Through a press release, President-elect Santiago Peña announced his choice to lead the Central Bank of Paraguay (BCP). The appointee is the economist Carlos Dagoberto Carvallo Spalding, who held positions in the private sector and previously held the position of director at the BCP during the period from 2015 to 2020. Peña’s appointment must be ratified by Congress.
The Central Bank of Paraguay ("BCP") by Resolution No. 1, Act No. 35 dated 11 July 2023, approves and brings into force the General Regulation of the Payment Systems of Paraguay (SIPAP Regulation). This new resolution also repeals several previous resolutions regulating the matter, including Resolution No. 1, Act No. 67 dated 27 December 2012 "General Regulations of the Payment Systems of Paraguay", the former SIPAP regulations, Resolution No. 24 of Act No. 54 dated 25 August 2011 "Project for the Modernization of the Payment Systems of Paraguay - Alternative Network for the Payments and Securities Systems of the BCP", Resolution No. 1, Act No. 26 dated 17 May 2022, "General Regulations of the Payment Systems of Paraguay", among others.
The new SIPAP Regulation includes innovations aiming to modernize Paraguay's Payments System. These innovations consist of the introduction of new defined terms that the previous regulation did not contemplate, among them; "Alia-s", "Commercial Customer", "Return of Funds", "Central Addressing Scheme (CAS)", "Payment Initiation Service Provider (PISP)", "Request for Return of Funds", "Request for Payment", "Self-managed Credit Transfer", and some modifications to terms already established by the previous regulation.
Another relevant change affects Securities Depositories (DEPO), in the case of non-fulfilment of bids. Closed bids in the DEPO that are not settled in the forms and at the times stipulated by the BCP, will make the participants who demand or offer liquidity liable to the following penalties:
The SIPAP Regulation also modifies the section of service participants, to whom it assigns new responsibilities, among them;
Additionally, the SIPAP Regulation includes substantial amendments to the instant payment system (SPI), where new functionalities will be implemented and made available to customers from 11 September; such as:
The SIPAP Regulation also includes new functionalities for customers starting 16 October, including;
Bill approving the loan agreements between ANDE and Kreditanstalt fur Wiederaufbau (KfW), for up to USD 75,000,000, and between ANDE and FONPLATA, for up to USD 45,000,000 ("Bill") for the financing of the construction project of the 220KV transmission line between Villa Hayes - Villa Real - Pozo Colorado - Loma Plata and the Pozo Colorado substation, Western Region ("Project")
A. Aspectos Generales
On June 15, the Senate (originating chamber) approved the Bill, thus initiating the second constitutional procedure before the Chamber of Deputies (revising chamber). Since June 22, 2023, the Bill has been under review by the Committees on Economic and Financial Affairs, Foreign Relations, Public Works, Public Services and Communications, Budget, and Accounts and Budget Execution Control.
The purpose of the Bill is to increase the capacity of the Northern and Western Transmission System and part of the Bajo Chaco Distribution System through the construction of a 220 KV transmission line, the Pozo Colorado Substation, and the construction of 4 new feeders in the influence area of the Pozo Colorado Substation.
The execution of the Project will be carried out by ANDE. The Works are part of ANDE's Short and Medium-Term Master Plan for Transmission, Distribution, Information Technology, and Communication, 2021-2030, and the Short, Medium, and Long-Term Master Plan for Generation, 2021-2040, by ANDE.
B. Financing
The total cost of the Project amounts to USD 126,000,000, with USD 75,000,000 financed by KfW and USD 45,000,000 by FONPLATA, with a local counterpart of USD 6,130,000 ("Loan").
It is important to mention that the components of the Project already have the code from the National Public Investment System (SNIP) of the Technical Planning Office, through which public investment projects are managed. It should be noted that the Project will result in a budget expansion of PYG 248,494,507,904, directly affecting ANDE's budget. The Bill provides for the possibility of a local counterpart for additional resources to the Loan, if necessary to complete the Project.
The USD 75,000,000 Loan provided by KfW is backed by a Sovereign Guarantee granted by the Republic of Paraguay and has an amortization period from May 15, 2027, to May 15, 2038.
