Tax Residency in Paraguay
1. Criteria for Determining Tax Residency in Paraguay
According to Article 10 of Paraguay's Tax Code, an individual is considered a tax resident if they meet any of the following criteria:
- Physical presence in Paraguay for more than 183 days in a calendar year.
- Domicile in Paraguay, as determined by the Civil Code.
- Habitual residence in Paraguay, as determined by the Tax Code.
For entities, tax residency is determined based on their legal domicile or place of effective management.
2. Impact of International Tax Treaties on Tax Residency Criteria
Paraguay has entered into several tax treaties with other countries to avoid double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For example, under the Paraguay-Argentina tax treaty, an individual is considered a resident of Paraguay if they have a permanent home in Paraguay and spend more than 183 days in the country in a calendar year. However, if an individual has a permanent home in both Paraguay and Argentina, they will be considered a resident of the country where they have their habitual abode.
The Paraguay-Brazil tax treaty provides similar rules for determining tax residency. However, it also includes a provision that allows individuals who are residents of both Paraguay and Brazil to choose which country they will be considered a resident of for tax purposes.
These treaty-specific modifications aim to provide clarity and prevent double taxation by establishing clear rules for determining tax residency in cases involving cross-border activities. They reflect the mutual agreement between Paraguay and the other treaty countries to facilitate tax compliance and enhance economic cooperation.
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