Paraguay’s Significant Pillar Two Risk

Paraguay stands out amongst most South American countries as being the one most at risk of substantial jurisdictional top-up tax for in-scope groups under Pillar Two.

Its standard rate of corporate income tax is 10% under Article 21 of Law No. 6,380/19 on the Modernization and Simplification of the National Tax System. This is in contrast to other South American jurisdictions that have much higher standard rates of corporate income tax, such as:

Brazil – 34%

Argentina – 35%

Chile – 27%

Peru – 29.5%

Columbia – 35%

Venezuela – 34%

Guyana – 40%

Mexico – 30%

Nicaragua – 30%

Ecuador – 25%

Bolivia – 25%

Uruguay – 25%

Article 1 of Law No. 6,380/19 on the Modernization and Simplification of the National Tax System establishes a territorial basis for corporate income tax in Paraguay. As such, only income from Paraguayan sources is taxable, subject to a number of exceptions. For instance, Article 6 of Law 6,380/19 provides that Paraguayan source income includes: