PODCAST | ELA | Cambios en la normativa migratoria de Paraguay

Nuestro Asociado (Sr.) Manuel Acevedo Scappini, especialista en temas de derecho administrativo participó, junto con nuestra colega Alexandra Aguilar de BLP Costa Rica, de un podcast organizado por Employment Law Alliance (ELA), la red más grande abogados especializados en temas de Derecho Laboral, en el cual tuvieron la oportunidad de conversar acerca de las novedades introducidas por la nueva ley de migraciones paraguaya; la Ley N° 6984/22.

Puedes acceder al contenido de podcast haciendo a través del siguiente link

Banking & Finance | Otorgamiento de línea de crédito de CAF al Banco Nacional de Fomento

Desde Vouga Abogados asistimos a CAF – Banco de Desarrollo de América Latina, en el otorgamiento a favor del estatal Banco Nacional de Fomento de una línea de crédito no comprometida por hasta la suma de USD 50.000.000. 

Los fondos obtenidos por el Banco Nacional de Fomento serán utilizados para financiar a sus clientes calificados como micro, pequeñas y medianas empresas en la mitigación de los efectos de la crisis ocasionada por la pandemia del Covid-19 y apoyar el proceso de recuperación de la economía paraguaya. 

Entre otros, el rol de Vouga incluyó el asesoramiento a CAF durante la negociación del contrato de línea de crédito con la entidad estatal, así como la asistencia en la redacción de los documentos del financiamiento, en la debida diligencia al banco y el desembolso del préstamo. 

El asesoramiento de Vouga fue liderado por el socio Carlos Vouga y el equipo conformado por el asociado senior Georg Birbaumer y los asociados Juan Manuel Ros, Paula Lovera y la paralegal Teresa Sosa. 

Para más información con relación a esta operación u otros temas relacionados con Banking & Finance, por favor póngase en contacto con Carlos Vouga (cvouga@vouga.com.py) or Georg Birbaumer (gbirbaumer@vouga.com.py). 

Maquila and Free Trade Zone In Paraguay

Vouga Abogados 1

Paraguay offers different investment incentive regimes, which have been used by local and foreign investors, including to a large extent Brazilian capital from numerous sectors that lands in Paraguay for different purposes. This article provides the reader knowledge regarding the two main tax regimes for export markets available in Paraguay: the maquiladora export industry (regulated by Law No. 1064/1997) and free trade zones (regulated by Law No. 523/1995). A brief analysis of both regimes is presented below.

     I.         Free Trade Zones

Under the free trade zone regime, it is possible to create areas within Paraguayan that do not form part of the Paraguayan customs territory. The latter must be understood as the territory in which the same tariff regime and economic restrictions are applied to imports and exports, as defined in both article 2 of Law No. 523/1995 and the article 3(1) of the Paraguayan Customs Code.

An individual or an entity acquires the status of user of a free trade zone and, therefore, the right to operate there, by virtue of a contract entered with a free trade zone concessionaire.2 The execution of this contract is preceded by the pertinent application submission from the requesting user, including the respective contract template, investment project and other requirements set forth by the concessionaire in the Internal Regulation of the Free Trade Zone.3.

Industrial activities are among those allowed to free trade zone users, i.e., manufacturing goods intended for export as a result of the transformation within the free trade zone of raw materials or semi-finished products. The free trade zone regime may be also used for activities by the regulation as commercial (warehousing, assortment, classification, handling, blending) as well as some types of services authorised by the Executive Power.4.

The free trade zone regime is being used for the development (from the construction phase) of large industrial plant projects to produce biofuels and cellulose, with investments around USD 1 billion and USD 3.2 billion, respectively.5The successful implementation of these projects will imply unprecedented milestones for the free trade zone regime and for the country in general.

a. Tax Regime

The activities allowed to users that are carried within the free trade zone, as well as the profits obtained by such users are exempt from all national, departmental, or municipal taxes, except for a single tax of 0.5% on the value of the goods exported to third countries from the free trade zone, named "Free Trade Zone Tax", which is determined and paid upon formalisation of each export clearance6.

This means that the entry of goods into the free trade zone is carried out free of customs and internal taxes, since the free trade zone is not part of the Paraguayan customs territory.