Additionally, the loan with KfW provides that the parties will define, in a separate agreement, the details of the disbursement procedure and how ANDE must verify the use of the Loan, as well as the proportions and order of the respective disbursements under the loan agreement.
Regarding the USD 45,000,000 loan with FONPLATA, the loan contract establishes a repayment period of 20 years.
C. Project Structure and Contracting System
Project Structure and Procurement System
(a) Componente 1 (“Works”): Investments in 220 KV Substations and Transmission Lines:
(b) Component 2: Environmental and Social Management, and Right-of-Way Clearing.
(c) Component 3: Technical Assistance, Auditing, Supervision, Administrative Commission, and Contingencies.
According to the background information of the Project, the Loan will be executed as follows:
Regarding the project's contracting method, the Project Law establishes that contracts for the project's execution will be carried out using the International Public Bidding system in accordance with local law, while consultancy services will be procured in accordance with the current regulations on public tenders and the "Policies for the Acquisition of Goods, Works, and Services in Operations Financed by FONPLATA of July 2017".
D. Final Comments
The Project is a key endeavor for the country's medium and long-term development as it encompasses one of the most dynamic and promising growth regions, the Chaco. Ensuring energy security in the Chaco is crucial to guarantee a sustained pace of growth and development. Therefore, the approval of the loan by the Legislative Power is urgently needed to commence the works. In this regard, we anticipate that the bidding processes for the Project will commence in the second half of the year once the new government takes office.
The Project is already in its second constitutional process in the Chamber of Deputies. According to the latest information, the Budget Committee of this Chamber ruled in favor of the approval of the Project.
We will closely monitor the legislative process of file S-231893 of the Project Law and will provide updates on any relevant developments.
For further information on any of the topics covered in this edition of our newsletter, please contact our experts: Luis Marcio Toraleslmtorales@vouga.com.py); Silvia Benítez (sbenitez@vouga.com.py); Manuel Acevedo (macevedo@vouga.com.py); Rodolfo G. Vouga (rgvouga@vouga.com.py)
Bill approving the Loan Agreement signed between Paraguay and CAF for up to US$ 52,292,000 ("Bill") to finance the Intermediate Cities Sanitation Program that will be under the responsibility of the Ministry of Public Works and Communications (MOPC).
A. General Aspects
On June 21, the National Congress enacted the Bill to finance the Intermediate Cities Sanitation Program ("Project"). The Project is aligned with the United Nations Sustainable Development Goals (SDGs). SDG 6 commits member countries to achieve 100% access to clean drinking water, equitable access to sanitation and hygiene services, and improve water quality by reducing pollution and harmful discharges by 2030.
Currently, Paraguay has a sanitary sewerage network coverage of 15.4% and only 7.5% in wastewater treatment. Due to the country's population growth, without urgent measures, these numbers are likely to worsen. Therefore, the implementation of this Project is strategic for improving the overall health of the population.
The cities beneficiated by the Project are: (i) Santa Rita, Alto Paraná Department; (ii) Carapeguá, Paraguarí Department; (iii) San Ignacio, Misiones Department; and (iv) Santa Rosa del Aguaray, San Pedro Department ("Beneficiary Cities").
The execution of the Project will be carried out by the Ministry of Public Works and Communications (MOPC) as the implementing body on behalf of the Paraguayan government. Initially, the operational part of the Project was under the responsibility of the Water and Sanitation Directorate of the MOPC (DAPSAN); however, according to the latest information we have obtained, the Project will likely be transferred to the Coordination of Drinking Water, Sanitation, and Hydraulic Works of the MOPC (CAPSOH).
The Project is primarily based on the construction of a sanitary sewerage system, wastewater treatment plant, and improvement of the drinking water system in the Beneficiary Cities. It is estimated that the Project will benefit around 110,000 people.
B. Financing
Financing for the Project is provided by Corporación Andina de Fomento (CAF) for up to USD 52,292,000 ("Loan") over a period of 16 years from the entry into force of the Loan Agreement, with a grace period of 5 years. The Project will result in a budget increase of PYG 400,000,000 in the General Budget of National Expenditures, to be borne by the MOPC.
