Lawyers from BKM Berkemeyer Law Firm have actively participated in the process and negotiation between the private sector unions led by FEPRINCO and the current authorities of the National Government, represented by high officials of the Sub Secretaría de Estado de Tributación (SET) [State Tax Agency] of the Ministry of Finance in order to reach an agreement for the amendment of the previous Decree N⁰ 6.560/16 and derived regulations that governed to the Personal Income Tax (IRP).
This way, the Firm’s Lawyers, who advised the National Chamber of Commerce and Services of Paraguay (CNCSPy), since October 2017, have conducted an exhaustive study of the current text of Law N⁰ 4.673/2012 and proposed several alternative solutions for the impasse arisen between the former SET authorities and the local business community during the previous Administration, actively accompanied the negotiations that took place at the end of last year and concluded with a Joint Statement between the private sector and the SET establishing the existing conflicts. Subsequently, together with accountants from the company ALIANZA, who represented another union, worked in a Non-Binding Consultation presented by all the business associations in the country and finally, at the request of business associations, they worked and exercised procedural representation in an action of class unconstitutionality filed by tens of affected taxpayers.
Finally, after difficult negotiations that started upon the assumption of the current Government Authorities, namely after August 15, 2018, the Parties (that include, besides business associations and SET representatives, several unions and associations of accountants) reached an agreement on most of the conflicting issues, reflected on Decree 359/2018 issued on October 5th, considering that the filing of the first sworn statements for compliance with the IRP tax started on October 7th.
This Decree ended almost two years of discussions between businesses, accountants, and the National Government, unifying criteria and interpretations and providing legal security in tax matters in Paraguay until the next enactment of a new personal income tax expected by year 2020.
For more information regarding the existing changes in Decree 359/2018 and modifications in regard to the previous regime, please contact Federico Valinotti (federico.valinotti@berke.com.py) and Jorge Figueredo (jorge.figueredo@berke.com.py)
2012 – 2016 Period
Standards and criteria applied during the Fiscal Years 2012 through 2016, included, remain unaltered, therefore, any interpretations published by the SET based on Decree N⁰ 6560/2016 and/or restrictive investments became null.
Taxpayers who, upon receiving notices in October/2017, have amended their Sworn Statements and paid the tax, may request the relevant Reimbursement of Payment with no obligation to submit any External Tax Audit Report.
General rule:
Deductibility of all investments related to taxed activities and/or acts that generate the tax is allowed, according to Art. 10 of Law N⁰ 2421/04 and its amendments.
Expenses as well as investments are deductible as long as they are necessary to obtain and maintain the source that causes the income, represent a real expense, and are duly supported by documents.
Non-deductible investments are expressly and exhaustively established.
Special Rules:
In the case of capital contributions to companies incorporated in the country, acquisition of stocks or share of companies incorporated in the country, since Fiscal Year 2017, a 50% deduction over said investments is allowed.
So, it should be considered that:
– When the taxpayer pays a compulsory social security based on the obtained income and investments are assigned to registered shares issued by Publicly Traded Companies or other companies, the amount allocated to the investment will be deductible as such up to 50%, in any of the cases.
– When the taxpayer pays no compulsory social security based on the obtained income and investments are assigned to registered shares issued by Publicly Traded Companies, the amount allocated to the investment will be fully deductible in this case as an investment up to 15% of the gross income for the settled fiscal year, in case of exceeding said percentage, the remaining portion will be deductible up to 50%.
- Carrying forward and compensation of investments losses
Allowed deductions, conditions:
– Made with taxable income of any Fiscal Year, and/or
– Covered by loans.
– Generated tax losses may only be carried forward to the following fiscal years if they are the result of deduction of admitted investments, and up to 20% of the Net Income of the following five (5) Fiscal Years.
- Earnings from the sale of company stocks, shares of companies and real estate
There are no changes regarding this item, incomes from transfer/sale of stocks, shares of companies, real estate, and other similar assets are settled based on imputed income or real income (when the buyer is an IRACIS or IRAGRO taxpayer), whichever is less.
The billing of dividends paid by companies will not be considered or computed to determine if the taxpayer is required to have an External Tax Audit judgement.
