Here’s the article in markdown format:
Paraguay’s National Automotive Policy Boosts Local Industry with 20% Preference Margin
=====================================================
As part of its efforts to promote domestic and foreign capital investment, Paraguay’s government has introduced a new policy aimed at stimulating the local automotive industry. The National Automotive Policy grants a 20% preference margin on public bids for companies that manufacture or assemble motorized and non-motorized vehicles, as well as automotive parts.
Key Benefits
- Tax benefits: 0% tariff on importation of capital goods, raw materials, components, kits, parts, pieces, and spare parts
- Reduced VAT liabilities: taxable base reduced to 20% of the customs value (CIF) of the goods
- Investment guarantees
- Promotion of employment generation and economic and social development
Eligibility Requirements
To be eligible for these benefits, companies must submit their investment project to an investment council for approval, which will then sign a contract with the state.
Other Key Aspects
Invariability of IRE Tax Rate
Companies can agree on the invariability of the IRE tax rate for a period of up to 15 years, starting from the start-up of the corresponding company. This provides companies with much-needed stability and predictability in their operations.
Special Regime for Importation of Raw Materials
Companies can import raw materials at a 0% tariff, providing them with greater flexibility and competitiveness in the market. To be eligible for this benefit, companies must submit an annual production program outlining the raw materials they plan to import and the final products that will result from these imports.
Limitations and Challenges
Tax Consolidation
Paraguayan tax law does not allow for tax consolidation, which may present challenges for larger companies with multiple subsidiaries.
Thin Capitalization Rules
The country’s thin capitalization rules impose a limit of 30% on the deduction of royalties, technical assistance, and interest paid to related entities. This can impact companies that rely heavily on these types of expenses.
Transfer Pricing
Since 2021, IRE taxpayers have been required to apply special rules regulating transactions between related or linked companies. The breach of these rules allows the tax authorities to revise and determine the revenues and deductions based on market values. Companies must use one of seven approved methods to determine arm’s length prices for these transactions.
Anti-Evasion Rules
The INR rules were introduced to prevent the avoidance of IDU (Income Tax). This is the only specific rule aimed at preventing tax evasion in Paraguay.
Competition Law
The country’s competition law requires merger control notifications when one of two thresholds is reached: if the parties involved have a market share equal or over 45% of a relevant market, or if their aggregated turnover in Paraguay equals or exceeds approximately USD32 million. The notification process must be completed within ten business days, and the acquiring company bears the obligation to perform the notification.
Conclusion
The National Automotive Policy is expected to boost local production and employment, while also attracting foreign investment to the country’s automotive industry.