PARAGUAY Trends and Developments Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
M&A in Paraguay: An Overview of an Increasingly Thriving Market
It is extremely important to understand the struc- tures used, and their corporate and tax implica- tions, to determine which to apply based on their benefits and the objectives. Paraguayan regulations A peculiarity of the regulatory system in Para- guay is that the various structures used for asset reorganisation have disparate regulations, with some being in the fiscal sphere and others in civil law; moreover, none of them are compre- hensively regulated. Contrary to what one might think, this is favoura- ble as there is some freedom to carry out opera- tions, as long as this openness does not lead to the distortion of these legal structures. In the tax realm, business reorganisations encompass various structures, such as merg- ers, absorptions (considered a particular form of merger), spin-offs or divisions, and transforma- tions of companies. Although these modalities are covered under tax law, the current regula- tions do not establish specific criteria that deter- mine, for tax purposes, the precise conditions under which these operations qualify as such. Consequently, their tax treatment is unified, con- stituting a homogeneous approach to tax regu- lation. This presents both advantages, such as simplicity, and challenges in terms of accuracy in practical implementation. On the other hand, specific structures such as mergers, transformations and the purchase of commercial establishments are regulated in a “scattered” manner within Paraguayan civil and commercial legislation, which can compli- cate the understanding and application of the relevant provisions; there are opportunities for greater clarity and consistency in the regulation of these operations.
The search for economies of scale, a reduction of operational costs, and financial and structural optimisation are key factors driving the mergers and acquisitions (M&A) market, which aims to improve negotiating power in the marketplace. These drivers have established a trend towards highly competitive industries where consolida- tion has become a crucial strategy for maintain- ing profitability; in this regard, Paraguay is no exception. In recent years, Paraguay has stood out in the region for its stability and sustained growth, sup- ported by prudent fiscal policy, controlled public debt and low and stable inflation. The country benefits from its abundant natural resources, such as hydroelectric energy, and its robust agro-export sector, particularly with respect to soybeans and beef, positioning it as a significant player in global markets. Additionally, the ser- vices sector has gained prominence as a growth engine. Currently, Paraguay faces increasing competi- tiveness, with tightening profit margins. This has led to executives more frequently consider- ing M&A options as a key tool to optimise their results, with a particular focus on tax efficiency. In this context, business reorganisation struc- tures, previously underutilised in the country, are beginning to be adopted, marking an evolution in local corporate strategies. These structures aim to execute asset move- ments, generally within the same business group, for the optimisation of operational, eco- nomic and financial aspects, as well as tax incentives, among other things.
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