Doing Business in Paraguay - An Insider's Guide to Success E-Book

Kerstin Teicher

• Herausgeber: Books on Demand
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2023

Seitenzahl: 179

Beschreibung

Paraguay is one of the few countries in Latin America that has positive economic data and a stable economy and democracy, despite large, crisis-ridden neighbors such as Argentina and Brazil. The country's growth has been financially stable for years - reason enough to take a closer look at Paraguay when making an investment decision in Latin America. In its 130 pages, the book offers information on all important aspects of doing business in Paraguay: - Legal forms - Tax system - Setting up a company (freelance as well as corporate) - Financial investments - Investment incentives - Success stories and success factors - Personnel and marketing - Dealing with Paraguayans - Peculiarities in everyday business life - Organizational information (flight, hotel, traffic, electricity, telecommunications, money/banks) - Detailed index. All information is newly researched (2023) and therefore includes all new developments such as the tax reform of 2020 and the consequences for companies and freelancers, the new legal form of the EAS and other legal changes, as well as numerous case studies of successful companies - based on exclusive interviews. But even in Paraguay, success does not fall from the sky. Therefore this book also presents examples of a wide variety of companies and fields of activity and highlights the success factors systematically collected and evaluated in numerous interviews. There are also valuable insider tips that can save you a lot of money! The book is not an immigration guide - but immigrants who want to become economically active can also benefit from the content. Paraguay also has an excellent investment climate. It offers numerous investment incentives with high tax benefits, and profits can be freely transferred abroad. Of particular interest to manufacturing companies are the very competitive energy and labor costs. As over 99% of the energy is generated by hydropower, this is also an attractive location from an environmental point of view. Labor costs are up to 50% lower than in Brazil, which has a large labor force, and energy costs are about 60% lower. With a corporate tax rate of only 10%, Paraguay is an exiting opportunity.

Leseprobe

Table of contents

1. Introduction and overview

2. Basics of doing business in Paraguay

2.1. Legal status for non-Paraguayans

2.2. Residence permit and Cédula

2.3. Recognition of foreign documents (apostille)

3. Legal forms of companies in Paraguay

3.1. Representative office, agency, distributor

3.2. Import/Export

3.3. Establishment of a company

3.4. Investment incentives for foreign companies

3.4.1. Law 60/90 for investment promotion

3.4.2. Maquila (contract manufacturing)

3.4.3. Public private partnership (PPP)

3.5. Financial investments and joint ventures

4. The tax system in Paraguay

4.1. The tax number RUC

4.2. The 2020 Tax reform

4.3. The current tax system in Paraguay at a glance

4.3.1. Taxpayers and tax types since the tax form

4.3.2. Income tax (IRP)

4.3.3. Taxes for non-residents of Paraguay (INR)

4.3.4. Tax on dividends and profits/withholding tax (IDU)

4.3.5. Special case renting/leasing

4.3.6. Electronic invoices/e-invoice (SIFEN)

5. Employees in Paraguay

5.1. Legal basis for employment relationships

5.2. Practical aspects of personnel recruitment and management

5.3. Paraguayans as employees and as business partners

6. Successful in Paraguay

6.1. Success stories of foreign companies in Paraguay

6.2. Success factors in Paraguay – interview results 2023

6.3. Paraguayan business customs from A–Z

6.4. Aspects of business life in Paraguay

6.5. Marketing in Paraguay

6.6. Being a customer in Paraguay

6.7. Corruption

6.8. Top tips for Paraguay in general

7. Organizational notes

7.1. Travel times, flight organization, business hours

7.2. Language, communication, religion

7.3. Safety, traffic, orientation

7.4. Telecommunications, electricity

7.5. Money, currency, banks

8. Practical hints

8.1. Glossary of important business terms and abbreviations

8.2. Paraguay business support and literature references

8.3. Appendix

9. Index

Overviews, figures, and case studies

No. 1 Strengths and weaknesses of Paraguay in comparison

No. 2 Immigration status categories at a glance

No. 3 Typical legal business types in Paraguay

No. 4 Steps or formalities for establishing a company

No. 5 Invoices

No. 6 Official invoice receipt

No. 7 Case Study – IVP

No. 8 Case Study – ArgInvest

No. 9 Tax burden in Paraguay (%) in international comparison

No. 10 Documents to apply for a tax number (RUC

)

