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08/11/2022

Executive summary:

The Executive Branch issued Decree No. 8,175/2022 (the "Decree") on November 7, 2022, whereby the list of purchases of goods and services that generate a deductible tax credit for the determination of Value Added Tax ("VAT") was expanded for individuals who provide personal services independently.

The Decree allows using as a tax credit 30% of the VAT included in invoices for the purchase of food, as well as 50% of the VAT included in invoices for the lease of real estate and the provision of basic services, used jointly for the rendering of the taxable service (office, among others) and personal use (housing, among others).

Other concepts that give rise to using the VAT tax credit are added, clarified, or limited. The Decree is effective as of November 9, 2022, since the Executive Branch published it in Official Gazette No. 217, dated November 8, 2022. Therefore, only from that moment may taxpayers apply its provisions in VAT liquidations.

More information:

Through the Decree, the Executive Branch amended Article 19 of Decree No. 3,107/2019, which regulated VAT. Specifically, the Decree expanded the concepts that allow individuals who provide personal services taxed by this tax to use as a tax credit the VAT borne on purchasing goods and services directly or indistinctly affected to operations taxed by the tax.

This extension in the list of goods and services susceptible to generating VAT tax credit arose as a reaction of the Executive Branch to the current legislative dispute between the Chambers of Deputies and Senators (Legislative File D-2164401) on the extension of the deductibility of the VAT tax credit of personal service providers.

In this respect, the Chamber of Deputies sought to allow the use of 100% of the VAT on practically all purchases as a tax credit. In contrast, the Chamber of Senators sought to establish the same limitations of the Decree. Finally, a few days ago, the version of the Chamber of Deputies prevailed, pending to be sent to the Executive Power, which had already advanced its decision to veto this law.

Thus, the Executive Branch has transcribed in the Decree the text of the legislative amendment bill of the Senate Chamber, which it expects to prevail its veto and thus settle this discussion.

  • New deductible items

According to the Decree, the VAT taxpayer may now use as a tax credit in its VAT liquidations:

(i) 30% of the input VAT tax credit on purchasing food made in the taxpayer's name, including non-alcoholic beverages.

(ii) 50% of the input VAT tax credit for the office lease if the taxpayer also uses the leased property for his private use. However, 100% of the tax credit may be used if the property is used exclusively for office purposes.

(iii) 50% of the input VAT tax credit for electricity supply services, water supply, sewage, waste collection, or telecommunication services, partially used for the provision of the service taxed by VAT and for the taxpayer's private use.

It is important to note that taxpayers may use the VAT tax credit for these concepts only from the entry into force of the Decree, i.e., from November 9, 2022, and not before.

  • Clarifications on the deduction of other concepts

The Decree also provides more details on the use of the input VAT tax credit on some concepts already previously contemplated while including new concepts and establishing certain limits, as follows:

(i) When the taxpayer contracts prepaid medicine and the coverage includes other persons, the taxpayer may use the VAT tax credit in the proportion corresponding to the same. However, it is not clear whether this proportion is defined according to the number of affiliates or by the amount paid by each one.

(ii) The use of VAT paid on the purchase of servers and computer and telecommunications equipment, including their maintenance, is added.

(iii) It also includes as a tax credit the VAT paid for the hiring of advertising and marketing services.

Finally, the Decree also mentions the possibility of the taxpayer deducting up to 30% of the input VAT tax credit for the purchase of motor vehicles, which is the limit established in Article 88 of Law No. 6,380/2019; at the same time, it clarifies that the use of the input VAT tax credit for the purchase of motor vehicles, which is the limit established in Article 88 of Law No. 6,380/2019; at the same time it clarifies that the use of the input VAT tax credit for the

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