On December 28h, 2020, the State Undersecretariat of Taxation (“SET”, per its Spanish acronyms) issued the General Resolution No. 76/2020 (the “GR”), by which the provisions contained in Law No. 6,380/2019 (the “Tax Law”) and its regulatory decrees, related to the withholding of taxes on digital services exploited in Paraguay are regulated.

Digital services are defined by the Tax Law and its regulations, as well as by the GR, as those services that are made available to the user through the internet or any adaptation of the protocols, platforms, or technology used by the internet or any other network through which online services are rendered and that are essentially characterized for being:

  • Automatic; and,
  • Non-viable in absence of the technology of information.

On the other hand, The GR defines the “Provider” as the non-resident individual or legal entity that offers mediation or intermediation services digitally online. Conversely, the “User” is defined as any individual or legal entity that acquires a digital service.

It should be recalled that the Tax Law establishes that the payments conducted by a User in favor of a non-resident provider, are taxable in the country if the digital services are used or exploited within Paraguay. For this purpose, the referred provisions establish that the service is considered to be used or exploited in Paraguay when any of the following elements are located in the country:

  1. IP address of the device used by the customer or country code of the SIM card;
  2. Customer's billing address;
  3. Bank account used for payment remittance;
  4. The customer's billing address registered in the bank; or,

If the financial entity which issued the debit or credit card is located in Paraguay.

The Tax Law provides that for the payments conducted to the non-resident digital service Providers the following taxes must apply: (i) perception of the Value Added Tax (“VAT”) at a 10% rate -which must be added over the price of the service rendered-; and, (ii) the withholding of Non-Resident Income Tax (“INR”) at the effective rate of 4.5% -which must be subtracted from the price of the service rendered, excluding VAT-. This obligation was postponed until January 1st, 2021 and with the GR, becomes fully effective on that date. Nevertheless, to allow those obliged by the GR to adapt their systems and procedures to comply with the provisions contained in this regulation, exceptionally, the VAT and INR perceptions and withholdings, respectively, to be applied in January, February, and March 2021, may be made in April 2021.

The obligation to perform these withholdings and perceptions will trigger over the banking and financial entities, cooperatives, payment processors or similar entities, as well as telephone companies or other entities that intermediate in the provision of digital services, that facilitate or administer payments conducted abroad (“Payment Intermediaries”).

It is important to highlight that taxpayers with fiscal residence in Paraguay, who provide digital services through the internet or any adaptation, will be subject to INR withholding and VAT perception, established for the non-resident Provider.

For the Payment Intermediaries to perform the aforementioned withholdings, the GR establishes categories of digital services rendered from abroad, which must be subject to perception and withholding of the referred taxes, when the Payment Intermediaries remit the funds to the non-resident Providers located abroad. These categories divided by items are:

  1. Digital distribution of multimedia content (games, movies, music, videos, among others);
  2. Data processing and storage in general, provision, development, or update of software or applications in general;
  3. Cable and satellite television;
  4. Marketing and advertising;
  5. Games of chance, gambling, betting and similar; and,
  6. Educational services rendered through technological platforms.

The Tax Administration is empowered to expand the categories of taxpayers affected by the GR, through resolutions that will be published on its official website.

Payment Intermediaries are required to keep in their tax file:

  1. The list of non-resident providers of digital services, indicating the number and amount of transactions carried out by each providers corresponding to each month;
  2. The list of users and the debits made to each one for VAT perception, associated with the VAT perception receipt issued to each Provider.

The Payment Intermediaries shall provide this information to the Tax Administration upon request.

Finally, the GR also regulates the situation in which a taxpayer with tax residence in Paraguay acquires digital services directly, for their subsequent commercialization, without acting as those Payment Intermediaries mentioned by the GR. In this case, the taxpayer must act as a VAT and INR withholding agent following the general rules established for each tax and must issue the respective withholding receipts for each type of tax.

In other words, in these cases the mechanisms established in the GR will not apply.

Anexo 1

Anexo 2