Paraguay

In accordance with the regulations in force, foreign entities may be subject to income tax withholdings in respect of services rendered to them deemed to be of Paraguayan source, including payments made by the branch or affiliate of a foreign home office.

Business income tax regulations consider that branches, agencies, or PEs of foreign entities are taxpayers, independently from the foreign home office status.

The withholdings are to be made from the payments made by local entities for such services.

WHT on payments made by a domestic corporation

Notes

1. Local entities are required to pay an additional 5% WHT when the income or dividend is distributed.
2. In the case of financing operations (loans), royalties, and other services provided for non-resident corporations or individuals, the local taxpayer must withhold the VAT at a rate of 10%.
3. The WHT on interest is based on 100% of the amount paid when remitted to the head office abroad. The tax rate is 30%. In other cases, when the payment is not directly made to the head office or shareholders that have control of the local subsidiary, the WHT is based on 50% of the amount paid. The ‘effective’ tax rate is 15%. For financing loans, the WHT effective tax rate is 6%. Regarding individuals, considering that they will obtain income from Paraguayan sources, whether they will be subject to PIT or CIT depends on the kind of operations.
4. The WHT on royalties is based on 100% of the amount paid when remitted to the head office abroad. The tax rate is 30%. In other cases, when the payment is not directly made to the head office or shareholders that have control of the local subsidiary, the WHT is based on 50% of the amount paid. The ‘effective’ tax rate is 15%.
5. The WHT on fees is based on 100% of the amount paid when remitted to the head office abroad. The tax rate is 30%. In other cases, it is based on 50% of the amount paid. The ‘effective’ tax rate is 15%.
6. Fees for technical assistance services rendered by non-resident corporations are subject to WHT at a rate of 15% on the amount paid. In case the mentioned services are rendered by the head offices or direct shareholder, the tax rate is increased to 30%.
   
   Fees for personal services rendered by non-resident individuals are subject to PIT. The withholding of PIT has to be made on 50% of the amount paid. The tax rate is 20% (effective tax rate of 10%).
7. In case of a loan to Chile, the WHT on the interest is 15% if the loan is provided by a bank or insurance company. On the other hand, if the loan is provided by an associated company or head office, the tax rate is 10%. Regarding VAT WHT, see Note 2.