Mistakes to Avoid
10 Tax Residency Mistakes
These mistakes can cost you Paraguay's 0% tax benefit, trigger dual taxation, or land you in trouble with SET. Here's how to avoid them—and fix them if you've already made them.
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The #1 Mistake
Not getting your RUC after receiving your Cédula. Many expats complete residency and stop there—but without registering with SET, Paraguay doesn't recognize you as a tax resident. You can't file returns, get certificates, or prove your tax status internationally.
See All 10 Mistakes10
Common Mistakes
3
Critical Ones
100%
Avoidable
5 yrs
Audit Window
Severity Levels
Critical - Can cost you the 0% benefit
Serious - Creates tax complications
Annoying - Delays and hassles
Critical Mistakes
#1
Not Getting the RUC After Cédula
What People Do Wrong:
- • Get Cédula and think they're done
- • Don't apply for RUC within reasonable time
- • Don't understand RUC is separate from residency
Consequences:
- • NOT recognized as tax resident
- • Cannot get tax residency certificate
- • Home country may claim you're still their resident
How to Avoid:
- • Apply for RUC within days of Cédula
- • Process takes only 2-3 business days
- • See RUC guide →
Already Made This Mistake?
Apply for your RUC immediately. The process is quick (2-3 days) and you can start building your tax history from there. The longer you wait, the harder it becomes to prove your tax residency status.
#2
Not Filing Monthly/Annual Declarations
What People Do Wrong:
- • Think "no local income = no filing"
- • Ignore monthly VAT (Form 120)
- • Skip annual IRP return
Consequences:
- • RUC can be suspended
- • Lose tax residency status
- • Fines and penalties from SET
How to Avoid:
- • File monthly Form 120 (even "sin movimiento")
- • File annual IRP by deadline
- • Use Marangatú or hire an accountant
Already Made This Mistake?
File all missing declarations immediately. You'll pay late fees, but catching up is better than waiting for an audit. If your RUC is suspended, visit SET to reactivate it after filing.
#3
Misunderstanding "Foreign Income"
What People Do Wrong:
- • Assume foreign clients = foreign income
- • Work FROM Paraguay, claim 0%
- • Don't understand source rules
Consequences:
- • SET audit finds unpaid taxes
- • Back taxes + penalties + interest
- • Loss of credibility with authorities
How to Avoid:
- • Work FROM Paraguay = local income
- • Use IRE Simple (3%) or foreign LLC
- • See digital nomads guide →
Already Made This Mistake?
Consult a tax professional immediately. You may need to file amended returns and pay back taxes. Voluntary disclosure is better than being caught in an audit.
Serious Mistakes
#4
Assuming Residency = Automatic Home Country Exit
What People Do Wrong:
- • Get Paraguay residency, assume they're done
- • Don't formally exit home country tax
- • Don't research exit requirements
Consequences:
- • Dual tax residency
- • Exit taxes triggered unexpectedly
- • Penalties in home country
How to Avoid:
- • Research home country exit BEFORE moving
- • File proper deregistration forms
- • Consult tax pro in BOTH countries
Already Made This Mistake?
Consult a tax professional in your home country immediately. You may still be able to file exit paperwork retroactively, though penalties may apply.
#5
Confusing Migratory vs. Fiscal Residency
What People Do Wrong:
- • Think residency visa = tax residency
- • Don't understand the distinction
- • Skip RUC and compliance steps
Consequences:
- • Legal right to live, but NOT tax resident
- • Cannot claim 0% internationally
- • Home country challenges status
How to Avoid:
- • Migratory (Migraciones) ≠ Tax (SET)
- • Complete full process: Cédula → RUC → Compliance
- • Get certificate when needed
Already Made This Mistake?
Register for your RUC and begin filing declarations. Build your tax compliance history from today forward.
#6
Not Proving Center of Vital Interests
What People Do Wrong:
- • Never visit after initial setup
- • No local address/utility bills
- • "Paper residency only"
Consequences:
- • SET challenges tax residency
- • Home country claims you never left
- • Certificate denied
How to Avoid:
- • Maintain rental/property
- • Utility bills in your name
- • Local bank with activity
- • Visit regularly
Already Made This Mistake?
Start building substance now: rent an apartment, open a bank account, get utilities in your name. Document everything. The sooner you establish genuine ties, the stronger your position.
#7
Not Severing Ties with Home Country
What People Do Wrong:
- • Keep bank accounts, property
- • Maintain driver's license, voting
- • Family stays behind
Consequences:
- • Home country claims residency
- • Dual residency tax issues
- • May owe taxes in both places
How to Avoid:
- • Close/minimize home bank accounts
- • Sell or rent property
- • Cancel memberships
- • Document your exit thoroughly
Already Made This Mistake?
Start unwinding ties now. Close unnecessary accounts, transfer assets appropriately, and document everything. The goal is to show your home country is no longer your center of life.
