RIO DE JANEIRO, BRAZIL – Economic stability and low inflation have made Paraguay one of the fastest-growing investment destinations in the region in recent years.
And although foreign direct investment (FDI) is at a low level compared to the most advanced countries in Latin America, it has increased by 8.9% amid the pandemic, according to the Economic Commission for Latin America.
Read also: Check out our coverage on Paraguay
These are the five keys to the Paraguayan boom.
1. Investment returns. In 2019, Paraguay offered a return on investment of 13.8%. This makes Paraguay one of the countries with the highest return on investment, more than double that of the region (average return on foreign direct investment of 6%), according to ECLAC.
2. Low tax burden. The tax burden in Paraguay is the lowest in the region. The total tax burden is 10%, including VAT, income tax, and personal income tax. The economy has been growing at an average rate of 4.5% for years. It also has the lowest energy costs in the region. All in all, it offers good conditions for investment and development. And it is easy for companies to transfer their profits to their parent companies.
4. Investment incentive. In addition to introducing simplified joint-stock companies that make it easier to set up businesses – similar to Argentina’s SAS – the country has laws encouraging capital inflows. These include the Tax Incentives Law, which applies to exporting companies: companies that comply are exempt from tax for five years, a benefit that can be extended for another five years. It can also import machinery, technology, or equipment that the company needs for its production tax-free.
The Maquila Law is another incentive. It is a temporary registration scheme that pays only 1% on the gross value of sales once the company ships its goods abroad.
4. Legal certainty. Paraguay has embraced legal certainty to attract capital. Since 2014, there has been a law that protects investments with tax immunity for ten years. So even if the tax regime changes, companies continue to pay the same as when they were established.
5. Stability. The guaraní, introduced in 1944, is the most stable currency in the region. Since it has been in circulation, zeros have never been removed from the currency. And although Paraguay was not spared inflation in the 20th century, the annual rate has not exceeded 3% in recent years.