General

VAT/GST registration

VAT/GST compliance

International Supplies of Goods and Services

VAT/GST recovery

Tax points

Invoices

Record-Keeping Requirements

Audits

Special Indirect tax rules

Rulings

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:

• foreign currency, public and private security, including the transfer of shares or quotas of capital stock
• inheritance excluding cessions
• cession of credits
• capital goods produced by domestic manufacturers applied to the industrial or agricultural/livestock industrial cycle under law 60/90 of investments
• books and newspapers, printed or digital
• educational, cultural or scientific magazines
• handcrafts made by crafters from the Instituto Paraguayo de Artesanía (IPA)
• notebooks and their inputs for educational programs for children and adolescents
• goods donated to foundations, associations and other non-profit organizations dedicated to education (initial and pre-school, primary school, secondary, technical, tertiary and university) recognized by the Ministry of Education, and non-profit entities dedicated to sports activities
• petroleum fuels, including biofuels
• Bills, tickets and others related to gambling.

— Services:

• interest of private and public securities
• deposits into banks and financial institutions governed by Law 861/96 as well as those in co operatives, entities of the Sistema de Ahorro y Préstamo para la Vivienda (the public system of savings and loans for housing) and in public financial institutions
• those performed by employees of embassies, consulates and international organizations
• those services, gratuitous and onerous provided by unipersonal companies (sole proprietors or one person entity)
• partnerships and other entities of all nature, including non-profit ones, related to initial education and pre-school, primary school, secondary, technical, tertiary and university recognized by the Ministry of Education or by law. Extension or university practice services carried out with third parties are included in this exemption
• those services provided by sports and cultural organizations which are non-profit and do not distribute profits or surpluses directly or indirectly among its partners or members, including the collection of social contributions and income from the sale of tickets to cultural and sporting events organized exclusively by such entities within the terms and conditions established by the executive power.

— Imports of goods:

• goods considered baggage according to the customs law
• goods introduced by diplomats, consular and international organizations
• capital goods produced by domestic manufacturers applied to the industrial or agricultural/livestock industrial cycle, under the Law 60/90 of investments
• goods exempted by the tax law
• the sale of goods and services provided by associations, federations, foundations, mutual funds and others entities with legal capacity to engage in activities related to health care, social work, charity, literary, artistic, unions, sports, scientific, religious, educational recognized by the Ministry of Education and Culture or by law, and legally recognized political parties, provided that they are non-profit and the profits or surpluses are not distributed directly or indirectly between members who should have as sole target the purposes for which they were created.

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.

• Disposals and imports for educational institutions and initial teaching pre-school, primary school, secondary, technical, tertiary and university recognized by the Ministry of Education, namely:
• Equipment and supplies for laboratories
• Tools, furniture and equipment for classrooms, auditoriums, libraries or classrooms
• Computers equipment, copiers and telecommunications
• Teaching service provided to these entities will be exempt from VAT.

What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes?

— VAT:

The standard rate of VAT is 10 percent, a differential (reduced) VAT rate of 5 percent applies to:

• lease and transfer of properties
• transfer of agricultural products, fruits, horticultural products in their natural state and live animals; products obtained from hunting and fishing, live or not; vegetable oil, virgin or crude degummed; certain products from the ‘family basket’: rice, noodles, mate (yerba mate), edible oils, milk, eggs, raw meat, flour and iodized salt
• transfer of pharmaceutical products.

— Selective Consumption Tax:

• 50 percent - petroleum fuels 
• 18 percent - cigarettes in general, special and similar
• 11 percent - brandy, gin, ron cocktail, cane, etc. Product for liquor, anise, bitter, sour and similar, fernet, vermouth, punches and liqueurs in general. Cider and wines of fruits in general. Natural wines of grapes juice and general and whisky
• 10 percent - denatured alcohol, rectified and unspecified alcoholic liquids
• 5 percent - soda and beverages without alcohol or with a maximum of 2 percent alcohol; juice of fruits with a maximum of 2 percent alcohol; perfume, natural pearls, precious stones, precious metal and similar; watches, bracelets; weapons, ammunition and accessories 
• 1 percent - toys and accessories; machinery for air conditioning; laundry machines and others; musical instruments and accessories.

Who is required to register for VAT/GST and other indirect taxes?

VAT taxpayers:

• individuals 
• cooperatives, recognized by the Law 438/94 
• unipersonal companies (sole partnership or one owner) 
• companies 
• importers 
• the entities of social assistance, charity, scientific, literary, artistic, professional, sports and physical education, as well as associations, foundations, corporations and other entities, regarding the activities not exempt by VAT 
• autarchic entities, public companies, decentralized entities, and mixed economy companies that carry out commercial, industrial or service activities.

SCT taxpayers:

• manufacturers of taxable goods 
• importers of taxable goods.

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?

No.

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?

Not applicable.

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?

• VAT: monthly 
• SCT: monthly except for fuels, which are declared weekly.

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?

No.

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: 

• health expenses 
• professional training 
• public services (electric power, etc.) 
• office lease, repair or improvement 
• furniture, professional equipment, tools, office supplies and professional representation expenses 
• clothing for the professional practice 
• cars.

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?

Yes.

Is it possible/mandatory to issue invoices electronically?

No.

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?

No.

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?

No.

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?

• Regime of tourism: a tax settlement regime that levies the import of goods sold in the country exclusively to non-domiciled individuals. 
• Maquila: a local company undertakes the production of goods and services by transforming, elaborating, repairing or assembling foreign raw material and inputs temporarily imported into Paraguay for exportation purposes. The local company (maquiladora) pays a 1 percent tax on the local value added to the products (value of raw materials and other inputs purchased in the country, as well as all production costs: electricity, water, transport, salaries and fees). Tax recovery of VAT under this regime is allowed. 
• Temporary admission (established by the customs law): the presence of foreign goods in the customs territory for a particular purpose with full or partial suspension of payment of customs taxes and VAT. 
• Law 60/90: aimed at promoting investments. It grants the beneficiary exemption of all taxes (including VAT) on transactions such as capital stock increases; capital contributions in movable goods, immovable properties, intangible assets and transferred rights; issuance, purchase and sale of bonds, debentures and other debt securities; VAT on imports of capital goods for the initial installation; loans, credits and guarantees thereon; overseas remittance of interests, commissions and capital obtained from loans of USD5 million or more; overseas remittance of dividends and profits from approved investment projects of USD5 million or more; leases, royalties, rights for the use of trademarks and patents, industrial drawings, models and other forms of technology transfer.

— 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? 

No.

Are there indirect tax incentives available (e.g. reduced rates, tax holidays)?

No.

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
Managing Partner
T: +595 21 212505 ext. 103
E: obc@bca.com.py

Ruht Bareiro
Associate
T: + 595 21 212505 ext. 153
E: rbareiro@bca.com.py

Verónica Maciel
Senior Consultant
T: + 595 21 212505 ext. 110
E: vmaciel@bca.com.py