Paraguay operates under a civil law system, where the Constitution is the supreme law. The country is a sovereign, democratic and unitary state with a presidential system of government. The Constitution, enacted in 1992, establishes a tripartite system of government composed of the legislative, executive, and judicial branches. The judicial branch is hierarchical, with the Supreme Court at the top, followed by courts of appeal, courts of first instance, and other specialised courts. Paraguayan law is codified, and judges apply the law as written and interpreted, rather than relying on precedent as in common law systems.

Foreign investment in Paraguay generally does not require specific review or approval from national authorities. Paraguay is one of the Latin American countries with the greatest tax benefits in the region for national and foreign investments, granting different incentives to promote the production of goods and services, seeking to attract investors to enhance infrastructure and create new job opportunities to address the country’s current deficit. To this end, an extensive regulatory framework is in place to offer innovative legal tools towards making these benefits operational.

Investments – Law 117/91

Law 117/91 is designed to promote the social and economic development of Paraguay by ensuring equality between domestic and foreign investments. The key provisions are as follows.

• Equal treatment: guarantees equal treatment for all investors.
• Investment insurance: allows investors to obtain investment insurance at both local and international levels.
• Joint ventures: establishes the requirements for the incorporation of joint ventures.
• Arbitration: allows parties to submit disputes to national and international arbitration.

Investment Guarantee – Law 5542/15

Law 5542/15 aims to create a stable and secure environment for investments by providing robust protection and incentives. The key provisions are as follows.

• Investor protection: safeguards investors’ rights and interests.
• Favourable exchange rates: mandates the application of the most advantageous exchange rate for the transfer of capital and profits.
• Tax stability: offers fixed income tax rates for up to 20 years.

Investment Promotion – Law 60/90

Law 60/90 establishes a special tax system to incentivise foreign investment projects. The key provisions are as follows.

• Exemption on capital goods: exempts customs duties and other taxes on imported capital goods.
• Exemption on remittances and payments abroad: allows tax-free remittances and payments abroad for investments exceeding USD13 million.
• Exemption on dividends: exempts dividends from taxation under certain conditions.
• Exemption on incorporation and registration fees: exempts fiscal and municipal taxes associated with the incorporation, registration, and the registry of companies and businesses.

Maquila Industry – Law 1064/97

Law 1064/97 supports the development of industrial activities based on subcontracting for manufacturing in Paraguay and further exporting of the goods and services. The key provisions are as follows.

• Single maquila tax: imposes a single 1% tax on the national added value or invoice value of exports.
• Income tax exemption for partners: exempts partners of maquila companies from income tax on profits already taxed under the single maquila tax regime.
• Maquila contract: requires the signing of a maquila contract between a legally incorporated Paraguayan company and a contracting foreign company.

Free Trade Zone – Law 523/95

Law 523/95 aims to stimulate economic growth by promoting investment, job creation, exports, and international trade through the establishment of free trade zones or FTZs. The key provisions are as follows.

• Tax exemptions: exempts businesses operating within FTZs from national, departmental, and municipal taxes.
• Free trade zone tax: imposes a 0.5% tax on the total income value of sales to developing countries.
• Income tax exemption for partners: exempts partners of companies generating income tax under the free trade zone tax from income tax on those profits.

These laws collectively create a favourable investment climate in Paraguay, offering a range of incentives and protections to attract and retain both domestic and foreign investors.

The current business climate is quite favourable in terms of economic and political stability. The most recent development is the achievement of investment grade qualification awarded by Moody’s (Baa3), rewarding the country’s sound fiscal policies and continuous work to improve macroeconomic indexes. It is expected that S&P and Fitch will follow soon. The rating awarded by Moody’s will certainly boost Paraguay’s development through FDI being translated into better investments, quality jobs and industrial development across different sectors.

Additionally, as an effect of the recent legislative amendments, Paraguay’s tax regime is quite straightforward and predictable, with a low tax burden and a myriad of tax incentives aimed at attracting FDI. There is currently an ongoing development in FTZs for industrial complexes, mainly in green initiatives (biofuels, green hydrogen and cellulose), along with the already tried and tested regimes of maquila and other initiatives.

Furthermore, Paraguay has recently passed regulations aimed at unlocking its forestry potential through the carbon credits markets. We are seeing developments as part of this with agreements already in place attracting significant FDI while enhancing local producers’ capabilities with a clear view regarding the environment.

Lastly, there has not been any significant litigation or enforcement regarding FDI attesting to the country’s stability in this respect. In this regard, the current business climate is only expected to improve and changes in the economic/political climate that could hamper this upward curve are not anticipated.

In Paraguay, mergers and acquisitions are usually structured through asset or share purchases. Both types of operations have their pros and cons. On the one hand, asset purchases imply that the buyer acquires specific assets and liabilities of the target, allowing the investor to select particular assets and avoid unwanted liabilities. On the other hand, share purchases have been increasing in popularity in the last few years in Paraguay, where investors acquire the shares of the target, generally taking control over the Paraguayan company with all its assets and liabilities.

