How to start a business in Paraguay
Foreign entrepreneurs may not immediately think of Paraguay when assessing their options for investing or starting a business overseas, but the country’s liberal tax regime, immigration system reforms and relaxed dual residency laws make it something of an ideal location, especially by regional standards and considering the current global scenario. As this article will demonstrate, starting a business in Paraguay is not only refreshingly straightforward compared to other parts of the world, but also a great opportunity for businesses looking to tap into an unsaturated market and expand their commercial horizons.
Why start a business in Paraguay?
Paraguay is often referred to as “the heart of South America” on account of its geographical location, landlocked between the imposing landmasses of Argentina, Brazil and Bolivia. But the nickname is slowly but surely becoming a self-fulfilling prophecy in business terms too. Paraguay’s economic growth has been exponential throughout the 21st century, with its GDP growing fivefold since 2002. This rise has led to an increase in national prosperity, with gross national income reaching $5,520 per capita by 2019. Paraguay is now considered an upper-middle income nation by international standards.
Inevitably, this growth has attracted the attention of international investors, and foreign direct investment (FDI) has grown accordingly, from $90.4 million in 2002 to $596.2 million in 2019. The country is now seen as a reliable pathway to, and trade partner with, its regional neighbours – and Brazil and Argentina are the first and third-largest economies on the continent, so the commercial potential for businesses with a presence in Paraguay is significant.
Paraguay is also a founding member of the Southern Common Market, along with Brazil, Argentina and Uruguay. Commonly known as Mercosur, this economic integration and free trade initiative – which recently celebrated its 30th anniversary – grants the country access to a huge range of free trade agreements (FTAs). In addition, Paraguay recently concluded its first bilateral FTA with Chile, while its neighbour Bolivia is in talks to join Mercosur too, so the region is set to get even more interconnected in coming years.
As one of the leading energy exporters in the South American region, Paraguay exports over US$6.8 billion in products and services every year, with its major commodities including soybeans, corn, rice, wheat and beef. For foreign businesses, the country represents a major (and majorly underserved) market both domestically and internationally, in South America and beyond. The country is also home to several free trade zones (FTZs), mainly formed around Ciudad del Este, a major commercial hub located near the tri-border region with Argentina and Brazil. These zones, which offer a “duty free tax” rate of just 0.5% for companies that operate within their borders, are designed to develop commerce and relationships with other markets, and offer significant incentives to foreign entities.
Doing business in Paraguay
Paraguay has a history of implementing a low-tax regime to encourage foreign business and investment, and this welcoming stance has not changed in recent years. In September 2020, Finance Minister Benigno López announced that the country would be cutting taxes further, and streamlining the process required for investors looking to obtain visas and residency. López took the opportunity to remind the world that Paraguay has enjoyed an average yearly growth of 4.5% over the 15 years prior to the COVID-19 pandemic, and that inflation has remained below 3% over this period. As a result of these measures, Paraguay is one of just five countries in Latin America and the Caribbean to have experienced an increase in foreign investment during the pandemic, against the backdrop of an overall regional decline of almost 40%.
With a population of around 7 million people – 48% of whom are economically active – Paraguay represents a strong market for foreign businesses, both large and small, which are looking to establish themselves in the country and the Latin American region. The nation’s middle class has grown by more than 45% in recent years, and now makes up around 25% of the total population, totalling approximately 1.75 million people. Businesses operating in the luxury goods and services market should treat this demographic as a unique opportunity, with higher levels of disposable income and higher demand levels than in other developing LATAM markets.
Commercial operations are on the rise in Paraguay in part because the country has taken a number of steps to facilitate and incentivize investment by foreign entrepreneurs. Nowadays, setting up a Sociedad Anónima (S.A), a branch office or a Sociedad de Responsibilad Limitada (SRL) in the country is a straightforward process that requires a capital investment of just US$5,000, and doesn’t require a physical presence in the country beyond the initial application phase. Entrepreneurs who apply to bring their business into the country are able to apply for a visa to secure residency in Paraguay, and as a result foreign business owners across multiple sectors have established themselves as major players in the region. The biggest challenge businessmen currently face is finding a gap in their respective markets, but the country’s economic landscape is not yet overcrowded as in other parts of the world.
Another reason to consider incorporating a foreign business in Paraguay relates to the benefits of green energy, as the country converts almost entirely to renewable hydropower generated by its Itaipu Dam. This encouraging, eco-friendly development means that the country is no longer reliant on energy imports, and in fact is able to export electricity abroad. It also provides local businesses access to cheap, reliable energy sources, whether for manufacturing, agriculture or other industries. Reducing your business’s carbon footprint by adhering to green energy is not only a money-saver but also plays well with environmentally conscious consumers all over the world.
Things to consider when starting a business in Paraguay
First of all, if you are not going stay in the country on a permanent basis – and Paraguay’s dual residency laws do not require you to do so – then you will need to appoint a legal representative in the country. Ideally this will be someone who understands the local corporate and legal framework. This arrangement can be finalised simply enough using a dedicated agency, or through word of mouth.
Secondly, choose the entity type for your company, based on how you want to structure it, how much liability you are willing to accept, and how much capital you are looking to invest. Foreign investors typically select one of two options: a limited liability company (aka Sociedad de Responsibilad Limitada) or a stock company (aka Sociedad Anónima). You may also decide to form a branch or register a subsidiary as part of the application process.
Finally, to comply with local regulations you will have to clearly state your economic activity, and all sources of revenue. This is where a trusted corporate lawyer can come in handy, and provide advice on how to properly define your operations in official documentation. If you are looking to hire staff in Paraguay on a short-term or limited-scale basis, or would simply prefer to avoid going through company formation, one option is to work with an employer of record (EOR) in the country. These institutions are able to hire staff on your behalf, while granting you full control over their timetables and workload.
Four key steps to starting a business in Paraguay
Starting a company in Paraguay is a relatively straightforward process, typically involving the following four steps:
- Draft the company’s bylaws, defining the subscribed capital of the company, as well as its fiscal address and legal representative. This process can take up to twelve weeks to complete.
- Obtain a VAT ID and certificate from the country’s Chamber of Commerce. You may need to declare the company’s final beneficiaries, depending on the type of entity you choose, and if you are planning on hiring local employees then you’ll also need to register this fact at the Ministry of Labour.
- Open a corporate bank account, on the advice of your legal representative and based on your type of business and geographic base.
- Make an initial investment to complete the process!
As we have seen there are many compelling reasons to start a business in Paraguay, and the process is relatively simple, especially given the country’s relaxed dual residency laws and financial incentives for foreign businesses. Get in touch with the Strategicasa team today to find out more about dual residency in Paraguay, and how it can help you expand your business overseas!