An Attractive Investment Destination in South America
Introduction
Paraguay, often overlooked due to its larger neighboring economies, has emerged as an attractive investment destination in South America. This article aims to shed light on the business environment and investment opportunities in Paraguay, highlighting its key strengths and advantages. With a stable macroeconomic foundation, strategic location, and a range of investment incentives, Paraguay offers an ideal setting for international market players seeking to expand their ventures.
Economic Outlook of Paraguay
Over the past two decades, Paraguay has experienced robust economic growth, driven by favorable terms of trade and sound macroeconomic policies. The nation has become one of the fastest-growing economies in Latin America, with agricultural commodities, particularly soy, cereals, and meat, leading its exports. Services, including financing, real estate, and business services, form the largest sector of Paraguay’s economy, followed by industry and agriculture. The country’s GDP reached 41.72 billion USD in 2022, with a steady growth rate of 4.5% in 2022 and 5.2% year-on-year in the first quarter of 2023.
Taxes and Investment Incentives
Paraguay offers a straightforward tax system, with a corporate tax rate of 10% and a sales tax (VAT) of 10%. Furthermore, the government has implemented various laws to promote foreign investments, providing tax reductions and exemptions. These include the Investment Law, Investment Tax Incentives, Public Private Partnership Law, and more.
Specifically, regarding the Maquila Law (originally Law Nº 1064 of year 1997, protected by the Decree Nº 9585 of year 2000), which regulates all maquila-related activities in the country. This law not only promotes and regulates the maquila industry but also offers significant tax exemptions to businesses operating under its provisions. Companies involved in maquila activities are subject to a single (all inclusive) tax rate of just 1%. Moreover, these maquila operations are exempt from all national, state, and municipal taxes, further enhancing the cost-effectiveness of production in Paraguay. Additionally, the Maquila Law provides an exceptional benefit to businesses producing under this regime – the ability to export manufactured goods to other MERCOSUR countries, including Brazil, Argentina, Venezuela, and Uruguay, at zero-tax and import duties rates.
The Foreign Investor in Paraguay
Paraguay’s flourishing economy and favorable market conditions have attracted foreign investors seeking lucrative opportunities. The country’s financial sector is well-regulated, fostering extended credit and encouraging investments in agricultural, commercial, real estate, and industrial sectors. Paraguay’s extensive water reserves, hydroelectric dams, and competitive electricity services make it an attractive proposition for investors. Additionally, the young and trainable workforce adds to the region’s appeal, enabling industries to thrive with a young labor pool.
The Paraguayan Labor Market
Paraguay boasts one of the youngest populations in the Americas, with 73.7% of its people under the age of 34, providing a youthful and trainable workforce. Although the education system has shown improvement, there is still a need for skilled workers to support productivity growth. Employers in Paraguay bear social security costs of approximately 16.5% of an employee’ salary, with additional mandatory labor fringes such as the 13th salary and holidays.
Why Invest in Paraguay?
With a strong macroeconomic profile, competitive tax and labor costs, and favorable production components, Paraguay presents an enticing investment destination. The nation’s strategic location, young and trainable workforce, and investment incentives make it an ideal choice for international investors seeking growth opportunities.
As ObyD Group operates a full-time office in Paraguay, investors can benefit from our soft-landing services and a comprehensive range of project management, engineering design, and consulting services. Our specialized division, ObyD Agro, further enhances investment prospects by providing tailored services for the agribusiness sector. With ObyD Group‘s expertise and local presence, investors can confidently navigate and maximize their ventures in the promising Paraguayan market.
For more information or to explore business opportunities in Paraguay, contact our ObyD Group Paraguay office at paraguay@obyd.us.