Among the key considerations for selecting a transaction structure, investors should consider the following factors.

• Regulatory approvals: certain sectors may require governmental approval for FDI or a change of controls, which may delay the execution of the transaction.
• Tax implications: depending on the transaction structure, tax consequences may significantly vary, and a case-by-case study should be carried out before conducting the transaction.
• Liability exposure: target companies may have existing or potential liabilities in commercial, banking and finance, industrial, administrative, labour, social security or other aspects. Legal due diligence is therefore recommended before taking any action, where all the liabilities can be identified and their consequences disclosed to the investor and thereafter dealt with or mitigated.

There are a wide range of regulations that must be considered for domestic M&A transactions in Paraguay. Antitrust approval has been an increasing factor to consider when structuring an acquisition, given substantial transactions are typically caught by the obligation to obtain a merger authorisation from the antitrust agency. In addition, other matters to consider are as follows.

• Sector-specific regulations: certain industries, such as banking, insurance, telecommunications, gambling and other sectors are subject to specific regulatory oversight. Acquisitions in these sectors may require additional and prior approval from relevant governmental authorities.
• Environmental authority approval: all industrial activities and other specific activities determined by the Paraguayan environmental regulation require environmental permission to be performed and, in case of an asset or share purchase, different notifications must be obtained from the Ministry of Environment and Sustainable Development (“MADES”).

Paraguay offers investors a wide range of corporate vehicles with different governance rules. The most common vehicles are as follows.

Corporations (Sociedades Anónimas or “SA”)

These are the most common type of companies in Paraguay. A SA is managed day-by-day by a board of directors, which depending on the by-laws of the corporation, can be composed of a sole director or by multiple directors, who are appointed by the shareholders through an ordinary shareholders’ meeting. The corporation must also appoint a trustee (síndico), who is responsible for the supervision of the management and administration of the company.

A SA requires at least two shareholders, whose participation in the corporation are represented and distributed through shares. The number of shareholders of a SA is unlimited.

Limited Liability Companies (Sociedad de Responsabilidad Limitada or “SRL”)

In this type of company, the management, administration and representation of the company is granted to one or more managers, who may or may not be shareholders of the company. Trustees are optional in this type of company.

When two or more managers are appointed, the same rules established for a corporation’s board of directors will apply. By default, the term of office of the manager is indefinite and any change must be made through an amendment to the by-laws.

The SRL’s capital is represented with quotas, and at least two quotaholders are required at all times in this company, with a maximum number of 25 members (ie, quotaholders).

Simplified Joint Stock Companies (Empresa de Acciones Simplificadas or “EAS”)

This fairly new type of corporate vehicle has been designed to simplify the incorporation and functioning of a company. In the EAS. there is no default governing body. All governing functions are instead assigned to the EAS’s legal representative. Both a board of directors and a trustee are therefore optional. The appointment of the legal representative is done through the shareholders’ meeting. The EAS is the only type of company in Paraguay that allows a single shareholder.

Shareholders in all of the above corporate vehicles may be either natural or legal persons, with or without residence in Paraguay. However, directors, managers, legal representatives and trustees must hold a Paraguayan residency permit or be Paraguayan.

Paraguayan regulations do not specifically protect minority shareholders. It is therefore highly advisable to regulate the relationship between shareholders and minority investors either within the by-laws or through a private shareholders agreement. For example, the by-laws of a company may create different classes of shares for each investor group and tie the share class with the right to appoint members to the board or to vote within the board.

Companies are required to declare their ultimate beneficial owners before the Directorate of Companies and Legal Structures and Ultimate Beneficial Owners. These reports must include the address, ID number, full name, shareholding percentage and profession of each shareholder. If the shareholders are legal persons, they are required to report the final natural person controlling the entity. The ultimate beneficial owner report must be updated once a year (if there are no changes) or within 15 working days after any change in the beneficial owner.

In addition, the shareholders’ information must be updated before the Tax Authority every time a change in the direct shareholders of the company takes place.

Paraguay’s capital market, though still in its early stages, has experienced notable growth in recent years, with promising prospects for sustained expansion.

23 authorised brokerage firms currently operate in the market and 24,410 transactions were recorded on the stock exchange as of the end of October 2024, highlighting the dynamic evolution of the stock market.

Bonds remain the dominant traded instruments, according to transaction data up to September 2024. For 2024, the accumulated trading volume has already exceeded USD4.9 billion, according to the monthly trading summary published by the Securities Supervisory Authority (the “SIV”), with projections suggesting it will approach USD7 billion.

