Paraguay Holdings: The 60% Active Income Test

One line appears in almost every piece of commercial material about Paraguayan holdings: “foreign income is not taxed here, so you only pay tax when you distribute.” The line is technically correct about the Paraguayan side of the equation — and dangerously incomplete about the home-country side, which is where the owner actually lives.

Since international tax transparency rules tightened, “when you distribute” has stopped being guaranteed for a specific class of structures — and a purely passive holding, the most common type, tends to fall squarely into that class.

This article sets out the mechanism, with the rules cited, using the Brazilian case as a worked example.

The Paraguayan tax regime, precisely

Paraguay taxes on a territorial source principle (Law No. 6,380/2019): it reaches only income whose productive source is in Paraguayan territory. The core taxes for a corporate structure are:

IRE (corporate income tax): a general rate of 10% on net Paraguayan-source income. Small companies with annual turnover below a statutory ceiling (updated periodically by the DNIT) can access the SIMPLE regime, at a reduced rate on gross income.
IDU (dividends and profits tax): applies on profit distributions, at 8% where the beneficiary is a Paraguayan tax resident, and 15% where the beneficiary is non-resident.
VAT: a general rate of 10%, with a reduced 5% rate for certain essential goods and services.

A point marketing routinely confuses: the 8% IDU rate is not a benefit exclusive to the Investor Pass or any investment programme — it is the general rate under Law 6,380/2019 applicable to anyone who is a Paraguayan tax resident, holding a Tax Residency Certificate issued by the DNIT. Some promotional material presents that rate as a specific advantage of investment programmes, when in reality it follows simply from the holder being a tax resident — a status available outside any investment programme.

What changed on the other side: Brazil’s Law 14,754/2023 as the worked case

The law created, from 1 January 2024, a regime of automatic annual taxation — the tax transparency regime — for certain foreign entities controlled by individuals resident in Brazil, at 15% on the profit determined in the annual return, regardless of distribution.

The rule does not reach every foreign company. It targets controlled entities meeting at least one of two conditions:

Being located in a country or dependency with favourable taxation, or benefiting from a privileged tax regime, under the criteria of Law No. 9,430/1996, Article 24 — currently set, by Normative Instruction RFB No. 1,037/2010 (as updated), at an effective rate below 17% on income.
Having own active income below 60% of total income — that is, income that is predominantly passive (rents, dividends, interest, royalties, capital gains) rather than derived from the entity’s own operating activity.

Why this matters specifically for a Paraguayan holding

Here is the calculation most commercial material on Paraguayan holdings simply does not perform:

A purely passive holding — set up solely to hold shareholdings, property or financial investments, with no operations of its own — almost by definition generates no active income. Its typical revenue is dividends received, rent, interest on investments. Which means it tends to fail the 60% active income test, regardless of whether Paraguay is classified, on its own, as a favourable-tax jurisdiction.

In practice: Paraguay does not need to appear on any low-tax country list for the holding to fall into tax transparency. It is enough that the entity is, in substance, an asset-holding company with no active income of its own — precisely the design most commonly sold in the market.

Note on scope. How a specific structure classifies against the two criteria depends on case-by-case accounting and corporate analysis, including how the Paraguayan entity sits with respect to IRE (general regime, SIMPLE, or exempt) and the exact nature of each revenue stream. This article describes the general mechanism; it does not replace a technical opinion on your case.

The alternative the law provides: a holding with real active income

The same law opens a path: if the foreign controlled entity carries on its own operating activity — trade, services, production — and that activity accounts for 60% or more of total income, automatic annual taxation does not apply; profit follows the general rule, taxed at home only when actually distributed (or through capital gain on disposal).

That repositions the central question for anyone structuring wealth in Paraguay: the decision is not merely “open a company there”, but design an operation with real substance — which, incidentally, connects with the Paraguayan IRE regime itself, which also requires evidence of genuine activity to access certain sectoral benefits.

The other side that also changed: inheritance tax on foreign assets

In several jurisdictions in the region, the power to tax inheritances and gifts with a foreign connecting factor was historically contested. In Brazil, the Supreme Federal Court had held, in Theme 825, that national complementary legislation was missing for that specific levy.

Constitutional Amendment No. 132/2023 (the tax reform) provided that national complementary legislation would resolve the competence question, and subsequent regulation advanced on that basis, also addressing aspects of inheritance and gift tax on transfers with a foreign connecting factor.

The point requiring caution: the practical application and the timing effects of that regulation — including the anteriority principle, which prevents a new tax being levied in the same year the rule was published — still depend on how each Brazilian state (which holds the power to impose and collect the tax) incorporates the rule into its own legislation.

Note on scope. This is currently the point of greatest regulatory instability in estate planning involving Paraguay. The exact effective date should be confirmed against the specific local legislation and with a tax lawyer before any gift or corporate reorganisation motivated by inheritance tax.

What this changes in practice

Paraguay’s 10% rate was never, on its own, the complete answer. It describes taxation in Paraguay. Taxation in the owner’s country of residence is a separate equation — and transparency rules have made it more rigid.
Operating substance has stopped being a legal luxury and become a central variable. A holding with genuine active operations — not merely on paper — has a structurally different home tax treatment from a purely passive holding.
Estate planning has to run in parallel with tax planning, not after it. With inheritance tax on foreign assets still being regulated, structures designed solely around current income can prove suboptimal from a succession perspective.

Frequently asked questions

Does a Paraguayan holding avoid home-country tax until it distributes?

It depends on the design. If the controlled entity’s own active income is below 60% of the total, or it sits in a jurisdiction classed as favourable-tax, transparency rules tax the profit automatically — at 15% a year in the Brazilian case — even with no distribution.

Is Paraguay on the Brazilian low-tax jurisdiction list?

The statutory test treats an effective rate below 17% as favourable taxation — a threshold Paraguay’s general 10% corporate rate does not exceed. Even so, the more decisive trigger in practice is usually the active income test, not the formal country listing.

Does a holding with real operating activity escape the rule?

If the controlled entity’s own active income represents 60% or more of total income, automatic annual taxation does not apply — profit follows the rule of taxation only on distribution.

Is inheritance tax on foreign assets already in force?

The constitutional basis and the national complementary legislation exist, but effective application depends on how each state has incorporated the rule. This is the point requiring the most careful confirmation before any decision.

The starting point

Structuring wealth in Paraguay continues to make sense for many profiles — a territorial regime, a competitive corporate rate, regional macroeconomic stability. But the right answer does not come from the Paraguayan rate in isolation; it comes from looking at both ends at once, with the correct operating substance designed in from the start.

If you already have — or are considering building — a structure in Paraguay, the next step is to review whether it would pass the active income test today, and how inheritance tax fits your specific succession plan.

One conversation is enough to establish where your structure actually stands.

Informational content. It does not constitute legal, tax or investment advice. The rules cited were verified against the official sources indicated in July 2026 and may be amended or further regulated, particularly as regards local inheritance tax. Individual situations produce different outcomes and should be analysed case by case.