Paraguay has published General Resolution No. 76-20, which provides for the implementation of VAT and non-resident income tax (INR) withholding on digital services with effect from 1 January 2021. Withholding on payments for digital services was previously to be implemented from 1 July 2020 but was delayed 6 months by Decree No. 3667 in June 2020.
Withholding for digital services was adopted in the framework of the September 2019 Tax Reform Law, with payments for digital services subject to 10% VAT and 4.5% INR (15% on 30% of the gross amount). General Resolution No. 76-20 provides that where digital services are provided by residents, they are subject to income tax and VAT as per standard rules, depending on the type of taxpayer, and will not be subject to withholding.
Where digital services are provided by non-residents, banks, financial entities, exchange houses, payment processors, and similar entities, and other entities that mediate for the provision of digital services and facilitate or administer payments abroad will act as VAT collection agents. In the event that a digital service acquired is related to the taxable activity of the user, the amount of VAT collected (withheld) will constitute a VAT credit for the user. The same collection agents for VAT must also act as withholding agents for INR. However, where a resident taxpayer acquires digital services from foreign providers for subsequent commercialization in Paraguay, the resident taxpayer is responsible to act as the withholding agent for VAT and INR.
General Resolution No. 76-20 also specifies the types of digital services affected by the resolution as follows:
The list may be updated, in which case it will be published on the website www.set.gov.py.
Lastly, special rules are provided with respect to digital intermediation services for land transport. This includes that instead of withholding on related payments, a non-resident provider of the intermediation services must register with the tax administration within 10 business days of beginning activities in Paraguay, with monthly declaration and payment requirements. For this purpose, the provider must contact the tax administration through email, email@example.com.
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