Tax treaties: how they work, what they're for, and why Paraguay won't have one with France in 2026

When you tell a tax lawyer you're moving to Paraguay, their first question is often: "Is there a tax treaty between France and Paraguay?" The answer is no. And that answer usually elicits a grimace followed by: "That complicates things." But is the absence of a tax treaty really a problem? Or is it—paradoxically—an advantage in the specific context of Paraguayan territoriality?

This guide provides an accessible explanation of what a tax treaty is, how it mechanically works, what it's for (and isn't for), why France and Paraguay don't have one, what the concrete consequences are for an expatriate, and why the absence of a treaty is NOT the problem most people imagine—provided you have a solid residency file.

Tax Treaties: The Crash Course

Definition

A bilateral tax treaty (also called a double taxation agreement, or tax treaty) is an international agreement signed between two countries to:

• Avoid double taxation: When income can be taxed by two countries (the country where the income originates AND the taxpayer's country of residence), the treaty determines which country has the right to tax—or how the two countries share the right to tax.
• Combat tax evasion: Treaties facilitate the exchange of information between tax authorities and include anti-abuse clauses to prevent arrangements that exploit differences between the two tax systems.
• Facilitate economic exchanges: By reducing tax uncertainty (which country taxes what, at what rate), treaties encourage cross-border trade and investment between the two signatory countries.

The OECD Model: The Basis of All Treaties

The vast majority of tax treaties worldwide are based on the OECD Model Tax Convention (latest version: 2017). This model provides a standard framework that countries adapt in their bilateral negotiations. Key articles:

Article	Subject	Simplified Content
Article 1	Persons Covered	The treaty applies to residents of one or both Contracting States.
Article 4	Resident	Definition of tax resident. Tie-breaker rule in cases of dual residence: permanent home → center of vital interests → habitual abode → nationality → mutual agreement procedure.
Article 5	Permanent Establishment	Definition of permanent establishment (office, factory, construction site). Relevant for businesses—less so for freelancers.
Article 6	Income from Immovable Property	Income from immovable property is taxable in the country where the property is located.
Article 7	Business Profits	The profits of an enterprise are taxable only in the country of residence of the enterprise—unless it has a permanent establishment in the other country.
Article 10	Dividends	Dividends are taxable in the country of residence of the recipient. The source country may apply a limited withholding tax (typically 5-15% depending on the treaty).
Article 11	Interest	Interest is taxable in the country of residence of the recipient. Limited withholding tax in the bank's country (0-10%).
Article 12	Royalties	Taxable in the country of residence of the recipient (OECD model: no withholding tax). Some treaties allow for limited withholding.
Article 13	Capital Gains	Gains from immovable property: taxable in the country of the property. Gains from movable property: taxable in the country of residence of the alienator (except for substantial shareholdings in an immovable property company).
Article 15	Income from Employment	Taxable in the country where the work is performed. Exception: if stay < 183 days, employer is non-resident, and salary is not deductible in the country of work → taxable only in the country of residence.
Article 18	Pensions	Taxable in the country of residence of the pensioner (OECD model). Some treaties grant the right to tax to the source country of the pension.
Article 23	Elimination of Double Taxation	The country of residence grants a tax credit or an exemption for tax paid in the source country. Two methods: credit method (the country of residence deducts foreign tax from its own tax) or exemption method (the country of residence exempts income taxed abroad).
Article 25	Mutual Agreement Procedure	If a taxpayer is taxed in a manner not in accordance with the treaty, they can request a mutual agreement procedure between the two tax administrations to resolve the conflict.
Article 26	Exchange of Information	The two administrations exchange information necessary for the application of the treaty and the fight against fraud.

In Summary: The Treaty is a "User Manual" for Sharing

Without a treaty, each country applies its domestic law unilaterally. With a treaty, the two countries agree on who taxes what, at what rate, and how to prevent the same income from being taxed twice. It is a fiscal peace treaty between two sovereign states.

