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Paraguay – Dollar economy – Still no personal income tax

December 22, 2010

Paraguay has a number of advantages going for it like 10% VAT (the lowest in South America), no personal income tax, 10% corporate tax (the lowest in South America), low labor cost, young population, plenty of commodities and enormous fresh water resources. In addition the capital Asunción has the lowest general price level in the world of any capital.

The personal “no income tax” regime should last at least to 2013 and very likely beyond. Bolivia and Guatemala are other countries in the region with “low or almost no” personal income tax. The employer’s contribution to social security is 16.5% of an employee’s (worker) total salary which includes bonuses. The employee’s (worker) portion is 9%

However, dividend distributions are subject to a 5% corporate income tax. Dividends distributed to non residents are subject to a 15% withholding tax.

Paraguay has a high degree of openness in the economy and a high degree of dollarization. There is no foreign exchange control in Paraguay.

Paraguay is a member of Mercosur. Other members of this trade organization are Argentine, Brazil and Uruguay. Venezuela is in the process of being a future member. The purpose of Mercosur is free trade with limited or no custom between its member countries as well as visa free travelling. Mercosur is planning to introduce the same “car plate” among its members.

See more in IMF research document regarding Paraguay here

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