C. Project Structure and Contracting System
According to the general conditions of the loan agreement ("Loan Agreement"), the procurement processes for goods, works, and services related to the Project must comply with the following principles:
According to the terms of the Loan Agreement, International Public Bidding ("IPB") shall be used for the following cases:
IPB may be waived only in special cases that are technically justified and duly supported by the Borrower, and expressly authorized by CAF. Additionally, the terms of reference must be previously approved by CAF and comply with the principles.
Regarding the structure, the Project includes the following components: (a) Water and Sanitation Projects, (b) Program Administration and Management, and (c) Evaluation and Financing Expenses.
(a). The Water and Sanitation Projects component considers the financing of the comprehensive program, including the necessary infrastructure and equipment for the proper provision of water and sanitation services, which includes the following items:
(b). The Program Administration and Management component includes the following items:
(c). The Evaluation and Financing Commission Expenses component includes the evaluation expenses and financing commission of CAF.
The execution and allocation of the Loan will follow the following tentative schedule:
The Loan disbursements will follow the following tentative schedule:
| Year | 1 | 2 | 3 | 4 | 5 | Total |
| CAF loan | 5,0 | 11,0 | 15,0 | 16,0 | 5,3 | 52,3 |
| % | 9,6 | 21,0 | 28,7 | 30,6 | 10,1 | 100,0 |
D. Final Comments
On July 6, 2023, the Executive Branch enacted the Bill, which was published in the July 7, 2023 edition of the Official Gazette as Law No. 7124/2023. On the other hand, the MOPC has not yet issued the call for International Public Bidding (IPB); considering that the new government will take office on August 15, we believe that the Project will likely be tendered during the third quarter of this year or the first quarter of 2024.
It is important to mention that this Project complements another project financed by the Inter-American Development Bank (IDB) and the Japan International Cooperation Agency (JICA) worth over USD 150,000,000 for the drinking water and sanitation project in the Metropolitan Area of Ciudad del Este (the country's second-largest city). The loan for this project was approved by Law No. 7088/2023 and enacted on May 11, 2023. For more information about this project, you can find it on our website.
For further information on any of the topics covered in this edition of our newsletter, please contact our experts: Luis Marcio Torales (lmtorales@vouga.com.py); Silvia Benítez (sbenitez@vouga.com.py); Manuel Acevedo (macevedo@vouga.com.py); Rodolfo G. Vouga (rgvouga@vouga.com.py)
Bill approving the Loan Agreement Par-27/2019 signed between Paraguay and FONPLATA of up to US$ 220,000,000 to finance the improvement project of National Route No. 17, connecting Pedro Juan Caballero – Capitán Bado – Itanará – Ypejhú in the Departments of Amambay and Canindeyú.
A. General Aspects
On June 14, 2023, the Paraguayan Congress enacted the Bill to finance the improvement of 220 kilometers (from a total of 380) of road works on Route PY17; specifically, the road section that connects the towns of Pedro Juan Caballero and Ypehú ("Project").
The Project is considered by the government as a "High National Priority" work. According to the statement of purpose of the Bill, the Project will bring the following benefits: (i) improvement of connectivity and facilitating regional product distribution; (ii) reduction in travel time (approximately -3 hours); (iii) reduction in logistics costs; (iv) increase in property value; and (v) increased government presence in a remote area. It is estimated that the direct benefits of the Project could benefit around 185,000 people.
The execution of the Project will be carried out by the Ministry of Public Works and Communications (MOPC) as the Implementing Agency on behalf of the Executive Branch; the operational part of the Project will be handled by the Road Directorate (Dirección de Vialidad) of the MOPC.
B. Financing
Financing for the Project is provided by Fondo Financiero para el Desarrollo de la Cuenca del Plata (FONPLATA) for up to USD 220,000,000 ("Loan"), to be disbursed in 2 stages of USD 130,000,000 ("First Stage") and USD 90,000,000 ("Second Stage") over a period of 20 years with a grace period of 5 years. For the disbursement of the Second Stage, the Paraguayan government must provide FONPLATA with proof of expenses amounting to USD 52,000,000, within 36 months (extendable by 12 months) from the entry into force of the Contract, for the financing amount committed in the First Stage.