Despite advancements in the financial ecosystem, a significant preference for financing through the banking system persists. While capital markets offer advantages such as access to cheaper long-term funding and diversification, the speed and tailored solutions provided by banks remain more appealing to many businesses, particularly small and medium-sized companies. However, the expansion of the capital market has driven a steady increase in participation, including companies exploring alternative investment opportunities, such as raising funds through the stock market.

This dynamism in the stock market positions Paraguay as an attractive destination for both local and international capital. This appeal is further strengthened by the country’s recent attainment of investment grade status, following the upgrading of its credit rating by Moody’s.

In Paraguay, the stock market is mainly regulated by Law 5810/17, which sets out provisions concerning public securities offerings, their issuers, public offering securities, and the securities market registry. Investment funds and their managing entities are governed by Law 5452/15, while Law 1163/97 (as amended by Law 5067/13), governs the establishment and functions of product exchanges, as well as the requirements and duties of brokers.

Regarding securities market supervision, Law 7162/23 established the SIV, replacing the National Securities Commission as the regulatory, supervisory, and oversight authority for the securities market. In exercising its powers under this law, the SIV has issued regulations to implement these provisions.

The regulations include the following key requirements.

• All public securities offerings require prior authorisation from the SIV.
• Registered entities must inform the SIV, the stock exchange, and the public about their legal, economic, and financial situation, as well as any material facts regarding the securities issued or their offering.
• Entities supervised by the SIV must disclose information to the SIV and the stock exchange regarding transactions involving related parties.
• The right to operate on the stock exchange is exclusive and non-transferable to brokerage firms.

In terms of foreign investments and securities regulations in Paraguay, foreign investors and the companies in which they participate enjoy the same rights, guarantees, and obligations as domestic investors, as established by Law 117/91. However, when investing through the securities market, they must comply with the specific regulatory requirements applicable to these investments, as outlined in Paraguayan securities law (which applies equally to local investors).

For example, foreign investors must provide brokerage firms with the necessary documentation to register as clients. They are also obligated to register and report significant transactions.

If a foreign investor structured as an investment fund wishes to make investment offerings in Paraguay, the collective investment entity must be authorised by the SIV for this purpose. However, if the investor only intends to invest in Paraguay in assets or securities listed on the local stock exchange as an institutional investor or through a local fund, the foreign fund must comply with all applicable regulations for investors in general (eg, submitting all necessary documentation to become a client of a brokerage firm, adhering to tax regulations and providing information related to its ultimate beneficial owners).

Nonetheless, the fund will not be subject to additional review by the local SIV solely by virtue of being a foreign investment fund.

Paraguay instated a merger control regime in 2013.

Type of Transactions Caught by the Merger Control Rules

A transaction is caught by the merger control rules if it brings about a change of control resulting from:

• the merger of two or more previously independent undertakings or parts of undertakings;
• the acquisition of control (total, partial, direct or indirect) of one or more national or foreign persons (individuals or legal entities) by other national or foreign persons (individuals or legal entities), whether the control has been acquired through the purchase of shares, assets, agreements, contracts, or by any other means; and/or
• the creation of a common legal entity that permanently performs the functions of an autonomous economic entity.

Thresholds that Trigger Filing of the Transaction Before the Antitrust Agency

Not all concentration transactions caught by the merger control rules have to be filed before the local antitrust agency (“CONACOM”). Only concentrations that meet at least one of the following two thresholds must be filed.

• If, as a result of the transaction, a market share equal to or greater than 45% of the national (ie, Paraguayan) market of a specific product or service, or of a geographic market defined within it, is acquired or increased.
• If, the global gross turnover in the Republic of Paraguay of all of the parties to the concentration (including the economic groups of each, ie, the acquirer and the target’s parents and affiliates), in the last accounting year, exceeds a total of 100,000 local minimum monthly wages, which is equivalent to about USD35.5 million.

Deadlines for Filing

The merger control notification must be filed within ten business days counted from the following day of the written conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest.

Process and Timeframe for Notification

The law sets out a period of 90 business days as a maximum term for the resolution of the merger control filing, counting from the date that the Department of Merger Control declares that the filing is complete and all required documents were filed. The evaluation is divided into two phases. The maximum duration for Phase 1 is 30 business days and the maximum duration for Phase 2 is 60 business days.

CONACOM may issue a clearance decision during Phase 1 if the merger does not lead to a significant impediment to effective competition. Phase 2 applies to those mergers that require more in-depth analysis and to those that were not resolved during Phase 1.

