Paraguay Law 1,064/97 is the important Maquila Law, which provides fiscal incentives for foreign investment aimed at the production of goods and the provision of services for export. No less important is the presentation of questions on labor law, corporate law, intellectual property protection and environmental law, such as those in force in Paraguay and necessary for the assessment of the feasibility of operations in the country.
Article 1 of this law makes clear its purpose and the operations that are covered by it, in general terms the law applies to cases where the investor installs in Paraguay a company using Paraguayan labor and domestic raw materials or not in order to export in order to fulfill a contract established by a foreign company is for the production of goods or services intended for export.
The Maquila Law grants, in articles 29 and 30, the prerogative to foreign investors to enjoy two important tax benefits.
The first benefit is provided in article 29, which clearly states that the activities carried out in execution of the Maquila contract are taxed by a single tax of 1% (one percent) on the value added in national territory and article 128 of the Decree No. 9585/2000, which regulates the Maquila Law, reinforces that this will be the only definitive tax paid in relation to the rents generated under the Maquila Regime.
The second benefit conferred by the Law is provided in Article 30 which states that all activities carried out pursuant to the Maquila Contract, as well as the importation and re-export of the goods imported and the re-exportation of processed, repaired or assembled goods, all as provided in the aforementioned contract, will be exempt from all other national, departmental (state) or municipal taxes.
In regulating the Maquila Law, Decree 9585/2000 went further, providing that the exemptions provided for in article 30 of the Maquila Law will also include i) the customs duties established in Law 1.173/85 “Customs Code” and its modifications; ii) the payment of Taxes for Customs Valuation Service; iii) Consular Fee; iv) National Indigenous Institute (INDI) rate; v) port and airport charges; vii) payment of royalties for the use of computer software; vi) any other fees, taxes or contributions existing or to be created, which impose the entry and/or exit of goods covered under the Maquila regime; vii) all taxes, fees and contributions that encumber the guarantees that Companies and/or Third Parties grant and that relate to the Maquila Regime; viii) the total taxes and contributions levied on loans intended to finance the Maquila Operations; and, ix) the Taxes that could record the Remittance of Money related to the Maquila Regime.
Companies that carry out operations exclusively enjoy, in addition to the benefits mentioned in the previous article: i) exoneration of the Patent Tax to Businesses, Industries Professions and Crafts; ii) exoneration of the Construction Tax that affects the Industrial and/or Services Plant as approved in the Maquila Program; iii) exemption of fees that directly affect the Maquila process; iv) exoneration of Value Added Tax that records the leasing or leasing operations of the machines and materials that are part of the Maquila Program; and v) any other national or departmental tax, fee or contribution created or to be created.
The mentioned Law brings some requirements to be fulfilled for framing, the first requirement that can be listed to obtain the benefits of the Law is the existence of a Contract between the company installed in Paraguay (the Maquiladora company) and a foreign company receiving the goods or services. This contract is called the Maquila Contract. Since the existence of a contract for the application for the benefit of the Maquila Law may be impracticable, it is possible to require the Maquila benefits only with the presentation of a Letter of Intent, in which case a period of 120 days will be opened for the contract to be presented, which must consistently be the same as the previously formalized intentions.
The second requirement requires that the production of goods or the provision of services is destined for the external market, that is, outside the Paraguayan market. The Law only allows that 10% of the additional sales to the volume exported in the last year may be destined to the domestic market, if all municipal, departmental and federal taxes are paid on this percentage, and maintain the same control and quality standards that apply to products for export.
There is also a third requirement that a legal entity be created in Paraguay. So even if extension arm or division of a company already established in another country, you must create an entity in Paraguay so that they can get the benefits of Maquila.
A fourth requirement is to use Paraguayan labor force and to train the national personnel necessary for the execution of the Program, since Decree 9585/2000, which regulates the Maquila Law, makes explicit “that the same will represent an important source of employment, as well as training and training of our businessmen, professionals and technicians, as well as the workforce in general.” The Paraguayan labor law will govern all these labor relations.
The fifth requirement listed is a consequence of a requirement to provide sufficient guarantee to the satisfaction of the Paraguayan Customs Authority by the amount of any charges that may be applied in order to ensure compliance with the obligations imposed by this regime.
With regard to labor relations, we can see the existence of a Labor Code as the main law on labor relations, which adopts a regime similar to that of Brazil, however, less burdensome and less expensive to the entrepreneur. The main points are: working hours of 8 hours a day and 48 hours a week; additional 30% for night work considered from 20h to 6h; and 50% over normal hours for overtime and 100% for holidays, night breaks and overtime. The example of Brazil requires additional insalubrity and dangerousness, as well as 13th salary.
The holiday scheme is a little different: 12 working days per year completed up to 5 years of work, 18 working days of 5 to 10 years of work and 30 working days with more than 10 years of work.
Reaching the scope of corporate law, the Maquila Law expressly states that a company must be incorporated in Paraguay, but, on the other hand, it does not specify what type of company should be. Thus, the foreign investor who wanted to benefit from the Maquila Law must be legally incorporated under any of the corporate types provided for in Paraguay, which are similar to those in Brazil.
With respect to the protection of intellectual property, it is extremely important for the Brazilian executive to have his intellectual property protected in Paraguayan territory. Although the targeted investments return to the production of goods and the provision of services destined to the outside, also the protection in the country where it is produced is necessary, so that the proprietor of the intellectual property has the possibility to cease any type of production that violates it.
Paraguay has a legal system for the protection of modern industrial property imposed by Law No. 1,294 of 1998 and its Regulatory Decree No. 22.365 of 1998. Paraguay is also a signatory to the most important international conventions for the protection of intellectual property, such as the Paris Convention and to the Marrakesh Agreement establishing the World Trade Organization and carries with it the provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Thus, for example, the Brazilian executive who has a trademark or a patent registered in Brazil will have priority of 6 or 12 months, respectively, to apply for registration in Paraguay.