Archivos de la categoría: Berke Report (en)

The purpose of the new Bill is to create a new type of company that, as indicated by its name, establishes a smaller number of formalities for its incorporation and operation than the companies already existing according to our laws. A novel characteristic shown by the EAS would be that they may be incorporated by a single natural or legal person, with the only limitation that single EAS cannot constitute or participate in other single EAS.
If the law is enacted, the Ministry of Finance should create an exclusive unit that will record, control and monitor the EAS. The EAS will acquire legal status upon being registered at the Ministry of Finance, so registration before the Public Registries will not be required. In addition, it must be registered in the Unified System for Opening and Closing Companies (SUACE), with a website where a registration form and a model for articles of incorporation will be published.

Share capital of the EAS will be represented by nominative shares, whether endorsable or not, ordinary or preferred, and the capital may be paid up in cash or with other assets. When the contribution is in money, payment is authorized to be made by delivering 50% of the payable amount at the incorporation act and the remaining 50% within the 2 (two) years upon the incorporation, and on the other hand, contributions in assets should be made at the moment of incorporation.

It should be noted that no minimum or maximum amount is set as share capital for this new type of company. The EAS will meet their obligations only with their equity assets, meaning that all members of the EAS should respond up to the amount of their respective contributions.
Regarding the EAS organization, the organizational structure of the company can be freely determined. Anyhow, it is established that the governing body of the company will include the EAS members and that a legal representative must be appointed. Nevertheless, the creation of an administrative body, as well as an audit body, will be optional.

EAS are required to keep the following corporate books:

• Minutes book of the governing body;
• Stock registration book;
• Minutes book of the administrative body (in case it is created);
• Journal book; and
• Inventory book.

Should you want to know more about this Bill, do not hesitate to contact us.

This week, the Ministry of Finance presented the bill on tax reform to the private sector, which provides for a number of modifications, being one of them to include incomes obtained by taxpayers abroad in the scope of personal income tax (IRP). This way, not only incomes from Paraguayan sources would not be taxed, but also certain income generated in foreign countries, including the unification of income tax rate at 10%.

Another point addressed there is the division of personal income into three categories (i) The so-called Dividend Distribution Tax (IDI), (ii) Personal Income Tax (IRPSP) for personal services, either professional or not (10%), and (iii) Personal Income Tax (IRPGC) on capital gain and/or patrimonial increases (10%). These three categories would be determined separately with no possibility of loss offset against each other.

Regarding the Income Tax on Commercial Activities (IRACIS) and Income Tax from Agricultural Activities (IRAGRO), said reform intends to merge such taxes under a «Business Income Tax” (IRE) form, which would tax the income from commercial, industrial, non-personal and agricultural activities, and in general, all types of profits, benefits and patrimonial increases obtained by a taxpayer, except those that are expressly exempted, at a projected 10% general rate.

Likewise, a new tax called «Dividend Distribution Tax» (IDI) is proposed, which would tax dividends, surplus or net income made available or paid by partners or shareholders of Partnerships, Cooperatives or Private Entities of any nature by taxpayers, at an 8% rate for residents and 15% rate for non-residents.

Consequently, the additional rate is increased by profit distribution from 5% to 8% for partners that reside in Paraguay and provides for a reduction in the tax burden for non-resident partners, who would pay only 15% rate (currently taxed at 5% + 15%).

In case of resident natural persons, this payment, performed through a withholding, constitutes a single and definitive payment, non-computable against personal income tax; however, in case of legal entities, the tax is computable under a credit method in order to avoid double taxation.
It should be noted that this increase in dividend distribution rate is 3% for the local IRACIS taxpayer and 8% for the IRAGRO taxpayer.

Also worth noting is the fact that taxation for non-resident companies and natural persons is separated from the IRACIS and the IRP, regarding incomes obtaining from Paraguayan sources; presumed net income are established between 30% and 100% of the gross amount paid, at a 15% rate.
Finally, it is important to highlight that private sector requested 3 (three) weeks period to analyze and give their opinion on the project, taking into account that the final draft was received by the main union leaders, and still has to be internalized in each guild.

