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Benefits of the maquiladora regime in Paraguay

by | Feb 11, 2023

The maquila regime in Paraguay offers a battery of incentives for investments to export goods or services from Paraguay. There are three models under which foreign companies producing goods or services for export in Paraguay can operate.

It has been conceptualized as a special regime of incentives for investments and exports that adopts a model of international outsourcing of industrial processes or outsourcing services. Under this scheme, a company from abroad hires the services of a company incorporated in Paraguay to produce goods or services for export.

The regulatory framework of the Paraguayan maquiladora regime is important. It was created by Law 1064/97 and is regulated by Decree 9585 of 2000. Beginning in 2001, the first maquiladora companies started to operate in the country under the Decree. Today, approximately 230 companies from different sectors are exporting goods or services from Paraguay.

The maquila regime in Paraguay has stability and is independent of the government in power. As such, it has the necessary legal support from the macro law of the national congress, which provides security to investors.

The Ministry of Industry and Commerce leads the maquiladora regime in Paraguay

A national council of five institutions administers the maquila system. The council is chaired by the Ministry of Industry and Commerce (MIC), whose organic function is the development of the country through the installation of industries or companies that produce in Paraguay and promote the export of goods and services from the country.

The maquiladora regime in Paraguay is also made up of the Ministry of Finance due to the tax incentives that it offers. Also involved are the Ministry of Foreign Affairs, the Technical Secretariat for Planning, and the Central Bank of Paraguay, which is in charge of studying the maquila projects presented by the companies that request the benefits of the special regime.

The National Council also has an executive body known as the Executive Secretariat that works within the Ministry of Industry and Commerce. This entity is in charge of the operational part of the regime and is responsible for executing the decisions of the National Council.

The Ministry of Industry and Commerce is responsible for all procedures involved in approving programs and regulating the operations of the maquiladora companies that are domiciled in the country.

Maquiladora companies in Paraguay located in the country can be establishments already operating in the domestic market or installed exclusively to operate under the maquiladora export regime

Benefits of the maquiladora regime in Paraguay

The maquiladora regime in Paraguay benefits imports since goods, machinery, inputs, or raw materials can be imported temporarily. They enter the country for transformation into a product that is then exported.

Another benefit of the special regime is that customs tariffs are suspended when exporting under the maquila regime. This is because goods incorporated into the manufactured products are temporarily in Paraguay.

The tariff that a company that operates under the maquila regime in Paraguay is obligated to pay is subject to tax suspension and must be insured through a guarantee instrument. This can be through a bank insurance policy or any other real guarantee.

The suspension of tariffs under the maquiladora regime in Paraguay is a benefit where the goods can enter the country for two years. During that time, the transformation of the determined product must be carried out, and the final product must be exported. If a company cannot ship the finished product outside the country within two years of entry, it must nationalize the goods. In other words, the company operating as a maquiladora must pay the initially suspended taxes or re-export the goods abroad. Furthermore, assets can only be kept in Paraguayan territory while they are within the maquila regime for the determined period of two years.

Regarding exports, the main benefit of the differentiated tax treatment regime of the maquiladora company is that it pays a tax called UNI (Unique Maquila Tax). This is an autonomous tax, and companies that export their goods pay 1% of the amount or the value of the invoiced price of the goods. In addition, companies are obliged to make a monthly tax declaration before the Ministry of Finance.

If the company operates at 100% of its productive capacity to export under the maquiladora regime in Paraguay, 1% is already considered the only tax levied by the national government. Although a company may carry out mixed operations, it exports a percentage of its production capacity. Also, it sells a portion of its finished goods into Paraguay’s domestic market. Therefore, the company has a differentiated tax treatment for what it exports under the maquiladora regime and what it sells in the internal market. As regards goods sold within the country, it pays all the taxes in force, as is the case for any company that operates within the normal regime.

Maquiladora employment in Paraguay nears 20,000

Direct employment in the maquiladora regime in Paraguay at the end of October 2021 reached 19,800 jobs. The program consists of approximately 230 companies whose jobs are certified by the Social Welfare Institute of Paraguay.

The companies that lead the maquiladora sector in Paraguay are auto parts manufacturers. They are responsible for generating the highest level of employment, with about 6,000 jobs. Clothing and textile companies follow with 1,598 jobs. In addition, services such as call centers, telemarketing, and remote assistance facilities that export their product abroad employ approximately 1,600  people. At the same time, plastics and other manufacturers that create employment under the maquiladora regime in Paraguay produce food products, footwear, tobacco products, agrochemicals, and other items.

Learn more about investment opportunities in Latin America by reviewing the posts in the LATAM FDI Blog.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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