Few arguments come up as quickly in conversations about Paraguay as the tax system. "10-10-10" stands for three rates anyone can remember: ten percent on corporate profits, up to ten percent on personal income, ten percent value added tax. The actual reason international investors take notice, however, is not in those numbers – but in a principle behind them.
What "10-10-10" actually means
The 10-10-10 system refers to Paraguay's three central tax rates: ten percent corporate tax on profits, up to ten percent income tax on personal earnings and ten percent value added tax on most goods and services. The basis is Law No. 6380 of 2019 on the "Modernisation and Simplification of the National Tax System", in force since 1 January 2020. It replaced a tangle of separate regimes for trade, agriculture and services with a single structure: where companies were previously taxed differently depending on their sector, one rate now applies to all. What matters is not only the level of the rates but their interplay with the territorial principle – Paraguay taxes exclusively income arising within the country. This combination of low rates, a narrow tax base and a structure that can be explained in three sentences forms the core of the system.
- ✓IRE – corporate tax: a flat 10 % on profits, regardless of sector and legal form.
- ✓IRP – income tax: graduated from 8 to 10 % on income from work and services, 8 % on capital income. Anyone earning less than 80 million guaraníes a year from personal activity – roughly 12,000 US dollars – pays no IRP at all.
- ✓IVA – value added tax: 10 % as standard, 5 % on staple foods, medicines and residential rents.
There is one figure the catchy formula leaves out: when a Paraguayan company distributes profits, the dividend tax IDU applies on top – 8 % for tax residents in the country, 15 % for recipients abroad. Anyone estimating the total burden of a shareholding therefore counts the 10 % at company level plus the distribution tax.
The receipts trick: why many pay no income tax at all
The part of the system least known abroad is also its cleverest. For income tax on personal activity, the law recognises three groups of deductible expenses: those connected to the activity, expenses in favour of dependent family members – and explicitly personal expenses, which need have nothing to do with professional activity. Groceries, restaurants, clothing, furniture, tradespeople, the car: anyone who obtains a proper invoice for every expense, a factura legal bearing their tax number, can set it against their income.
In practice this means many taxpayers arrive at a tax base of zero at year's end. You collect the receipts through the year, hand them to your accountant – the contador – and he sets income against expenditure. If nothing remains, no income tax falls due. This is not a loophole; it is by design.
The economic logic behind it is remarkable: the system turns every taxpayer into an auditor of their own suppliers. Anyone wanting to deduct expenses needs receipts – and asks for them. This pushes the trader, the craftsman, the restaurateur into the formal economy, because their customers insist on invoices. The state therefore collects not through high income tax rates but through VAT along a chain that documents itself. This is precisely one of the reasons the 2019 reform is considered a success.
Two qualifications apply: first, the cash basis governs – only what was actually paid within the same year is deductible. Second, individual items are capped, among them purchases from micro-enterprises under the simplified RESIMPLE regime. And the deduction of personal expenses applies to income from personal activity; for pure capital income, only costs directly attributable to that income count.
The real lever: the territorial principle
Low rates exist elsewhere too. What sets Paraguay apart is the question of which income is captured at all. The country taxes in principle only income from Paraguayan sources. Whatever is earned abroad remains outside – unlike in Germany, Austria or Switzerland, where tax liability follows residence and captures worldwide income.
For many newcomers this is the decisive point. A pension from Germany, rental income from a flat in Vienna, returns from a portfolio in Switzerland: under Paraguayan law none of this falls under local income tax. Only what arises within the country – a salary from Paraguayan employment, rent from a property in Asunción, the profit of a business in Villarrica – is taxed, and then at single-digit to low double-digit rates. It is this combination of a narrow tax base and a low rate that makes the location attractive in purely arithmetical terms for internationally positioned entrepreneurs and retirees.
Why investors respond to it
A tax system alone attracts no capital – predictability does. And this is exactly where Paraguay's picture has changed in recent years:
- ✓Investment grade since 2024: Moody's upgraded Paraguay to Baa3 in July 2024 and confirmed the rating with a stable outlook. Standard & Poor's followed in December 2025 – placing the country on the short list of South American states with an investment-grade rating.
- ✓Growth with substance: the central bank projected around 6 % economic growth for 2025 and 4.2 % for 2026, with inflation within the target range.
- ✓Record foreign direct investment: in 2025, 1.18 billion US dollars in FDI flowed into the country – the highest figure ever recorded.
- ✓Simplicity as a location factor: three taxes instead of a thicket of special regimes reduce not only the tax burden but the cost of bookkeeping, advice and disputes.
The last point is often underestimated. Anyone who has done business in several countries knows that a low rate is worth little if its application remains contested. A system that can be explained in three sentences is also easier for auditors and courts to handle.
What this means for property buyers
For property buyers the system takes effect in three places. First, in running costs: municipal property tax is assessed on the official cadastral value, which in Paraguay has traditionally been well below market value – the annual burden is correspondingly low. Second, with rental income: it counts as income from Paraguayan sources and is captured under income tax, with the tax base reduced by attributable costs. Third, on sale, where the capital gain likewise falls under income tax.
How high the burden actually turns out in an individual case depends on the arrangement – whether letting privately or through a company, which costs are documented, whether residential or commercial space. Anyone calculating with rental income should work it through in advance with a contador rather than planning with flat figures from the internet.
Where the limits lie
Paraguay is not a country without taxes, and anyone arriving with that expectation will be disappointed. Three qualifications belong to an honest picture:
- ✓The territorial principle is not a blank cheque. Defining what counts as income "from a Paraguayan source" requires interpretation in individual cases. Anyone drawing substantial income from abroad should have the classification clarified in advance rather than assuming it.
- ✓Your country of origin has a view too. There is no double taxation agreement between Germany and Paraguay (what that means for actual savings is worked through in our article Paraguay as a tax haven?). Whether and when tax liability in your home country actually ends depends on its rules – giving up residence, exit taxation, extended limited liability. That is not decided in Asunción.
- ✓Tax residency has to be established. A residence permit alone makes nobody a tax resident. That requires an actual centre of life and the corresponding registration with the tax authority DNIT.
In perspective
The 10-10-10 system is not a marketing promise but law in force since 2020 – set out in Law 6380/2019. Its effect unfolds through the interplay of three qualities: low rates, a tax base limited to domestic sources, and a structure you can grasp without being a tax adviser. That the rating agencies have upgraded the country in parallel and that direct investment stands at record levels is no coincidence, but a response to both: reliable rules and reliable fiscal policy.
For you as a buyer this means: the tax side speaks for the location. It does not, however, replace examining the specific property – and certainly not clarifying your personal situation in your country of origin.
Your next step
We have been guiding German-speaking buyers in Paraguay since 1998 – from selecting the property through title verification to notarial completion. For tax questions we work with local specialists who assess your situation case by case. Get in touch – we will tell you honestly what holds up in your case and what does not.
Sources and status: Law No. 6380/2019 on the Modernisation and Simplification of the National Tax System, published via the Dirección Nacional de Ingresos Tributarios (DNIT); rating classifications Moody's Baa3 (July 2024, confirmed 2026) and Standard & Poor's (December 2025); growth and investment data from Paraguay's central bank and ECLAC; rules on deductible expenses under Art. 64 ff. of Law 6380/2019. As of August 2026. This article provides a general overview and does not replace tax advice in individual cases.