If CONACOM issues a request for information (RFI) during Phase 1, the parties must then respond without a specific timeframe (albeit within a maximum of six months barring the filing to lapse). If the RFI is sent during Phase 2, the parties must then respond within 15 days. This 15-day timeframe may be extended once for the same period). The issuance of a RFI stops the terms for analysis of the filing. CONACOM has five days for each RFI, to determine whether the documents submitted are complete. All timeframes should be counted as business days. An opening of Phase 2 is normally ordered due to the complexity of the transaction, but this does not mean that a competition concern has arisen. Prima facie, merger control filings are ex post under Paraguayan merger control rules. However, in a ruling issued in July 2020, CONACOM expressed an opinion that can be interpreted to mean that the Paraguayan merger control regime is ex ante (based on their reading of Article 14.1 of the Regulatory Decree).

Mergers are evaluated considering market structure, the need to maintain effective competition, the market power and financial strength of the participants, and access to supply and demand. Factors such as consumer interests and technical progress are also considered. Mergers are permissible if they do not create or strengthen a dominant position or significantly hinder competition. CONACOM may reject or impose measures on mergers that threaten competition by reinforcing market dominance.

In addition to being able to reject merger operations that suppose a significant obstacle to effective competition, CONACOM may impose appropriate measures for the establishment of effective competition, including banning the merger operation, or imposing conditions that contribute to economic and social progress, a sufficient contribution to compensate for the restrictive effects on competition.

CONACOM has the ability to refuse the authorisation for approval of the merger, before or after the merger has taken place. In this scenario, the ultimate decision-maker is the Tribunal de Cuentas, which is the competent court to consider the substantiation and resolution of contentious administrative appeals. Its resolutions may be challenged in the Supreme Court of Justice.

Consequences of Making an Investment Without Prior Approval

In the event CONACOM takes notice of a transaction that was required to be filed but was not, it may summon the parties to notify the transaction within a maximum term of 20 days and may also impose penalties. It is worth noting that the fines imposed under Paraguayan Competition Law are set for any breach of the law, including merger control rules, which can consist of cease-and-desist orders, declaring the transaction null, or imposing monetary fines.

To that end, fines may amount up to 150% of the profits obtained from the infraction or up to 20% of the gross turnover relating to the sales of products affected by the infraction during the last 12 months (excluding tax) following the beginning of administrative proceedings. No penalties for failing to notify a transaction seem to have been issued to date.

Foreign Investment/National Security Review Regime in Paraguay

Paraguay does not have a specific foreign investment or national security review regime that applies to FDI. However, Paraguay does have a generally open and welcoming approach to foreign investment, with few restrictions. The country aims to attract foreign investors by providing a favourable legal framework and various incentives.

Relevant Authority

While there is no dedicated authority for a national security review of FDI, the Ministry of Industry and Commerce (the “MIC”) and the Central Bank of Paraguay (the “BCP”) are the primary institutions involved in overseeing and facilitating foreign investments. Additionally, the Investment Promotion Agency plays a significant role in promoting and supporting foreign investments.

Types of FDI Subject to Review

Since there is no specific national security review regime, there are no particular types of FDI that are subject to such a review. However, certain sectors may have specific regulations or require additional approvals, such as telecommunications, banking and financial services, energy and natural resources and defence and security.

Exemptions for Foreign Investors

Paraguay does not generally impose significant restrictions on foreign investors. However, there are some exemptions and incentives available to encourage investment, such as the following.

• Maquila programme: offers tax incentives for companies that produce goods for export.
• FTZs: provide tax benefits and simplified customs procedures.
• Investment Law 60/90: grants various tax exemptions and benefits to foreign investors.

Requirements, Process and Timeframes

In terms of notification, there is no formal notification requirement for most foreign investments. However, investors may need to register their investment with the BCP for statistical purposes.

For investments in regulated sectors, investors may need to obtain specific licences or approvals from relevant authorities (eg, telecommunications, banking).

If investors seek to benefit from specific incentives (eg, the maquila programme, FTZs), they must apply to the relevant authorities and meet the necessary criteria.

The timeframe for obtaining sector-specific approvals or incentives can vary depending on the complexity of the investment and the efficiency of the relevant authorities. Generally, the process can take several weeks to a few months.

In most cases, clearance is not required prior to making the investment, except for regulated sectors where specific licences or approvals are necessary.

General Criteria and Considerations

The primary legislation governing foreign investment in Paraguay is Law 117/91 on Investments, which provides equal treatment to foreign and domestic investors. Law 60/90 on Investment Incentives offers various tax incentives to promote investment in specific sectors.

Certain sectors may have restrictions or require special permits, such as telecommunications, banking, energy, and natural resources. The Constitution and specific laws impose restrictions on foreign ownership of land in border areas.

Investments in regulated industries may require approval from relevant regulatory bodies, such as the National Telecommunications Commission (“CONATEL”) for telecommunications or the National Electricity Administration (“ANDE”) for energy projects.

Environmental impact assessments may be required for projects that could significantly affect the environment.

Specific Considerations for Different Types of Investments

Partnerships and joint ventures are generally treated the same as other forms of investment. The structure of the partnership or joint venture must comply with Paraguayan corporate laws, and any agreements should be registered with the relevant authorities.

