Territorial Tax System

Paraguay Tax Guide: 0% Tax on Foreign Income

Paraguay's territorial tax system means residents pay zero tax on foreign-sourced income. Combined with low local taxes, it's one of the most tax-friendly jurisdictions in the world.

Updated January 2026

0%

Tax on Foreign Income

10%

Corporate Tax Rate

10%

VAT Rate

120

Days for Tax Residency

Quick Answer

Paraguay uses a territorial tax system—foreign-sourced income is not taxed. If you earn income outside Paraguay, your Paraguay tax rate is legally 0%. Local income is taxed at 10%. The RUC (tax ID) is required to establish tax residency in Paraguay. Paraguay does not participate in the Common Reporting Standard (CRS) like most European countries.

Updated January 2026 | Source: SET (Subsecretaría de Estado de Tributación)

Key Takeaway

Paraguay uses a territorial tax system. If your income comes from outside Paraguay—remote work, foreign investments, international business—you pay 0% tax on that income as a Paraguay resident.

Understanding Territorial Taxation

Unlike most developed countries that tax residents on worldwide income, Paraguay only taxes income generated within its borders. This is called a territorial tax system, and it's completely legal and recognized by international tax authorities.

For digital nomads, remote workers, and international entrepreneurs, this means:

  • Remote work income from foreign employers = 0% tax
  • Foreign investment dividends and capital gains = 0% tax
  • International business income from foreign entities = 0% tax
  • Rental income from foreign properties = 0% tax

Paraguay Tax Rates Overview

Key Tax Rates

Foreign-Sourced Income 0%
Personal Income Tax (Local) 8-10%
Corporate Tax (IRACIS) 10%
VAT (IVA) 10%
Dividend Withholding (Foreign) 15%

Becoming a Tax Resident

It's important to understand that immigration residency and tax residency are separate concepts in Paraguay. You can be an immigration resident without becoming a tax resident.

You become a Paraguay tax resident if you:

  • 1. Spend more than 120 days per year in Paraguay, OR
  • 2. Have your center of vital interests in Paraguay (main home, family, business)

Strategy Note

Many digital nomads maintain immigration residency while staying under 120 days per year to avoid becoming tax residents. This allows them to keep their tax residency in a jurisdiction of their choice while still having a Paraguay residency as a "Plan B."

Frequently Asked Questions

No. Paraguay operates a territorial tax system, meaning only income generated within Paraguay is taxable. Foreign-sourced income—such as remote work for foreign companies, foreign investments, rental income from properties abroad, or business income from foreign entities—is completely tax-free for Paraguay residents.
Paraguay has a flat 10% corporate income tax (IRACIS) on profits from Paraguay-sourced business activities. This is one of the lowest corporate tax rates in the Americas. Additionally, dividend distributions to foreign shareholders are taxed at 15%, though various structures can optimize this.
You become a Paraguay tax resident by either: (1) Obtaining permanent residency and spending more than 120 days per year in Paraguay, or (2) Having your center of vital interests in Paraguay. Tax residency is separate from immigration residency—you can be an immigration resident without being a tax resident if you spend less than 120 days in-country.
Paraguay's standard VAT (IVA) rate is 10%, with a reduced rate of 5% on certain essential goods and agricultural products. This is lower than most Latin American countries. VAT is applied to goods and services consumed within Paraguay.
If you're a tax resident with only foreign-sourced income, you may still need to file an annual declaration (depending on your residency category), but your tax liability would be zero. Consult a local tax professional for your specific situation, as requirements can change.
Paraguay is not classified as a tax haven by international bodies like the OECD or EU. It has a legitimate territorial tax system similar to many other countries. Paraguay participates in international tax information exchange and is not on any major blacklists. The 0% foreign income tax is a feature of territorial taxation, not tax evasion.

Related Pages

Tax Residency Guide

How to establish tax residency in Paraguay

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Residency Requirements

What you need to apply for residency

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Digital Nomads Guide

Paraguay residency for remote workers

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Tax vs Legal Residency

Understanding the difference

Read More

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