Withholding VAT and INR collections both due on non-resident digital services
Paraguay has launched a new INR (income tax on digital services) registration and reporting regime for non-resident providers of e-services to consumers. This applies from 1 January 2022. This is in addition to Withholding VAT
INR Digital Services Tax – 4.5%
On the 1 January 2021, Paraguay implemented a 4.5% Digital Services Tax on digital providers. This is collected as INR, withholding tax, calculated as: 15% withholding x 30% of income = 4.5% tax. There was a delay for financial intermediaries until 1 January 2022.
Since 1 January 2022, non-residents must register with the tax office, SET. This includes appointing a local tax representative. Reporting of transactions must be done quarterly by the representative. SET will then issue an online payment notice to the representative.
Paraguay extended its Withholding VAT regime to non-resident digital or electronic services provider to consumers from 1 January 2021. It applies to both B2B and B2C transactions. In addition, a further 4.5% INR withholding tax (similar to Digital Services Tax) was introduced.
The current VAT rate in Paraguay is 10%. VAT Calc’s global VAT and GST on digital services blog keeps a live update on how countries are imposing indirect taxes on non-resident providers and electronic marketplaces.
What digital services are liable to Paraguayan VAT?
Income from the following services is subject to VAT:
- Downloads or streaming multi-media (music, films etc)
- Software and apps
- Data storage and processing
- Online gaming
- Online advertising
Determining if Paraguayan VAT is due
As in most countries, Paraguay requires to the withholding agent to have some evidence that the service was consumed locally. This may include:
- Postal and billing addresses
- IP address of the device used
- SIM card
- Bank or payment provider address
Resident customers are required to withhold the VAT amount of any payment to a non-resident provider or marketplace. This must be paid to the Finance Administration to receive special voucher receipts. Designated withholding VAT agents must report monthly on VAT deductions and obligations.
When a foreign payment is made for digital services by a resident customer via a payment provider (debit/credit card, bank transfer or online payment company), then the payment company should withhold the VAT due.
Central and South America VAT on digital services
|Comments (click for details)||Rate||Date||Threshold||Comments|
|Bahamas||10%||Jan 2015||BSD 100,000|
|Barbados||17.5%||Dec 2019||BBD 200,000|
|Costa Rica||13%||Oct 2020||Nil||Withholding VAT option|
|Dominican Republic||18%||2023?||Nil||Currently withholding VAT|
|El Salvador||13%||2022||-||Replace Withholding VAT|
|Paraguay||10%||Jan-21||Nil||Withholding VAT; 4.5% DST|
|Puerto Rico||10.5%||Jan 2020||$100,000; or 200 transactions||Marketplaces|
|Uruguay||22%||Jan 2018||Nil||VAT and Withholding Tax|