VAT, GST and Sales Tax in Paraguay

Summary

Name of the tax Value-added tax (VAT)
Local name Impuesto al valor agregado (IVA)
Date introduced 1-Jul-92
Trading bloc membership Mercosur Member
Administered by Finance Administration (www.set.gov.py) (www.hacienda.gov.py)
VAT rates
Standard 10%
Reduced 5%
Other Exempt
VAT number format 120 (Version 3)
Tax identification Fiscal number (format is numeric)
VAT return periods Monthly (general period), quarterly (for agribusiness), biannual (for nonprofit institutions) and each four months (some minor taxpayers)
Thresholds
Registration None
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods or services made in Paraguay by a taxable individual or business
  • The importation of goods from outside Paraguay, regardless of the status of the importer

Who is liable

A VAT taxpayer is any business entity or individual that makes taxable supplies of goods or services in the course of doing busi­ness in Paraguay.

The definition of a VAT taxpayer applies to a permanent estab­lishment of a foreign business in Paraguay.

Group registration. VAT grouping is not allowed under the Paraguayan VAT law. Legal entities that are closely connected must register for VAT individually.

Non-established businesses. A “non-established business” is a business that has no fixed establishment in Paraguay. A non-established business is not required to become a taxpayer by obtaining a tax ID in Paraguay.

Withholding VAT. Companies designated as withholding VAT agents must withhold and pay VAT and issue virtual vouchers through the Paraguayan Tax Authority webpage for any tax with­held. Also, they must submit monthly tax returns indicating information related to purchases, sales and withheld tax. Returns must be filed electronically.

Tax representatives. For tax purposes, companies must appoint the legal representative(s) on Tax Form 605 or Tax Form 615.

Reverse charge. Paraguayan tax legislation does not provide “reverse charges” for VAT purposes.

Digital economy. No special rules apply.

Registration procedures. Registrations cannot be made online. The following documents are required to register for VAT:

  • Public deed of incorporation of the company in Paraguay
  • Tax Form 605
  • Copy of legal representative’s ID card

Late-registration penalties. Penalties and interest are assessed for late registration for VAT if the taxable individual owes VAT.

Deregistration. The following documents are required for de-registration of any Paraguayan taxpayer:

  • Public deed of liquidation of the company (if the taxpayer is a business)
  • Certificate of indebtedness with the Paraguayan Tax Authority
  • Cancellation of Tax Validity Number or “Timbrado” number (Tax Form 621)
  • Cancellation of tax identification number or “RUC” (Tax Form 623)
  • Copy of legal representative’s personal ID card (if the taxpayer is a business – if not, the personal ID card of the taxable indi­vidual). If the business or individual decides to deregister from VAT only, they must file Form 615 or 610, respectively.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are liable to VAT.

The standard rate of VAT is 10%. Law No. 2421/04 provides a reduced tax rate of 5% for certain products and services. The 5% rate applies to basic family products, pharmaceutical goods, sale or lease of real estate, agricultural products and cattle. In addi­tion, a reduced tax base applies to certain supplies, thereby reducing the effective rate of VAT.

Examples of goods and services with a reduced tax base

  • Certain imports of goods under specified tax treatment (Decree 6.406/05)
  • Real estate

The term “exempt supplies” refers to supplies of goods and ser­vices that are not liable to tax.

Examples of exempt supplies

  • Foreign currency
  • Oil by-product fuels
  • Interest on public securities
  • Interest on bank deposits, books, certificates and shares
  • Exportation of goods and exportation freight services
  • Transfer of credits is also VAT exempted

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The basic time of supply for goods is when they are transferred. For importations, tax obligation begins at the moment that the goods are registered at the Paraguayan customs office.

For services, the basic time of supply is when they are performed and/or totally or partially collected. Specifically, the obligation to pay VAT begins after any of the following:

  • The appropriate invoice is issued.
  • Partial or total payment for the service is received.
  • The deadline for payment passes.
  • The service is totally executed.

Invoices must be issued during the tax period in which the tax point occurs and must indicate the due date for VAT.

Imported goods. The time of supply for imported goods is either the date of importation or the date on which the goods leave a duty suspension regime.

Recovery of VAT by taxable persons

A taxable person generally recovers input tax by offsetting it against output tax (debit VAT).

