Income tax in Paraguay

Taxation Researcher | June 30, 2022

INDIVIDUAL TAXATION

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.

INCOME TAX

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 progressive rates, from 8% to 10%.

INCOME TAX

Taxable Income, PLN (€)  RATE
Up to 50 million (€8,772) 8%
50 million – 150 million (€26,316) 9%
Over 150 million (€26,316)  10%

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.

RENTAL INCOME
Rental income is taxed at the standard income tax at progressive rates, from 8% to 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%.

CAPITAL GAINS
Occasional capital gains realized from selling Paraguayan property are considered as income and taxed at the standard tax rate of 8%. 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.


PROPERTY 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%.

CORPORATE TAXATION

INCOME TAX

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.