No. 11 Taxpayer categories and tax types

No. 12 Employee – Freelancer – Tradesman – Unipersonal

No. 13 Case Study – Recruitment interview

No. 14 Personnel (Chat out of the box

)

No. 15 Case Study – WEIG/Cartones Yaguareté

No. 16 Case Study – Agriterra

No. 17 Case Study – The Kress Group (Frutika

)

No. 18 3 Do's and Don'ts for doing business in Paraguay

No. 19 Success and failure factors for companies in Paraguay

No. 20 Table manners and food in Paraguay

No. 21 Ways to get orders or customers

No. 22 Main problems as a customer in Paraguay

No. 23 Purchasing (Sourcing)/Wholesale

No. 24 Official holidays in Paraguay

No. 25 Examples of Paraguayan croquis (access information

)

No. 26 The financial sector in Paraguay

Insider tips

IDU (witholding tax

)

Communication

Finding company information

WhatsApp

Bank accounts

Appendix

Appendix 1 Sample of the new electronic invoice (example of Tigo

)

Appendix 2 Business behavior survey

Appendix 3 Map of Paraguay

Foreword

Why do you need a guidebook for Paraguay? Not all of Latin America is the same. Of course, there are similarities between the individual countries, if only because of the language, but because of the different levels of development, political systems, etc., there are big differences.

The aim of this publication is to provide tips for dealing and negotiating specifically with Paraguayan business partners and to offer practical assistance for engagement in Paraguay. This brochure is aimed at businesspeople with little time; therefore, all contents are specifically geared to your needs. You will not find details on religious backgrounds, sociological explanations and the like that are superfluous to business life. Practical tips are intended to make it easier for you and your employees to prepare for your trip to Paraguay, to deal with Paraguayan business partners and employees, and to enjoy your stay in the country.

To understand the peculiarities of a system, it is helpful, not least for illustration, to draw comparisons and to abstract at a higher or lower level. That is why you will find statements like "The American" or "The Paraguayan" in this book – it is not about lumping all people together or generalizing, but to work out common features within the framework of a practice-oriented guide. This approach is very helpful. Only when you recognize patterns in another culture can you also reflect on your own approach and build on it to be successful.

Accordingly, this book not only mentions the formal regulations that are necessary, for example, for imports to Paraguay, how to establish a company, or what rules there are for employment contracts with employees, but also shows the reality of how these regulations are then actually managed.

I have deliberately refrained from recommending or advertising service providers to be able to report as neutrally and objectively as possible on business life. But of course, the descriptions are based not only on solid research, but also to a large extent on subjective experiences from almost 20 years of active observation and participation in Paraguayan business life, as well as on my teaching activities at the German-Paraguayan University UPA in the subject of business administration. The feedback from young Paraguayan students was also an important source for me.

In addition, I conducted a systematic survey of businesspeople in Paraguay in 2016 to objectify the statements and place them on a broader quantitative basis. The results of this survey have been incorporated into the text and the recommendations. Of course, a lot has changed in the eight years since then. For the new edition, I have therefore verified certain aspects in an exemplary manner and used them in new interviews with mostly the same people as in 2016.

Very helpful were the conversations I was able to have with the former Paraguayan ambassador in Berlin, Fernando Ojeda, the former Minister of Economy Gustavo Leite and his delegation, as well as the former Minister of Labor Guillermo Sosa, and the director of the import and export promotion agency REDIEX Victor Bernal. In this way, in addition to my experiences in the economic and private sectors in Paraguay, I was also able to gain insights into the public and government sectors that would not have been possible otherwise.

