VAT in Paraguay (IVA): what entrepreneurs need to know

When discussing taxation in Paraguay, attention naturally focuses on income tax and the principle of territoriality. But there is another tax that every entrepreneur established in Paraguay must master: IVA, the Impuesto al Valor Agregado — the equivalent of French VAT. At only 10%, it is one of the lowest VAT rates on the American continent and almost half of French VAT. Still, it is essential to understand how it works, who pays it, how to declare it, and most importantly, how to optimize it.

This guide is designed for French-speaking entrepreneurs in Paraguay — freelancers, SRL managers, e-commerce businesses, consultants — who want to understand IVA in detail and ensure they are compliant without paying a cent too much.

IVA: The Basics

What is IVA?

IVA (Impuesto al Valor Agregado) is an indirect consumption tax, collected at each stage of the production and distribution chain. The mechanism is identical to that of French VAT: the company collects IVA on its sales, deducts the IVA it paid on its professional purchases, and remits the difference to the SET (Subsecretaría de Estado de Tributación).

It is a neutral tax for the company — it merely collects it on behalf of the State. It is the final consumer who bears the cost. But IVA management has a direct impact on your cash flow and administrative obligations, hence the importance of understanding it well.

IVA Rates

Paraguay applies two IVA rates:

• Standard rate: 10% — applicable to the vast majority of goods and services
• Reduced rate: 5% — applicable to certain essential products and services

Goods and Services at the Reduced 5% Rate

The reduced 5% rate applies notably to:

• Basic food products (meat, cereals, fruits, vegetables, milk, bread)
• Medicines and pharmaceutical products
• Healthcare services
• Bank interest on loans
• Rental of residential properties
• Public transport services

This distinction is important for entrepreneurs in the food, health, or rental real estate sectors: your invoices must reflect the correct rate, or you risk reassessment.

Comparison with Europe

Country	Standard VAT	Reduced VAT
Paraguay	10%	5%
France	20%	5.5% / 10%
Belgium	21%	6% / 12%
Switzerland	8.1%	2.6%
Spain	21%	10%
Germany	19%	7%

With a standard rate of 10%, Paraguay positions itself among the most competitive countries in the world in terms of VAT. Only Switzerland does marginally better in Europe. For both consumers and entrepreneurs, this reduced VAT has a direct impact on prices and competitiveness.

Who Must Collect and Remit IVA?

Registered Businesses

Any business or independent professional registered with the RUC and engaged in commercial, industrial, or service activities in Paraguay is subject to IVA. This includes:

• Companies (SRL, SA) registered in Paraguay
• Independent workers registered under the IRACIS regime
• Importers of goods
• Local service providers

Small Taxpayers (IRPC Regime)

Micro-enterprises and independent workers registered under the simplified IRPC (Impuesto a la Renta del Pequeño Contribuyente) regime are also subject to IVA, but with simplified reporting obligations. If your annual turnover remains below the IRPC regime threshold, IVA management is considerably simplified.

Individuals

Non-professional individuals do not collect IVA — they pay it as final consumers. However, if you rent out a property in Paraguay as an individual, the rents are subject to IVA at the reduced rate of 5%, and you must declare it.

IVA Exemption on Service Exports: The Key Advantage

The Principle

Here is the most important information in this article for international freelancers and consultants established in Paraguay: service exports are exempt from IVA. If you invoice clients located outside Paraguay — whether in France, Belgium, the United States, or anywhere else in the world — your invoices will not include IVA.

Specifically, if you are a web developer, marketing consultant, designer, translator, coach, or trainer, and your clients are abroad, you invoice net — without the 10% IVA. This makes you more competitive (your prices are lower than those of a provider who has to charge 20% VAT in France) and simplifies your accounting management.

Conditions for Exemption

To benefit from the IVA exemption on service exports, several conditions must be met:

• The client must be located outside Paraguay: their address and head office must be abroad
• The service must be used or consumed outside Paraguay: the service benefits a foreign activity
• Payment must come from abroad: the transfer must be traceable from a foreign bank account
• The invoice must mention the exemption: it must clearly state that it is a service export exempt from IVA

Your accountant will ensure that each invoice is correctly worded to secure the exemption.

Impact for French-Speaking Entrepreneurs

Combined with the principle of territoriality (foreign income not subject to IRP), the IVA exemption on service exports creates an exceptional tax framework. A French-speaking consultant established in Paraguay who invoices exclusively European clients pays:

• IRP: 0% (foreign source income)
• IVA: 0% (service exports)
• Mandatory social charges: 0% (independent, optional IPS affiliation)

Their total tax burden is literally zero. This is the advantage detailed in our article on the 10 tax advantages of Paraguay. To structure this activity optimally, consult our pages on company formation in Paraguay or creating an LLC in the USA from Paraguay.

The Deduction Mechanism: IVA Collected vs. IVA Paid

IVA Credit

If your company makes local sales subject to IVA, you collect 10% (or 5%) on your sales invoices. At the same time, you pay IVA on your professional purchases: supplies, commercial rent, IT services, equipment, etc. The difference between the IVA collected and the IVA paid constitutes the amount to be remitted to the SET.