The special tax does not apply to income from sales that users carry out from the free trade zone to the Paraguayan customs territory, which are taxed by the corresponding income tax in force in Paraguay, whose rate is currently 10% on net income7.

b. Obligations

Users must comply with the legal requirements applicable to merchants, proceed with registration before the corresponding national registries, keep accounts separately from any other activity they carry out outside the free trade zone and have a permanent electronic inventory of their goods, merchandise, and raw materials8Likewise, they must add to their company name the expression "User of Free Trade Zone”9. The declaration of bankruptcy and the inhibition of assets are incompatible with the character of free trade zone user10.

Users must also invest the capital stated in the respective application and develop the agreed activities. This implies the start of the projected investment in a period not exceeding one year, counting from the execution of the contract with the concessionaire. Activities must begin its course within a period not exceeding two years, counting from the date of the contract, except in extraordinary cases that must be justified when requesting the exception11.

Also, users must timely pay the agreed price, as well as the common expenses and other services to be used. In addition, users must use the property and premises exclusively to the development of the activities authorized in the contract, and hire a third-party liability insurance, covering all risks arising from their activities within the free trade zone, including work accidents, as well as on buildings and facilities used in their activities12.

Users must also allow access, during working hours, to the concessionaire or whoever it designates to carry out inspections throughout the property and buildings, as well as respect the operating hours of the free trade zone and dispositions regarding the transit of people and vehicles set forth by the concessionaire. In addition, users must comply with the applicable rules for environmental protection and conservation; and, provide the concessionaire and the National Council of Free Trade Zones, when these require so, with formal quantitative statements about goods, raw materials, etc13.

c. Free Trade Zones and Mercosur

Article 2 of Mercosur CMC Decision No. 8/1994, as amended by the CMC decision No. 33/2015, states that the Member States will apply the Common External Tariff or, where appropriate, the applicable national tariff, to goods originating from free trade zones located within Mercosur, unless the goods have only been stored without being transformed, in which case they will not lose their origin prior to the free trade zone.

Said Mercosur regulation bans Member States to issue the Mercosur certificate of origin for goods produced in the free trade zones located in their territory. At the same time, it authorises Member States to apply the corresponding customs tariff to the importation of such goods if they deem appropriate, even if one of the Member States does not comply with the indicated ban and issues the Mercosur certificate of origin.

Paraguay´s case is quite atypical in this subject, since it first internalised CMC Decision No. 8/1994 on December 30, 1994, by article 1 of Decree No. 7145/1994, but then “de-internalised” it on January 16, 1995 – in less than a month – by Decree No. 7346/1995, which modified the aforementioned article 1 of Decree No. 7145/1994 for the sole purpose of excluding CMC Decision No. 8/1994, and thereby avoiding the entering into force of the aforementioned ban.

As a result, Paraguay has been issuing certificates of origin Mercosur to goods from free trade zones located in the country, which are normally accepted by customs, both from Paraguay as well as from the other Mercosur Member States without the application of extra-zone import tariffs. However, this has not been entirely peaceful, due to the power granted by CMC Decision No. 8/1994, allowing customs of Member States to ignore the validity of the Mercosur certificates of origin issued under such conditions.

II. Maquila

Regarding the maquila regime, article 1 of Law No. 1064/1997 defines it as industrial or service processes that incorporate labour and other national resources used for the transformation, production, repair or assembly of goods of foreign origin imported temporarily for such purpose to be subsequently re-exported, in execution of a contract signed with a company domiciled abroad.

To take advantage of the maquila regime, the individual or entity must (i) be domiciled in Paraguay and authorised to carry out acts of commerce. The maquila programme has to be approved by the National Council of Maquiladora Export Industries (the “CNIME”)14 and by a joint resolution from the Ministry of Finance and the Ministry of Industry and Commerce15.

The maquila programme can be classified in four types: simple, services, intangible and sub-maquila; and five (5) forms of operation: pure maquila, idle capacity, subcontract, twin plant or shelter16.

The approval process of a maquila programme before the CNIME, as well as its modification, extension, reduction, suspension or cancellation, is a process carried out in about six months once all required documentation is ready.

a. Tax Regime

Maquiladora companies can temporarily import different goods with suspension of customs tariffs and internal taxes: raw materials and inputs necessary for production; machinery, devices, instruments, and spare parts for the production process; industrial safety tools, equipment and accessories; telecommunication and computing equipment for the exclusive use in the maquiladora industry; box trailers and containers17.

The permanence in the country of imported raw materials and inputs under the maquila temporary admission regime cannot exceed a period of twelve months from the date of importation, extendable by a Bi-Ministerial Resolution for one time only for another equal period, at the request of the maquiladora company and for a duly justified reason. Other goods may remain in the country for the entire duration of the maquila programme, except for box trailers and containers, whose maximum stay in the country is six months.18.