Furthermore, as a member of the Japanese Chamber of Commerce in Paraguay, I had the opportunity not only to discuss the survey in detail with my colleagues but also to discuss the various issues of this book and their personal experiences in Paraguay in a special session. Most of them were either born in Paraguay or have lived in the country for many decades and run very successful companies that are important to the local economy. So, they are both Japanese and Paraguayans at heart. This is a great asset to this book. The same is true of the numerous conversations I had the privilege of having again and again with Mennonites in charge of the three colonies Fernheim, Menno, and Neuland during a reading tour of my economic book about Paraguay through the Chaco. Their economic experience is quite different from that of eastern Paraguay – but their incredible success and importance to the Paraguayan economy is not only important but can be an example to others who want to engage in the Paraguayan economy. Although it was not my first visit to Chaco, it was a valuable source for this book because of the depth of the economic discussions and the business visits organized with great friendliness and cordiality.

Numerous other people were willing to answer my questions, often in discussions lasting several hours and through numerous follow-up questions on detailed issues, to proofread individual chapters of the report, and much more. I would like to take this opportunity to thank them all for their time and willingness. In alphabetical order, these include: Marlene Dietze (Die Zeitung), Graciela Escobar (Casa Nidia), Hannelore Götzl, Eijiro Hayashi, Rudolf Hendel (IVP Hacienda), Hanna Hiebert (Cooperative Chortitzer), Barbara Krause, Cristina Kress (Grupo Kress), Andreas Lienert (Agrinvest), Siegfried Müller (Acar), Steffen Müller (DGRV), Alice Neufeld (Alice Neufeld y Asociados), Andreas Neufeld (Cartones Yaguareté), Elisabeth Neufeld de Müller (Steuerberatung), Carsten Pfau (Agriterra) Julian Sandt, Manuel Schrapers (Leoni), Magali Steinfatt (Hotel-Restaurant Paraiso), Esperanza Stumpfs (La Posada Shalom), Cristina Tanaka (La Rural S. A. de Seguros), Mariela Torres, Stefan Undorf (weekly paper), and Moritz Weig (Moritz J. WEIG). I would like to thank Elisabeth Neufeld de Müller for the systematic compilation of the tax topics – we spent many hours discussing how to put the changes understandably into context for foreigners. In order to complete this book, proofreading, illustrations and design had to be done: Special thanks to Jorge Pavon, who contributed the cartoons, especially for his German punctuality in delivering them, to Emiliano Soteras, who designed the cover layout, and to Rebecca Fletcher, who did the proofreading - and not only that, she even researched things herself to verify special Paraguayan facts!

Many others did not wish to be named, but their contribution was no less valuable.

This is not and is not intended to be an immigration guide, but rather a business advice guide. For those who travel to Paraguay more frequently, it is nevertheless advisable to apply for a Paraguay residence permit for various reasons. For this reason, there are also some tips on how to obtain a residence permit, which simplifies many procedures even for occasional business trips to the country.

Of course, such a guide cannot and should not replace detailed preparation or further explanations. If you require further information/literature on individual topics, you will find the relevant references in the text. In addition, there are specialized consultants with experience in both cultures who can facilitate successful cooperation.

I hope that the descriptions are helpful to you in your business activities and save you many mistakes or expensive, incorrect decisions. Nevertheless, no liability can be assumed for the contents presented here, including the correctness of the documents, contracts, etc. Please also always keep in mind that the situation may have changed.

Asunción, September 2023

Kerstin Teicher

(Contact: [email protected])

1. Introduction and overview

In annual surveys conducted by the Brazilian thinktank Getulio Vargas, Paraguay is consistently ranked as having one of the best investment climates in Latin America. It offers numerous investment incentives with high tax benefits, and profits can be freely transferred abroad. Of particular interest to manufacturing companies are the very competitive energy and labor costs, even compared to Asian countries. Since more than 99 percent of the country's energy is generated by hydroelectric power, this is also an attractive environmental advantage – in addition to the fact that the cost per megawatt hour is more than 60 percent lower than in Brazil. Labor costs, for example, are up to 50 percent lower than in Brazil. Paraguay also has the lowest VAT and corporate income tax rates in the region, with a corporate income tax rate of only 10 percent, which is very competitive globally.