Input tax includes VAT charged on goods and services supplied in or from Paraguay and VAT paid on imports of goods.

A valid tax invoice or customs document must generally support an input tax credit.

According to Paraguayan tax regulations, there are two different ways for taxpayers to recover VAT related to: 1) exportation of goods and exportation freight services; and 2) local withholding VAT.

Certification of VAT Fiscal Credit to be refunded issued by audit­ing firms registered with the Paraguayan Tax Authority.

Nondeductible input tax. Input tax may not be recovered on pur­chases of goods and services that are not used for making taxable supplies or that are used for nonbusiness purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered for some items of business expenditure.

The following lists provide some examples of items of expendi­ture for which input tax is not possible to offset and examples of items for which input tax can be offset if the expenditure is related to a taxable business use.

Examples of items for which input tax is nondeductible

  • Business gifts
  • Private use of business assets

Examples of items for which input tax can be offset (if related to a taxable business use)

  • Purchase, lease and hire of cars, vans and trucks, as well as maintenance charges
  • Parking
  • Taxis
  • Travel expenses
  • Conferences and seminars
  • Mobile telephone advertising and sponsorship
  • Overall acquisition of goods and services directly related to business use

Refunds. If the amount of input VAT (credit VAT) recoverable in a month exceeds the amount of output VAT (debit VAT) payable, the excess credit may be carried forward to offset output tax in the following tax period.

Overpayments of VAT. If a VAT taxpayer overpaid VAT or paid VAT in error, it may correct the VAT return and use the overpay­ment to offset output VAT in the following tax period.

Partial exemption. Paraguayan taxpayers can recover VAT fiscal credit related to exportation operations (exportations are VAT fiscal debit exempted). In other exempted operations, the VAT fiscal credits are non-recoverable.

Preregistration costs. A taxpayer can amortize preoperative cost within three to five years, but they cannot recover any preregis­tration or preoperative costs.

Recovery of VAT by non-established businesses

Paraguay does not refund VAT incurred by foreign businesses unless the foreign businesses have a permanent establishment and are registered to pay VAT in Paraguay.

Invoicing

VAT invoices and credit notes. A VAT taxpayer must generally provide a VAT invoice for all taxable supplies made, including exports (exempted). A VAT invoice is necessary to support an input tax credit.

A VAT credit note may be used to reduce the VAT charged and reclaimed on a supply of goods and services. A credit note must contain a brief explanation stating the reason for the adjustment, and it must be cross-referenced to the original VAT invoice number.

Proof of exports. VAT is not chargeable on supplies of exported goods. However, to qualify as VAT-free, exports must be sup­ported by an exportation file and customs documents proving that the goods have left Paraguay.

Foreign-currency invoices. If a VAT invoice is issued in a foreign currency, all amounts must be converted to Paraguayan currency “guarani,” using the exchange rate published by the tax authority for recording purposes (local books).

VAT returns and payment

VAT returns. VAT returns are submitted on a monthly basis as general period, quarterly for agribusiness, biannual for nonprofit institutions and each four months for some minor taxpayers. The due date for VAT returns and payment depends on the last num­ber of the VAT taxpayer’s tax identification number.

Return liabilities must be paid in Paraguayan currency.

Special schemes. Not applicable.

Electronic filing and archiving. Although it is not mandatory, most taxpayers choose to file VAT returns electronically. The website is: www.set.gov.py under “Sistema Marangatú.”

Annual returns. VAT legislation does not provide and/or allow the filing of annual returns.

Penalties

A default penalty is charged on late payments of VAT. The pen­alty begins at 4% of the tax due and increases by 2% increments per month, up to a maximum of 14% (charged for a delay of more than five months). In addition to the default penalty, monthly interest is charged on unpaid tax at a rate of 1.5% per month, calculated on a daily basis.

A taxpayer who intends to achieve an unlawful gain is deemed to commit fraud. Fraud is punished with a fine equal to one to three times the amount of the tax amount related to the fraud or the intention to defraud.

Penalties for severe cases of nonpayment of VAT, infringement of VAT regulations and fraud include criminal sanctions, such as fines and imprisonment.

Modification of Paraguayan tax legislation regarding VAT and other taxes

There are no recent modifications about VAT and other taxes; nevertheless, there is a project in the Paraguayan Congress that could modify the tax system in the future.