Many professionals, especially digital nomads, are drawn to Paraguay due to its low taxes, high quality of life, and the substantial investment opportunities the country offers. To start working as a freelancer in Paraguay, it’s important to know the steps to register as a self-employed worker, understand the tax obligations, and manage invoicing.
Generally speaking, Paraguay is a great place for independent professionals. Especially for digital nomads, it offers many perks: low taxes without being a blacklisted country, excellent internet connectivity, a cost of living that’s way more affordable than in the Western world, and a legal environment that’s favorable for freelancers. Over time, we’ve helped dozens of individuals from abroad establish residence and start working here, tapping into the opportunities this country provides.
Additionally, Paraguay boasts a robust banking system and a stable currency – two crucial elements to ensure your business can take off. If you’re considering going freelance in Paraguay, here’s what you need to know.
How to Register
To work as a freelancer in Paraguay, the first thing you need to do is obtain the RUC (Unique Taxpayer’s Registration). This is a number that uniquely identifies each taxpayer in the Paraguayan tax system. You can register for free on the SET website, which handles all tax matters.
The registration process is pretty straightforward. You’ll only need one form of ID, which can be an ID card, passport, or a card issued by the Migration Department. You’ll also need some document proving your fiscal address in Paraguay, like a utility bill, a lease agreement, or any other document with your name and address.
Within three business days, SET will call you in to capture your biometric data in the national system and provide you with a confidential password. This password gives you access to the online platform where you can manage all your tax affairs. For peace of mind, always bring your ID and the address proof you used during the initial registration to this appointment.
Income Tax
How freelancers are taxed in Paraguay depends on which tax regime they choose. Most opt for the classic system, where they pay 10% of net profit. This means paying 10% of the difference between all your earnings and expenses.
Not only is this system advantageous due to its low tax rate – especially when compared to the West and the rest of Latin America – but also because of how the net profit is calculated. All business-related expenses (tech equipment, training courses, work attire, fuel, and 30% of your car’s value) can be deducted from earnings. Just keep the receipt or invoice to ensure you can deduct all relevant costs from your taxes.
A solid alternative, particularly for digital nomads, is the IRE SIMPLE regime. You can adopt this system if your annual revenue is less than 2 billion PYG (about $270,000). It allows you to pay 10% on the lesser amount between:
- The net profit, calculated as the difference between earnings and expenses, just like the general case;
- 30% of total revenue.
Many professionals, like developers or graphic designers, don’t have significant expenses. In this case, paying 10% of 30% of your total revenue (basically 3% of the total turnover) might be more cost-effective than paying 10% of the net difference between revenue and costs. If you’re unsure or want tailored advice, don’t hesitate to get in touch to learn how to optimize your tax position as a freelancer in Paraguay.
VAT
Another key tax is the IVA (Impuesto al Valor Agregado), internationally known as VAT. As a freelancer, we should always add VAT to our invoices when they are addressed to a Paraguayan client and when the sale of our product or service takes place within Paraguay.
There’s a significant exception: VAT doesn’t apply to exports. We can export goods VAT-free and even export digital products and services without paying VAT. This includes digital services, which is great news for digital nomads. If we offer services like marketing, web design, coding, or other similar services to international clients, we don’t need to add VAT to our invoices.
However, when VAT is required, the standard rate is 10%. Essential goods, like bread and milk, are subject to a reduced rate of 5%.
Social Security
Under Paraguay’s tax system, freelancers are not required to pay social security or pension contributions. However, if desired, one can voluntarily register with the Instituto de Previsión Social (Social Security Institute) and contribute towards a retirement pension. Currently in Paraguay, one can retire at the age of 55 with 30 years of contributions or at 60 with 25 years of contributions. Given that the average age of the population is considerably younger than in Western countries, the pension system is robust and often provides relatively high pensions for the contributions made.
Self-employed individuals can only contribute to the fund meant for old-age pensions. They contribute 13% of their declared income and can decide to make these payments monthly, quarterly, or annually.
