Stock Options and RSUs from Paraguay: taxation, timing, and declarations
You worked for a large tech company or a listed company before moving to Paraguay, and your former employer granted you stock options or free shares, often referred to by their English acronym RSU. These instruments continue their life after your departure, and the question that arises is simple to formulate and difficult to answer: who will tax them, and when?
The answer involves three jurisdictions. The country where you performed your activity, France most often, which retains a right to tax what your work on its soil produced. The country of the issuing company, frequently the United States, which withholds at source. And Paraguay, which does not tax foreign-sourced income.
This guide clarifies the mechanism, corrects several costly misconceptions, and indicates where the Paraguayan advantage truly lies. The subject matter is technically complex and evolving: you must imperatively have your situation validated by a tax specialist in international mobility before any operation.
Reminder of the two instruments
A stock option is a right to purchase shares at a pre-determined price. If the price rises above this price, you exercise and pocket the difference, which is called the exercise gain. If it remains below, the option is worthless and you do not exercise.
A free share is a promise to deliver shares at the end of an acquisition period. There is no price to pay, and the instrument always retains value, even if the price has fallen. This is why it has largely supplanted options in large companies.
In both cases, a vesting schedule staggers the rights, typically over three or four years, sometimes with an initial one-year period with nothing. What is not vested at the time of departure is generally permanently lost.
Two dates are worth noting today in your calendar. The lifetime of options, often ten years from the grant date. And especially the period after leaving the company, frequently reduced to ninety days, sometimes less. After this period, vested but unexercised options disappear. Many gains have been lost due to simple unfamiliarity with this clause.
How France determines its share
This is the most misunderstood point, and the one about which the most erroneous advice circulates.
France taxes the fraction of the gain that remunerates an activity carried out on its territory. This fraction is calculated proportionally to the days of activity in France during what the administration calls the reference period.
However, this period runs from the grant until the definitive acquisition of the right, i.e., until the end of the vesting schedule. It does not run until the exercise, nor until the sale of the securities. When the grant remunerates a service already performed, the period is even reduced to the sole grant day.
The consequence is decisive: once your rights are definitively vested, the proportion reverting to France is fixed. Waiting two years, five years, or eight years before exercising does not change it in any way. The opposite is frequently read, with calculations that would dilute the French share as time passes. This is false, and following this reasoning leads to immobilizing capital based on a non-existent advantage.
The collection is carried out by a specific withholding tax, provided for in Article 182 A ter of the General Tax Code, withheld by the employer or the account holder, at the time of acquisition or sale, as the case may be. You then regularize by a non-resident declaration.
Applicable rates
| Element | Treatment for a Paraguayan resident |
|---|---|
| Free share acquisition gain | A 50% deduction applies when the plan falls under the qualified French scheme. The balance is taxed at the progressive scale, with a minimum rate of 20% for non-residents, increased to 30% beyond approximately €29,000 of net taxable income. |
| Stock option exercise gain | Taxed as an employment benefit, without an equivalent deduction, according to the regime applicable on the plan's grant date. |
| Social contributions | 17.2%. The reduced rate of 7.5%, often cited, is reserved for individuals affiliated with a social security scheme in the European Economic Area, Switzerland, or the United Kingdom. Paraguayan affiliation does not grant this right. |
| Specific employee contribution | An additional 10% contribution may apply to high acquisition gains. |
| Tax treaty | None links France to Paraguay. No reduced rate, no elimination of double taxation through this channel. |
What the United States withholds
If the issuer is an American company, a withholding tax is automatically applied at the time of acquisition or exercise, frequently around 37%, through an automatic sale mechanism of a portion of the securities to cover the tax. You only receive the balance, and you cannot object to it.
The point to understand is that this withholding tax is often excessive, or even totally undue. The United States is only entitled to tax the fraction of the gain remunerating an activity carried out on its soil. If you have worked exclusively for a French subsidiary, this fraction is zero, and the entire withholding tax is recoverable.
Recovery requires filing a non-resident declaration with the US tax authorities, which first requires an American tax identification number, obtained through a separate process taking several weeks. The refund then occurs within six to eighteen months. A specialized accountant charges a few hundred to a few thousand dollars, an amount much lower than the sums at stake as soon as the withholding tax exceeds two thousand dollars.
On the other hand, good news: capital gains on the sale of US securities realized by a non-resident are not taxed in the United States, provided they do not stay there for an extended period during the year. This point is central for what follows.
Where the Paraguayan advantage truly lies
We must distinguish between two gains of different legal nature, which are constantly confused.
The acquisition gain, or exercise gain, is income of an employment nature. It remunerates your past work, and the countries where this work was performed retain their right to tax it. Paraguay levies nothing on it, but it cannot erase what France or the United States legitimately levy.
