Doing Business In.. 2024 Comparisons

Paraguay has a civil law legal system. The basic organisation of the judicial order in Paraguay is the Supreme Court of Justice, Appeal Courts and Lower Courts.

Paraguay has a strong legal framework supporting and promoting foreign investments. Law No 117/91 “On Investments” guarantees a free exchange regime without restrictions for the entry and exit of capital, as well as for the remittance abroad of dividends, interest, commissions, and royalties for the transfer of technology or other items, which are subject to the taxes applicable by law in Paraguay. The country allows the free contracting of investment insurance within its jurisdiction and abroad, and the establishment of joint ventures.

Furthermore, there are no requirements to record with Central Bank investments or remittance of capital required for investments, settle imports and exports with the Central Bank, or liquidate currency. All investments can flow through the private banking system.

There is no applicable information in this jurisdiction.

There is no relevant information in Paraguay.

The right to appeal is not applicable in Paraguay.

Most legal entities operating in Paraguay are organised as:

• branches of foreign companies;
• joint stock corporations;
• limited liability companies; or
• simplified joint stock companies (EAS).

Joint stock and limited liability companies must have at least two shareholders, who may be either individuals or legal entities. They do not have a minimum share capital and the liability of the shareholders/quotaholders is limited to the capital owned.

Joint stock corporations require:

• a board of directors and a comptroller;
• annual shareholders’ meetings to approve the financial statements; and
• the maintenance of corporate books.

Joint stock corporations offer greater conveniences for the transfer of shares and the appointment of new members to the board of directors, in comparison with limited liability companies.

The administration of a limited liability company does not require corporate books. The representation of the limited liability company is carried out by a management team appointed by the quotaholders in the by-laws. However, limited liability companies lack the conveniences of joint stock corporations; the transfer of shares and the appointment/cessation of managers require an amendment of the by-laws.

Except for financial, banking, insurance, stock exchange, and currency exchange activities (which can only be carried out by a joint stock corporation), from a commercial perspective, there are no differences regarding the activities in which joint stock corporations or limited liability companies can engage. However, the EAS are limited to commercial activities, except those subject to special regulations such as liberal activities of individuals, educational services, mining activities, oil, or other extractive activities.

A branch allows the foreign parent company to conduct business in Paraguay without creating a new legal entity. The parent company must appoint a legal representative and allocate operating capital to the branch. This corporate form does not require keeping corporate books. On the other hand, the liability for the acts of the branch extends to the parent company.

Simplified joint stock companies can be incorporated with a single shareholder (whether an individual or legal entity, national or foreign) and share characteristics with joint stock corporations – corporate books and approval of fiscal year, but they do not require a comptroller. However, various procedures that are already available and implemented for the other forms of legal entities are not yet available for EAS.

The incorporation of any of the legal entities must be instrumented in a public deed certified by a Public Notary (except the EAS incorporated with a single form) and registered at the Paraguayan public registries, prior to the issuance of a report from the corporate surveillance entity. The legal entities acquire legal personality upon registration at the Public Registry of Legal Entities and Commerce and can engage in commercial activities from the registration before the tax authority to obtain the tax ID. This process takes between two to four months.

In Paraguay, private companies are subject to reporting and disclosure obligations. The specific filing obligations and requirements vary depending on the corporate form. Some key filing obligations are:

• Changes of management – any change of management in a limited liability company or a branch office, such as the appointment or cessation of managers/legal representatives, requires its registration in the Paraguayan public registry. On the other hand, the shareholders’ meeting that appoints or dismisses the board of directors in a joint stock corporation or an EAS must be submitted to the corporate surveillance entity. In all cases, an update before the General Directorate of Legal Entities and Structures and the tax authority is required.
• Changes of shareholders/quotaholders – any change of quotaholders in a limited liability company requires its registration in the Paraguayan public registry. On the other hand, the transfer of shares in a joint stock corporation or an EAS must be submitted to the corporate surveillance entity. In all cases, an update before the General Directorate of Legal Entities and Structures and the tax authority is required.
• Amendment to articles of incorporation – any amendments made to the articles of incorporation of a legal entity must be filed with the public registry. This includes changes to the corporate name, registered address, share capital, purpose, or any other significant provisions outlined in the articles, such as a change of management or quotaholders in the limited liability company. Furthermore, the public deed must be registered before the corporate surveillance entity and the information of the legal entity must be updated before the General Directorate of Legal Entities and Structures.
• Approval of financial statements – legal entities are required to prepare and submit annual financial statements, including balance sheets, income statements, and cash flow statements, to the annual shareholders meeting in the first quarter of the year. This meeting must be filed before the corporate surveillance entity.
• Allocation of profits – all forms of legal entities must inform the tax authority of the allocation of profits, if any, approved in the annual meeting or by any other competent body.
• Update before the General Directorate of Legal Entities and Structures – legal entities are required to disclose information about the legal entity, its shareholders/quotaholders, authorities, and their ultimate beneficial owners. This information must be reported annually before 30 June or within 15 days of any change, and failure to comply with the disclosure requirements can result in penalties or other legal consequences.