How a Tax Treaty Works in Practice: 3 Concrete Examples

Example 1: Dividends with a Treaty (France-Luxembourg)

You are a tax resident of Luxembourg and you receive €10,000 in dividends from a French company:

• Without a treaty: France withholds 30% at source (domestic rate for non-residents without a treaty) = €3,000. Luxembourg also taxes dividends in your Luxembourg declaration (rate 0-42% depending on global income). Potential double taxation.
• With the France-Luxembourg treaty: The French withholding tax is limited to 15% (Article 10 of the treaty) = €1,500. Luxembourg taxes dividends in your declaration but grants a tax credit of €1,500 (the French tax already paid). Result: you pay the Luxembourg rate MINUS the French tax credit. No double taxation—just the higher of the two countries' taxes (in practice: the Luxembourg rate).
• Savings due to the treaty: The French withholding tax decreases from 30% to 15% = €1,500 in savings. Plus the elimination of double taxation via the tax credit.

Example 2: Retirement Pension with a Treaty (France-Portugal, before NHR repeal)

You are a retired French resident in Portugal and you receive a French retirement pension of €30,000/year:

• France-Portugal Treaty (before 2020): Article 18 granted the exclusive right to tax to the country of residence (Portugal). France could not withhold tax on the pension. Portugal, under the NHR regime, taxed the pension at 0% (exemption for foreign pensions for NHRs). Result: 0% total tax. It was this combination (treaty + NHR) that attracted thousands of French retirees to Portugal.
• After renegotiation (2020): France and Portugal renegotiated Article 18 of their treaty to allow France to tax pensions at source (10% withholding). NHR retirees in Portugal saw their advantage reduced.
• Lesson: Tax treaties can be RENEGOTIATED. An advantage guaranteed by a treaty can disappear if the two countries decide to modify the agreement. This happened with Portugal—it can happen with any treaty.

Example 3: Disputed Residence with a Treaty (France-Switzerland)

You are a French executive who moves to Switzerland. Both France and Switzerland claim your tax residency:

• Without a treaty: Each country applies its criteria unilaterally. Potential dual residence. No resolution mechanism. Double taxation on your worldwide income.
• With the France-Switzerland treaty (Article 4): The tie-breaker rule applies. The two administrations successively examine: your permanent home (in which country do you have a permanent home?) → your center of vital interests (where are your closest ties?) → your habitual abode (where do you spend most of your time?) → your nationality → mutual agreement procedure (the two administrations negotiate). The tie-breaker decides: you are a resident of ONLY ONE country. The other country treats you as a non-resident. No more double taxation.
• The added value of the treaty: The tie-breaker is THE most valuable mechanism of a tax treaty. It eliminates uncertainty in case of a residence conflict. Without a tie-breaker, it's up to the court to decide—longer, more expensive, and more uncertain.

France's Network of Treaties

One of the Most Extensive Networks in the World

France has signed bilateral tax treaties with ~130 countries—one of the largest networks in the world. This covers almost all common trading partners and expatriate destinations:

Category	Countries Covered (examples)	Treaty with Paraguay?
Europe	All EU/EEA countries + Switzerland + UK + Monaco	—
North America	USA, Canada	—
Asia-Pacific	China, Japan, Korea, Singapore, Hong Kong, Australia, India, Thailand, Malaysia, Vietnam	—
Middle East / Africa	UAE, Saudi Arabia, Israel, Morocco, Tunisia, South Africa, Mauritius, Senegal	—
Latin America	Brazil, Argentina, Mexico, Chile, Colombia, Peru, Ecuador, Venezuela	—
Countries WITHOUT a treaty with France	Paraguay, Bolivia, Guatemala, Honduras, Nicaragua, Cuba, Myanmar, some African countries	NO

Paraguay is part of a small group of countries that do not have a tax treaty with France. This group mainly includes developing countries with which France has limited economic exchanges—and some territorial tax countries (Paraguay, Guatemala, Nicaragua, Bolivia).

