most common structures are the sociedad anónima (SA), the socie- dad de responsabilidad limitada (SRL) and the more recent empresa por acciones simplificada (EAS). Each entity type requires at least two shareholders, except the EAS, which permits single shareholder companies and has a faster incorporation process if standard by-laws are used. In contrast, SRLs and SAs generally require more for - malities to be met and may be better suited to larger or more complex undertakings. The SA is the only vehicle that is eligible to list its shares on the local stock exchange, while an SRL can issue securities (bonds) but not shares. EASs are not allowed to list their shares nor issue securities in the local stock exchange market. All of these corporate entities are taxed as separate legal entities, subject to Paraguay’s corporate income tax or IRE regime, which is typically 10% on net prof - its. A further distribution tax applies when profits are paid out to shareholders, at varying rates depending on whether the shareholder is a resident or non-resi- dent and whether a double tax treaty is applicable or not. Rates range from 5% to 15%. This structure allows businesses to clearly separate corporate obligations from those of their owners,
aligning with international norms on corporate taxa - tion. In addition, unlike SAs and SRLs, EASs may pay IRE at a maximum effective rate of 3% of their gross income if their gross income does not exceed approximately USD250,000 per year. This regime is called “IRE Sim - ple” or “Simple”. Finally, the partner of a single-member EAS may not be subject to the dividend and profits tax ( impuesto a los dividendos y utilidades – IDU). However, the tax administration has not yet approved this interpreta - tion, which informally maintains that the IDU must be paid in this case. At the time of publication, there is no known official position or administrative or judicial precedent on whether or not IDU is payable in these cases. 1.2 Use and Taxation of Transparent Business Structures Paraguayan law does not commonly provide for transparent or “pass-through” entities in the same way that some other jurisdictions do. While unreg - istered partnerships ( sociedades de hecho ) and civil partnerships ( sociedades simples ) exist, they do not generally benefit from limited liability or advantageous tax treatment as transparent vehicles. Consequently, they are rarely chosen for substantive commercial or investment activities. Under Law No 6380/19, which came into effect on 1 January 2020, Paraguay introduced the concept of transparent legal entities ( entidades jurídicas transpar - entes ), which allows certain entities, such as trusts,
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