The Maquila contract and the activities carried out are taxed by a single tax of 1% per month on the value added in the national territory or on the value of the sales invoiced in the month, whichever is greater. The value added in the national territory is equal to the value of the goods acquired internally plus value of the services contracted and wages paid within the country to perform the maquila contract19.

In the case of sales to the national market of goods imported under the maquila regime, the maquiladora company must pay the taxes applicable for its nationalisation in force at the date of the temporary import clearance, plus all internal taxes applicable on said sales. These sales cannot exceed 10% of the total volume exported in the preceding year, and the general income tax of Paraguay 10% apply to the profits from these sales. Current income tax is 10% on net income20.

Maquila contract and the activities carried out in execution thereof are exempt from any other national, departmental, or municipal tax. This exemption covers the import of goods falling under the maquila contract, the re-export of goods imported under said contract and the export of goods transformed, manufactured, repaired, or assembled under said contract21.

Unlike the free trade zone regime, the maquila regime does not present conflicts at Mercosur scale, since it does not face a norm like CMC Decision No. 8/1994.

b. Obligations

Maquiladora companies must register the Bi-Ministerial Resolution approving the maquila programme before the Administration of National Customs (the “DNA”), and also provide sufficient guarantee for the tariffs eventually applicable to temporarily imported goods. In addition, maquiladora companies must comply with the terms set forth in the approved programme and used the raw materials and inputs for the authorised operations.

Also, maquiladora companies must train the national personnel necessary for the execution of the programme, and notify both the Ministry of the Finance and the Ministry of Industry and Commerce in case of duly justified suspension of activities within ten days following the date on which that occurs. Finally, they must submit monthly to the DNA, through the CNIME, a form stating the volume, type and value of imports, consumption, and exports or re-exports made, and record their operations in specially authorised ledgers22.

III. Final considerations

Paraguay has two tax regimes to stimulate local production for export markets: Maquila and Free Trade Zone.
Both present similar tax benefits: On one hand, the possibility of introducing goods into the national territory avoiding payment taxes and tariffs normally applicable; on the other hand, a simplified and reduced tax regime on gross values, without the application of general taxes to income, dividends and sales on export-oriented activities.

The fact that these two regimes have managed to persist and grow over several years speaks about a mature sector of the economy with positive experience for most of its actors.

1. Asuncion, Paraguay
First published in October 2022 as part of ALAE e-book named “desafios, ameaças e oportunidades na gestão jurídica”.
2. Law 523/1995 §7.
3. Decree 1554/1996 §27.
4. Law 523/1995 § 3.
5. https://www.ip.gov.py/ip/destacan-inversion-extranjera-de-us-800-millones-en-zona-franca/ (last accessed on 2022.07.18)
https://www.ip.gov.py/ip/ejecutivo-aprobo-concesion-de-zona-franca-con-millonaria-inversion-en-concepcion/ (last accessed on 2022.07.18)
6. Law 523/1995, chapter IV.
7. Law 523/1995 § 17
8. Decree 15554/1996 § 31(i)/(n)
9. Decree 15554/1996 § 31(n).
10. Law 523/1995 § 10.
11. Law 523/1995 § 11(b).
12. Decree 15554/1996 § 31(a)-(d).
13. Decree 15554/1996 § 31(f)/(h)/(j)/(k), 63 y 74; Law 523/1998 § 11(d)-(e).
14. Official website https://www.mic.gov.py/maquila/ES/quienes-somos-cnime.php (last accessed on 2022.07.18).
15. Decree 9585/2000 § 47.
16. Decree 9585/2000 § 42.2.
17. Law 523/1995 § 12.
18. Law 523/1995 § 12.
19. Law 523/1995 § 29.
20. Law 523/1995 § 16.
21. Law 523/1995 § 30.
22. Law 523/1995 § 15.

Tax News November 2022

Executive summary

Decree No. 8.301November 17, 2022The Presidency of the Republic vetoed in full bill No. 7,022/2022, extending Value Added Tax ("VAT") deductions for individuals who provide services independently.
Decree No. 8.416November 30, 2022Extends until December 31, 2022, the validity of the special ISC taxable bases for certain fuels derived from oil.
General Resolution No. 122November 21, 2022The Undersecretariat of State for Taxation ("SET") updates the list of taxpayers subject to the jurisdiction of the General Directorate of Collection and Regional Offices.
General Resolution No. 105December 17, 2021 (reminder)The SET established the schedule of due dates for several groups of taxpayers to compulsorily adhere to the Integrated National Electronic Invoicing System ("SIFEN") - Reminder for Group 3 and following.