Why France and Paraguay Don't Have a Treaty

The absence of a France-Paraguay treaty is due to several factors:

• Low volume of economic exchanges: Trade between France and Paraguay is limited (~€100-200 million/year). France primarily trades with the EU, USA, and China. Paraguay is not a significant trading partner for France—and vice versa. Without significant trade volume, there is no economic pressure to negotiate a treaty.
• Few cross-investments: There are few French companies in Paraguay and few Paraguayan companies in France. Treaties are negotiated when bilateral investment flows create double taxation issues—which is not the case for France-Paraguay (flows are too low).
• Paraguayan territoriality reduces the need: Since Paraguay does not tax the foreign income of its residents, there is no "structural" double taxation between France and Paraguay. A Paraguayan resident receiving French dividends is taxed in France (withholding tax) but not in Paraguay (foreign source = 0%). There is only one tax—no double taxation to resolve. A treaty is less necessary when one of the two countries does not tax.
• Fiscal diplomacy has other priorities: France negotiates treaties with countries where tax stakes are high (major trading partners, financial jurisdictions, countries that are significant sources of income for French taxpayers). Paraguay does not fall into these categories—not yet.
• Paraguay has not sought a treaty: Paraguay has few tax treaties in general (~10 treaties in force, mainly with Mercosur countries and some partners). Negotiating treaties is not a priority of Paraguayan fiscal policy.

Concrete Consequences of the Absence of a France-Paraguay Treaty

Consequence 1: No Tie-Breaker in Case of Residence Conflict

This is the most cited—and most important—consequence. If both France and Paraguay claim your tax residency (see our dual residence guide):

• With a treaty: The tie-breaker in Article 4 decides. Only one country "wins" residence. The other country treats you as a non-resident.
• Without a treaty (France-Paraguay case): No tie-breaker. Each country applies its own criteria unilaterally. If both conclude that you are their resident, you are in dual residence without a conventional resolution mechanism. The only recourse is the French administrative court (if you challenge France's position)—a long (2-5 years), costly (€5,000-€30,000 in lawyer fees), and uncertain process.

Protection: Never find yourself in a dual residence situation. Prevention (total severance of the 4 criteria of Article 4B of the CGI, effective residence in Paraguay, impeccable proof file) is infinitely more effective than relying on a conventional tie-breaker. A tie-breaker is a safety net—true security is not falling.

Consequence 2: No Reduced Withholding Tax Rates

Treaties reduce withholding taxes on cross-border income (dividends, interest, royalties). Without a treaty, France applies its domestic rates (which are higher):

Type of French Source Income	Withholding Tax Rate with Treaty (typical)	Withholding Tax Rate without Treaty (Paraguay)	Difference
Dividends	15% (typical treaty)	12.8% (non-resident PFU) or 30% (old rate)	Variable (12.8% is sometimes LOWER than the treaty rate—a paradox)
Interest	0-10% (typical treaty)	0% (most interest is exempt from withholding for non-residents under French domestic law)	None (0% in both cases for most interest)
Royalties	0-10% (typical treaty)	30% (non-resident domestic rate without treaty)	+20-30% without a treaty (significant if you receive royalties from French sources)
Capital Gains from Immovable Property	Taxable in France (country of the property) in both cases	Taxable in France in both cases	No difference
Retirement Pensions	Variable (some treaties grant exclusive right to the country of residence)	French withholding tax at scale (0-45.22% after 10% deduction)	Without a treaty, France systematically taxes pensions. With some treaties, the country of residence taxes exclusively.

In practice, the impact of the absence of a treaty on withholding taxes is limited for most expatriates in Paraguay:

• Dividends: If you do not hold French shares (your investments are via Interactive Brokers in international ETFs = no French source dividends), withholding tax is not an issue.
• Interest: Withholding tax on interest is generally 0% under French domestic law for non-residents. No difference with or without a treaty.
• Royalties: If you do not receive royalties from French sources, there is no issue. If you do (patents, copyrights paid by a French publisher), the 30% withholding without a treaty is significant—but this case is rare for typical expatriates.
• Pensions: This is the most concrete impact for retirees. Without an agreement, France withholds tax on pensions. With certain agreements (e.g., France-Portugal before renegotiation), the country of residence taxes exclusively → 0% if the country of residence has low taxation. French retirees in Paraguay are subject to French withholding tax on their pensions. But in Paraguay, these pensions are not re-taxed (foreign source = 0%). The cost is the French withholding tax—not double taxation.