BKM BERKEMEYER provided legal advice to the Indian firm Bajaj in their expansion of business into Paraguay, offering support in the process of unloading of goods in Paraguay, identifying and negotiating with their local strategic partner, advising on regulatory matters, and the legal and contractual structuring of the business in the country.

The offered counseling included analysis and interpretation of the applicable regulation to the business (Law No. 4838 National Automotive Policy PAN), which specially focuses on the processing of motorcycles, application of the Distribution Law (No. 194/93), which regulates the legal regime of contractual relations between foreign manufacturers and companies and natural and legal persons domiciled in Paraguay, identification of legal risks, and due diligence for the business’ implementation.

Furthermore, BKM took part in the negotiation and drafting of the distribution agreement with the local firm Asunción Motor Sport S.A. (AMS), member of JBB group.

The counseling was conducted jointly with an Argentinian firm, First Corporate Advisors S.A., which is dedicated to offering corporate and financial services.

According to recently published statements by Eng. Jose Ayala, general manager of AMS S.A., the Bajaj brand has ample experience working to develop high-end technology, delivering quality products, under the highest safety and innovation standards, and in competitive prices globally.[1]

The counselors were BKM partners Drs. Jose Figueredo Klein and Martin Carlevaro.

[1] [1] http://economiavirtual.com.py/web/pagina-general.php?codigo=21201

BKM – Berkemeyer reports that since the entry into force of Law No. 5895/17, new rules have been introduced to provide transparency to the regime of companies constituted by shares and some rules of the Civil Code have been modified. Said legislation implies the disappearance of bearer shares, specifying by means of regulations, certain obligations that both companies and shareholders must comply with.    

Prior to the effect of said law, although there were certain obligations that companies must comply with, they were not followed due to the lack of sanctions, which is why the application of heavy economic sanctions has been envisaged, with fines from 100 day’s minimum wages (Gs. 8,125,000) to 500 day’s minimum wages (Gs. 40,626,000), and even RUC (Unique Registry of Taxpayer) blocking. 

Some of the non-compliances sanctioned by said regulations are the lack of formalization and registration of the regulatory actions in substitution of the bearer shares, lack of notification of assemblies made to the Treasury Department, failure to notify the transfer of shares from shareholders to the company or from the company to the Treasury Department, among other faults.  

Due to various reasons, the application of sanctions was postponed through resolutions, the last being Resolution No. 150/18, through which the application of sanctions (fines) and non-sanctioning measures (RUC blocking and suspension of economic rights) were suspended until 17/02/2019. In this framework, fines will be applied as of 18/02/2019. 

 It should be clarified that through AT Resolution No. 01/2019, a schedule was set for the enactment of sanctions, fines and non-sanctioning measures, as detailed below:

Schedule for the application of sanctions, fines and non-sanctioning measures
RUC Ending	Application of sanctions as of:
0 and 1	18Th of February 2019
2 and 3	18Th of March, 2019
4 and 5	18Th of April, 2019
6 and 7	18Th of May, 2019
8 and 9	17Th of June, 2019

As can be seen, to determine from what moment the sanctions will be applied the last number of the RUC (not the check number) of the company must be taken into account. In order to facilitate the understanding of said regulation, we present the following example: 

Business Name	RUC	Last Number of RUC	Application of sanctions as of:
Berkemeyer SA	800150-8	0	18Th of February 2019
If this firm did not comply with their corporate obligations, as of 18/02/2019 sanctions and non-sanctioning measures will be applied.
Berkemeyer SA	800152-9	2	18/03/2019
If the firm did not comply with their corporate obligations and the Treasury Department is informed of said breach on 27/02/2019, it will not be able to apply any sanction, since according to the schedule, sanctions can only be applied to this firm as of 18/03/2019.

