Taxation Researcher | April 07, 2019
Residents are taxed on their income sourced from Paraguay. Married couples are taxed separately. For couples married under the marital community property regime, each spouse must declare 50% of the income.
Taxable income is gross income less income-generating expenses, personal and family expenses, and investments.
Personal Income Tax (impuesto a la renta del servicio de carácter personal, IRP)
Personal income tax is levied at a flat rate of 10% if the income exceeds the annual threshold amount and at a flat rate of 8% if it does not exceed the annual threshold amount.
The threshold amount is based on the monthly minimum wage. The threshold amount in 2014 is 96 times the monthly minimum wage or around PYG159,190,176 (US$27,928). The threshold amount in 2015 is 84 times the monthly minimum wage or around PYG153,220,620 (US$26,881).
The threshold will be reduced annually until it reaches the level of 36 monthly minimum wages in 2020.
Residents may deduct personal and/or dependent expenses and investments, i.e. expenses related to maintenance, education, health, housing, clothing, recreation, etc.
Qualified family dependents are the spouse, minor children, and children studying at educational institutions.
Other allowable deductions are as follows:
- 15% of annual gross income for individuals who do not contribute to a social security system, provided that the same amount are invested in local financial entities, private pension funds or open joint-stock companies; and
- Gifts to central and local governments, recognized religious and charity entities, up to a maximum amount equal to 10% of annual gross income.
Some expenses that cannot be deducted for income tax purposes are individual income tax, tax penalties, expenses directly related to non-taxable income, and expenses that do not generate any income.
Income Tax on Small Business
(impuesto a la renta del pequeño contribuyente, IRPC)
Residents may be liable to income tax on small business instead, levied at a standard rate of 10%. The taxable income is the lower of the actual net income or the presumed net income.
Rental income is taxed at the standard income tax rate of 10%. Income-generating expenses are deductible when computing for the taxable income.
VALUE ADDED TAX (VAT)
Leasing real estate in Paraguay is liable to VAT at the reduced rate of 5%.
Occasional capital gains realized from selling Paraguayan property are considered as income and taxed at the standard tax rate of 10%. Taxable capital gains are generally 30% of the sales price.
Taxpayers may calculate the taxable capital gains by deducting acquisition costs from the sales price, if there is a written agreement registered in a public registry.
Otherwise, capital gains are subject to agricultural tax, corporate tax, or small business income tax.
Real Estate Tax (Impuesto Inmobiliario)
Real estate tax is levied annually at 1% of the cadastral value of property, as assessed by the national cadastre service. The cadastral value is gradually adjusted to the market value over a period of five years subject to certain limitations.
This tax rate is reduced to 0.5% for rural properties smaller than five hectares used for small scale farming. In the case of rural properties, improvements or buildings are not computed in the tax base.
Surtax (impuesto adicional al inmueble de gran extension)
Surtax is levied on rural estates. The tax base is the cadastral value of an estate larger than 10,000 hectares (in the Eastern region of Paraguay) and 20,000 hectares (in the Western region of Paraguay). The surtax is levied at progressive rates, from 0.5%, to 1.2%.
Income and capital gains earned by resident companies are subject to corporate income tax at a flat rate of 10%. Income-generating expenses are deductible when calculating taxable income.