While there is no specific regime for reviewing acquisitions by foreign governments or government-affiliated entities, these investments may attract additional scrutiny, particularly in strategic sectors. The government may consider national security implications, especially if the investment involves critical infrastructure or natural resources.

Analyses Involved

The potential economic benefits of the investment, such as job creation, technology transfer, and contribution to GDP growth, are considered.

Although there is no formal national security review process, investments in strategic sectors may be evaluated for potential national security risks.

Investors must ensure compliance with all relevant local laws, including corporate, tax, labour, and environmental regulations.

The relevant authority overseeing foreign investment in Paraguay is the MIC, along with other sector-specific regulatory bodies.

Types of Remedies or Commitments

Environmental and social commitments will encompass adherence to specific environmental standards and practices as will the implementation of corporate social responsibility (CSR) initiatives that benefit the local community.

In terms of reporting and compliance, regular reporting to the relevant authorities on the progress and impact of the investment should be carried out. Local laws and regulations, including those related to anti-corruption and fair competition should also be complied with.

Investments in telecommunications and media may be subject to additional scrutiny and specific conditions to ensure national security.

Investments in mining, oil, and gas sectors may require adherence to stringent environmental regulations and commitments to local community development.

Foreign investments in the banking and financial services sector may be subject to regulatory approval from the BCP and other financial regulatory bodies.

In terms of pre-investment approval, Paraguay does not generally require prior approval for most foreign investments. However, certain sectors such as telecommunications, banking, and insurance may require specific licences or permits. Law 642/95 on Telecommunications requires foreign investors to obtain licences from CONATEL before operating in the sector.

Investments in sensitive areas such as national security, natural resources, and public utilities may be subject to additional scrutiny and require prior approval from relevant authorities. Law 294/93 on Environmental Impact Assessments mandates that investments in natural resources undergo an environmental impact assessment and obtain approval from MADES.

After the investment is made, the relevant authorities continue to monitor compliance with local laws and regulations. Law 1015/97 on the Prevention of Money Laundering requires ongoing compliance and reporting by foreign investors to the Secretariat for the Prevention of Money Laundering.

Process for Challenging FDI

A challenge can be initiated by the relevant regulatory authority if there is evidence of non-compliance with legal requirements, national security concerns, or violations of anti-corruption laws. The process typically begins with an investigation and a formal notice to the foreign investor outlining the concerns.

The ultimate decision-maker on such challenges is usually the MIC, in co-ordination with other relevant authorities. For example, Law 60/90 on Investment Incentives and Guarantees grants the MIC authority to make final decisions on investment-related challenges.

In cases involving national security or significant public interest, higher governmental bodies or even the President may be involved in the decision-making process. Law 1337/99 on National Defence and Internal Security allows the President to intervene in cases where national security is at risk.

Foreign investors have the right to appeal decisions made by the regulatory authorities.

Law 6715/21 on Administrative Procedures provides a framework for appealing administrative decisions, including those related to FDI. Appeals can be made to administrative courts or higher judicial bodies, depending on the nature of the challenge and the specific regulations involved.

Additionally, Law 879/81 on the Judicial Code outlines the process for appealing administrative decisions to higher courts.

Consequences of Non-Compliance

If an investment is made in a sector that requires prior approval without obtaining the necessary permits, the investment may be deemed illegal. For example, Law 642/95 on Telecommunications stipulates that operating without a licence from CONATEL can result in fines and revocation of operational rights. Consequences can include fines, revocation of licences, and in severe cases, expropriation of the investment. Law 60/90 on Investment Incentives and Guarantees allows for the expropriation of investments that violate legal requirements.

Non-compliance with local laws and regulations after the investment is made can result in similar penalties, including fines, operational restrictions, or forced divestment. Law 1015/97 on the Prevention of Money Laundering outlines penalties for non-compliance, including fines and operational restrictions. Continuous violations can lead to legal actions and potential expulsion from the market. Moreover, Law 195/93 on the Promotion of Competition allows for legal actions and market expulsion for continuous violations of competition laws.

Investment Law

The Investment Law, Law 117/91 (“Law 117”) grants equal guarantees, rights, and obligations for both domestic and foreign investment.

Among the main guarantees outlined in Law 117 are the protection of property rights for investments, a free trade regime that includes the freedom of production and commercialisation of goods and services in general, as well as the freedom to set prices, subject to certain exceptions, and the freedom to import and export goods and services, except for those prohibited by law.

Furthermore, Law 117 guarantees an unrestricted free exchange regime, both for the entry and exit of capital, and for the remittance abroad of dividends, interest, commissions, royalties for technology transfer and other concepts.

