Due to the growing foreign investment in the country -a result of the numerous opportunities offered by Paraguay-, it has become necessary to reinforce tax stability and increase confidence in the income flows that are channeled internationally. For this reason, the Executive Power submitted to Congress the approval of the “Agreement between the Republic of Paraguay and the Oriental Republic of Uruguay to Avoid Double Taxation and Prevent Tax Evasion and Avoidance on Income and Wealth Taxes”.

In addition to preventing tax evasion, the Double Taxation Avoidance Agreements (DTAs) are intended to promote a greater exchange of goods and services and increase the movement of both capital and people. They also aim to provide a reasonable level of legal certainty and tax predictability to foreign investors.

The agreement in question was signed in September 2017, based on the model of the Organization for Economic Cooperation and Development (OECD), and establishes a 15% limit on the power of each of the States to charge taxes to residents of the other State on earnings from dividends, interest and royalties; without prejudice to specific rules on other types of income and specific conditions to be entitled to the benefits of the agreement. The method adopted to eliminate double taxation is the crediting of taxes paid in one State against those generated in the other State.

The Paraguayan taxes to which the Agreement applies are the Taxes on Income from Personal Services (IRP), on Commercial, Industrial or Service Activities (IRACIS), on Agricultural Activities (IRAGRO) and on Small Taxpayers (IRPC); while the Uruguayan taxes included are the Tax on Income from Economic Activities (IRAE), Personal Income Tax (IRPF) and Tax on Non-Residents (IRNR), as well as the Social Security Assistance Tax (IASS) and the Wealth Tax (IP).

Once approved by the Executive Power, it will enter into force 30 days after the last notification -through diplomatic channels- that both countries have complied with the constitutional requirements established for the entry into force of the Agreement, applying to withholdings made as from January 1 following those 30 days, as well as to fiscal years starting as from said January 1.