The subsequent capital gain, meaning the increase in value after the acquisition of the securities or after the exercise of the options, is a capital gain. And this is where everything changes.
| Jurisdiction | Taxation of subsequent capital gain |
|---|---|
| United States | 0% for a non-resident on American securities |
| France | 0% for a non-resident, France only taxing the gain of an employment nature. An exception concerns substantial participations in French companies, beyond 25% of the capital, which remain taxable. |
| Paraguay | 0% by territoriality, as these are foreign securities |
In other words, everything that appreciates after the securities become yours escapes taxation in all three jurisdictions. This is the true advantage of your situation, and it is considerable over several years.
What this implies in practice
The strategy that stems from this mechanism is the opposite of what many articles recommend.
For free shares, you have no control over the timing: acquisition occurs on a fixed date and withholding is automatic. What you control is what happens afterward. Holding the shares rather than selling them immediately places all subsequent appreciation in the untaxed zone.
For stock options, the reasoning is reversed. As long as you do not exercise, the price increase continues to fuel an exercise gain of an employment nature, taxed by France in the same proportion. Once the shares are acquired through exercise, the increase becomes an untaxed capital gain. Waiting to exercise therefore increases the taxable base instead of reducing it. Exercising then holding the shares is generally more favorable than exercising late, provided you have the necessary cash for the exercise price and for the withholding tax.
This conclusion deserves to be verified against your specific plan, whose wording may modify the analysis, and in light of your overall situation.
The limit of this strategy
Holding shares of your former employer means concentrating a significant part of your assets on a single line, in a company whose weaknesses you are aware of. The tax advantage never compensates for a stock market crash.
The usual rule of prudence is not to leave more than 5 to 10% of your assets in a single stock. Beyond that, sell and redeploy to diversified investments, whose capital gains are also untaxed in Paraguay. Diversification comes before optimization.
The process, in practice
The plan management platforms remain accessible from Paraguay and display your vested rights, exercise price, and expiration dates.
For option exercise, there are three modalities. The partial sale for coverage, the most common, sells just enough shares to finance the exercise price and the withholding tax, and leaves you the balance in shares. The immediate full sale converts everything into liquidity, which has the merit of eliminating concentration risk but gives up subsequent untaxed capital gains. Finally, the cash exercise requires advancing the funds but leaves you with all the shares, and this is the one that best exploits the mechanism described above.
An often-overlooked administrative point: the tax residency certificate submitted to your US broker, which attests to your non-resident status, expires every three years. Failure to renew it means the institution applies the maximum withholding tax on all your US income. Renewal takes a few minutes online and avoids unnecessary deductions.
Your reporting obligations
| Country | What you must do |
|---|---|
| France | Non-resident income tax declaration with the competent tax department, for the French fraction of the gain and the regularization of withholding tax. Due in May or June of the following year. |
| United States | Non-resident declaration if a withholding tax has been levied, the only way to obtain a refund of the excess. Requires a prior tax identification number. |
| Paraguay | No declaration. The gain is from a foreign source and falls outside the scope of local tax. Nevertheless, keep broker statements and foreign declarations: they establish the origin of funds during bank compliance checks, which are systematic for amounts over ten thousand dollars. |
Six costly mistakes
- Believing that waiting dilutes French tax. The reference period ends upon definitive acquisition of rights. Once this period has passed, the proportion is fixed, and for options, waiting even inflates the taxable base.
- Letting options expire. The post-departure period, often ninety days, is the most common trap. Check your plan today, not when you think about it.
- Forgoing US refunds. A 37% withholding tax applied to a gain not falling under US jurisdiction is fully recoverable. Many expatriates give up on it due to administrative discouragement, for four-figure sums.
- Banking on 7.5% social contributions. It's 17.2% from Paraguay. The difference changes all calculations.
- Not declaring anything in France. The French fraction remains taxable even if you live in Asunción, and omission leads to surcharges of 10 to 40% along with late interest.
- Selling by reflex on the day of acquisition. You then forgo the only component genuinely exempt in all three countries. Conversely, holding everything indefinitely carries a disproportionate concentration risk. The balance lies between the two.
Conclusion
You must accept a reality to make good decisions: the gain that remunerates your past work will remain taxed by the countries where that work took place. Expatriation to Paraguay does not erase this part, and no serious arrangement allows it. Actual ranges are around 17 to 30% on the French portion for free shares, thanks to the half-deduction.
What Paraguayan residency changes, however, is clear and lasting: all appreciation after the acquisition of the securities is exempt from tax, in France, the United States, and Paraguay. For securities held for several years, this exemption frequently exceeds the tax paid on the initial gain.
Three reflexes follow from this. Know the expiration dates of your options and never let them pass. Systematically claim refunds for undue US withholdings. And arbitrate the holding of securities based on concentration risk, not solely on taxation.
Finally, do not handle this subject alone. A French tax specialist in international mobility and a US accountant will cost you one to three thousand euros, a negligible amount given the errors they prevent on gains of this magnitude.
Are you preparing your tax relocation to Paraguay? Contact us: Paraguayan tax residency from €1,400, or €1,800 with the Express formula which is finalized in a single 2-day trip on site, bank account opening at €250, US LLC creation and DNIT accounting at €30 per month. Write to us on WhatsApp at +595 971 362 302: quick response, in French.