More information:

► Decree No. 8,301/2022 - The Presidency of the Republic fully vetoes the bill seeking to extend the VAT deduction for individuals who provide services independently.

Through Decree No. 8,301/2022 (the "Decree"), the Presidency of the Republic fully vetoed Bill No. 7,022/2022 (the "Bill"), whereby it was proposed to amend Articles 88 and 89 of Law No. 6,380/2019 (the "Tax Law").

The draft Bill proposed to amend the Tax Law and, thereby, allow individuals who independently render personal services to deduct the full input VAT tax credit on purchases of consumer goods, such as food and non-alcoholic beverages, among others. As one of the main reasons for the objection, the Executive Branch indicated that the Bill violates the principles of equality before taxes, proportionality, necessity, and reasonableness.

With the total veto of the Executive Branch, the Bill returned to the Chamber of Deputies, which confirmed by absolute majority the acceptance of the veto. Next, the Senate Chamber must decide whether to approve or reject the veto. It is expected that this chamber will also accept the veto since the Executive Branch has transcribed in the Decree the text of the legislative amendment bill of the Senate Chamber.

It is important to remember that the Executive Branch issued Decree No. 8,175 on November 7, 2022, which extended the deductibility of the VAT tax credit for certain purchases. More information on this matter can be accessed through the following link: https://vouga.com.py/se-amplian-las-deducciones-del-iva-para-personas-fisicas-que-prestan-servicios-de-manera-independiente/

► Decree No. 8,416/2022 - Extension until December 31, 2022, of the special ISC tax bases for certain petroleum fuels.

Through Decree No. 6,620/2022, the Executive Branch modified, on a transitory basis, the ISC taxable bases for the importation and commercialization of the following oil-derived fuels:

ProductTaxable Base
1) Gas Oil/Diesel Type IIIG. 2.388,9 per liter
2) Virgin NaphthaG. 3.045,6 per liter
3) Naphtha RONG. 6.033,3 per liter

Originally these tax bases were to be in force only during February 2022, but then their validity was extended monthly at the rate of one decree per month. Decree No. 8,416/2022 is the last of these extensions, extending the validity of these tax bases until December 31, 2022.

► General Resolution No. 122/2022 - The SET updates the list of taxpayers subject to the jurisdiction of the General Directorate of Collection and Regional Offices.

The SET updated the list of taxpayers under the General Directorate of Collection and Regional Offices' jurisdiction by General Resolution No. 122/2022 (the "RG").

As of December 1, 2022, the taxpayers indicated in the list of Annex I of the RG are removed from the category of "Large Taxpayers" and are incorporated into the category of "Small Taxpayers" under the jurisdiction of the General Directorate of Collection and Regional Offices.

As of the same date, the taxpayers indicated in Annex II of the RG are removed from the "Medium Taxpayers" category and incorporated into the "Small Taxpayers" category, subject to the jurisdiction of the General Directorate of Collection and Regional Offices.[1].

Taxpayers whose Single Taxpayer Registry (" RUC") number does not appear in any of the annexes of the General Resolution, remain in the category in which they are currently, with no change in the competence of the General Directorate of the SE T that administers them

[1] Annexes I and II of General Resolution, can be found at the following link

If you wish to know if you or your organization are affected by this Resolution, you can consult the complete list of taxpayers in the following link: following search engine.

► General Resolution No. 105/2021 - Mandatory schedule was established for several groups of taxpayers to adhere to SIFEN - Reminder for Group 3 and following.

All taxpayers, especially those in Group 3 of the SIFEN, are reminded that the SET issued General Resolution No. 105/2021 (the "RG"), dated December 17, 2021. Through this RG, the mandatory calendar for several groups of taxpayers to adhere to the SIFEN was established, foreseeing ten groups with nine different due dates, with a difference of one quarter between the dates foreseen for one group and another, except for groups 1 to 3, according to the following calendar.

GroupsDate from which they are obliged
1 – “Pilot plan”July 01, 2022
2 – “Voluntary adherence”July 01, 2022
3 – “Compulsion”January 02, 2023
4 – “Compulsion”April 03, 2023
5 – “Compulsion”July 03, 2023
6 – “Compulsion”October 02, 2023
7 – “Compulsion”January 02, 2024
8 – “Compulsion”April 01, 2024
9 – “Compulsion”July 01, 2024
10 – “Compulsion”October 01, 2024

Obligated taxpayers from groups 3 to 10 may start issuing electronically before the established date in case they wish to do so gradually. However, once the mandatory date arrives - January 2, 2023, for group 3 - they must exclusively issue all their documents electronically since the authorization and stamping of their pre-printed or self-printed documents, granted by the SET, will cease to be valid, except for the one related to virtual withholding receipts.