Over the past two decades, Paraguay has experienced economic growth averaging 4.4 percent per year between 2003 and 2018, thanks to sound macroeconomic policies that include institutional reforms such as an inflation control mechanism and fiscal responsibility legislation. However, the impact of the climate crisis and the Covid pandemic has slowed economic growth somewhat in recent years (0.7% between 2019 and 2022).

Politically, Paraguay is a country that, unlike many in the region, does not have a left-leaning government and offers a very business- and investment-friendly environment.

Of course, Paraguay is no paradise. In terms of development theory, it is not a so-called developing country anymore, but a so-called “newly industrialized country” – with all the consequences that implies. The gap between rich and poor is wide, but without the sociopolitical implications of South Africa, Brazil, or Mexico. Security in the country is high, and the crime rate is one of the lowest on the continent. In recent years, Paraguay has also seen a growing middle class – a very good opportunity for investment to introduce new products and services to a small but far-from-saturated market – with high margins, as mentioned at the beginning.

Despite significant improvements during the Covid pandemic, the country still has deficiencies in its transportation infrastructure, which should be a major focus of investment, and in its education system, which requires special training of the necessary workforce and special methods of human resource management. At the same time, these deficiencies offer great opportunities for economic activity, especially in these areas.

No. 1 Strengths and weaknesses of Paraguay in comparison

Strengths Weaknesses and

Argentina

Brazil

Mexico

Peru

Paraguay

Manpower availability

+++

++

++

--

+++

Demographics (young population)

--

--

-

++

+++

Size market of domestic

+

+++

+++

+

---

Energy supply

+

---

+

+++

+++

Availability of data

--

+

+

+

---

Transport routes/ infrastructure in general

++

+

+++

--

---

Education level

++

--

++

++

---

Low inflation

---

--

+++

+++

+++

Low corruption

---

--

--

--

---

Low taxes

--

--

--

---

+++

Raw materials

+++

+++

++

+++

-

Rating S&P 2023

CCC-

BB-

BBB+

BBB

BB

Source: Own representation based on data from GTAI, Transparency International, Statista.com, Laenderdaten.de

Paraguay is a landlocked country in South America, bordered by Argentina, Brazil, and Bolivia. At 406,752 square kilometers (157,047 square miles), it is about the size of Germany and Switzerland combined, or about the size of the U.S. state of California. The landscape is as flat as Belgium or the Netherlands; the highest elevation is only 842 meters (2,763 ft). Apart from occasional heavy storms and rains that can flood entire towns and streets, the country is not prone to natural disasters such as earthquakes or volcanic eruptions. Despite being landlocked, its central location in South America is often cited as a strategic advantage.

The country is crisscrossed by many rivers (in Guaraní, the language of the Indigenous people, the country's name means "water that goes to water"). The Paraguay River (Rio Paraguay) divides the country into two geographically distinct regions: the Gran Chaco in the west, which covers 60 percent of the country, and the much smaller east, where 97 percent of the population lives.

The most recent census of 2022 showed that Paraguay has a population of about six million (instead of the more than seven million previously predicted). This is slightly less than the population of New York City and four times less than the population of Australia. The population growth rate is high – almost 70 percent of the people are under 35 and only 6.6 percent are over 65 years old. More than 95 percent of the population is mestizo, a mixture of Indigenous groups and the Spanish conquistadors.

The capital of the country is Asunción, with a population of about 500,000; it is also the country's most important economic center. The Asunción metropolitan area includes other large cities such as San Lorenzo (237,000 inhabitants), Luque (224,000), Lambaré (128,000), and Fernando de la Mora (121,000), as well as more distant Capiatá (215,000) and Itauguá (100,000), which greatly expand the capital's catchment area. Approximately 40 percent of the country's population lives in and around Asunción (including the Central Department, from which Asunción is a maximum of 1.5 hours away). Other large cities include Ciudad del Este, in the east of the country on the border with Brazil, with almost 240,000 inhabitants, and Encarnación, in the south, with 77,000 inhabitants. According to the Paraguayan definition, 60 percent of all Paraguayans live in urban areas.

