Quick Answer
Note: VAT (IVA) obligations apply equally to both regimes-your IRE regime choice does not affect VAT registration or filing requirements. See VAT overview for more on Paraguay's territorial tax system.
What Are IRE Simple and IRE General?
The Impuesto a la Renta Empresarial (IRE) is Paraguay's corporate income tax, levied on Paraguayan-source income at a flat 10% rate. However, the law provides two distinct calculation regimes:
IRE Simple (Régimen Simplificado)
A simplified regime designed for sole proprietorships (empresas unipersonales) with gross annual income up to G. 2,000,000,000 (approximately $270,000 USD at the 2025 average rate of ~7,400 PYG/USD, subject to exchange rate fluctuations). It offers a presumed income calculation that can result in an effective 3% tax rate, along with reduced accounting requirements and exemption from dividend tax for the business owner.
IRE General (Régimen General)
The standard regime that applies to all companies-incorporated entities (SRL, SA) and sole proprietorships exceeding the revenue threshold. Tax is calculated at 10% on actual net taxable income after deductible expenses, with full accounting requirements and dividend tax obligations.
Your Choice Matters
IRE Simple: How the 3% Effective Rate Works
IRE Simple's appeal lies in its effective 3% tax rate, achieved through a presumed income calculation. Under this method, tax is calculated as 30% of gross revenue multiplied by the 10% IRE rate-resulting in 3% of gross revenue regardless of actual profitability.
Example: A consulting business with G. 500 million in gross revenue would pay IRE of G. 15 million (3%), regardless of whether actual profit was G. 100 million or G. 200 million.
However, IRE Simple allows taxpayers to choose between presumed income and actual profit calculation each year. If actual net profit is less than 30% of gross revenue, calculating tax on the lower actual profit reduces the tax burden. The 3% rate is a ceiling, not a floor.
Eligibility requirements for IRE Simple:
- Sole proprietorship (empresa unipersonal) structure
- Gross annual income ≤ G. 2,000,000,000
- IVA (VAT) registration if applicable
- Quarterly advance payments (months 1, 3, 5, 7 following declaration)
Important: IRE Simple vs RESIMPLE
A separate regime called RESIMPLE exists for micro-businesses with annual income under G. 80 million. This is distinct from IRE Simple and has different rules. If your revenue is under G. 80 million, you may qualify for RESIMPLE instead. This page focuses on IRE Simple (G. 80M to G. 2B) versus IRE General.
Key Advantage: IDU Exemption
Sole proprietorships under IRE Simple are exempt from IDU (Impuesto a la Distribución de Utilidades), the dividend tax that applies to corporate profit distributions. For owner-operators who extract all profits as salaries or dividends, this exemption is substantial.
IRE General: 10% on Net Profit
IRE General applies the 10% IRE rate to actual net taxable income-the difference between taxable revenue and deductible expenses. This regime requires full accounting records prepared under Paraguayan GAAP or IFRS, with specific tax adjustments for non-deductible expenses.
Deductible expenses
- • Cost of goods sold
- • Employee salaries and social security
- • Rent and utilities
- • Professional fees
- • Interest (within thin capitalization limits)
- • Depreciation of fixed assets
Non-deductible expenses
- • Personal expenses of owners
- • Fines and penalties
- • Certain entertainment expenses
- • Expenses without proper documentation
Dividend Tax Applies
Companies under IRE General with annual gross turnover exceeding approximately $1.3 million USD must also submit an external audit report annually, adding compliance cost and scrutiny.
Key Differences at a Glance
| Factor | IRE Simple | IRE General |
|---|---|---|
| Tax Rate | 3% of gross (presumed) or 10% of actual profit | 10% on net taxable income |
| Eligibility | Sole proprietorships ≤ G. 2B revenue | All companies, mandatory above threshold |
| Accounting | Simplified records | Full accounting (GAAP/IFRS) required |
| Advance Payments | 4 quarterly installments | 4 quarterly installments |
| Dividend Tax (IDU) | Exempt for sole proprietorships | 8% residents / 15% non-residents |
| VAT (IVA) Obligations | Same as IRE General | Same as IRE Simple |
| Audit Requirements | None | External audit for >$1.3M turnover |
| Compliance Burden | Lower | Higher |
Factors to Consider When Choosing
The optimal regime depends on multiple factors specific to your situation:
Revenue projections and growth trajectory
IRE Simple is attractive if your revenue will remain comfortably under G. 2 billion (~$270,000 USD) for the foreseeable future. If rapid growth is expected, choosing IRE General from the start avoids a forced regime switch and the associated compliance transition costs.
