PARAGUAY Trends and Developments Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
specific assets without acquiring the entire enti- ty. This is particularly attractive for companies seeking to optimise their portfolios by focusing on strategic assets that complement their oper- ations or generate synergies. Furthermore, the asset purchase and sale allow for greater flexibil- ity in valuation and negotiation, as the price can be adjusted based on the quality and expected performance of the acquired assets. In a com- petitive environment, this strategy becomes a valuable tool for companies looking to adapt quickly to market dynamics and maximise their long-term value. In contrast to asset sales, share sales involve the transfer of ownership of a company’s shares, allowing the buyer to acquire the entire entity, including its assets and liabilities. This method is often preferred when a buyer seeks to maintain the continuity of the operations and licences of a business, and to maintain it as a separate entity, as this allows for a smoother transition without the need for extensive restructuring. However, this structure may pose challenges in terms of valuation, as the purchase price reflects not only the company’s tangible assets but also its good- will, liabilities and market position. Asset and share deals are often straightforward legal transactions that do not involve the exten- sive procedures required for corporate reorgani- sations. As a result, they are often considered attractive options for the rapid acquisition of companies or businesses. In contrast, purchas- ing an entire business establishment is subject to specific regulations; however, the use of this method is almost non-existent. In the case of asset or share purchases, the timelines are largely influenced by the due dili- gence process, which can vary depending on the complexity of the transaction. Additionally,
when the assets involved are registrable, such as real estate or intellectual property, among oth- ers, the process is extended due to the need for additional formalities and compliance with registration requirements. Tax implications of an asset sale vs a share sale While this is the most direct and quickest option for a company to acquire specific assets that are the engine of a particular business or industry, it can also prove to be the most burdensome in fiscal terms, as it enjoys no exemptions; thus, the entity transferring the assets is subject to VAT, CIT, and IDU. This somewhat influences the transaction price and the decision to move forward; hence, it is not a commonly used alter- native. The sale of shares is exempt from VAT, which makes it an attractive option for many investors. However, as far as income tax is concerned, the tax burden does not fall on the acquiring com- pany but rather on its shareholders. Accordingly, shareholders must pay CIT, personal income tax or non-resident income tax, depending on their status as taxpayers. Moreover, since this transaction involves the purchase of the entire company and not of indi- vidual assets, it does not increase the tax base of indirectly acquired assets. These assets con- tinue to be depreciated or amortised within the acquired company. This distinction is crucial for understanding the impact on the acquiring com- pany’s financial statements and tax liabilities, as it does not benefit from a new depreciable base of assets. Future perspectives The M&A market in Paraguay is continuously evolving, and companies already recognise the
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