We emphasize the importance of drafting correctly corporate documents in order to avoid civil, tax, and other contingencies, so it is always advisable to have expert counsel in these areas of the law. 

This new year arrived with it a new type of company, through the promulgation of Law No. 6480/2020: the Simplified Joint Stock Companies or “EAS” (according to its initials in Spanish). The novelty of EAS lay on the fact that they can be incorporated by one or more natural or legal persons. That is, ownership of the company by a single person is admitted. The only proviso in the law in this regard is that a single-person EAS cannot be a shareholder of another single-person EAS.

EAS are created through a unilateral contract or act stated in a public or private instrument with certification of signatures. The interesting facility presented for the incorporation process is the non-mandatory recordal of the company in the Public Registry Office, as documents must be entered only and exclusively through the SUACE, which will then refer the procedure to the Ministry of Finance.

Once the documents are registered before the corresponding division of the Ministry of Finance appointed for such purpose, the EAS acquires a legal personality different from that of its members. Until acquiring legal personality, each member of the EAS is jointly and unlimitedly responsible for the obligations taken on behalf of the company. After the personality is acquired, the partners are liable up to the limit of their contributions.

The Law does not require a minimum capital for the incorporation of EAS, divided in shares. Subscription and payment of the capital can be done in such conditions, proportions and terms as agreed by the members, although the payment period must not exceed 2 years after subscribing the capital. To this date, corporations (“SA”) do not have this obligation.

The EAS’ articles of incorporation are important since they define their organization. The governing body is the meeting of the members, to take decisions, regardless of whether it is formed by a single member.

Another peculiarity of the EAS is that the figure of a corporate trustee is not mandatory, meetings of members can be held without calls published in newspapers and it is not necessary to do it in advance. However, EAS must have corporate books similar to those used by SA.

It is important to mention that, although the Law whereby this type of company is created is currently in force; the Ministry of Finance must designate the agency in which the EAS will be registered, so such procedure is still pending in order to make their incorporation effective. Furthermore, these companies bring other innovations and particularities which will be described in more detail in the next newsletters.

Finally, with regard to the tax regime of the EAS, they will be under the same regime as any other person who is engaged in the same activity, without any distinction. However, the single-person EAS owned by a natural person could have a competitive advantage compared to other companies, losing fiscal neutrality, since they could pay the IRE by the SIMPLE Regime, as long as they invoice up to G. 2,000,000,000 per year. In that way, the single-person EAS owned by a natural person will enjoy tax benefits agreed to single-person companies but obtaining the additional benefit of limiting the liability to the value of the contributed capital.

Paraguay renews the confidence of international investors by successfully issuing and placing USD 450 million in 30-year sovereign bonds. The rate was 4.45% and there was an oversubscription of 8 times, demonstrating a higher performance than other countries in the region. In the issuance of the year 2018, the interest rate was 5.6%, which demonstrates an improvement in the positioning of Paraguay on its way to the degree of investment. Part of these funds will be used for infrastructure projects of the central government. On the other hand, in 2019 there were 2 international project bond issues (first in the history of Paraguay) totaling more than USD 1 billion and whose performance also demonstrated the high degree of interest in international markets for investing in Paraguay (bonds 144A / Reg S at 15 years, with three times oversubscription and rates of approximately 100 bps above the sovereign’s curve). BKM was the advisor under the exclusive local law of the sponsors in both international issues (Bioceanic and Routes 2 and 7). For more information on the issuance of sovereign bonds see below 2 recent news related to the subject:

The keys of Paraguay for the successful placement of sovereign bonds
Our country placed sovereign bonds abroad for the eighth time in its history, this time, for 450 million dollars at 30 years. The slowdown and recession of 2019 were not impediment, but there were five keys to making the operation a success.

https://bit.ly/2uYBo3W

High demand for investors allowed Paraguay to obtain its best interest rate for bonds
The publication notes that Paraguay took advantage of the low bond issuance of Latin American countries and took advantage of the demand of investors, added to the country’s upward trajectory in the region.

https://bit.ly/2NBxZyj

On December 9, our President signed Decree No. 2992/2019, regulating Law No. 2051/03 on Public Procurement, which aims to establish a unified system for public procurement procedures.