Business structure
IRE Simple is only available to sole proprietorships. If you plan to incorporate as an SRL or SA for liability protection or multiple shareholders, IRE General applies automatically.
Profit margin and expense structure
IRE Simple's presumed income method benefits businesses with low actual profit margins-where real profit is less than 30% of gross revenue. Service businesses with minimal expenses (consulting, digital services, crypto-related activities) often have high margins and may pay less under IRE General if actual profit exceeds 30% of revenue.
Dividend extraction plans
If you intend to extract most profits as dividends rather than salary, the IDU exemption under IRE Simple is valuable. Corporate shareholders under IRE General face double taxation-10% IRE plus 8% IDU.
Compliance capacity
IRE General requires professional accounting, monthly tax filings, and potential audit preparation. IRE Simple has reduced compliance burdens, suitable for businesses without dedicated accounting staff.
Industry norms
Some industries face higher scrutiny than others. Businesses with complex cross-border transactions or related-party arrangements may benefit from the structural clarity of IRE General from the outset.
Consequences of Choosing the Wrong Regime
Selecting the wrong regime is not a trivial error-it has compounding costs:
Higher effective tax rate
A business with G. 1 billion in revenue and 15% actual profit (G. 150 million) pays G. 30 million under IRE Simple's presumed 3% method, but only G. 15 million under IRE General (10% of G. 150 million actual profit). That's a G. 15 million difference in a single year. Over five years, this compounds significantly.
Forced regime switch
Exceeding the G. 2 billion threshold requires mandatory transition to IRE General. This switch takes effect on January 1st of the fiscal year following the threshold breach. For example, if your 2025 revenue exceeds G. 2 billion, you must switch to IRE General starting January 1, 2026. The transition involves implementing full accounting systems, restating prior tax positions, and facing closer audit scrutiny.
Unexpected compliance costs
Businesses that opt for IRE General without adequate accounting infrastructure incur unexpected professional fees for tax preparation, audit representation, and compliance systems.
Dividend tax surprise
Sole proprietorships that transition to IRE General lose their IDU exemption. Profit distributions that were tax-free now incur an 8% withholding tax.
Audit profile
IRE General taxpayers face higher audit risk, especially those with complex deductions, related-party transactions, or international operations. IRE Simple's flat calculation reduces audit triggers but limits deductions.
Real example
A digital services business earning G. 1.5 billion with 40% profit margins chooses IRE Simple for its 3% rate. Under IRE General, tax would be 4% (10% of 40% actual profit). However, three years later the business grows to G. 2.5 billion and must switch to IRE General, incurring compliance transition costs and losing the IDU exemption on dividends. Planning for this growth from the start might have justified IRE General.
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Can You Switch Between Regimes?
Switching from IRE Simple to IRE General
is mandatory when gross revenue exceeds G. 2 billion. The switch takes effect on January 1st of the fiscal year following the threshold breach. For example, if your 2026 revenue exceeds G. 2 billion, you must operate under IRE General starting January 1, 2027. Voluntary switches are permitted but require updating accounting systems and compliance processes.
Switching from IRE General to IRE Simple
is possible if revenue falls below G. 2 billion, but the transition must be requested from the tax authority and is subject to approval. Businesses that previously exceeded the threshold face scrutiny on regime-downgrade requests.
The administrative process involves:
- Filing a regime change request with SET/DNIT
- Adjusting accounting systems and processes
- Recalculating advance payment obligations
- Updating tax registration certificates
Not a Routine Decision
Why Professional Regime Selection Matters
The IRE regime decision interacts with business structure, profit extraction strategy, and long-term tax planning. Most online advice oversimplifies this as "just pick IRE Simple because 3% is less than 10%." In reality, the optimal choice depends on:
- Your specific business model and industry
- Revenue growth projections and timing
- How you intend to extract profits (salary vs. dividends)
- Your tolerance for compliance burden and audit risk
- Whether you plan to incorporate or add shareholders later
A suboptimal regime choice can cost tens of thousands of dollars in unnecessary taxes over five years, plus transition costs when circumstances change. Our Investor package includes company formation with professional regime selection based on your specific situation, not a generic template.
For more on Paraguay's tax system and how IRE fits with territorial taxation, see our comprehensive tax guide. See also corporate tax overview for additional context on business taxation in Paraguay.