Paraguay

Corporate - Income determination

Last reviewed - 11 February 2020

Inventory valuation

Taxpayers may adopt any method of inventory valuation, provided it is technically acceptable according to tax administration criteria (e.g. first in first out [FIFO], average cost). The valuation must be applied consistently and may be changed only with the prior approval of the Treasury Ministry.

Damaged, deteriorated, and obsolete inventories may be written down to fixed values by the taxpayer. The tax administration can reject valuations that are not realistic.

Capital gains

Gains on all assets, tangible and intangible, are taxable as part of profits and subject to income tax at a rate of 10%. Foreign currency exchange gains are also taxable at the same tax rate.

Dividend income

Dividends are taxable income when the recipient (or shareholder) is a non-resident, in which case a 15% WHT applies. An additional 5% tax is charged to local entities when the income or dividend is distributed to a local (resident) or foreign (non-resident) shareholder.

Stock dividends

Stock dividends are not taxable income, except when dividends represent more than 30% of the taxable income of an investor.

The mentioned exemption is not applicable in relation to the 15% WHT (in case of foreign shareholders) and 5% additional tax for dividend distribution (charged to the local entity that made the distribution).

Interest income

Interest income of a Paraguayan resident from capital abroad is subject to income tax. This case is the only exception to the resource principle rules enacted under Paraguay Tax Law.

Royalty income

It should be highlighted that the criterion to determine the source of royalties’ income is the place where the rights are used, based on the terms agreed between the parties. Thus, in case of royalties' income from of a registered trademark where the use of it is in Paraguay, the royalties' income would be taxable.

However, royalties’ income of a local taxpayer paid by a foreign entity would not be subject to tax in Paraguay as long as the goods commercialised are being sold abroad, in which case this income is considered as foreign-source income.

Foreign income

Foreign-source income is not taxable. However, interest, commissions, and capital gains are considered Paraguayan-source income and subject to CIT when the investor is resident in Paraguay.