It should be considered that the implementation of an electronic invoicing system is a process whose cost and development are borne by the taxpayer, which often involves a considerable implementation time, as acknowledged by the SET in article 4 of the RG when it grants a period of up to twelve months of adaptation to those who wish to become voluntary electronic issuers.

Therefore, it is extremely important to be aware of whether you or your company are affected by the SIFEN obligation, because if you are and you do not take the appropriate measures in time, you may no longer be able to operate normally. If you want to know if you or your organization are affected by this RG, you can consult the complete list of taxpayers in the following search engine. For more details or better advice, you can contact our tax professionals.

Marco Regulatorio del Microseguro

Con la Resolución SS.SG. N° 254/2022 (la “Resolución”), la Superintendencia de Seguros (la “Superintendencia”), aprueba el marco regulatorio del microseguro. Esta Resolución entró en vigencia a partir de su fecha de emisión, 14 de octubre de 2022; sin embargo, las aseguradoras que actualmente se encuentren comercializando con la denominación de microseguro, tendrán un plazo de 180 días para ajustarse a los nuevos requerimientos. 

Mediante esta Resolución se define al microseguro como aquel diseñado en beneficio de personas de bajos ingresos, previéndose condiciones simples y coberturas acotadas, cuya prima mensual por riesgo asegurado no exceda de 1 jornal mínimo vigente para actividades diversas no especificadas en la capital. La modalidad de contratación del microseguro puede ser individual o colectiva.

De acuerdo a la Resolución, no podrán ser ofertados ni comercializados productos con la denominación “microseguro” si el plan y la póliza no hubieran sido inscriptos ante la Superintendencia . Los planes de microseguro inscritos a instancia de la Asociación Paraguaya de Compañías de Seguros (APCS) podrán ser aplicados por cualquier aseguradora sin más trámite.

Así también, las aseguradoras deberán presentar a la Superintendencia, al cierre de cada ejercicio, el desempeño del plan, basado en el ratio combinado resultante, considerando como mínimo tres años de experiencia, si los hubiera.

Además, la Resolución establece las condiciones y el contenido para una póliza de microseguro, incluso dispone obligaciones a las aseguradoras como la de publicar videos en su página web, donde se explique las condiciones de cada producto y el procedimiento en torno a ellos.

Otras cuestiones importantes que regula esta Resolución son el contenido mínimo de un contrato de microseguro, la prueba del contrato de microseguro, la entrega de la póliza, la comunicación entre las partes, el pago de las primas, la denuncia del siniestro, el pago de la indemnización y los canales de distribución de las pólizas. Un importante componente de estos puntos es que se reconoce el factor tecnológico para varios de estos puntos. Por ejemplo, se establece que los contratos de microseguro podrán ser celebrados de forma remota o no presencial y que la suscripción de un producto de microseguro se podrá evidenciar mediante la póliza de microseguro suscrita ya sea de manera impresa o digital. Además, permite que las pólizas sean entregadas a los tomadores por medios tecnológicos o convencionales; en tanto que las comunicaciones puede ser también por medios tecnológicos o convencionales.

Finalmente, las aseguradoras deberán informar mensualmente a la Superintendencia sus operaciones de microseguro. La Superintendencia podrá requerir cualquier información adicional que considere para sus labores de supervisión.

Con esta nueva Resolución la Superintendencia busca otorgar mayor facilidad y efectividad al desarrollo del microseguro ya que esta modalidad de seguro está íntimamente ligada a la inclusión financiera.

Our firm has been recognized by Legal 500 in its 2022 edition for Paraguay

We congratulate our partners and each of the lawyers that make up the areas ranked for this achievement.

Estamos muy orgullosos de este reconocimiento que destaca la dedicación de nuestro equipo, la calidad del servicio brindado y la confianza de nuestros clientes.

Legal 500 es uno de los principales rankings internacionales que se encarga de analizar firmas de abogados a nivel mundial para sus publicaciones.

Tier 1Tier 2
Banking and FinanceIntellectual Property
Competition and AntitrustTax
Corporate and M&A 
Dispute Resolution 
Labour and employment 

Link: https://www.legal500.com/c/paraguay/

The Paraguayan Executive finally regulates Water Resources Law of 2007

On 3rd May 2022, the Executive issued the Decree 7017, which regulates Law 3239/2007 on Water Resources of Paraguay, issued 15 years ago, but with full implementation pending since then.