The Project already has the National Public Investment System code (SNIP) of the Technical Planning Office through which public investment projects are managed.[1] The Project will result in a budget increase of PYG 3,000,000,000 (three billion guaraníes), which will directly affect the budget of the MOPC. The Bill provides for the possibility of local counterpart funding for additional resources beyond the Loan that may be necessary to complete the Project.
C. Project Structure and Contracting System
Regarding the structure of the Project, it is divided into the following works and services ("Works"):
The Project foresees that the Loan will be allocated to the Works according to the following structure:
(*) The Project's budget incorporates the financing of national taxes
(**) Includes the cost of the Administration Commission, as described in Article 3.05 of the Special Stipulations of this Contract.
Regarding the contracting method of the Project, the Bill establishes that the contracts for the execution of the work will be carried out using the IPB system in accordance with the current regulations on public bidding and the "Policies for the Acquisition of Goods, Works, and Services in Operations Financed by FONPLATA of July 2017".
According to the Contract's Annex, the contracts resulting from the bidding process may be subdivided into up to five construction contracts, as established in the Terms of Reference, which must be clear of objections from FONPLATA. The contracting of Oversight must also be done through IPB, and the bidding processes can be subdivided into the same number as the contracts planned for the execution of the road works. In this case, consulting firms can only be awarded only one oversight contract.
D. Final Comments
On July 6, 2023, the Executive Branch enacted the Bill, which was published in the July 7, 2023 edition of the Official Gazette como Ley Nº 7119/2023. Por otra parte, el MOPC aún no ha hecho el llamado a la LPI; considerando que el nuevo gobierno tomará posesión recién el 15 de agosto próximo, consideramos que el Proyecto estaría siendo licitado durante el tercer trimestre de este año o el primero de 2024.
For further information on any of the topics covered in this edition of our newsletter, please contact our experts: Luis Marcio Toraleslmtorales@vouga.com.py); Silvia Benítez (sbenitez@vouga.com.py); Manuel Acevedo (macevedo@vouga.com.py); Rodolfo G. Vouga (rgvouga@vouga.com.py)
Executive Summary
| Regulation | Content | Date |
| Decree No. 9545 | The Value Added Tax ("VAT") taxable base for the importation of vaccines against Coronavirus or COVID-19 is reduced until August 31, 2023. | June 23, 2023 |
| General Resolution No. 131 | The Undersecretariat of State for Taxation ("SET") amended General Resolution No. 90/2021 (the "RG 90") and now allows taxpayers to incorporate or include fiscal documents via file import, after the generation of the filing stub. | June 06, 2023 |
| General Resolution No. 132 | The SET amended RG 90 to extend deadlines, provide for changes in reporting regimes and extend until October 31, 2023 the exemption from the negative effects of late filing of the 2022 annual report and the 2023 monthly reports. | June 28, 2023 |
More information:
► Decree No. 9545/2023 – The VAT tax base for the importation of Coronavirus or COVID-19 vaccines is reduced until August 31, 2023
Following the Coronavirus or COVID-19 pandemic in 2020, the Executive Branch expanded the National Vaccination Plan and the spectrum of medical services and treatments to be provided through public health networks.
To alleviate the financial pressure caused by such an extension to public health services, the Executive Branch issued Decree No. 9545/2023, by which it reduced until August 31, 2023, the VAT taxable base applicable to the importation of vaccines to treat against Coronavirus or COVID-19.
Said decree was published in the Official Gazette No. 122 of June 28, 2023. Therefore, as of the following day and until August 31, 2023, the taxable base and the effective rate of the affected products are as follows:
| Period | Taxable base | Effective VAT rate 5% |
| From June 29 to August 31, 2023 | 10% | 0,5% |
Posteriormente, desde el 1 de septiembre de 2023, se aplicará la base imponible general del 100% del valor aduanero de la mercadería más otros impuestos cobrados con motivo de la importación, aun cuando éstos tengan aplicación suspendida, excluido el IVA.
► General Resolution No. 131/2023 – The SET modified article 9 of RG 90 and now it is possible to incorporate new fiscal documents by importing files, after generating the filing stub.