Although it does not introduce substantial modifications to the current current regime, it harmonizes 10 regulations that were dispersed in order to unify the existing regulations making it more practical and easy to apply, in addition to incorporating new regulations that improve the transparency of the system.

Three contracting modalities are incorporated i) Framework Agreement, ii) National Agreement and iii) Joint Purchases.

The first one is aimed at the selection of suppliers of goods, works, services and consultancies that, once selected, the products are included in an electronic catalog that will be published in the Public Information and Contracting System so that the Organizations, Entities and Municipalities can acquire them directly.

The National Agreement modality consists of an open call addressed to national suppliers of the goods or services to be acquired. Its purpose is that entities and organizations have several suppliers for the same benefit since the demand requires to be served by a large number of suppliers.

 The third modality of Joint Purchases is aimed at accumulating the purchase of two or more agencies, entities or municipalities when they require the contracting of the same good, work or service in order to obtain the benefits that common purchases represent.

Regarding the bidding procedures, the obligation to recognize the preference margins for local companies in international procedures is incorporated since, if not indicated in the bidding documents, it is understood that the minimum percentage of 1% is applied.

The obligation for the Convocant to proceed within 5 calendar days of having resolved the award to publish a copy of the evaluation report and the administrative awarding act is established. Likewise, the power of the bidder to request an informative hearing is established so that the Convocant explains to him the grounds that motivate his decision. These are new additions that make the improvement of transparency in the processes.

Among the exceptions to the tender, the assumption of “Termination Contract” is included in the case of breaches by the Contractor, providing for the possibility of awarding the balance pending execution to the next adjudicable offer.

In the event of default in payment by the Contracting Party within a period greater than 60 days, the Contractor has the right to request the suspension of the execution of the contract for reasons attributable to the Contracting Party.

For the filing of the protests against the specifications, two new requirements are added, in which the challenger must prove (i) that the commercial activity of his company corresponds to the item called and (ii) that he has previously consulted with the Convocante, the provision of the contesting document. Likewise, a more detailed procedure is regulated for the substantiation of protests.

Regarding the regime of the remedies for reconsideration, its interposition is extended against the decisions that resolve the agreements, maintaining its non-suspensive effect as a general principle.

Finally, it incorporates the regimes of the “System of Information of Suppliers of the State (SIPE)”, the “System of registration of payment to suppliers”, the “Procedure for the application of the Sanctions”, “Procedure for the Application of Sanctions” and “ Mechanisms for Dispute and Dispute Settlement ”. These regimes already existed in other regulations, and from now on they are incorporated into the same legal body, incorporating minimal modifications or aggregates.

The new regulatory decree will enter into force as of January 1, 2020 and the calls that are being processed, as well as the execution and execution of awarded contracts in progress will be governed by the legislation in force at the time of publication of the call to contract .

For more information contact Martín Carlevaro – martin.carlevaro@berke.com.py or Sofía Suárez sofia.suarez@berke.com.py.

Through Decree No. 2787/19, published in the Official Gazette on 04/11/19 and in the national newspapers today, the Executive Branch established the dates of entry into force of the provisions contained in Law No. 6380/19, «Modernization and simplification of the national tax system».

