Explore the requirements and rules that apply to Indirect Taxes in Paraguay.
Explore the requirements and rules that apply to Indirect Taxes in Paraguay.
Types of indirect taxes (VAT/GST and other indirect taxes).
Value Added Tax (VAT).
Are there other indirect taxes?
Selective consumption tax (SCT).
What supplies are subject to VAT?
Transfers (in general), import of goods and provision of services are subject to VAT.
However, the following events are VAT exempt:
— Transfer of:
— Imports of goods:
This exemption shall not apply in cases of sales of goods or provision of services related to the following economic activities: habitual sale and purchase of real state, extractive, poultry, beekeeping, sericulture, swine and rabbit raising, floriculture, forestry, consignment of goods, transport, insurance, safety, parking, hotel, lease of properties, carpentry, financial intermediation, rental and exhibition of films, location of property and rights, clubs, transfer of use of intangible property, travel agencies, funeral and related activities, laundry, cleaning and dyeing of garments in general, advertising, construction, renovation and demolition.
What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes?
The standard rate of VAT is 10 percent, a differential (reduced) VAT rate of 5 percent applies to:
— Selective Consumption Tax:
Who is required to register for VAT/GST and other indirect taxes?
Is voluntary registration for VAT/GST and other indirect taxes possible for an overseas company (e.g. if the annual turnover is below the relevant VAT/GST and other indirect taxes registration threshold)?
No, foreign companies must have a permanent establishment to be registered for VAT.
Are there any simplifications that could avoid the need for an overseas company to register for VAT?
Does an overseas company need to appoint a fiscal representative?
Yes, a fiscal representative is mandatory.
Which forms and supporting documentation does an overseas company need to submit for VAT/GST and other indirect tax registrations?
Is grouping* for VAT/GST and other indirect taxes possible?
Not applicable as grouping is not ruled in the Paraguayan tax legislation.
How frequently are VAT/GST and other indirect tax returns submitted?
What are the exchange rate rules in your country?
The tax rule on the exchange rate provides that the value of transactions in foreign currencies agreed between parties will be converted into local currency at the exchange rate of the buyer or seller on the open market at the close of the banking day on which the operation took place, depending on whether it was a sale or a purchase, respectively.
The import and export operations will apply the exchange rate of that seller’s and buyer’s market respectively. Foreign currency transactions should be converted into local currency based on the rate of the open market at the close of the day of the transaction.
Exports – Goods
How are exports of goods treated?
The exports of goods is VAT exempted.
Exports – Services
How are exports of services treated for VAT/GST purposes?
The Paraguayan legislation does not provide rules for exports of services.
Imports – Goods
How are goods dealt with on importation?
The importation of goods is subject to VAT at the tax rate of 10 percent.
Imports – Services
How are services brought in from abroad treated for VAT purposes?
The local beneficiary of the services must act as withholding agent and withhold the VAT on the price amount.
Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?
Are there any exemptions with the right to recover or deduct input VAT?
Exporters have the right to recover VAT incurred on local purchases needed for the manufacturing of goods exported overseas.
Are there any restrictions to the deduction of input VAT?
Yes, there are restrictions to the deduction of input VAT for individuals. Individuals only can deduct the following items:
When is VAT/GST due on a supply of goods or services?
The tax is applied when invoicing for the purchase of the good or for the provision of the service.
Is a business required to issue tax invoices?
Is it possible/mandatory to issue invoices electronically?
Is it possible for the vendor to issue an invoice (i.e. self-billing)?
Self-invoices (autofactura) can be issued to support services rendered by providers (individuals) who are not obliged to register as taxpayers and when payments do not exceed the minimum monthly wage (approximately 363 US dollars (USD) according to the September 2018 exchange rate).
How long must records and invoices be retained?
Time bar is 5 years.
Can the invoices be stored abroad?
Do tax audits take place on a regular basis?
No. Lately, there have been tax audits focused on exporter companies mainly to verify the validity of their VAT credit amounts, considering that exporters are the only ones allowed to recover VAT credits. The competent authority is the tax office (Subsecretaría de Estado de Tributación). Taxpayers with an annual turnover exceeding 6 billion Paraguayan guaraní (PYG), approximately USD1,030,928 (September 2018 exchange rate), are obliged to have an external tax audit performed by external auditors. The tax report issued by the external auditors is filed to the tax office by the taxpayer.
Are audits done electronically in your country (e-audit)? If so, what system is in use?
What penalties can arise from non-compliance?
The main penalty is refusal by the tax office to refund VAT credits to exporters that did not document their credits connected to export transactions accurately. The tax office can also open an administrative legal process to investigate the compliance of the company’s tax obligations. For all cases of non-compliance (of formal and substantial obligations of all taxes, not only indirect ones), the tax authority is allowed to deny the authorization of printed invoices (timbrado), preventing the taxpayer from invoicing its operations.
Are there any special rules for the sale of a company by one taxpayer to another where VAT is not due on the sale?
When a company is transferred and the acquirer takes over the existing liability at the time of the transfer, the taxable base will be the sum of the agreed price, plus the existing liability, which will constitute the total tax price of the transaction. The assets that constitute the transferred asset must be apportioned between taxed and exempt. The contracts of transfer of companies must expressly establish the price and other conditions of the operation, stipulating that the price established therein must be added in an apportioned manner to the VAT.
Are there unique specific indirect tax rules that you would not expect to find in ‘standard’ VAT jurisdictions?
— Entry of goods into free zones: entry of goods from third countries or from national territory to the free zone is exempted from all national, regional (departmental) or municipal tax, excluding service rates.
Does a reverse-charge mechanism apply for goods or services?
Are there indirect tax incentives available (e.g. reduced rates, tax holidays)?
Are rulings and decisions issued by the tax authorities publicly available?
Yes, they can be found on the Tax Office website: PARAGUAY-SET
BCA Benítez Codas & Asociados
KPMG International Correspondent firm in Paraguay
Oscar Benítez Codas
T: +595 21 212505 ext. 103
T: + 595 21 212505 ext. 153
T: + 595 21 212505 ext. 110
*By ‘grouping’ we mean: either a consolidation mechanism between taxpayers belonging to the same group (payment and refund are compensated but taxpayers remain distinct) or a fiscal unity for VAT/GST purposes (several taxpayers are regarded as a single taxpayer).