Through General Resolution No. 131/2023, the SET resolved to amend RG 90, which established the obligation for taxpayers to register through the Marangatú Tax Management System ("Marangatú") the fiscal documents that support the transactions they carry out and that serve as a basis for the determination of their tax obligations.
In particular, General Resolution No. 131/2023 amended Article 9 of RG 90, which previously established that the incorporation or inclusion of new fiscal documents after the generation of the filing stub could only be done individually by the taxpayer, that is, through the manual uploading mechanism of each fiscal document (one by one), and then the transaction summary stub in Marangatú had to be updated.
With the modification proposed by General Resolution No. 131/2023, the taxpayer may incorporate or include new fiscal documents after generating the filing stub individually (manual upload) and also by importing files. After including new fiscal documents, the taxpayer must update the operations summary stub in the Marangatú.
Finally, General Resolution No. 131/2023 also warned that the SET would carry out control and inspection tasks to corroborate that the data included in the affidavits determining tax obligations are supported by the information provided by taxpayers in the registry of fiscal documents in compliance of the RG 90. In this sense, the SET may penalize taxpayers who present inconsistencies between their informative and determinative affidavits. These inconsistencies may also be subject to tax audits.
► General Resolution No. 132/2023 – The SET amended articles 7 and 14 of RG 90 to extend deadlines, provide for changes in reporting regimes and extend until October 31, 2023, the exemption from the negative effects of late filing of the 2022 annual report and the 2023 monthly reports.
Through General Resolution No. 132/2023 (the "RG 132"), the SET provided several additional amendments to RG 90. Mainly, the SET established that the following situations do not constitute tax noncompliance until October 31, 2023 ("Grace Period"):
This means that, for practical purposes, the lack of confirmation of the registration stub during the Grace Period does not entail the consequences of noncompliance such as the impossibility of generating the tax compliance certificate, the increase of the taxpayer's risk index, or fines, among others. This benefit would not extend to the monthly records from January to December 2022, identified as 955-Monthly.
The referred resolution also establishes that, during the Grace Period, the fine for violation will not be applied to taxpayers who have the obligations indicated above and who make the registration and confirmation of the fiscal information in Marangatú late, regardless of their fiscal period or fiscal year.
After the Grace Period, late compliance with the indicated obligations will generate a fine for contravention of one hundred thousand guaraníes (G. 100,000), provided for non-compliance with the formal obligations to file informative affidavits, according to item 4, paragraph "b" of the annex of General Resolution No. 13/2019, which quantifies the fines for contravention.
RG 132 also extended the due date to confirm the filing of monthly records in Marangatú, moving it from the month immediately following the second month after the fiscal period being reported, according to the following:
| Obligation code | Description | Obligation affected | Deadline for confirmation of submission |
| 955 – MONTHLY | Monthly registration of fiscal documents | 211 – General VAT | Up to the due date of the subsequent month of the tax period to be declared, according to the calendar of due dates of informative tax returns. |
Said modification is applicable as from the tax period of June 2023, when this regulation was issued, so the obligation corresponding to this one will expire in August 2023 and not in July 2023, as it would have been before, under the original text of article 7 of RG 90.
Finally, through RG 132, the SET also established the conditions and procedures for a Personal Income Taxpayer under the category of income from personal services ("IRP-RSP") to go from the monthly registration of vouchers to the annual registration and vice versa, as follows:
To this effect, the SET will proceed ex officio to register or deregister the obligations 955-Annual and 956-Monthly, as the case may be, in January of each year.
On June 13, 2023, the Superintendency of Banks issued Circular SB. SG. No. 96/23 to remind the entry into force of the "Regulation of Credit Information Bureaus (BIC) and Protection of Personal Credit Information within the Framework of Law No. 6534/2020 on the Protection of Personal Credit Data" (the "Regulation"). This regulation, approved by Resolution No. 3, Act No. 8 of the Board of Directors of the Central Bank of Paraguay on February 21, 2023, establishes the licensing, regulation, supervision, and sanction regime of the companies that provide credit reference services, known as Credit Information Bureaus (BICs).