Regulated Concepts	Effective date
Change of name of balances in favor of the taxpayer (without any tax incidence from the practical point of view)Possibility of incorporating technological tools for SETSpecific modifications on incentives to investments contained in Law No. 60/90 and Law No. 5542/15	05/11/2019
Corporate Income Tax (IRE) *Dividends and Utilities Tax (IDU)Personal Income Tax (IRP)Non-Resident Income Tax (INR)Value Added Tax (VAT)	01/01/2020
Special rules for the valuation of operations (transfer prices)	01/01/2021
All other provisions*	01/01/2020

The decree also provides that those taxpayers whose fiscal year end is April 30, 2020 and June 30, 2020, the provisions of the IRE will be applicable from May 1, 2020 and July 1, 2020, respectively.

Since the transfer pricing rules will be applied only from January 1, 2021, the decree provides that the rules of “Export Price Adjustments” (APE) established in art. 4 of Law No. 5061/13 will continue to apply until 12/31/2020.

Finally, it is also provided that the new and beneficial form of the calculation of the advances of the IRE (which will take the average of the tax paid in the last three years, instead of the current system that uses the tax paid in the previous year) will only enter vigor in fiscal year 2023.

It is important to remember that Law No. 6380/19 established what in principle looks like a simpler tax system than the current one and certainly more modern, which includes rules and recommendations of several international organizations.

The aforementioned law unifies the Iragro and Iracis in a single tax, the Corporate Income Tax (“IRE”), replaces the additional rates of the Iracis with a Tax on Dividends and Utilities (“IDU”) and with the Income Tax Non-Resident Income (“INR”), with different rates depending on the quality of the person receiving the rent.

It also legally incorporates certain modifications that were made through decrees to the IRP. This tax is basically divided into a tax on labor income with progressive rates of 8% to 10% and up to 8% (effective rate) on capital gains obtained by natural persons.

Although this decree grants security as to the validity of the new provisions, it is still necessary to have the regulations of the new taxes and, above all, the transition rules that will be in force during the year 2020.

In case you have questions or queries, you can contact us at mauro.mascareno@berke.com.py, carlos.vargas@berke.com.py and federico.valinotti@berke.com.py

After two years from regulating the elimination of bearer shares in the country, shareholders and companies obtained a new grace period to fulfill the provisions required by Law and avoid falling into breaches or incurring in fines. Although companies are facing possible more strict and forceful limitations, a precise regulation that contemplates a wide range of assumptions grants the benefit of an objective guide instead of one subject to diverse interpretations.

In fact, legal frame for corporations in Paraguay underwent an strategic change in October 2017 with the promulgation of Law No. 5895 (the «Law»), through which transparency rules were established for joint stock companies, being one of the most specific issues, the elimination of bearer shares and the obligation to exchange them for registered shares, modifying corporate bylaws thereby.

Just recently, on October 9, 2019, the Executive Branch enacted Law No. 6399/29, which modifies Articles 3 and 4 of Law No. 5895/2017, the “New Law”.

The New Law kept the purpose and spirit of the Law and was limited to modifying matters in established manner and regulating others that were not included at the beginning. However, such modifications cannot go unnoticed as they affect processes, prohibitions and restrictions relevant to the operation of corporations, as described below.

The Law established a term, 24 months after coming into effect, for shareholders to exchange their bearer shares for registered shares. Considering that said law was published on October 9, 2017, the deadline expired on the same day in which the New Law is published and provides as follows:

a) The deadline is extended until December 10, 2019 to initiate the procedures for requesting a resolution regarding the modification of Bylaws by the Department of Registries and Supervision of Companies, a division of the Legal Section of the Treasury Dept.

b) A period of 180 days is established as of 10/12/2019, for the effective fulfillment of the exchange of bearer shares for registered shares.

c) Instead of requiring the exchange of 90% of bearer shares, it is provided that, within the established term, all shares must be converted to registered shares.
In case the above is not fulfilled, serious penalties are established for shareholders that fail to exchange their shares as well as for the companies themselves.
Besides the suspension of financial rights for those holders of shares that were not exchanged, the New Law creates situations and penalties not previously established.