Decree 7017 entrusts the environmental authority, the Ministry of the Environment and Sustainable Development (“Mades”), with the task of developing and constantly updating the tools provided for in Law 3239 for the sustainable and comprehensive use of water:

(i) The National Water Resources Plan: It will be the main instrument created by Law 3239 to manage the use of water resources in a sustainable way, setting the criteria to evaluate the use and the granting of the relevant permits.

(ii) The National Water Inventory: The Decree provides greater detail on its content, providing that it must include (i) the location of water resources, contamination sources, streams and works for discharge, collection or regulation that were granted environmental licenses, (ii) the classification of water resources and (iii) other data that Mades considers relevant.

(iii) The National Registry of Water Resources: Whoever is in possession of water resources, has rights of use or carries out activities related to water resources must be registered before this registry. Mades has previously implemented this registry by Resolution 2194/2007, which will be updated.

Likewise, Decree 7017 highlights the importance of wetlands and entrusts Mades with planning their management.

As a consequence of Decree 7017, Mades issued resolution 351/2022, which establishes the timeframe to work on the regulatory process, setting different deadlines to put into practice the different measures required to fully implement Law 3239:

(i) Short term – by September 2022: Setting up inter-institutional commissions or working groups to work on the planning of projects and strategies.

(ii) Medium term – October 2022 to May 2023: Among other things, it is intended, to formalize the National Water Inventory database, update infractions and sanctions related to the use of water, and establish different technical criteria and regulations applicable to permissions.

(iii) Long term – June 2023 onwards: Among the most important regulations to be issued are the granting of permits and concessions, the payment of fees for the use and management of water, and a registry of permits and concessions.

This long-awaited regulation assigns Mades with a series of procedures and measures that imply significant changes in terms of the parameters for obtaining permits and concessions for the use of water, including the payment of fees. It is expected that by 2024 Paraguay will have a regulatory framework for water resources that is substantially more complex and detailed than the current regulation.

Although the changes are expected to be gradual, it is important that companies that use or plan to use water resources are vigilant to the regulations that will be issued by Mades and, as far as possible, seek to participate in their preparation.

Authors: Paula Lovera and Rodrigo Fernández.

* First published in Legal Industry Reviews, Paraguay, September 2022

The Central Bank of Paraguay establishes new regulations for Project finance.

The Board of Directors of the Central Bank of Paraguay (Banco Central del Paraguay) (the "BCP"), through Resolution No. 17 dated October 7, 2022 (the "Resolution"), established special provisions for borrowings for the financing of long-term investment projects. In addition, the Resolution establishes new criteria, requirements, and definitions relevant to this type of financing to be granted by financial institutions in Paraguay (the "Financial Institutions"). The purpose of this new regulation is to encourage and support the financing of projects structured under the project finance modality by the Financial Institutions so that they can play an active role in the funding of this type of projects, especially considering their impact on the country's economy.

It is worth mentioning that one of the most used structures for the financing of sizeable long-term investment projects is the one known as project finance, whose main characteristics are:

  1. The repayment of the loan is mainly based on the project's own capacity to generate the necessary cash flows for such repayment;
  2. Recourse against the borrower is limited;
  3. The existence of special purpose vehicles (SPV) incorporated for the sole purpose of carrying out the project;
  4. The contributions of the sponsor of the project;
  5. The granting of certain limited guarantees;
  6. The execution of certain types of contracts that ensure the sustainability and profitability of the project;

The most important concepts established in the Resolution are as follows:

  • Definition and establishment of the characteristics that long-term financing must have to be considered as project finance, which consist of:

a. The existence of a borrower company with the sole purpose of developing the specific project (the "Project"), and whose main assets and business are constituted by such Project (the "Borrower"). The latter may be either a commercial company or a legal structure (a trust);

b. The assets and revenues of the Project constitute the principal and sometimes the only security for the financing. Recourse against the Borrower (i) is for amounts limited to the cash flows of the Project, and (ii) for collateral pledged over the assets of the Project;

c. Limitation of Recourse:

  1. Recourse against the sponsors, shareholders or partners is limited to their capital contribution and their economic rights according to their participation in the Borrower;
  2. The scope of the recourse against the Borrower is limited to the amount of the payments received by the Borrower;
  1. Recourse against the Borrower or a member thereof, in general, is limited solely to claims for damages for the breach of any obligation; and,
  2. The lack of authority of the creditor to initiate a proceeding for the liquidation or dissolution of the Borrower, the appointment or management of the appointment of receivers, trustees or officers to oversee or administer the Borrower or any of its assets, except for assets pledged as collateral.

d. The Project must be analyzed and treated from its beginning as a project finance by the Financial Institution; and 

e. With respect to foreign financing, the amount financed by the Financial Institution to the Borrower must not exceed 20% of the total resources obtained for the project finance.