In this regard, the obligation of financial institutions to regularly provide the BICs, with which they have a contract for the provision of credit information services, with updated data on the clients of their credit portfolio is emphasized. This includes positive and negative information, especially related to fulfilling credit obligations. This data must be notified within a maximum period of twenty-four (24) hours from its cancellation, in accordance with the provisions of Article 14 of Law No. 6534/2020.
Finally, the Superintendency of Banks urges all users of credit information to fully comply with the provisions in force on the matter. This is done in order to protect the rights of data subjects and ensure the protection of personal credit data.
The Secretariat for Consumer and User Defense (SEDECO) issued Resolution No. 705/2023 on May 31, 2023, with the purpose of regulating Law No. 6366/2019, which amends Law No. 1334/98 "On Consumer and User Defense", providing greater clarity and transparency in the information on credit operations (the "Resolution").
The Resolution provides that all transactions made between final consumers and suppliers of goods or services must comply, without exception, with the requirements set forth in Articles 4°, 6°, 10°, 15° and 29° of Law No. 1334/98 "On Consumer and User Defense", as amended by Law No. 6366/2019.
Article 4° defines the terms consumer and user, supplier, products, services, advertiser, acts of consumption, sustainable consumption, adhesion contract, collective interests and Total Cost of Credit (CTC).
Article 6° establishes the basic consumer rights, which include free choice, protection of life, health and safety, adequate education and disclosure, clear information on products and services, protection against misleading advertising and abusive commercial practices, repair of damages, formation of consumer associations, adequate provision of public services, compliance with advertised conditions, information on early cancellation of credit and knowledge of the CTC.
Article 10° specifies that the prices of products or services, including taxes, must be precisely indicated in the offer. In installment financing, information on the cost of financing based on CTC must be included.
Article 15° establishes the information that the service provider must provide in a clear and precise manner, such as the name and address of the supplier, description of the service, quality, materials used, price, term of validity, health and safety risks, contractual guarantee and the CTC.
Finally, Article 29° establishes the elements that must be included in credit operations, including the cash price, interest, surcharges, number of payments, total amount to be paid, rights and obligations in case of default, and CTC.
It is important to note that this regulation does not apply to financial entities regulated by the Central Bank of Paraguay (BCP) and the entities supervised by the National Institute of Cooperatives (INCOOP).
In addition, it provides that suppliers of goods and services, at the time of entering into adhesion contracts with consumers or users, must deliver a document containing all relevant information about the goods or services purchased. This information includes the total price already charged, the total cost to cancel the contract before the agreed expiration date, the value of the service, the CTC, and other details necessary for the consumer or user to fully understand the credit.
The Resolution also establishes that all information related to the CTC, issued by the suppliers, must be printed on sheets with logo and letterhead, signed by the person in charge and stamped by the supplier issuing the documentation, under penalty of nullity and subject to the penalties established in the regulations in force.
In case of non-compliance, the sanctions set forth in Decree No. 21004/03, which regulates the Sole Administrative Procedure for Summary Proceedings in Consumer and User Defense Matters and current or future resolutions, shall be applied.
Executive Summary
| Regulation | Content | Date |
| Binding Consultation | The Undersecretariat of State for Taxation (“SET” per its Spanish acronyms) ruled on the application of Value Added Tax (“VAT”) to the acquisition of software and payment of fees for teachers from abroad by an educational entity recognized by the Ministry of Education and Science (“MEC”). | First semester 2023 |
| Binding Consultation | The SET ruled on the invoicing and tax treatment of VAT applicable to an assignment of receivables and payment of interest. | First semester 2023 |
| Binding Consultation | SET indicated the tax treatment of the investment in a mutual fund and the interest generated in the Personal Income Tax (“IRP”) for a natural persona with fiscal residence in Paraguay. | First semester 2023 |
| Non-Binding Consultation | SET established its position on the possibility of using bank transfer slips to support the cancellation of invoices on credit. | First semester 2023 |
More information:
► Response to a Binding Consultation on the application of VAT on the acquisition of software and payment of fees for teachers from abroad by an educational entity recognized by the MEC
The SET responded to a binding consultation made by a taxpayer; an educational institution recognized by the MEC. The taxpayer explained when submitting its consultation that, since the Covid-19 pandemic, it has been developing teaching methods involving virtual platforms. To this effect, it makes payments for the acquisition of software to use a digital platform and, in addition, pays fees to teachers located abroad who developed their educational activities both in face-to-face and virtual format.
