Paraguay, a landlocked country in South America, boasts a stable economy fueled by agriculture, cattle ranching, and abundant hydroelectric power. Paraguay is also a world leader in renewable energy production thanks to the Itaipú Dam, one of the largest hydroelectric facilities in the world.

With a young workforce (over a quarter of the population is aged 15–29) and one of the lowest labor costs in the region, Paraguay has become an attractive destination for employers and expatriates. 

Paraguay’s tax system is territorial; only income generated within Paraguay is subject to tax, while foreign-sourced income is exempt. It is business-friendly and features low tax rates and modest social security contributions.

Whether you’re an employer looking to hire employees in Paraguay, an employee relocating to the country, or a business considering local operations, understanding Paraguay’s tax and payroll obligations is important. We provide an overview of Paraguayan payroll and income taxes for 2025 in this guide.

What is Payroll Tax in Paraguay?

Employers and employees must pay payroll taxes to the national Social Security Institute, known as the Instituto de Previsión Social (IPS). These contributions fund public healthcare and the pension/retirement system for workers. All employers must register employees with the IPS and ensure the correct contributions are withheld and remitted each month. 

The contribution base includes almost all forms of compensation (cash or in-kind), with exceptions for annual bonus and family allowances. Social security contributions apply only to Paraguayan-source employment income. Foreign employees contribute the same as locals. 

However, senior executives or board members who are technically independent contractors can opt out of the social security system. Many top-level professionals choose private pension or insurance plans instead, but doing so means they and their employer would forego IPS benefits.

Employer Contributions

Employers in Paraguay contribute 16.5% of an employee’s gross salary to the IPS. 14% of gross wages cover employee healthcare, maternity leave benefits, and the state pension scheme, and the remaining 2.5% is an additional employer levy that finances other worker protection programs and training. 

Paraguayan law also requires employers to provide an annual 13th-month bonus, locally called the aguinaldo, each December. It is calculated as one-twelfth of the total regular income the employee earned during the year. This bonus is exempt from social security contributions.

Another benefit is the family allowance (bonificación familiar). Employees earning a minimum wage are entitled to an additional 5% of the minimum wage as a monthly allowance to support children under 17 years old. Like the 13th bonus, the family allowance is not subject to IPS contributions, nor is it counted as taxable income for the employee.

Employers must register each new hire with the IPS and maintain accurate payroll records documenting all salaries and deductions. All contributions for a given month are generally due in the first days of the following month. The law imposes strict penalties for failure to remit contributions.

In fact, Paraguayan courts handed down their first prison sentence for an employer’s evasion of IPS contributions in 2020.

Employee Contributions

Employees contribute 9% of their gross salary to the IPS. There is no separate annual payroll tax filing for employees; employer withholdings fulfills that duty. 

Special employments can alter employee contributions. For example,  when you hire independent contractors, they may not be enrolled in IPS; they might fall under a different tax regime. Always ensure that individuals who should legally be employees (per labor law definitions) are properly hired on payroll. Employee misclassification can lead to legal penalties.

Many companies partner with a local payroll outsourcing provider or a Professional Employer Organization (PEO) to handle HR and tax obligations in Paraguay. RemotePeople’s Paraguay PEO service offers on-the-ground payroll management, from calculating IPS contributions to handling payslips, ensuring full compliance with local rules. 

Our team stays updated on wage changes and social security regulations, so you don’t have to. You can also use our Global Payroll Calculator to estimate employment costs in Paraguay, including all taxes and contributions.

Industry-Specific Payroll Rates

Paraguay keeps its payroll taxes uniform across most sectors, with an exception: banks and financial institutions must contribute 17% of salaries (instead of 16.5%), and their employees contribute 11% (instead of 9%). This higher rate brings the total social security contribution to 28% of payroll (compared to 25.5% for other businesses).