  • Establishment of the requirements that the Financial Institutions must comply with prior to the granting of financing under the project finance modality, which are as follows:

a. Evaluation and determination of the technical, financial, environmental, legal, and technological feasibility of the Project, based on credit risk and cash flows, where the Financial Institution expects, with a high degree of confidence or certainty, that the funds will be invested in the Project, that it will be completed in a reasonable time, within the foreseen deadlines and economic budgets, and that once completed it is capable of producing sufficient resources to repay the loan. Both the Project and its analysis must be duly supported and formally documented;

b. Obtaining additional guarantees during the construction phase of the Project, which will be raised only after completion of the work, verification of the Project's operation and its production capacity as foreseen in the feasibility studies and/or other contractual agreements; and,

c. To have the formal approval of the Board of Directors of the Financial Institution for the granting of this type of financing, on a case-by-case basis.

  • Limitation on the amount of credits and contingencies that a Financial Institution may grant within the framework of project finance, not exceeding, directly or indirectly, an amount equivalent to 20% of the effective net worth of such institution. This limit may be increased up to 30%, provided that there is sufficient collateral accepted by the Superintendency of Banks (the "SIB") to support the transaction. In turn, the guarantees accepted by the SIB are:
  1. Mortgage Guarantees, attributable up to 70% of their appraised value;
  2. Pledged collateral, imputable up to 50% of the appraised value;
  3. Guarantees, sureties, and other obligations included in the ALADI Agreement on Reciprocal Payments and Credits;
  4. Warrants on different products according to the computable value in accordance with the Rules for Classification of Assets, Credit Risks, Provisions, and Interest Accruals; or
  5. Forestry Assets Security (Derecho Real de Superificie Forestal) up to 80% of its verifiable quotation value.
  • Not considering as a single risk unit the sponsors, shareholders, or partners of companies that carry out the Projects or the beneficiaries of trusts set up for Projects, which normally must be considered by the Financial Institutions as individuals and/or legal entities directly or indirectly related to such Project.

This is perhaps one of the most relevant points of the Resolution, since it will allow Financial Institutions to evaluate the sponsors, the Borrower or SPV and the Project as a risk unit different and separated from the other activities and businesses of the same economic group, which in turn will allow raising the lending limit established by banking regulations for Financial Institutions.

  • Finally, the obligation to make available to the Superintendency of Banks, at all times, all documentation that supports and sustains the granting of financing under the project finance.

Fiscal consequences of the new Immigration Law  

Executive summary:

The Executive Branch enacted and published Law No. 6,984/2022 (the "Immigration Law"), establishing a new immigration regime in Paraguay effective as of October 19, 2022. This new law has special consequences for foreigners who wish to settle in the country (defined as immigrants in the new law) and who carry out remunerated activities in Paraguayan territory. Furthermore, the new law also has significant consequences for Paraguayan companies that contract with them since foreigners do not acquire tax residence in Paraguay until they obtain a permanent residence permit.

The tax residency of individuals in Paraguay is particularly relevant since the enactment of Law No. 6,380/2019 (the "Tax Law") since those who do not have it are subject to a higher tax burden through the tax withholdings (discounts) that Paraguayan individuals or entities are obliged to practice on the payments made to them. In addition, individuals without tax residence in the country should not be able to register as taxpayers before the Taxpayer Registry ("Registro Único del Contribuyente" or "RUC").

According to the Immigration Law, one of the new requirements to obtain the permanent residence permit is that whoever wishes to apply for it, must have previously received the temporary residence permit and exhausted its two-year term. If immigrants do not comply with this, they cannot access the permanent residence permit, which means that Paraguayan companies must withhold taxes from all payments made to them during that time. However, it is essential to mention that the Immigration Law has yet to be regulated, so it is expected that the regulation will clarify many points.

More information:

To analyze the tax impact of the new Immigration Law, it is essential to start with the fact that foreign individuals need a permanent residence permit to acquire tax residency in Paraguay.

