Paraguay: Company Formations

By Oscar A. Mersan

Posted: 11th March 2014 09:06

Paraguay, according to United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2013, occupies 10th place within the top 20 economies with the best return for each dollar invested with 17% return.  With this FDI - Foreign Direct Investment rate of return on investments - Paraguay is the second best positioned in South America, behind only Peru, with 27% return.  Paraguay has the second-lowest public debt rate in Latin America representing 14.4% of the GDP.  Up until December 2013, National Reserves reached U$$ 5.820 million.  Paraguay’s Central Bank has reported a GDP growth of 13.6 % in 2013, being the highest in Latin America and making Paraguay one of the leading growth countries in the world, with a 4% inflation rate and an expectation for the national economy to growth 4.8% in 2014, according to recent PY Central Bank Report. 
 
Paraguay is the world’s largest generator and exporter of hydroelectricity with two of the largest hydroelectric dams in the Latin America, Brazil-Paraguay: Itaipu and Argentina-Paraguay: Yacyreta, generating more than 106 million megawatts hour (MW/h) per year. 
 
The government of Paraguay allows foreign companies to establish branches or subsidiaries.  A legally authorised representative must head the branch office, and voting board members must have Paraguayan residency.  The Investment Law, which guarantees national treatment to foreign firms, also regulates joint ventures.  Under said law, the government recognises joint ventures established through formal legal contracts between the interested parties.  Licensing agreements are widely used for the local production of international brands.
 
Paraguay offers “the maquila” as an interesting in bond manufacturing legal and industrial alternative for assembly/distribution operations with attractive investment incentives (tax breaks, duty free import of capital goods, unlimited repatriation of capital) and the lowest factor costs (especially energy) in the region.  Paraguay has one of the lowest tax structures in Latin America and in the Common Market of the South (Mercosur), with a significant competitive advantage over its neighbours together with its large pool of young workers, which is roughly 70% of Paraguay’s population under 35 years of age which favours labour-intensive industry sectors.
 
Foreign Companies wishing to establish business activity on a regular basis in Paraguay can set up branches or other kinds of representation.  The main types of Corporations allowed by legislation are: Limited Liability Partnerships (Sociedad de Responsabilidad Limitada); Stock Companies: S.A. (Sociedad Anonima) and Branches of Foreign Companies (Sucursales.) There are two types of S.A.; those with open capital regulated by the laws governing the local Stock Market which are authorised to offer its shares to the public and those known as closed capital, regulated only by the Civil Code which are not authorised to offer shares to the public.  The incorporation deed should be sign in a public deed attested by a licensed Notary Public.  Corporations acquire legal status upon registration at the “Registry of Judicial Persons and Associations” and the “Public Registry of Commerce” - The full registration process may need 45/50 days.  There are not shelf companies available in Paraguay as are usually offered in tax haven countries.
 
Foreign companies can operate business activities on a regular basis in Paraguay, through the opening of a branch office.  The foreign company must assign an amount of the company's capital to its branch.  There is no minimum amount of the capital that should be assigned to the Branch.  The Head Company has unlimited responsibility concerning the operations of the Branch in the country.  The Head Company must confer full authority to the administrator of the Branch, who must reside in Paraguay.
 
Trademark infringement and counterfeiting are a major concern in Paraguay.  Owners of patents, trademarks, and copyrighted materials projecting doing business in the country are advised for an upfront registration of their products with the National Industrial Property Office.
 
Paraguay guarantees equal treatment of foreign investors and permits full repatriation of capital and profits.  Paraguay has historically maintained the lowest tax burden in the region, with a 10% corporate tax rate and a 10% Value-added Tax (VAT) on most goods and services.
 
All legal documents issued abroad, should be duly notarised and legalised by the nearest Consulate of Paraguay.  This formal requisite will be laidback after August 2014 when Paraguay as a signatory of The Hague Apostils Convention will have the same fully enacted and applicable to foreign documents that should be legally validated in the country. 
 
Oscar A. Mersan is a Senior Attorney and Managing Partner of MERSAN ABOGADOS.
 
MERSAN ABOGADOS is a prestigious boutique law firm founded in 1943, with high and notable reputation in the country and considered a well-known firm in world multilateral organisations.  The Firm offers a broad range of legal services mainly focused in international business transactions, international placements of bonds, merger and acquisitions, taxation, banking, mineral and oil exploration, Aquila projects and Intellectual Property matters with a state of the arts technology covering trademarks, copyrights and patents.

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