One of the most attractive features of Paraguay and its residency program is the possibility to shift tax residency to the country. There are several advantages to being a tax resident of Paraguay, including:
- No taxation on income generated abroad
- Personal income tax at 10%, only on income generated in Paraguay
- Corporate income tax at 10%, only on income generated in Paraguay, which in some cases can be even lower
- Capital gain tax of 8%, only if your assets are located in Paraguay or if you realize your capital gain on shares of companies that are based in the country
- No minimum stay requirement to maintain tax residency
But how do you obtain tax residency? This is the topic we’ll focus on throughout this guide, which is updated according to Paraguay’s regulations in 2024. You can also contact us for free if you want to discover how this can specifically benefit your situation.
Personal Residency vs. Tax Residency
After obtaining personal residency in Paraguay, formalized with the residency card and ID card (cedula), individuals are immediately subject to the rules applied by the Paraguayan tax authorities. The rules are very simple: all income from foreign sources is not subject to taxation, and there is no obligation to declare it; instead, all income from a Paraguayan source must be declared and is subject to taxation. These rules apply immediately after obtaining personal residency, regardless of whether it is temporary or permanent residency.
Paraguay considers all individuals as tax residents from the moment they obtain personal residency. However, these individuals will be considered non-tax-paying individuals (personas fisicas no contribuyentes) unless they have income to declare. Once again, the only income to be declared is that generated in Paraguay: if all of a person’s income comes from foreign sources, then there is no obligation to file tax returns or pay taxes in Paraguay.
Contrary to what happens in other countries, tax residency in Paraguay is not formalized with the issuance of a tax ID. A common mistake is to think that it is necessary to obtain an RUC (the tax ID associated with self-employed workers) to move tax residency to Paraguay. To clarify the tax identification systems, we recommend reading our guide to the tax ID in Paraguay.
How to Move Tax Residency to Paraguay
A very common question from our clients is how to move tax residency from their country of origin to Paraguay. Once a person has obtained their residency card and Paraguayan identification card, there is nothing else that needs to be done locally. Instead, it is important to know what steps are necessary to cancel tax residency in one’s country of origin, a process that varies from country to country.
In most cases, cancelling tax residency in the country of origin requires providing electronic, postal, or embassy documents demonstrating that residency has been obtained in Paraguay. Additionally, almost all countries impose a requirement not to spend more than 183 days within their territory, otherwise tax residency will be regained.
Depending on your country of origin, other documents may also be required. It is therefore important to inquire about the process of cancelling tax residency in your country of origin, so that once you obtain your residency permit in Paraguay you will know exactly what to do to cancel your previous tax residency.
Obtaining a Tax Residency Certificate
For some individuals, it may be important to obtain a tax residency certificate, for example, if their country of origin has doubts and requests this document as proof of tax residency in Paraguay. The procedures for obtaining this document are determined by General Resolution No. 65/2020.
To request a tax residency certificate, a person must have a source of income from Paraguay. This can be:
- Self-employment
- Ownership of a company
- Ownership of assets in Paraguay (e.g., stocks, real estate, etc.)
- Employment
Without any income source in Paraguay, it is not possible to request this certificate. That said, it is always possible to open an RUC and immediately obtain the opportunity to approach SET – the Paraguayan tax authority – to request the tax residency certificate. The request is electronic, and SET has a maximum of 10 days to issue the certificate after receiving the request.
Obtaining a Tax Compliance Certificate
Another certificate that can be very useful is the tax compliance certificate (certificado de cumplimiento tributario), a document confirming that all taxes due in Paraguay have been paid. This document can be requested by individuals and legal entities with an RUC, simply by visiting the SET website. You will need to enter your name, surname, RUC number, and date of birth: the system will automatically recognize the requester and generate the certificate instantly.
Once the certificate has been generated, it can be printed or used directly in electronic format. This document is useful both if you want to prove to your country of origin that your tax residency has been moved to Paraguay – just like the tax residency certificate – and to verify if you are up-to-date with the payment of all taxes due in Paraguay.
How to Maintain Tax Residency in Paraguay
As we have clarified, there is no difference between obtaining personal residency and tax residency. There is only a difference between being a taxpayer and a non-taxpayer, but Paraguay considers a person subject to the tax code from the moment they obtain their residency; at that moment, it is possible to cancel residency in one’s country of origin, becoming solely subject to the Paraguayan tax system.
Since tax residency is closely associated with personal residency, the only conditions for losing tax residency are those that could lead to losing personal residency. Specifically:
- An unjustified absence of 36 consecutive months from Paraguay in the case of permanent residents and 12 months in the case of temporary residents;
- Letting your residency card and identification card expire without renewing them;
- Committing a crime of such magnitude as to be considered sufficient for the loss of residency.
Contrary to what one might think, living in another country for 183 days a year does not immediately result in the loss of tax residency in Paraguay. First, it will be necessary to cancel tax residency in Paraguay; otherwise, you risk double taxation, with both countries considering you tax residents at the same time – potentially leading to double taxation.
Need help with tax residency in Paraguay?
If you need a team of experts who can help you understand taxation in Paraguay or are considering obtaining your residency here, Paraguay Pathways can help. We have helped over 500 people from around the world obtain temporary and permanent residency in Paraguay: in many cases, precisely people who have made this choice to improve their tax position. Especially in the case of digital nomads and those with income generated abroad, which are not considered taxable in Paraguay, this is one of the most attractive tax residencies in the world and one of the easiest to obtain. If you would like to speak with us for free about this possibility, please feel free to contact us.