Moreover, Law 5542/15 on Guarantees for Investments and Promotion of Employment Generation and Economic and Social Development (“Law 5542”) aims to encourage investment in the establishment of industries or the development of productive activities in Paraguay, contributing to job creation and the economic and social development of the country, primarily through the incorporation of added value to Paraguayan or imported raw materials.

An important benefit granted under Law 5542 is the possibility of maintaining a fixed income tax rate on the activity conducted by the investor for a period of up to ten years, starting from the commencement of the relevant company. This period may be extended up to 20 years, depending on the selected sector and the amount of investment.

Additionally, when a company subject to this regime is sold or a portion of its shares is transferred, the obligations and benefits granted to the company will remain in effect for the new purchasers for the remainder of the period established for the project developed by the original company.

Acquisition of Rural Real Estate Located in the Border Security Zone

There are no major restrictions for foreigners to purchase land in the country except for the restrictions imposed by Law 2532/05 which establishes the border security zone of the Republic of Paraguay (“Law 2532”) and its amendment, Law 2647/05 (“Law 2647”).

According to Article 1 of Law 2532, the border security zone includes the 50 km strip adjacent to the land and river border lines on the side of the national territory and Article 2 of Law 2532 specifically establishes that, unless authorised by decree of the executive branch based on reasons of public interest, foreigners from any of the neighbouring countries of the Republic of Paraguay (Argentina, Bolivia, Brazil) or legal persons formed mainly by foreigners from any of the neighbouring countries, may not be owners, condominium owners or usufructuaries of rural real estate located in the border security zone, unless these foreigners have a permanent residency permit in the country.

Furthermore, Article 4 of Law 2532 provides that the shares of joint stock companies that intend to acquire real estate located in the border security zone must be registered and non-endorsable.

Therefore, in the event a company is interested in acquiring rural real estate in the border security zone and its shareholders are mostly foreigners from any of the neighbouring countries of Paraguay (ie, Brazil, Argentina or Bolivia), the shareholders must obtain the permanent residency permit in the country and the company will have registered and non-endorsable shares.

Despite this, there is a divided interpretation in Paraguay regarding the terms of the border security laws by lawyers, public notaries and other public and private officials, given that some consider that shareholders of companies wishing to acquire rural real estate located in the border security zone must have registered and non-endorsable shares regardless of the shareholders’ nationality or domicile.

Article 5 of Law 2532 provides that public notaries may not issue public deeds to include legal transactions that do not meet this regulation. Article 8 of Law 2352 supports this provision and establishes that legal proceedings that do not meet the terms of this law will be null without prejudice to the other sanctions that may correspond for those involved in the operation.

Immigration Regime

Law 6.984/22 (the Immigration Law) (“Law 6.984”), sets out the categories for the admission of foreign nationals, which may include temporary stay or residence.

Temporary stay is permitted for a maximum of 90 consecutive days, which may be extended once for a period not exceeding another 90 consecutive days. This type of admission does not authorise the foreigner to engage in paid activities within the country.

Foreign nationals wishing to remain in the country with the intention of establishing residence may be admitted under the following categories.

• Spontaneous or occasional residence, valid for up to 90 days and extendable for the same period within the same year.
• Temporary residence, which allows the foreigner to reside in the country for a period of two years, extendable for an additional two-year period.
• Permanent residence, granted to individuals who express their intention to settle permanently after completing the temporary residence period.

A notable provision of Law 6.984 is that foreign nationals who can demonstrate investment in the Republic of Paraguay, in accordance with Law 4.986/13 Creating the Unified System for Business Assistance for the Opening and Closing of Companies (“SUACE”) are exempt from fulfilling the temporary residence requirement as a prerequisite for obtaining permanent residence. The process is carried out through SUACE. As part of the process, an investor certificate must be obtained as an initial step, followed by the application for permanent residence. The applicant is required to make a minimum investment of USD70.000 or its equivalent in local currency and to create five jobs for local employees.

Corporate Income Tax (IRE)

IRE is a tax applied, among others, on companies, including branches of foreign companies, who are resident in Paraguay. IRE taxes income and any capital gains (in some cases at the time of realisation), including exchange rate differences.

The tax is calculated annually (based on the accrual criterion for the fiscal year). The rate is 10% on the fiscal net income, with specific exceptions.

The IRE applies the “source principle” for income attribution and, in certain cases, taxes income earned abroad (mixed-source income).

There are specific rules regarding deductible expenses, including thin capitalisation rules, transfer pricing regulations, etc.

Additionally, compensation of tax losses is allowed for up to five fiscal years at a rate of 20% per year.

Finally, the law requires advance payments or instalments on account of the tax for the fiscal year. These are paid in four instalments per year and are calculated based on the average IRE paid over the last three fiscal years. Furthermore, a withholding rate of IRE at customs upon importation of 0.4% is imposed.