This is also reflected in economic terms: A stunning 85 percent of the gross domestic product (GDP) is generated in and around Asunción and Ciudad del Este. The urban-rural divide is very high in almost all areas.

If you want to do business in Paraguay, it is relatively easy from a formal point of view; and the chances are high, as mentioned at the beginning. But even in Paraguay, success does not fall from the sky. Relationships are more important than logic or good prices. It should also always be clear that Paraguay is still an emerging market – with all its consequences. With this in mind, the product, advertising and other aspects must be tailored to the target groups.

The different cultures in the country must also be taken into account when developing the market: The "Latin Paraguayans", the immigrant groups and Indigenous peoples, who also usually have Paraguayan citizenship), the Mennonites, the immigrants – they all have different ways of doing business, as well as their own buying behavior. These particularities will be addressed throughout the book.

2. Basics of doing business in Paraguay

Paraguay is a country of immigration and is very friendly and helpful to foreigners, both on the part of the people and the various authorities. This makes doing business in Paraguay quite easy for foreigners. You cannot expect to find forms in English, but at least many declarations and forms contain information about the particularities of a certain procedure if you are a foreigner or do not (yet) have a Paraguayan residence permit (and Cédula). The latter is recommended anyway, especially since it is cheap and easy to obtain (see Chapter 2.2).

In recent years, many procedures have been simplified – and above all digitized and standardized. However, this does not mean that you can do everything online or that there is no bureaucracy – quite the opposite. You might be surprised how bureaucratic Paraguay is and how much paperwork is required. Compared to the past, however, the necessary formalities can be done on your own. You do not necessarily need a local who knows where and when to "grease the palms". Nevertheless, professional assistance is very helpful, as some procedures still seem somewhat illogical or confusing to an outsider.

Furthermore, Paraguay is a country where you can do a lot with a relatively small investment or, if you want to work as a service provider or craftsman, you can quickly gain many customers with reliable quality and achieve significantly higher prices than the locals, because this is exactly what is lacking in the country.

The vast majority of companies in Paraguay – like almost everywhere else in the world – are small and medium-sized enterprises (SME, called PYME in Spanish). The difference in Paraguay, however, is in the definition of size. In Paraguay, a company with 50 employees or a turnover of more than two billion PYG (about 354,000 US dollars) is considered a large company. And even of these, there are only about 7,000 in the whole of Paraguay. The majority of companies are not only small businesses with one to ten employees, but also microenterprises (MIPYME), which work in handicrafts, retail and the like, often with family members as support.

It is also interesting to know that about 90 percent of the Paraguayan economy is controlled by family groups (e.g., Vierci, Cartes).

Paraguay offers many attractive niches for foreigners to establish businesses. However, it is necessary to thoroughly analyze the market and target groups and to obtain a tax number (RUC) in order to officially register a company. These items are described below.

When developing and elaborating the business idea, it should be considered that Paraguay is an emerging country with large differences between rich and poor, but whose middle class has been growing for years and also offers interesting prospects. The main consequence of this is that purchasing power is extremely uneven. While the upper class is rich enough to consume regardless of prices, the majority of the population, whose average income is just above the minimum wage, has a limited budget. However, Paraguayans like to spend their disposable income on consumption (gastronomy, telecommunications, etc.). In addition, in Paraguay, as in any country, it is important to consider the cultural characteristics. Therefore, it is very important to define exactly who is the target group for a product or service.

There is no shortage of interesting areas for business or investment in the country, and with an average return on investment of 22 percent, it pays to take a closer look. Industry, for example, is not very developed. Agriculture still accounts for more than 70 percent of the country's GDP, so there are great opportunities for investors in the processing of agricultural products, including organic products, novel foods, and so on. In the construction sector, the road infrastructure, with only about 11,000 kilometers of paved roads (13% of all roads), and the estimated annual need for 100,000 new housing units should be mentioned. For financially strong investors, natural resource exploration and development projects, as well as large investments in the livestock and agricultural sectors, or in the area of PPP (