PARAGUAY Law and Practice Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
requirement for periodic or minimum distributions and no special anti-accumulation provisions apply. 3.4 Taxation of Individuals on Shares in Closely Held Corporations Dividends Resident individuals Dividends from a Paraguayan corporation incur IDU at 8%, withheld at source by the distributing company. Non-resident individuals Non-resident individuals are also subject to IDU, but at 15% – and it is also withheld at source. A double taxation treaty, if applicable, may reduce or eliminate this tax. Capital Gains (Sale of Shares) Resident individuals Gains on share sales fall under the personal income tax on capital gains (IRP-RGC ( régimen de ganancias de capital )) category at a nominal rate of 8% on the net gain (sale price minus acquisition cost). Howev - er, if cost documentation is incomplete or results in a higher taxable gain, the law provides a simplified option that presumes the gain to be 30% of the selling price. This results in an effective maximum tax rate of 2.4% (8% × 30%). Non-resident individuals Gains are taxed under INR at a nominal rate of 15%. The basis is the lesser of: • the difference between the sale price and the nominal value of the shares; or • 30% of the sale price. By multiplying that basis by the 15% nominal rate, the maximum effective rate typically does not exceed 4.5% (15% of 30%). A double taxation treaty, if appli - cable, may reduce or eliminate this tax. 3.5 Taxation of Individuals on Shares in Public Corporations Publicly listed companies in Paraguay are subject to the same IDU rates. Therefore, dividends paid to resi - dents are generally subject to an 8% withholding tax, and those paid to non-residents are subject to a 15%
withholding tax. The reduced rates may apply under an applicable double taxation treaty. Regarding the sale of publicly traded shares, the tax legislation specifically exempts these transactions from capital gains tax if the securities are listed and traded through the local stock exchange. Therefore, resident individuals generally do not incur personal income tax on capital gains derived from selling pub - licly traded shares if those sales meet the conditions of the local securities market regulations. Non-res - ident individuals are similarly exempt, provided the transaction is fully executed via the local exchange, although they should confirm any additional reporting or documentation requirements. 4. Taxation of Inbound Investments 4.1 Application of Withholding Taxes In Paraguay, dividends paid by local corporations to non-resident shareholders are generally subject to a 15% IDU withholding tax, while resident shareholders are subject to an 8% rate. Interest paid to non-resi - dents is also subject to a withholding tax (INR). When the lender is a related party, the nominal rate is 15% of 100% of the gross payment (an effective rate of 15%). For unrelated lenders, an effective rate of 4.5% is pay - able. Royalties, licences and technical assistance fees paid to non-residents normally face a 15% nominal rate, with the base often presumed to be 15% for related parties, leading to a 15% effective rate. Relief may arise from a double taxation treaty, which can reduce or eliminate these withholding taxes, but in the absence of a treaty, the statutory rates apply. The local tax authority tends to be particularly vigilant regarding cross-border payments for services and intangibles, ensuring that the payer withholds the correct INR and files the necessary documentation. Overlooked or incorrect withholding tax is likely to trig - ger audits, penalties and interest charges. 4.2 Key Treaty Jurisdictions for Inbound Investment Paraguay maintains a relatively small network of dou - ble taxation treaties. Treaties with Chile, Taiwan, Qatar,
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