Indeed, it provides that, if after six months of the expiration date for the effective exchange of shares, still there are bearer shares, these would lose their validity as a share title. In this case, shareholders who can prove the legitimate ownership of the shares would have the right to be reimbursed only for their nominal value, unless they request their readjustment to real values, but with the proportional reduction of the liability assumed by the company.

Specifically, the collection action for reimbursement that the holder of the shares may exercise against the company will expire after five years.

In line with the loss of validity of the shares and the reimbursement of their nominal value, the New Law establishes that within six months after the deadline for the loss of validity mentioned in the previous paragraph expired, the companies must call for an extraordinary meeting to reduce capital, decreasing it in the value of the shares not exchanged.

Subsequently, the New Law includes three additional provisions as previously provided by the Law:

a) For companies that had not initiated any procedure after six months of the expiration of the term, it is established the obligation to begin its process of termination and liquidation, as well as the authorization to the Legal Section of the Treasury Dept. to judicially require the dissolution, liquidation and extinction of company.

b) It provides monetary fines for breaching the exchange of shares (established in the Law and which were not modified), would enjoy special privileges over any other credit that the bearer may have against the company and those derived from the relation between shareholders.

c) It orders that, in the event that bearers claim reimbursement of their shares, the company should require the shareholder to provide proof of the payment of the fines due for failing to exchange the same (ranging between G. 8,600,000 (USD 1400) and G. 42,000,000 (USD 6800) approximately).

Finally, the New Law establishes transitory provisions and formalities related to the extraordinary meeting of shareholders that must be held to approach the reduction of issued capital in regard to the value of the not exchanged shares.

In December 2017, the National Congress enacted Law No. 6007 that creates the “National Program for the Medical and Scientific Study and Research of the Medicinal Use of Cannabis and its Derivatives (PROINCUMEC)”, (the “Program”), being regulated by Decree No. 9303/18.

The purpose of this law is to establish a regulatory framework to promote the study as well as the medical and scientific research of the medicinal, therapeutic and/or palliative use of the Cannabis plant and its derivatives for the treatment of diseases and conditions in humans, in addition to regulating its controlled production.

An interdisciplinary framework is set forth because different public entities take part in the process depending on the prerrogatives of each one.
The National Sanitary Vigilance Directorate (the “DINAVISA”), under the authority of the Ministry of Public Health and Social Welfare, is appointed as the enforcement authority, who will act as the national coordinator of said Program.

Likewise, the National Service for Quality and Health of Plants and Seeds (the “SENAVE”) will be responsible for defining the conditions, requirements and monitoring to grant the authorization to import the seeds to the interested parties.

Finally, the National Anti-Drug Secretariat (the “SENAD”) must implement the security conditions that will be applied to obtain and maintain the license and will carry out the control during the validity period of the license.

Through the regulation of said Law, the requirements for the production, controlled industrialization, import, export, commercialization, prescription, dispensation and rational use of medicinal cannabis under the Program, are incorporated.

In order to access the production, industrialization and commercialization activities, it is mandatory to obtain a license granted by DINAVISA, in coordination with SENAVE and SENAD, within the scope of each one.

The granting of said license necessarily implies the prior fulfillment of a series of requirements provided for in the regulations and must be requested by an authorized national laboratory that has a certificate of good manufacturing practices (GMP) in force.

It is worth mentioning that the license shall be granted for a period of 5 years, and may be renewed for equal periods and may not be transferred or assigned under any title, nor obtained only for the exclusive performance of certain processes, since the licensee must perform all the activities of the process, except for transportation and final disposal, which may be outsourced.

Currently, the government is working on a complementary regulation in order to establish the procedure for obtaining a license for a controlled production and industrialization, given that there is a limited number of licenses to be granted, that the applications must be evaluated, and that the eventual rejection must be properly grounded.

For more information please contact Sofía Suárez – sofia.suarez@berke.com.py – and Ignacio Serratti –Ignacio.Serratti@berke.com.py –