«Holding Companies in Paraguay: The Tax Cost of Investing Abroad,» an article by Federico Martínez for Agenda Legal

Paraguay has established itself as one of the countries with the most competitive tax systems in the region. Its well-known «10-10-10» scheme—referring to the general rate of 10% applicable to Corporate Income Tax (IRE), Value-Added Tax (VAT), and Personal Income Tax (IRP)—has gained international recognition and has helped position the country as a fiscally attractive jurisdiction for investors from around the world.

However, while that statement is conceptually correct, it is not without its nuances. The fact that a tax system is competitive in general terms does not necessarily mean that it is the most efficient for every business structure or model. When analyzing the «fine print» of the tax regime, distortions may emerge that reduce—or even offset—part of that initial advantage. And one such distortion is clearly evident in the case of Paraguayan holding companies with subsidiaries abroad.

What Is a Holding Company and What Is It Used For?

A holding company is, in essence, a company whose primary purpose is not to produce goods or provide services directly, but rather to own and manage equity interests—stocks or shares—in other companies under its control. Its assets consist primarily of these equity interests, and its typical income comes from dividends, profits, or other returns distributed by its subsidiaries.

Holding companies are generally used to centralize control of a business group, organize the ownership of various companies under a single structure, facilitate succession and estate planning, segregate risks among different lines of business, and, in many cases, optimize the tax treatment of profit distributions within the group. These structures can be purely domestic or involve subsidiaries located in different jurisdictions.

In Paraguay, holding companies are not subject to a special tax regime. Nor are they prohibited. They may be incorporated under any of the standard corporate forms—Sociedad Anónima (SA), Sociedad de Responsabilidad Limitada (SRL), or Empresa por Acciones Simplificada (EAS)—but their tax treatment is subject to the general rules of the system.

Full article published in Agenda Legal. Click here to read it.