Depreciation and depletion
It will be mandatory for the purposes of this tax, the determination of the residual value of the fixed assets, as well as their depreciation.The residual value of a fixed asset will be the estimated amount that the taxpayer could obtain from the disposal of an asset to the end of its useful life, after deducting the costs expected at that time.
The regulations will establish the estimates of useful life for each type or class of depreciate asset, for the purpose of determining the depreciation admitted for the settlement of the tax, as well as will establish the residual value for each type or class of depreciate fixed asset, the which may not exceed 20% (twenty percent) of its cost value.
The Executive Power may establish the mandatory revaluation of fixed assets, when the variation of the Consumer Price index determined by the Central Bank of Paraguay reaches at least 20% (twenty percent), accumulated since the fiscal year in which it is has arranged the last revaluation adjustment. The recognition of the mandatory revaluation established by the Executive Power will form part of a patrimonial reserve whose only destination may be capitalisation.
Amortisation of goodwill is not deductible.
Amortisation of start-up expenses may occur over three to five years, depending on the taxpayer's decision.
The Tax Reform establishes that the incorporation and organisation expenses, including the so-called pre-operational expenses and those of reorganisation due to acquisition, merger, spin-off, business model changes, brand changes or logos, may be amortised over a period of up to five years at the option of the taxpayer
The interest expenses on loans taken for Paraguayan residents or Paraguayan taxpayers may be considered as deductible expenses.
Additionally, it is important to mention that certain investment projects may be subject to a special exemption of the taxes on the interest, commission, and other expenses for loans taken for banking entities abroad (see Investment incentives in the Tax credits and incentives section).
However, the Tax Reform has introduced limit if the Loan is provided by the shareholder or related entities.
Payments for interest on loans, royalties and technical assistance, when they do so:
a) The partner or shareholder of the company, provided that he is a taxpayer of any Income Tax.
b) The parent company or other branches or agencies abroad.
c) Related companies.
Provided that these expenditures are not higher than the market price or accrue interest at rates that do not exceed the average of the deposit rates of the banking and financial market applicable to operations of similar characteristics, in accordance with the publication of the average rates issued by the Central Bank from Paraguay; the amount of the corresponding taxes has been entered; and said expenditures do not exceed 30% (thirty percent) of the net income for the year, before the computation of the deduction of such expenditures. These interests will be subject to the same withholding regime regardless of their deduction.
Extraordinary losses/bad debts
The deduction of extraordinary losses (theft and damage) and bad debts require the meeting of certain conditions (e.g. communication to the tax authority, evaluation of the actual loss in monetary terms, audit review). Regarding bad debts, they can be deductible three years from the date from which they arise.
The deduction of a donation is subject to formal registration of the beneficiary entity as a public benefactor before the Treasury Ministry.
Donations to the State, Municipalities, the Catholic Church and other religious entities recognised by the competent authorities, as well as entities with legal status for health, social, educational, cultural, charitable or charitable assistance, which were previously recognized as a public benefit entity by the Administration could be deductible if the amount of the contributions are not higher than 1% of the annual gross income
The deduction of executive remuneration is limited to a percentage defined according to the enterprise's profits (1% of the annual gross income). However, in the event that the executive employees are subject to PIT, the deduction of their salaries is not limited for CIT purpose.
Fines and penalties
Fines and penalties are considered as non-deductible expenses for income tax purposes.
In general, all taxes mentioned in the Other taxes section are deductible. Income tax and any fiscal surcharges or fines are not deductible.
Other significant items
General provisions for expenses or other potential losses are not deductible.
Other specific non-deductible items include:
It will not be possible to deduct:
1. The present tax.
2. The sanctions for infractions applied by any competent public body.
3. Profits for the year that are used to increase capital or reserve.
4. The amortisation of the self-generated goodwill, that is, when said value is assigned unilaterally by the taxpayer himself, without any consideration.
5. The personal expenses of the owner, partner or shareholder or of his family members, as well as amounts withdrawn on account of utilities.
6. The VAT included in the acquisitions of goods, services or imports related directly or indistinctly to operations taxed by the aforementioned tax, as well as the VAT Credit subject to refund in the terms of article 101 of this law.
7. The costs and expenses related to obtaining untaxed, exempt or exonerated income, including those related to obtaining income from foreign sources.
8. The costs and expenses that do not comply with the provisions of article 14 of this law
Net operating losses
Once the admitted deductions have been made, if the net income is negative, this tax loss may be offset with the net income of the next few years up to a maximum of five, counted consecutively and uninterruptedly from the following fiscal year in which it occurred. . Losses from previous years may be offset annually up to the amount that represents 20% (twenty percent) of the net income of future fiscal years.
This provision will govern for tax losses that are generated from the effective date of this tax (January 1, 2020).
Payments to foreign affiliates
There are limits and specific conditions on the deduction of payments to foreign affiliates, shareholders or related parties (please see comment on Interest point above)