The taxpayer argued to the SET that these operations are exempt from VAT, considering they relate to its educational activities. To this effect, it cited article 100, paragraph 6 of Law No. 6,380/2019 (the "Tax Law"), which exempts from VAT the importation and sale of certain goods related to education services, when they are carried out in favor of educational entities.
In response to this consultation, the SET determined that two transactions are being carried out simultaneously by the taxpayer: (1) hiring of teachers from abroad for the development of educational activities in a virtual and face-to-face format, and (2) acquisition of licenses for the use of software from abroad to access virtual platforms.
Regarding the first operation, SET replied to the taxpayer that hiring teachers to render teaching services is exempt from VAT under article 100, numeral 3, paragraph “g” of the Tax Law.
Regarding the second transaction, the SET replied that this transaction is included within the "digital services" concept of the Tax Law, specifically within Article 12, paragraph "b" of General Resolution No. 76/2020. In other words, in this case, the SET understood that the category of digital service prevails over that of education, and, therefore, the exemptions for education services do not apply to the acquisition of software licenses to access virtual platforms, even when these platforms are for education purposes.
Consequently, the SET replied that the entities that intermediate the payment of software licenses to access virtual platforms are obliged to act as VAT collection agents, considering that the taxpayer explained that he makes the payments with bank transfers.
The SET concludes its analysis by explaining that the VAT exemption for importing goods, equipment, and supplies by educational entities contained in article 100, numeral 6, of the Tax Law, invoked by the taxpayer, does not apply to the transactions in question. SET bases this position on the fact that such exemption only applies to the operations (import and sale) of physical goods included in such provision and therefore does not extend to the operations described by the taxpayer, which, since they are related to the use and transfer of software by electronic means, correspond to services.
► Response to a binding consultation on the tax treatment of an assignment of receivables and interest payment transaction
A taxpayer asked the SET whether the interest and expenses generated in a credit assignment transaction are exempt from VAT. The taxpayer (“Supplier”) explained that it had entered into a service provision contract with another company (“Client”) and that it issued a credit invoice that was pending payment, so it assigned and transferred its collection rights arising from the provision contract to a bank (“Bank”) to advance the funds of the credit invoice.
This financing by the Bank generated expenses and costs, interest and administrative expenses, plus VAT (“Surcharges”), which the Bank charged to the Supplier by deducting them from the funds advanced to the Supplier in connection with the assignment of the credit, thus obtaining the Bank's result from the difference between the amount paid to the Supplier and the amount collected from the Client. The Supplier consulted SET on how to document the Surcharges of the credit assignment affecting operations (b) and (c) of the above image.
However, SET understood that the query did not refer to the Surcharges but to who is responsible for issuing the invoices when collecting the interest accrued after the assigned credit, which would be operations (e) and (f) of the above image. Due to this, SET addressed the consultation by indicating that two operations are being developed juxtaposed: (1) the assignment of the credit -(b) and (c)-, and (2) the collection of interest by the Bank or new creditor -(e) and (f)-.
Regarding the first transaction, the SET confirmed that the assignment of credits is exempt from VAT (article 100, numeral 1, paragraph "b" of the Tax Law). Regarding the second transaction, the SET indicated that the Bank or new creditor must issue the invoices for the collection of interest accrued after the assignment (article 81, numeral 2, paragraph “a” of the Tax Law). However, the SET should have addressed the original consultation on the documentation and taxability of the Surcharges for the assignment.
► Response to binding consultation on the tax treatment of an investment in a mutual fund and the interest generated by such investment
A taxpayer asked SET whether his investment in a mutual fund is deductible for determining his Personal Income Tax (“IRP”) liability. Additionally, he asked whether the interest generated by the mutual fund is exempt from tax, considering that the mutual fund invests the capital it receives in a portfolio of stocks and bonds.