Legal entities in Paraguay typically follow a one-tier management structure. The law only requires one management body. Nevertheless, it is possible that legal entities create additional bodies such as supervisory or counselling/advisory boards in their by-laws.

The number and duration of the administrative bodies is determined in the by-laws. The directors/managers/legal representatives may or may not be shareholders. They are eligible for re-election and their appointment is revocable. They can be Paraguayan or foreigners with legal residence in the country.

In Paraguay, the liability of legal representatives (directors for a joint stock corporation and managers for a limited liability company) is primarily governed by the Paraguayan Civil Code. The legal representatives are responsible for the administration of the legal entity. They are agents and are jointly and severally liable with the legal entity for the incomplete or deficient performance of their mandate. According to the regulations, legal representatives are accountable to third parties, creditors, and suppliers, as well as shareholders/quotaholders and the legal entity.

Legal representatives must act in accordance with their mandate. Compliance means adhering to the provisions of the by-laws, laws, instructions from shareholders/quotaholders, and generally following the duties of conduct inherent to their position while safeguarding the legal entity’s interests. Failure to comply or fulfil their duties, depending on whether it is done with intent, negligence, or fault, may result in their liability to compensate for damages and losses caused.

The liability of legal representatives may be contractual or non-contractual, depending on the case.

All acts carried out by the legal representatives are considered as performed by the company, as long as they are within their powers or in fulfilment of the corporate purpose. In case of doubt, it will be presumed that the director acted on their own behalf.

In Paraguay, the concept of piercing the corporate veil exists, and under certain circumstances, courts can disregard the corporate entity to hold legal representatives and officers personally liable. However, the conditions and criteria for piercing the corporate veil may vary, and it is subject to judicial interpretation based on the specific facts and circumstances of each case.

Labour relations in Paraguay are regulated by the Labour Code, Law No 213/1993, and governs the relations between employees and employers and in situations in which there is a clear element of subordination. Employment relationships are regulated, in addition, by collective bargaining agreements, internal working regulations and employment agreements.

The employment contract may be verbal or written; contracts that stipulate a remuneration higher than the legal minimum wage must be in writing.

Regarding its duration, the employment contract may be:

• for a fixed term;
• for an undefined term; or
• for a specific work or service.

The contract entered for a fixed term may not exceed:

• one year in the case of blue-collar employees; or
• five years in the case of white-collar employees.

The contract for a specific work or service will last until the total execution.

There is a maximum working time applicable to salaried employees.

The ordinary working day is:

• 8 hours per day or 48 hours per week for day work (from 06:00 to 20:00);
• 7 hours per day or 42 hours per week for night work (from 20:00 to 6:00); and
• 7.5 hours per day or 45 hours per week for mixed work (which covers periods of time between day and night work).

Daytime overtime hours worked outside the agreed working hours are paid with a 50% surcharge when they correspond to working days, and 100% when they correspond to holidays and rest days. Night-time overtime hours are paid with a 100% surcharge on the value of the night hour.

Overtime may not exceed 3 hours per day; and the total hours worked in a week may not exceed 57 hours per week, including ordinary and overtime hours.

The termination of individual employment contracts may occur due to the initiative of the employee or the employer indistinctly, with or without just cause in accordance with the provisions of the Labour Code. The Labour Code establishes a trial period of 60 days during which it is possible to terminate the employment relationship without liability for any of the parties (only the salary corresponding to the days worked, and the proportional Christmas bonus, is paid).

Upon termination of the employment relationship in an undefined-term contract, the employer must pay the employee the outstanding salary corresponding to the days worked, the proportional Christmas bonus, and the amount corresponding to the accrued vacations that are pending to be taken.

In case of unjustified dismissal, the employer must also pay an indemnity equivalent to 15 daily wages for each year of service or fraction of six months, plus an amount, that varies according to the seniority of the employee, of between 30 and 90 daily wages as notice, in case of failure to give prior notice of dismissal. The employee is also entitled to be paid a proportional amount corresponding to vacations not yet accrued in relation to the time worked, according to the employee’s seniority in the company.

Upon termination of contracts for a defined term or for work, the salary for the month and the proportional Christmas bonus must be paid. In the event of termination of the contract before the established term, the Paraguayan law establishes that a judge may determine the indemnity, the maximum amount of which may be equal to the remainder of the contract. In practice, in these cases the employee is paid as if it were a contract for an undefined term, paying the notice and the corresponding indemnity according to the time worked.

Collective redundancies are permissible under the same rules as for termination of individual employment contracts – no consultation is required.

There is no applicable information regarding employee representations in this jurisdiction.