Tax on the Distribution of Dividends and Profits (IDU)

IDU applies to profits distributed by Paraguayan companies to their partners or shareholders, taxed at the level of the latter. The rate is 8% for residents in Paraguay and 15% for non-residents and is payable at source at the time of the corporate decision, the availability of funds, or the payment of dividends, whichever occurs first.

Among Paraguayan shareholder companies, a fiscal compensation mechanism is applied to avoid double taxation.

Non-Resident Income Tax (INR)

INR applies to Paraguayan-source income earned by non-residents, through withholdings made by the paying Paraguayan entity.

The INR rate is 15%, with effective rates ranging between 4.5% and 15% of gross income.

In the specific case of interest payments to foreign investors, the local company must withhold from the lender:

• 15% if it is a related company (grossing up to an effective rate of 17.65%); and
• 4.5% if it is not a related company.

Value Added Tax (VAT)

Financing will be considered to occur in the national territory when the borrower is a resident of Paraguay. The rate of VAT is 10%.

Reduction or Elimination of Withholding Rates Through International Treaties

Paraguay has signed double taxation avoidance treaties with Chile, Taiwan, Qatar, the UAE, Uruguay, and Spain, which allow for the reduction or elimination of withholding rates on dividends and interest.

In Paraguay, corporate tax planning is based on Law 6380/19 and other regulations that facilitate tax optimisation, supported by a growing network of double taxation treaties. Common strategies include the following.

Increase in the Depreciable Asset Base

In acquisitions, the tax base of the assets can be adjusted to market value, allowing greater tax depreciation. The sale of real estate is subject to a presumed income with an effective rate of 3% IRE.

Elimination of Profits Through Intercompany Debt

Interest paid between related parties is deductible as long as it complies with transfer pricing regulations and thin capitalisation rules.

Cross-Licences and Similar Agreements

Royalties and payments for the use of intangible assets are deductible if they meet the requirements of economic substance and transfer pricing rules.

Tax Benefits in Business Reorganisation

Although direct fiscal consolidation does not exist, processes like mergers or spin-offs can offer tax advantages depending on the specific context.

Sectoral Tax Incentives

Laws such as the Maquila Law and the Free Trade Zone Law grant significant exemptions from IRE and other taxes, promoting investment and foreign trade.

Paraguay’s Double Taxation Treaty Network

Paraguay has an active network of double taxation treaties with countries like Chile, Uruguay, Spain, the UAE and China (Taiwan), and is in negotiations with several other countries for similar agreements.

The use of these strategies must align with Paraguayan legislation and the applicable double taxation treaty provisions, ensuring proper management of international operations and tax cost optimisation.

Paraguay has implemented a favourable regulatory framework for FDI, offering various incentives and a simple and competitive tax system compared to other jurisdictions. This framework includes four income taxes and two consumption taxes, including corporate income tax (IRE), tax on dividends and profits (IDU), and VAT with rates of 5% and 10%.

There are several fiscal incentive regimes such as maquila, FTZs, investment promotion under Law 60/90, raw materials regime, automotive regime, Mercosur – Preferential Rules of Origin and industrial parks, among others.

However, as a general rule, there are no exemptions benefiting foreign direct investment regarding capital gains, which are usually taxed under the non-resident income tax (INR), which both non-resident legal entities and individuals are subject to.

The following are exempt from INR.

• Interest on public debt securities issued by the state (the Ministry of Economy and Municipalities), as well as any other capital income or capital gains derived from holding or transferring these instruments.
• Interest, returns, and profits from the capital gains obtained through the negotiation of securities on stock exchanges regulated by the National Securities Commission.
• Returns from investment funds provided for in Law 5452/15.

There are specific regulations designed to prevent tax evasion in transactions related to FDI. These include transfer pricing, thin capitalisation rules, and provisions regarding low or no taxation jurisdictions (BONT).

The main regulations are as follows.

Transfer Pricing

Taxpayers must submit a transfer pricing technical study demonstrating that transactions with related parties comply with the arm’s length principle.

Thin Capitalisation Rules

These rules limit the deductibility of interest generated by loans between a local taxpayer and its related parties to prevent companies from financing operations through excessive debt instead of equity.

Provisions for BONT Jurisdictions

Transactions with residents of BONT countries or jurisdictions are presumed related unless proven otherwise.

Country’s Commitment to Tax Information Exchange

Paraguay leads efforts in Latin America regarding tax information exchange, consolidating its role in implementing measures to facilitate co-operation between jurisdictions to combat tax evasion.

In Paraguay, labour and employment matters are primarily governed by the Labour Code and the Constitution, which guarantee fundamental workers’ rights, such as the right to unionise, engage in collective bargaining, and strike. Paraguay has also ratified several international conventions backed by the International Labour Organisation (ILO) that protect workers from discrimination, ensure equal pay, and establish guidelines related to freedom of association.