Income Tax in Paraguay

Paraguay’s personal income tax is known as Impuesto a la Renta Personal (IRP). The IRP falls under the provisions of Law 6380/19, and the Dirección Nacional de Ingresos Tributarios (DNIT) administers it as Paraguay’s main tax authority.

Following its territorial taxation principle, expats, digital nomads, and global entrepreneurs can live in Paraguay and enjoy a 0% tax rate on non-Paraguayan earnings.

For income earned in Paraguay, the tax rates are very low by international standards. Personal income tax is progressive, ranging from 8% to 10%. There are three tax brackets:

Net Annual Income (PYG) Approx. USD Rate (%)
Up to 50,000,000 ≈ 6,800 8%
50,000,001 – 150,000,000 ≈ 6,801 – 20,500 9%
Above 150,000,000 > 20,500 10%

Paraguay provides a generous income threshold before IRP even kicks in. If an individual’s gross income does not exceed roughly PYG 80 million in a year (around USD $11,000–13,000, equal to about 36 times the monthly minimum wage), they are not required to pay any income tax.

Even at the highest bracket, a 10% tax rate is one of the lowest personal tax rates in Latin America. Paraguay also does not impose separate taxes on wealth, inheritance, or gifts, and no annual property taxes on personal assets.

Capital Gains and Other Income

Capital gains from Paraguayan sources are taxed at a flat 8%. Interest from foreign investments is not taxed, while interest from Paraguayan bank deposits or bonds would count toward the normal income tax (8–10%). 

Dividends from Paraguayan companies are typically 8% for resident shareholders and 15% for non-residents. This dividend tax complements the corporate tax to ensure that profits are taxed at least once (corporations pay a percentage on profits, then an additional tax is charged on the dividend payout). 

Employers considering setting up a local subsidiary or entity in Paraguay should be aware of the Impuesto a la Renta Empresarial (IRE), the corporate income tax. Paraguay’s corporate tax rate is a flat 10% on net business profits from Paraguayan sources.

Doing business in Paraguay is attractive due to the low personal and corporate taxes. But complying with the relevant regulatory bodies requires considerable administrative and legal effort. A company must first register with the Public Registry of Commerce, obtain a tax identification number from the DNIT, and establish local accounting systems that meet Paraguayan standards. Each step demands local expertise and represents a major investment of time and resources. 

For many companies, the real challenge is not the tax rate, but building and maintaining the corporate infrastructure needed to stay compliant year after year. So, what if there was a better way?

Paraguay Employer of Record

An Employer of Record (EOR) is a modern, efficient, and streamlined alternative that allows businesses to access Paraguay’s talented workforce without administrative limitations. An EOR legally employs workers on behalf of a company.

Instead of establishing a local entity, businesses can use an EOR to hire employees in full compliance with Paraguayan labor and tax laws. The EOR becomes the official employer for administrative and legal purposes, while the client company manages the employee’s day-to-day tasks and performance. This model provides a fast, compliant, and low-risk pathway to build a workforce abroad.

How RemotePeople’s EOR Solution Works

Here’s how RemotePeople’s Paraguay EOR service helps your business:

  • Accelerate market entry and hire employees without setting up a local subsidiary or branch in days, not months.
  • Our local experts manage the calculations, withholding, and timely payments of IPS contributions. 
  • We ensure all employment contracts, benefits, and terminations comply with Paraguay’s Labor Code.
  • We provide transparent reports each pay cycle showing gross-to-net calculations, all deductions, and employer costs.
  • We assist with structuring supplementary benefits you may offer, like private health or life insurance for employees.
  • We assume liability for compliance with labor and tax regulations, shielding your company from any fines, disputes, and penalties. 
  • We offer work visa support for any expatriates you need to send to Paraguay, ensuring they can work and get paid legally.

When you partner with RemotePeople, you gain a smooth entry with zero hassle with the law. We’ll ensure every guaraní of tax is accounted for correctly, so you can concentrate on growing your team and business. 

Let us help you expand your workforce and revenue in Paraguay with confidence and local expertise. 

Get started today.