In 2025, 38,236 applications for residency in Paraguay were filed, mainly from Brazilian citizens, representing a 31.3% increase compared to 2024 and marking a cumulative increase of 203.5% over the past decade.
Why are so many foreigners looking to settle in Paraguay? This trend can be explained primarily by the convergence of three factors:
- A simple and accessible immigration system.
- A favorable economic environment.
- And, crucially, a highly competitive tax system.
In fact, Paraguay’s tax system is the most competitive in the region, as it sets a maximum tax rate of 10% on the income of resident individuals and adopts a territorial taxation approach, under which income from foreign sources is not taxed in the country.
However, in practice, we have identified recurring misunderstandings regarding the actual tax implications of transferring one’s residence to Paraguay. Below, we briefly address the most common misconceptions.
First mistake: confusing immigration residency with tax residency
Although immigration residency and tax residency are closely related, they are legally distinct concepts.
Immigration residency is the authorization granted by the National Immigration Directorate to reside in the country on an occasional (90 days), temporary (2 years), or permanent (indefinite) basis. Tax residency, on the other hand, is a concept primarily related to taxation, which determines whether a person is subject to Paraguayan tax jurisdiction based on their domicile or residence.
Immigration residency is a necessary but not sufficient prerequisite for obtaining tax residency. Additionally, it is essential to obtain a Paraguayan identity card and, where applicable, to register with the Single Taxpayer Registry (“RUC”).
It is also crucial to verify whether or not a Double Taxation Treaty exists (“CDI”) between Paraguay and the country of origin, a point that is discussed in more detail below.
Second mistake: believing that only permanent residents can be tax residents
Tax residency is governed by Decree No. 3,181/19, which establishes the rules for the Nonresident Income Tax (“INR”) under Law No. 6,380/19 (the “Tax Law”).
The confusion stems from the wording of Article 2 of the aforementioned decree, which states that a natural person who holds a permanent residence permit in accordance with Law No. 978/96 is considered a tax resident.
However, that interpretation is currently incorrect for the following reasons:
- Law No. 978/96 was repealed by Law No. 6,984/22, which introduced the status of “temporary resident,” granting such individuals the right to obtain a Paraguayan identity card and, thereby, registration in the RUC, thereby enabling them to file taxes as a tax resident.
- Consistent with the foregoing, the National Tax Revenue Directorate (the “Tax Authority”) has established that foreign nationals with temporary residency are eligible to register with the RUC.
- Furthermore, the Tax Authority has determined that the Paraguayan identity card is an essential requirement for the issuance of the tax residency certificate.
Consequently, a foreign national who holds a temporary residence permit—and who is therefore eligible for an identity card and a RUC—may be considered a tax resident, regardless of the current wording of Decree No. 3,181/19.
Third mistake: believing that Paraguayan tax residency automatically eliminates tax residency in another country
Paraguay currently has double taxation treaties in force with Chile, Uruguay, Taiwan, Qatar, the United Arab Emirates, and Spain.
An individual may be considered a tax resident of two countries at the same time. In such cases, the DTAs establish so-called “tie-breaking rules,” which generally apply the following criteria:
- The place where the person has a permanent residence at their disposal or, failing that, the center of their vital interests (family, business).
- The place of habitual residence and, if dual residence persists, nationality.
- As a last resort, the criteria determined by mutual agreement among the States.
Thus, for example, if a Spanish resident obtains tax residency in Paraguay but maintains his home, family, and business in Spain, and spends most of his time in Spain, he will continue to be considered a tax resident of Spain. In such a case, obtaining immigration residency in Paraguay will not be sufficient to qualify for its tax benefits and could lead to scrutiny by the Spanish tax authorities.
In the absence of a double taxation treaty, the situation can be even more burdensome, as the taxpayer could be subject to international double taxation without any tie-breaking mechanisms or effective tax relief. Therefore, in addition to obtaining tax residency in Paraguay, it is essential to analyze the conditions for terminating one’s previous tax residency, whether based on the applicable DTA or the domestic laws of the country of origin.
Mistake #4: Believing there is a rule requiring a minimum stay of 120 days
Current tax regulations do not require a minimum annual period of stay in the country to be considered a tax resident. Formally speaking, a person may obtain a tax residency certificate even if their physical presence in Paraguay has been limited, provided they meet the relevant administrative and tax requirements.
The confusion surrounding a “120-day rule” stems from a misapplication of Articles 151 and 152 of Law No. 125/91 (the “Tax Code”).
These provisions apply exclusively to the taxpayer’s tax domicile, establishing that the declared domicile is valid for all legal purposes, unless the Tax Authority requires the establishment of a new one when the existing one hinders the tasks of assessment or audit.
In this context, if the taxpayer does not establish a new tax domicile, the Tax Authority is authorized to assign one ex officio, with one of the criteria for doing so being the taxpayer’s place of residence, which is presumed to be the place where the taxpayer stays for more than 120 days a year.
Consequently, the reference to 120 days does not govern tax residency but serves exclusively as a secondary criterion for determining tax domicile. This is not a general rule for acquiring tax residency, but rather a procedural provision intended to provide the Tax Authority with an operational tool in the exercise of its powers of determination and audit.
Mistake No. 5: Believing that registration with the RUC and issuing invoices are requirements for tax residency
Obtaining tax residency does not, in and of itself, entail an obligation to register with the RUC or to issue legal invoices.
Pursuant to Law No. 1,352/88 and its implementing decree, registration in the RUC applies only to individuals who are subject to tax obligations, whether as direct taxpayers or as withholding, collection, or reporting agents.
In this context, individuals are only required to register when they engage in activities that trigger the Personal Income Tax (“IRP”) or Value-Added Tax (“VAT”), both of which are territorial in nature.
Consequently, anyone who obtains tax residency in Paraguay but does not generate income or engage in taxable transactions in the country—for example, by receiving income exclusively from foreign sources—is not required to register with the RUC or issue invoices in order to obtain or maintain that status.
Conclusions
Transferring one's tax residence to Paraguay requires a careful legal and tax analysis. In particular:
- Immigration residency and tax residency are distinct concepts and should not be confused.
- Temporary residency may be sufficient to qualify for tax residency.
- Obtaining tax residency in Paraguay does not automatically revoke resident status in another country, especially when double taxation treaties (CDIs) and their tie-breaking rules apply.
- The reference to 120 days is not a rule governing eligibility for tax residency, but rather a secondary criterion for determining tax domicile.
- Registration with the RUC and the issuance of invoices are required only when there are events that give rise to local taxes in Paraguay.
In short, changing one’s tax residence is not merely an administrative formality, but a strategic decision in international tax planning that requires rigorous professional analysis.
Senior Associate
federicomartinez@mersanlaw.com
Legal Notice
The information contained in this article is for informational and educational purposes only and does not constitute legal advice or replace consultation with a professional. Each situation is unique and requires an individualized analysis that takes into account the specific circumstances of the case and the applicable law. To obtain professional advice regarding your specific case, we recommend consulting with attorneys who specialize in the relevant field.
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