  • New requirement to obtain the permanent residence permit

According to the Immigration Law, there are two categories of admission of foreigners in the country, according to their intention of settling in the country: (a) transitory stay, and (b) resident. The first category applies to foreigners who do not intend to reside in Paraguay (tourists, transit passengers, among others), while the second applies to immigrants.

Within the category of admission as a resident, the new Immigration Law distinguishes four classes: (i) spontaneous or occasional residence; (ii) temporary residence; (iii) precarious residence, which applies to foreigners who are in the process of obtaining temporary residence; and (iv) permanent residence. Only the latter grants tax residency to foreigners, according to Article 2 of the Annex to Decree No. 3,181/2019, through which the Income Tax of Non-Residents ("INR") is regulated.

As of the Immigration Law, it was established that the immigrant could only access the permanent residence permit after first being in Paraguay with temporary residence for the entire term of this type of residence, which is of two years. However, the law needs to be more explicit about the need to comply with the entire period of two years of temporary residence or whether, on the contrary, it is possible to obtain the permanent residence permit by complying with a temporary residence of a shorter duration. In the latter case, it is necessary to clarify the minimum period for the temporary residence to allow applying for the permanent residence permit. It is expected that the regulations of the new Immigration Law will clarify this.

  • Exceptions to the requirement to comply with the prior temporary residence to access permanent residence

The Immigration Law provides for two situations in which a foreigner may have direct access to a permanent residence permit without the need to have previously complied with the term of temporary residence:

  1. Investors or capitalists with investments in Paraguay who can prove reliably to have made investments in the country, as established by the Immigration Law, its regulations, and other applicable laws.
  2. The following foreign relatives of a repatriated Paraguayan national: spouse, children, and grandchildren (up to 18 years of age). In addition, the spouses of the child of the repatriated Paraguayan national are also eligible for this benefit.
  • Taxes withheld from non-residents

As long as foreign individuals do not acquire a permanent residence permit (evidenced by the respective card), they are considered non-residents for tax purposes. Therefore, Paraguayan companies that make payments to them or make funds available to them for the rendering of services or sale of goods in Paraguay must withhold INR[1] and Value Added Tax ("VAT")[2]from the payments. In addition, Paraguayan companies that distribute profits, dividends or yields, must withhold the Tax on Dividends and Profits ("IDU”) applying a higher tax rate (15%) than the tax rate that corresponds to residents (8%).

The permanent residence permit is also necessary for the foreign individuals to register as a taxpayer in the RUC and thus liquidate their taxes, according to General Resolution No. 79/2021 issued by the Undersecretariat of State for Taxation (the “Tax Authority” or "SET"). Furthermore, the temporary residence permit cannot be used for registration before the RUC; only the permanent residence permit and the registration with the proof of refugee application serve this purpose.

It should be noted that the Migration Law also affects Paraguayan companies that contract with immigrants without tax residence in Paraguay since, as they are obliged to withhold INR and VAT, they are jointly and severally liable for these taxes. This means that the SET can claim these taxes from Paraguayan companies that do not comply with their obligation to withhold taxes on payments made to foreign individuals without tax residence.

  • Taxes applicable upon obtaining the permanent residence permit.

The immigrants are considered a resident for tax purposes from the moment they acquire the permanent residence permit in Paraguay, which is proved with the respective card. This implies that the Paraguayan companies that receive their services and pay them in return are no longer obliged to withhold INR or VAT[3] when foreigners acquire a permanent residence permit.

Thus, from the moment foreigners acquires tax residence in Paraguay by obtaining the permanent residence, they are the only ones who are obliged to comply with their tax obligations, so they must register as taxpayers with the SET and comply with their tax obligations on their initiative. Moreover, depending on the characteristics of their activity and the income he obtains from it, they may or may not be obliged to register as a VAT, Personal Income Tax ("IRP"), and/or Corporate Income Tax ("IRE") taxpayers.

[1] The INR establishes a general rate of 15% that is applied on the net income, which is established in accordance with the Tax Law. For the rendering of personal services, the effective INR rate is 10.5% on the amounts paid or made available to the non-resident.

[2] VAT applies a general rate of 10% on the sale of goods and the rendering of services performed independently.

[3] It could happen in cases of personal services that VAT should not be withheld long before obtaining tax residence if the immigrant without permanent residence is registered as a dependent worker before the Social Security Institute. Based on this registration, these services are characterized as provided in a relationship of dependency. Therefore, there is an assumption of non-taxability of VAT on the payments made as remuneration for such dependent work.