Consequence 3: No Mutual Agreement Procedure

Article 25 of the OECD Model Tax Convention provides for a "Mutual Agreement Procedure" (MAP) which allows a taxpayer to request the two tax administrations to negotiate with each other to resolve a tax dispute. Without a France-Paraguay agreement:

• No MAP is possible. If the French tax authorities tax you in a way you deem unfair, you cannot request mediation between the DGFiP and the DNIT.
• Your only recourse is litigation before the French administrative court (if France taxes you) or before the Paraguayan courts (if Paraguay taxes you—an unlikely scenario given territoriality).
• In practice: The mutual agreement procedure is rarely used by individuals (it is mainly used by multinational corporations for transfer pricing disputes). The absence of MAP is a theoretical rather than a practical disadvantage for an individual expatriate.

Consequence 4: No Reduction in Social Security Contributions

Non-residents who receive income from French sources (rental income, capital gains on real estate) are subject to French social security contributions (17.2%). Residents of the EEA (European Economic Area) are partially exempt (following the "de Ruyter" case law and subsequent legislation—only the solidarity levy of 7.5% applies to EEA residents affiliated with a European social security scheme). Residents of non-EEA countries (including Paraguay) pay the full 17.2%.

However, this is not directly related to the existence of a tax treaty—it is linked to EEA membership. Even if France and Paraguay had a treaty, Paraguay would not be in the EEA, and the 17.2% would still apply.

Why the absence of a treaty is less serious than we think

Argument 1: Territoriality eliminates structural double taxation

The main role of a treaty is to avoid double taxation. But when one of the two countries does not tax foreign income (Paraguayan territoriality), there is no structural double taxation to resolve:

• Your US LLC income (foreign source): 0% in Paraguay, 0% in the USA (transparent LLC) = no double taxation. No treaty needed.
• Your ETF dividends (international source via Interactive Brokers): 0% in Paraguay, potential withholding in the source country (15% USA via US-Ireland treaty for UCITS ETFs) = no PY-FR double taxation.
• Your bank interest (foreign source): 0% in Paraguay = no double taxation.
• Your real estate income in Paraguay (PY source): taxed in Paraguay (IRACIS 10%). France does NOT tax it (you are a French non-resident, income is from a Paraguayan source). No double taxation.

The only case of taxation in both countries is if you have income from a French source as a non-resident (rents from a property in France, dividends from French shares, French retirement pension): France taxes them (right of the source country) and Paraguay does NOT tax them (foreign source = 0%). There is only ONE taxation—in France. The treaty is useless for eliminating double taxation that does not exist.

Argument 2: The tie-breaker is a safety net — not a strategy

The treaty tie-breaker is useful when your residence is ambiguous — when both countries have legitimate arguments to claim your residence. But if your Paraguayan residence is clear and documented (DNIT certificate, lease, invoices, 200+ days/year, family in PY, no significant ties in France), there is no residence conflict to resolve. The tie-breaker is useless when the answer is obvious.

Counting on the tie-breaker to resolve a residence conflict is like counting on your car insurance to drive without a seatbelt. The seatbelt (prevention, evidence file) is infinitely more effective than insurance (the tie-breaker). And unlike the tie-breaker, prevention works even without a treaty.

Argument 3: French domestic rates are sometimes better than treaty rates

An unknown paradox: for certain types of income, the withholding tax rate under French domestic law (without a treaty) is lower than or equal to the treaty rate:

• Dividends: The non-resident PFU (flat-rate withholding tax) is 12.8%. Many treaties provide for a 15% withholding tax. Without a treaty = 12.8% < with a treaty = 15%. The absence of a treaty is ADVANTAGEOUS for dividends.
• Interest: Most interest paid to non-residents is exempt from withholding tax under French domestic law. Treaties provide for 0-10%. Without a treaty = 0% = at least as good as with a treaty.
• Royalties: This is the only case where the absence of a treaty is clearly unfavorable (30% without a treaty vs 0-10% with a treaty). But this case is rare for typical expatriates.

Argument 4: CRS works independently of treaties

The automatic exchange of information (CRS) does NOT depend on bilateral tax treaties. CRS is based on the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC)—a separate agreement to which Paraguay has acceded. Banking information is exchanged between France and Paraguay via CRS/MAAC, even without a bilateral tax treaty.

Consequence: the absence of a treaty does not create opacity. The French tax authorities receive information on your Paraguayan accounts (via CRS) and the Paraguayan tax authorities receive information on your French accounts (via CRS). Transparency is total—treaty or not.