Invoicing
Invoicing in Paraguay is undergoing a transformation, transitioning from traditional paper-based methods to a centralized electronic system. As of now, only specific professions and businesses are mandated to issue electronic invoices in XML format, which can be done using software affiliated with SET (the tax authority in Paraguay).
Soon, a free software called E-kuatia’i, developed by SET, will be available. Those not yet mandated by law to issue electronic invoices can choose between this new system or the traditional paper-based method for now. If opting for paper, they can purchase the designated invoice book from SET, where sheets are divided into spaces for client billing details, amounts, etc. Each invoice should be recorded and kept for at least five years. Electronic invoicing will become mandatory for all by October 2024.
Banking
One of the more challenging aspects for a foreign freelancer in Paraguay is banking. Sadly, it’s not always straightforward to open a bank account when starting up in Paraguay, and this is why we often assist our clients with the three banks with whom we have established relationships. Being introduced by someone already in the system can make a big difference in getting a bank account.
Once we kick off our business, we can open a cuenta básica – a very basic current account typically allowing us to deposit up to $500 a month. Paraguay’s banking system is built on trust and the bank-client relationship: the more active we are as clients, the better services, exclusive discounts, event invites, investment opportunities, etc., we’ll receive. Compared to the standardized banking systems of the West, here, banks heavily rely on one-on-one relationships. This is another reason why having someone vouch for you, especially a long-standing customer, can be beneficial.
Regardless, we also have the option of managing our transactions from a foreign bank account. There’s nothing stopping us from receiving our invoice payments in a foreign bank, but to pay taxes, a Paraguayan bank account is necessary. This presents us with three choices:
- Receive invoice payments and pay taxes from a Paraguayan account;
- Receive invoice payments in a foreign account and transfer only the required amount to Paraguay to pay taxes;
- Receive invoice payments in a foreign account and send the tax amount to our accountant, thus avoiding the need for a Paraguayan bank account altogether.
Each of the three options is viable. Typically, our clients working with international partners prefer receiving payments in foreign accounts due to lower intermediary costs. Moreover, when a strong relationship is established with major Paraguayan banks, it’s possible to request a dollar account. Usually, you’d need at least a year’s history of sent and received invoices to access dollar accounts, but again, this isn’t fixed. Everything hinges on our bank relationship.
Benefits of Freelancing in Paraguay
Paraguay is an excellent destination for businesses, whether you’re a solo entrepreneur or operating at a large scale. For a freelancer from abroad, there are several evident advantages to relocating their residence and business base to Paraguay:
- Extremely low taxation without being in any blacklisted country;
- No mandatory social security contributions;
- Ready access to high-speed internet and infrastructure;
- Among the world’s lowest energy prices;
- A stable local currency, the oldest in Latin America, with an average annual inflation rate under 4%;
- Ease of dealing with international clients, invoicing, and receiving payments in dollars;
- Low living costs yet a high standard of living;
- Ease in transferring money in and out of the country;
- No registry for offshore assets nor any declaration requirement;
- Residency acquisition is simple and affordable.
Therefore, Paraguay draws thousands of freelancers from all over the world. Not just from Latin America, but a vast influx from the USA, Europe, Australia, Canada, China, Taiwan, and New Zealand. Especially for digital nomads and tech-involved freelancers, it’s one of the world’s most enticing nations.
Need Help? We’re Here to Assist!
Setting up as a freelancer in Paraguay is beneficial and not hard to do. As always, especially if unfamiliar with the country, it’s wise to consult an expert. This ensures doing things correctly, without legal or tax hassles.
Our team of accountants and lawyers is always ready. By reaching out, you can avail of a free consultation on business opening and tax management. For those abroad, our residency assistance service ensures obtaining a Paraguayan ID smoothly and swiftly, hassle-free.
We offer support in four languages (English, Spanish, Italian, and Portuguese). We can handle processes from residency, freelancing set-up, bank account opening, to accounting and tax management. Even if you’re just curious or want insights on doing business in Paraguay, don’t hesitate to contact us.