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.
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.
The profits, dividends, or returns made available or paid to the owner, partners, or shareholders by any kind of companies or private entities of a similar nature with legal personality, constituted in the country, as well as the PEs of entities incorporated abroad, will be taxed by the Tax on Dividends and Profits (IDU).
Dividends are taxable income when the recipient (or shareholder) is a non-resident, in which case a 15% WHT. An 8% WHT applies to Paraguayan residents.
For the purposes of this tax, the additional benefits received by the worker in relation to the dependency that came from the net income of its company employer will not be considered dividends, profits, or distributed income, in accordance with the provisions of Law No. 285 / 1993 'That regulates article 93 of the National Constitution', as well as participation vouchers in favour of the company's personnel, in accordance with the provisions of Law No. 1,183 / 1985 'Civil Code', non-transferable and while it lasts the employment relationship.
The reduction or redemption of capital effectively contributed, carried out through the withdrawal of funds or assets, will also not constitute distribution of profits, dividends, or yields.
Interest income of a Paraguayan resident from capital abroad is subject to income tax at a rate 10% according to IRE regulations.
In no case, may loans or placements accrue interest at rates lower than the average of the deposit rates of the banking and financial market, applicable to placements of similar characteristics for the same instrument and term, in accordance with the publication of the average rates issued from the Central Bank of Paraguay, at the time of grant. Excluded from this provision are advanced salaries to personnel and loans or placements made by entities included in Laws No. s. 438/1994 and 861/1996.
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-source income is not taxable. However, interest, commissions, and capital gains are considered Paraguayan-source income and subject to IRE when the investor is resident in Paraguay.
The Tax Reform has increased the territoriality principle, and incomes from Paraguayan sources shall constitute income that comes from activities carried out in Paraguay from goods located or from rights used economically therein. In addition, income from Paraguayan sources will be considered those coming from:
- The services provided in the country for technical assistance, management, advertising, propaganda, and technical and logistical services.
- The transfer of use of goods and rights, when they are used or exploited in the country, even partially.
- Interest, commissions, returns, or capital gains from securities, as well as those from financing or loans made in favour of foreign persons or entities, when the issuing or lending entity is incorporated or resides in the country.
- Interest, commissions, returns, or capital gains deposited in public or private banking or financial entities abroad, as well as exchange differences, and dividends or net profits obtained as a partner or shareholder of foreign entities, when the investor or beneficiary entity is incorporated or resides in the country.
- Insurance or reinsurance operations that cover risks in the country or that refer to persons or entities that reside in the country at the time the contract is signed.
- International transport operations of goods or people, excluding those that have their origin and destination in another country or jurisdiction.
- Operations with derivative financial instruments, when the investor or beneficiary entity is incorporated or located in the country.
Likewise, income from Paraguayan sources will be considered those obtained by carrying out activities abroad not included in the preceding paragraphs by the taxpayers of this tax, unless the taxpayer has paid an income tax abroad for them, whatever its denomination, at a rate equal to or greater than the rate of this tax. For this purpose and in order to avoid international double taxation, the provisions of Article 134 of this Law will be applied, and the tax administration will establish the requirements and the procedure for the payment demonstration.