PARAGUAY Law and Practice Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
30% of the gross payment, resulting in an effective rate of 4.5%. If a double taxation treaty is in place, a reduced with - holding rate may apply, depending on the specific treaty provisions. For third-party (eg, local commercial banks not related to the borrower), there is generally no numeric debt- to-equity limit beyond ensuring the expense is nec - essary, duly documented and incurred to generate taxable income. 2.6 Consolidated Tax Grouping No Consolidation Permitted Paraguay does not permit consolidated tax grouping. Each legal entity, whether part of a broader group or not, must file its own separate tax return and com - pute its liability independently. Consequently, losses incurred by one company cannot be offset against the profits of another group entity. Utilising Separate Company Losses Because there is no group relief, businesses often rely on corporate reorganisations (eg, mergers, absorp - tions and spin-offs) to consolidate operations under a single entity, potentially transferring tax liabilities (including losses or credits). Although these reorgani - sations may proceed tax-free if certain requirements are met, each restructuring must be planned carefully to comply with applicable civil and tax rules. Other - wise, losses remain isolated at the individual company level. 2.7 Capital Gains Capital gains for corporations in Paraguay are taxed under the general IRE regime at a rate of 10% on net gains. There is no separate capital gains tax or special rate, so any profits realised on the sale of shares (or other capital assets) merge with ordinary income to form part of the taxable base: • sale of shares – the net gain is calculated as the difference between the selling price and tax basis (eg, the acquisition cost) and taxed at 10%; • no broad exemptions – unlike individuals, who may benefit from reduced effective rates under specific
rules, corporate taxpayers do not enjoy any signifi - cant exemptions on the sale of shares; • IVA – the sale of shares is exempt from IVA, while other assets are generally taxed at 10%, save for real estate, which has a 1.5% effective IVA rate; and • double tax treaties – certain treaties may reduce or eliminate Paraguayan tax on capital gains, but the relief depends on the terms of each specific agree - ment. 2.8 Other Taxes on Transactions Apart from IRE and IDU, Paraguayan-incorporated businesses may also encounter the following taxes or charges when executing specific transactions. IVA IVA applies at rates of 5% or 10% in most cases of sale of goods and provision of services. Imports of goods are also subject to IVA, usually at the stand - ard 10% rate. Certain agricultural products, animals (including poultry) and their primary derivatives qualify for a reduced 5% rate. Excise Tax (Impuesto Selectivo al Consumo – ISC) ISC is levied on certain goods (eg, tobacco, alcoholic beverages, fuel and some machinery/equipment), either upon import or at the first local sale of local - ly produced items. Rates vary but can be as low as 0.5%–1% on some capital goods and as high as 50%. Municipal Taxes Municipal trade tax ( impuesto a la patente comercial – IPC) is levied on the value of a company’s assets located in each municipality, calculated via a fixed amount plus a variable rate (ranging from roughly 0.85% to 0.05%). If a business erects new facilities or expands exist - ing ones, some municipalities impose a one-time levy based on the declared construction cost (construction tax). An annual 1% tax on the fiscal value of real property is payable to the municipality in which the property is located (real estate tax; impuesto inmobiliario ). When assigning land or real estate, a municipal tax on the value of the transaction must be paid (municipal real
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