If the IVA paid on your purchases exceeds the IVA collected on your sales (a common situation during startup or investment phases), you have an IVA credit that can be carried forward to subsequent periods. This mechanism is similar to the French VAT credit.

Special Case: Service Exporter

If you are exclusively a service exporter (foreign clients, 0% IVA on your sales), you do not collect IVA but you pay it on your local purchases. This creates a permanent IVA credit that you can recover from the SET via a refund procedure. In practice, this recovery can be slow and bureaucratic — your accountant will advise you on the best strategy (requesting a refund or accumulating credit).

Invoicing: Rules to Follow

Mandatory Information on Invoices

Every invoice issued in Paraguay must include the following:

• Timbrado number (invoicing authorization issued by the SET)
• Sequential invoice number
• Date of issue
• Company name and RUC of the issuer
• Name or company name and RUC/CI of the client
• Description of goods or services
• Amount excluding IVA, IVA amount, and total amount
• Applicable IVA rate (10%, 5%, or exempt)

Electronic Invoicing

Paraguay has progressively deployed electronic invoicing (factura electrónica) via the SET's SIFEN system. Depending on the size and type of your company, you may be required to issue electronic invoices rather than traditional paper invoices. The migration to electronic invoicing actually simplifies management: invoices are automatically recorded in the SET system, which reduces the risk of errors and facilitates declarations.

The Timbrado: Authorization to Invoice

In Paraguay, you cannot issue invoices without a valid timbrado — an invoicing authorization issued by the SET, renewable periodically. Without a timbrado, your invoices have no fiscal value. This is one of the first steps your accountant will take after obtaining your RUC.

IVA Declarations: Schedule and Procedure

Monthly Declaration

IVA is subject to a monthly declaration to the SET, via the online Marangatu portal. The declaration is due during the month following the period concerned, on a date that depends on the last digit of your RUC. For example, if your RUC ends in 3, your deadline is the 13th of the following month.

The monthly declaration summarizes:

• IVA collected on your sales for the month
• IVA paid on your professional purchases for the month
• The balance to pay or credit to carry forward

Payment

The IVA balance to be paid is remitted to the SET by bank transfer or via authorized payment counters, before the declaration deadline. Late payments incur penalties and late interest — hence the importance of a rigorous accountant.

The Accountant's Role

For an SRL or an independent professional with regular activity, IVA management is part of the standard services of your local accountant. For fees ranging from 150 to 400 USD per month, your accountant prepares and files monthly IVA declarations, ensures the compliance of your invoices, and optimizes your IVA credit. It is an indispensable investment.

Common IVA Errors in Paraguay

Charging IVA on Service Exports

If you charge IVA to a foreign client for a service that should be exempt, you overpay unnecessarily and lose competitiveness. Ensure that every invoice to a foreign client bears the exemption mention and does not include IVA.

Not Retaining Purchase Invoices

IVA paid on your professional purchases is only deductible if you have the original compliant invoice. If you lose an invoice or if it does not contain the mandatory information, you will not be able to deduct the corresponding IVA. Systematically keep all your purchase invoices — both physical and digital.

Confusing IVA and IRP

IVA is a consumption tax, neutral for the company. IRP is an income tax, levied on your profits. These are two distinct taxes with different bases, rates, and schedules. Your accountant manages them separately, but it is important to understand the distinction to manage your overall taxation. Our complete guide to taxation in Paraguay explains how all these taxes interact.

Forgetting to Renew Your Timbrado

The timbrado has an expiration date. If you issue invoices with an expired timbrado, they are invalid — you risk fines, and your clients will not be able to deduct the corresponding IVA. Set an automatic reminder for renewal.

IVA and Real Estate: What You Need to Know

Property Rental

Rents for residential properties are subject to IVA at the reduced rate of 5%. If you rent an apartment or house in Paraguay, the rent includes this IVA. Rents for commercial premises are subject to the standard rate of 10%. If you are a real estate investor, this distinction directly impacts your net returns — a point detailed in our guide to real estate investment in Paraguay.

Property Purchase

The purchase of a new property is subject to IVA (10% on the construction part, land not subject). For used properties (resale between individuals), IVA generally does not apply. Notary and registration fees are separate from IVA. Our page real estate in Paraguay details all acquisition costs.

Conclusion: A Simple, Low, and Optimizable VAT

IVA in Paraguay mirrors the Paraguayan tax system as a whole: simple, transparent, and remarkably low. At a 10% standard rate — and 0% for service exports — it offers a significant competitive advantage to French-speaking entrepreneurs who establish themselves in Paraguay.

For international freelancers and consultants, the IVA exemption on service exports is a game-changer: combined with the territoriality of IRP, it allows for a total tax burden close to zero on international income. For entrepreneurs with local activity, the 10% rate and the deduction mechanism make IVA easy to manage and minimally burdensome.

In all cases, a good local accountant is your best ally to optimize your IVA, comply with reporting obligations, and secure your tax compliance.

Are you starting your business in Paraguay and have questions about IVA? Contact our team for personalized advice and tax support tailored to your entrepreneurial profile.