Argument 5: Treaties can be a DISADVANTAGE

In some cases, the existence of a treaty can be unfavorable to the taxpayer:

• The France-Portugal treaty (pensions): France renegotiated the treaty to be able to tax pensions at source (10%). Before the renegotiation, NHR retirees in Portugal paid 0% total. After: 10% French withholding tax. The treaty ADDED a tax that France could not collect under the old text.
• Treaty anti-abuse clauses: Modern treaties include LOB (Limitation on Benefits) and PPT (Principal Purpose Test) clauses which can deny treaty benefits if the arrangement has a "principal purpose" of obtaining a tax advantage. These clauses can be used by the tax authorities to challenge a benefit that the taxpayer thought was acquired.
• The risk of renegotiation: A treaty is a treaty—renegotiable at any time. Today's benefits can disappear tomorrow (see Portugal, see UK non-dom). The absence of a treaty eliminates this risk of renegotiation.

The absence of a France-Paraguay treaty means that France CANNOT renegotiate a treaty to tax your Paraguayan income—because there is no treaty to renegotiate. This is an advantage by omission: no treaty = no renegotiation = no surprise.

Paraguay's Treaty Network

Existing Treaties

Paraguay has a very limited network of tax treaties:

Partner	Type	Status
Chile	Comprehensive Bilateral Tax Treaty	In force
Taiwan	Bilateral Tax Treaty	In force
Brazil, Argentina, Uruguay	Mercosur Agreements (tax cooperation, not OECD-type treaty)	In force
Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC)	Mutual Administrative Assistance (information exchange)	In force
France, Belgium, Switzerland, Canada, USA, UK	No Bilateral Tax Treaty	—

Paraguay has NOT sought to develop a broad network of treaties. The reason is consistent with its territorial tax philosophy: if Paraguay does not tax the foreign income of its residents, it does not need treaties to avoid double taxation (there is no double taxation to resolve on the Paraguayan side). Treaties would primarily serve the interests of partner countries (to reduce Paraguayan withholding tax on payments abroad)—not Paraguay's interests.

Will Paraguay sign a treaty with France?

It is very unlikely in the medium term:

• There is no economic pressure (trade volume too low).
• There is no political pressure (neither France nor Paraguay considers this a priority).
• A treaty could be UNFAVORABLE to Paraguay (France would demand strengthened information exchange clauses, substance requirements, and potentially adjustments to the territorial regime).
• Paraguay prefers cooperation via CRS/MAAC (information exchange without a bilateral treaty) rather than engaging in lengthy and potentially restrictive treaty negotiations.

The situation of Belgium and Switzerland with Paraguay

Belgium-Paraguay: no treaty

Belgium and Paraguay do not have a tax treaty. The consequences are identical to those described for France: no tie-breaker, no reduced withholding rates, no mutual agreement procedure. The protection is the same: irreproachable PY residence file + removal from the Belgian national register = no conflict of residence.

Switzerland-Paraguay: no treaty

Switzerland and Paraguay do not have a tax treaty. The same analysis applies as for France and Belgium. Switzerland, like France, has an extensive treaty network (~100 treaties) but Paraguay is not part of it.

Canada-Paraguay: limited situation

Canada and Paraguay have a limited tax agreement (not a full OECD-type tax treaty). This agreement mainly covers information exchange, not the elimination of double taxation or the tie-breaker. For a former Canadian resident in Paraguay, protection relies on the NR73 confirmation of Canadian non-residence + effective residence in Paraguay.