Annoying Mistakes (Delays & Hassles)
#8
Using Non-Apostilled or Expired Documents
What People Do Wrong:
- • Submit without apostille
- • Documents too old
- • No Spanish translation
Consequences:
- • Application rejected
- • Months wasted
- • Need to start over
How to Avoid:
- • Apostille ALL documents
- • Criminal records: <6 months
- • Certified Spanish translations
#9
Choosing Wrong Business Activity for RUC
What People Do Wrong:
- • Pick random activity
- • Mismatch with actual work
- • Don't understand implications
Consequences:
- • Potential compliance issues
- • Wrong tax rates applied
- • Audit complications
How to Avoid:
- • Consult accountant before
- • Match activity to work
- • Common: "servicios profesionales"
#10
Poor Timing of Paraguay Visits
What People Do Wrong:
- • Arrive Dec-Feb (summer holidays)
- • Plan around Easter week
- • Don't account for delays
Consequences:
- • Offices closed/reduced hours
- • Longer processing
- • Multiple trips needed
How to Avoid:
- • Best: March-June, Aug-Nov
- • Avoid Dec-Feb, Easter
- • Plan for 5-7 business days
Country-Specific Exit Considerations
US Citizens
- • Worldwide taxation applies regardless of residency
- • FEIE may exclude ~$126K of earned income
- • Self-employment tax still applies
- • FBAR/FATCA reporting for foreign accounts
- • Renunciation has significant tax implications
UK Residents
- • Statutory Residence Test (SRT) determines status
- • Days counted carefully (183 threshold)
- • Split-year treatment may apply
- • Non-dom rules have changed (2024+)
- • Exit HMRC properly to avoid complications
German Citizens
- • Extended limited tax liability may apply
- • Exit tax on unrealized gains possible
- • 183-day rule plus "center of life" test
- • Deregistration (Abmeldung) required
- • Keep documentation of departure
Australian Residents
- • Residency tests are complex (domicile, 183-day, etc.)
- • Departing Australia superannuation rules
- • CGT on assets may apply on exit
- • Medicare levy implications
- • Consider formal tax residency cessation
Professional Advice Essential
Tax exit requirements vary significantly by country and individual circumstances. This overview is general guidance only. Always consult a tax professional in your home country before attempting to change your tax residency status.
When to Get Professional Help
DIY is Fine When:
- ✓ Simple situation (single nationality)
- ✓ No significant assets to transfer
- ✓ Lower income (<$50K)
- ✓ Comfortable with Spanish/systems
- ✓ Home country has simple exit rules
Hire an Accountant When:
- ✓ Complex income structures
- ✓ Multiple countries involved
- ✓ Higher income (>$100K)
- ✓ Need local invoicing (E-kuatia)
- ✓ Don't speak Spanish well
Hire a Tax Attorney When:
- ✓ Exit taxes involved
- ✓ Existing disputes/audits
- ✓ Significant assets
- ✓ Multi-jurisdictional planning
- ✓ US citizen (IRS complexity)
Prevention Checklist
Use this checklist to ensure you're doing things right:
- □ Applied for RUC within days of receiving Cédula
- □ Filing monthly Form 120 declarations (even "sin movimiento")
- □ Filing annual IRP return by deadline
- □ Understand income source rules (work FROM Paraguay = taxable)
- □ Researched home country exit requirements
- □ Filed exit paperwork with home country tax authority
- □ Maintaining real presence in Paraguay (rental, utilities, bank)
- □ Severing/minimizing ties with home country
- □ Keeping documentation for foreign income
- □ Consulting professionals where needed
Common Questions
Mistakes FAQ
Not getting the RUC after receiving their Cédula. Many expats complete the residency process (Cédula) and think they're done. But without registering with SET and getting your RUC (taxpayer ID), Paraguay does NOT recognize you as a tax resident—regardless of how long you live there.
Yes. Once you have a RUC, you must file monthly VAT declarations (Form 120) and annual IRP returns—even if you report zero Paraguayan income. Filing "sin movimiento" (no movement) is fine. Not filing can result in RUC suspension and loss of tax residency status.
No. This is a common and dangerous assumption. Each country has its own rules for when you cease to be a tax resident. You must actively exit tax residency in your home country—and some countries (like the US) tax citizens worldwide regardless of where they live.
If you perform work from within Paraguay, that income is considered Paraguayan-sourced and is taxable (3% IRE Simple or 10% IRE). The location of your client doesn't determine income source—YOUR location does. Foreign clients ≠ foreign income.
Maintain evidence that Paraguay is your primary home: rental contract or property deed, utility bills in your name, local bank account with activity, entry/exit stamps showing regular presence, local phone/internet contracts, and any family ties in Paraguay. SET may request this during audits or certificate applications.
Birth certificate, police clearance/FBI background check (must be recent, typically less than 6 months old), and marriage certificate if applicable. All foreign documents must be apostilled (or legalized for non-Hague countries) and translated into Spanish by a certified translator.
Most mistakes can be corrected, though it may involve penalties, back-filing, or additional documentation. For example, if you haven't been filing, you can catch up (with late fees). If you have RUC issues, SET can usually help resolve them. The key is to address problems proactively rather than waiting for an audit.
Hire an accountant if: you have complex income structures, multiple countries involved, high income (>$100K), or local invoicing needs. Hire a tax attorney if: you face exit taxes, have existing disputes, are under audit, or need multi-jurisdictional planning.
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