Concerning the first question, regarding the possibility of deducting the investment in mutual funds for the determination of the taxpayer's income tax, the SET answered that, according to the provisions of the Tax Law, the income tax is divided into two categories, in practice, are determined and settled separately: (a) income tax on income derived from the rendering of personal services, and (b) income tax on income and capital gains ("IRP-RGC"). In this regard, SET explained to the taxpayer that the investment in mutual funds is not considered a deductible expense for any of the IRP categories.
About the second consultation, regarding the exoneration applicable to the interest received from the mutual fund, the SET answered that, effectively, the interest generated by the investment in the mutual fund corresponds to the IRP-RGC category, whose rules exempt it from this tax (article 56, numeral 11, of the Tax Law).
As an additional comment to what was resolved in the referred binding consultation, it is essential to point out that when a person invests in a mutual fund, the profit in the operation is obtained through the redemption of the quota part, with the order sent to the company that acts as administrator of the mutual fund ("AFPISA"). It is only at this moment when the AFPISA transfers to the investor the greater value generated in its quota parts as a result of the collection of interest and dividends obtained by the mutual fund that the referred exemption of the IRP-RGC would be activated if the investor is an individual with tax residence in Paraguay.
Before the moment indicated in the previous paragraph, the interests obtained by the mutual fund are not subject to Corporate Income Tax (“IRE”) since mutual funds are within the category of equity investment funds, which are considered as transparent legal structures (“EJT”), according to article 4 of the Tax Law. As an EJT, the income obtained by the mutual funds has a neutral tax effect in determining the IRE, so the interest earned by the mutual fund is not taxable for this tax either.
► Response to non-binding consultation on whether bank transfer slips can be used as payment vouchers to cancel invoices issued on credit
Through a non-binding consultation, a taxpayer asked SET whether any legal regulation establishes the use of the bank transfer slip as support for the cancellation of an invoice issued on credit. The taxpayer explains that he is making this consultation because he requested a money receipt for a payment he made to a supplier who had issued a credit invoice, which the supplier refused, arguing that the bank transfer slip is already the document that accredits the payment of the credit invoice issued by him, so he would not give a money receipt.
SET responded indirectly that there is no express legal tax regulation that regulates the use of bank transfer slips as support for the cancellation of an invoice issued on credit since neither this nor the money receipt are documents stamped by said institution.
However, despite this limitation, SET concluded that both the money receipt and the bank transfer voucher processed satisfactorily, due to their usual commercial use, can be considered as documents that serve as support for documenting, for tax purposes, the cancellation of invoices issued on credit by suppliers of goods and services.
On June 22nd, our partner Rodolfo Vouga Z. participated in a timely panel discussion on carbon markets organized by the Paraguayan-American Chamber of Commerce (AMCHAM Paraguay). Alongside Per Olofsson, CEO of Paracel S.A., the panelists shared experiences and perspectives for the carbon markets, exploring the potential and opportunities in Paraguay, as well as the sector's regulation.
The panel discussion garnered a great turnout of professionals and business leaders active in the carbon sector, and had an important coverage by the local press. During the event, Rodolfo Vouga and Per Olofsson discussed ongoing projects in various sectors such as forestry, agriculture, livestock, renewable energy, and transportation in Paraguay, as well as a bill presented in Congress that would regulate certain aspects of carbon credits in Paraguay, including ownership, registration, corresponding adjustments, among other issues. The panel generated a productive exchange of ideas with the audience.
Rodolfo Vouga emphasized the importance of having a legal framework with clear rules regarding carbon credit ownership and other regulatory aspects, which, in his view, will facilitate access to the markets for projects developed in Paraguay.
Carbon markets have become a key tool in driving the transition towards a low-carbon economy. Paraguay, with its vast biodiversity and business-friendly investment climate, positions itself as one of the jurisdictions with the greatest potential worldwide for the development of carbon credit projects. VOUGA ABOGADOS currently boasts a leading team in Paraguay with experience in implementing carbon projects.
We would like to express our gratitude to AMCHAM Paraguay for providing us with the opportunity to share our experience in this growing sector.
You can watch the discussion in the following link.
For further information about the event or carbon markets in Paraguay, please contact Rodolfo Vouga Z (rgvouga@vouga.com.py), Rodrigo Fernández (rfernandez@vouga.com.py) and Cecilia Vera (cvera@vouga.com.py).