However, in the private sector, unionisation and collective bargaining agreements are relatively rare, as companies typically adopt an internal work regulation to govern the employment relationship between the parties. In addition to these regulations, there are specific laws addressing the rights of working mothers and breastfeeding women, as well as issues related to workplace health and safety.

In Paraguay, employee compensation generally follows a system based on cash payments, which not only includes physical cash but also bank wire transfers, cheques, and other methods that can be converted into cash. Additionally, there are mandatory benefits and statutory contributions, such as vacation and Christmas bonuses. In the case of dismissal without cause, employees are entitled to receive severance payments and notice period compensation, both of which are calculated based on the employee’s tenure with the company.

In the event of a merger or acquisition that involves a change of control or investment, the employer substitution mechanism may apply, which means that employees retain their labour conditions and the terms of their employment contracts, without changes to their working conditions.

Article 28 of the Labour Code regulates the principle of employer substitution in cases of company transfers, such as mergers, acquisitions, or other changes in company ownership. This principle establishes the following.

• Continuity of employment contracts: employees’ contracts continue with the new employer, meaning that ownership changes do not extinguish the labour contracts.
• Responsibility of the new employer: the new employer assumes all labour obligations of the previous employer, including payment of wages and accumulated benefits for employees.

• No termination of employment contracts: unlike other legal systems, the employment contract in Paraguay does not terminate with a change of employer. However, if an employee does not wish to continue, they have the right to terminate the contract and receive the corresponding compensation.

For a foreign investor, this means that upon acquiring a company in Paraguay, they must assume all pre-existing labour responsibilities, as the change of ownership does not affect employment contracts. It is crucial to ensure compliance with employees’ labour benefits, such as unpaid wages, severance payments, and other acquired rights. This principle protects employees, ensuring that their labour rights remain intact even when the employer changes.

IP is not an important aspect in screening FDI in Paraguay.

Paraguay offers a robust legal framework for intellectual property protection, having ratified and incorporated various international treaties. The Dirección Nacional de Propiedad Intelectual oversees IP rights in the country.

Trade Marks

Paraguay’s Trademark Law (Law 1.294/98) governs trade marks, which are valid for ten years and can be renewed indefinitely. The registration process includes filing, examination, publication, opposition, and registration. However, examiners are stringent about non-traditional trade marks and those not listed in the Nice Classification. Trade mark owners can record their marks with customs to monitor imports.

To enforce trademark rights, owners can pursue civil and criminal actions. Remedies for infringement may include cease-and-desist orders, damages, seizure of infringing goods and import and export prohibitions. Additionally, administrative proceedings, oppositions, cancellations, and nullity actions are available to address disputes and maintain trade mark integrity.

Patents

The Patent Law (Law 1.630/00) protects inventions and utility models, excluding simple discoveries, aesthetic creations, and certain methods. The patent term is 20 years, with annual maintenance fees. The application process involves filing, examination, publication, opposition, and issuance, typically taking five to six years. Enforcement includes civil actions and precautionary measures like cease-and-desist orders.

Industrial Designs

Paraguayan Law 868/81 protects new and original industrial designs, excluding those serving solely technical functions. The registration process takes about two years including filing, examination, publication, opposition, and registration, with protection lasting five years, and this can be renewed twice. Enforcement options include civil actions and criminal complaints.

Copyright

Copyright law in Paraguay protects original literary, artistic, and intellectual works, including software, for 70 years after the author’s death. Registration is not mandatory but serves as evidence of ownership. Enforcement includes civil actions and criminal penalties for severe infringements.

Additional Protections

Software and databases are protected under the Copyright Law.

In terms of undisclosed information Law 3283/07 protects industrial and trade secrets.

Law 385/94 and Law 995/96 protect new plant varieties, requiring applications to the Ministry of Agriculture.

No specific IP protection exists for AI-generated works in Paraguay.

Under the Paraguayan Constitution, the right to privacy and the integrity of records has been specifically protected. Paraguay also enacted a specific data protection and privacy law through Law 6534/20 on the Protection of Personal Credit Data. This law aims to safeguard the personal credit data of individuals, regardless of their nationality, residence, or domicile. It regulates the collection, access, and treatment of credit information, ensuring the protection of fundamental rights, privacy, informational self-determination, freedom, security, and fair treatment.

The law is mandatory for the treatment of personal data in public or private records collected or stored within Paraguay. It applies to data in physical, electronic, or digital formats, managed through manual, automated, or partially automated mechanisms. The law does not explicitly mention extraterritorial scope, meaning it primarily governs data within the national territory. However, foreign investors operating within Paraguay must comply with these regulations.

The law grants individuals the right to access, rectify, cancel, and oppose the use of their data. It also mandates that data must be accurate, complete, and up to date. Entities handling data must implement technical and organisational measures to ensure data security and confidentiality.

The Paraguayan Congress is currently reviewing a specific bill that will further regulate the treatment of data in general.