Mauricio Claver-Carone, president of the Inter-American Development Bank (“IDB”), recently proclaimed that if he was a company, his first stop would be Paraguay, following a meeting with the country’s President Mario Abdo Benítez and various ministers in September 2021. Claver-Carone said that the investment environment in Paraguay is ideal for doing business and praised the country’s capacity to increase foreign direct investment after the pandemic. Quite an endorsement from the Floridian!
Since the start of the Covid-19 pandemic in early 2020, the government has passed several new regulations including a low-tax regime and a simplified residency process for foreigners that have helped attract funds from overseas. Additionally, work is ongoing to formalise the informal economy, providing stability for foreign investors while improving local labour conditions. Furthermore, the maquila system allows products to be marked as ‘made in Paraguay/Mercosur’ with just 40% of local content, allowing tax-free export to the rest of the Mercosur trading block. Paraguay also has bilateral sector-specific agreements with Brazil and Argentina, two large markets of key importance for foreign investors.
A former undersecretary of tax in Paraguay summarised, “Paraguay has been climbing the World Bank’s ‘Ease of doing business’ ranking and now sits between Brazil and Argentina – regional powerhouses. This is the result of many years of work trying to simplify the legal and regulatory environment for businesses in Paraguay.” This sounds great, but the South American country is still ranked 125th from 190 countries, far behind the region’s highest ranked country: Chile at 59th!
“Paraguay has been climbing the World Bank’s ‘Ease of doing business’ … This is the result of many years of work trying to simplify the legal and regulatory environment for businesses in Paraguay.”
Former undersecretary of tax, Paraguay
Rankings are one thing but is the progress made being felt on the ground? We spoke to a entrepreneur from neighbouring Bolivia who recently established a company in Paraguay, “We knew that Paraguay was trying to improve its business environment, but we were genuinely impressed. We sell a highly regulated product, but we only had two procedures to start a company: firstly, to prove our product met the appropriate technical standards and secondly, to register the company. Contrast this with our experience in Bolivia where it took years of work to get the right permits.” Bolivia ranks 150th on the World Bank list.
Ease of doing business is not the only reason that Paraguay is attracting business interest – the tax regime is proving very popular! The former undersecretary explained, “Paraguay’s tax burden has been simplified and lowered. The current framework establishes the formula 10+10+10. That is, VAT, Corporate Income Tax (IRE) and Personal Income Tax (IRP).” The Bolivian entrepreneur was also keen to highlight the tax regime, “Paraguay has lower taxes, fewer tariffs for the import of machinery, a maquila law to be able to export without taxes. Also, it is a member of Mercosur meaning we can export to Argentina and Brazil tax-free! Those are great advantages.”
“Paraguay has lower taxes, fewer tariffs for the import of machinery, a maquila law to be able to export without taxes. Also, it is a member of Mercosur meaning we can export to Argentina and Brazil tax-free!”
Bolivian entrepreneur, Paraguay
A government spokesperson was quick to assure us that despite these low tax, Paraguay was not trying to become a tax haven, “We are not trying to be the Cayman Islands but we want to increase productive investment in the country. And I must say that these policies are working. We have a small internal market, but we are full members of Mercosur which includes 300 million people.”
On the back of recent progress, on the 8 and 9 of September, the Ministry of Industry and Commerce, through the Network of Investments and Exports (“REDIEX”) hosted the first “Invest in Paraguay” event in Asunción. The event, supported by the IDB, attracted more than 1,000 delegates. Key takeaways: Paraguay offers significant opportunities in infrastructure, logistics, electricity, telecommunications and agribusiness sectors. Furthermore, Luis Alberto Castiglioni, Minister of Industry and Commerce, highlighted Paraguay’s flourishing industrial products sector which recorded USD 1.2 billion of exports in 2021.
Good luck Paraguay!