Recommended strategy in the absence of a treaty

The 7 pillars of protection without a treaty

1. Impeccable PY residence: DNIT tax residence certificate, lease, invoices, bank statements, 200+ days/year. The treaty tie-breaker is replaced by the strength of your evidence file.
2. Complete break of ties with FR/BE/CH: All 4 criteria of Article 4B (France) must be neutralized. Without a treaty, any remaining criterion can be exploited by the tax authorities without a tie-breaking mechanism.
3. Minimization of French-source income: The less French-source income you have (French dividends, French rents, French royalties), the less the absence of a treaty costs you (no reduced treaty rate needed). Structure your income to be non-French source (US LLC, international ETFs, PY real estate).
4. If you have FR-source income: Accept domestic withholding rates (12.8% on dividends, scale on pensions). Paraguay does not tax this income (foreign source). The cost is French withholding—not double taxation.
5. Complete documentation: Archive 10 years of evidence. Without a treaty or mutual agreement procedure, your only recourse in case of a dispute is the French court—and in court, evidence wins.
6. Tax lawyer: The absence of a treaty makes legal advice more important (not less). Your lawyer must know French domestic law applicable to non-residents outside of treaties AND Paraguayan law—not just bilateral treaties.
7. Estate planning: The absence of a France-Paraguay inheritance tax treaty means that the inheritance rules of each country apply unilaterally. Consult a notary specializing in international private law to structure your transmission (will, dismemberment, life insurance, accounting). Paraguay has no inheritance tax—but France can tax the inheritances of its residents or ex-residents (Article 750 ter CGI: obligation to declare worldwide inheritances if the deceased was a French resident, or if the heir has been a French resident for 6+ years out of the last 10 years).

The myth of the treaty as absolute protection

Treaties do not protect against everything

A persistent myth suggests that a tax treaty is a "protection" that prevents the tax authorities from taxing you. This is false:

• Treaties do not protect against exit tax: French exit tax applies at the time of departure, regardless of the treaty with the destination country. The treaty can influence the terms (suspension, guarantee) but not the existence of the exit tax.
• Treaties do not protect against CFC rules: Article 123 bis of the CGI applies independently of the existence of a treaty. The treaty may provide a safeguard clause (some treaties exclude CFC rules) but most do not.
• Treaties can be abrogated or renegotiated: France has renegotiated its treaty with Portugal (2020), with Belgium (2021, discussions), and with other countries to recover taxation rights. A treaty is not eternal.
• Treaties do not prevent tax audits: The tax authorities can audit you, ask for justifications, and challenge your residence—treaty or not. The treaty facilitates conflict resolution but does not prevent it.

The real protection: substance + documentation

With or without a treaty, the protection of an expatriate relies on the same fundamentals:

• Effective residence in the host country: actually living in Paraguay, not just on paper.
• Break of ties with the country of origin: no home, no accommodation, no dominant assets, no professional activity in France.
• Impeccable documentation: tax residence certificate, lease, invoices, bank statements, record of presence.
• Total transparency: CRS, up-to-date declarations, consistent self-certifications.
• Professional advice: tax lawyer + PY accountant.

These fundamentals are the same whether you are in Switzerland (treaty), Portugal (treaty), Dubai (treaty), or Paraguay (no treaty). The treaty is a conflict resolution tool—not a substitute for prevention. And prevention works just as well (or even better) without a treaty.

Conclusion

Tax treaties are bilateral agreements that avoid double taxation, reduce withholding taxes, and provide a resolution mechanism in case of a residence conflict (tie-breaker). France has treaties with ~130 countries. Paraguay is not one of them.

The absence of a France-Paraguay treaty is a fact—but it is NOT the handicap most people imagine:

• Paraguayan territoriality eliminates structural double taxation (Paraguay does not tax your foreign income = only one taxation, not two).
• The treaty tie-breaker is replaced by a solid evidence file (effective residence, DNIT certificate, breaking French ties).
• French domestic rates are sometimes better than treaty rates (12.8% withholding tax on dividends without a treaty vs 15% with a treaty).
• CRS works independently of treaties (total transparency between France and Paraguay via MAAC).
• Treaties can be renegotiated or abrogated—the absence of a treaty eliminates this risk.

The true protection of an expatriate does not come from a treaty—it comes from the substance of their residence, the quality of their documentation, and the consistency of their structure. An expatriate in Paraguay with an irreproachable file is better protected than an expatriate in Portugal with a treaty but a shaky file. The treaty is a tool—not armor.

Paraguay does not have a tax treaty with France, Belgium, or Switzerland. This is not a problem. It's a technical detail in a massively favorable overall picture: 0% on foreign income, CRS transparency, accessible residency from €1,400, low cost of living, pleasant quality of life, and no inheritance tax. The absence of a treaty is a footnote – not the chapter title.

Do you want a secure expatriation to Paraguay, treaty or not? Contact our team for comprehensive support: Paraguayan residency (from €1,400), US LLC, DNIT accounting (€30/month), and coordination with a tax lawyer for an audit-proof file that does not depend on any treaty – just on the reality of your life in Paraguay.