Doing Business in Paraguay

Country Cost Elements

Technical Unit for Industrial Studies UTEPI

MINISTERIO DE INDUSTRIA Y COMERCIO
Ministerio del Desarrollo

United Nations Industrial Development Organization (UNIDO)

Doing Business in Paraguay: Country Cost Elements  Ministry of Industry and Commerce (MIC) and United Nations Industrial Development Organization (UNIDO). Ministry of Industry and Commerce Avda. Mcal. López 3,333 and Dr. Wiss Tel.: (+595-21) 616-3000; 616-3092; Fax: (+595-21) 616-3208 Asunción, Paraguay E-mail: utepi.info@mic.gov.py Website: www.mic.gov.py United Nations Industrial Development Organization Vienna International Centre, P.O. Box 300, A-1400 Tel.: (+43-1) 260260; Fax: (+43-1) 2692669 Vienna, Austria E-mail: unido@unido.org Website: www.unido.org November 2007 Project manager: International consultant: National coordinator: National adviser: Researchers: Diana Hubbard (UNIDO) Manuel Albaladejo Aníbal Giménez Kullak (MIC) César Pastore Britos (MIC) Ángel Benítez Vera (MIC) Guido Brítez Gómez (MIC) Nathalia Rodríguez Romero (MIC) José Hidalgo, Roger Peniston-Bird Andrés Dávila

Editing: Design and layout:

The information contained in this report may be used provided that the source is cited as follows: UTEPI (2007). Doing Business in Paraguay: Country Cost Elements. Cooperation between the United Nations Industrial Development Organization and the Industry Division of the Ministry of Industry and Commerce. Asunción, Paraguay. Suggestions and comments: Technical Unit for Industrial Studies (UTEPI), utepi.info@mic.gov.py ISBN: 978-99953-838-2-4 Copyright: ALL RIGHTS RESERVED. TOTAL OR PARTIAL REPRODUCTION WITHOUT DUE AUTHORIZATION IS PROHIBITED. THE DEPOSIT REQUIRED UNDER LAW 1328/98 HAS BEEN EFFECTED.

FOREWORD

For Paraguay to find its place in an increasingly globalized and competitive world requires clear policies that will promote economic growth with emphasis on the industrial sector, that are oriented towards sustainable development and that will encourage the generation of better employment opportunities in order to improve the quality of life of the Paraguayan people. The business climate for the successful development of enterprises and for attracting new investment is improving, thanks, inter alia, to macroeconomic stability, legal conditions and the simplification of procedures for starting up new businesses. The result has been a steady increase in domestic and foreign investment in recent years. In the effective utilization of business opportunities, the availability of information plays a key role. In this context, the Ministry of Industry and Commerce, through the Industry Division and the Investment and Exports Network, and in order to meet the needs of the business sector on an expanding basis, have produced this important analytical reference tool which it is placing at the disposal of the productive sector. The present document, Doing Business in Paraguay: Country Cost Elements 2007, is the fruit of a joint effort made by the public and private sectors, with technical and financial support from the United Nations Industrial Development Organization (UNIDO), to collect, arrange and classify information concerning transactions and costs that needs to be taken into account when making decisions on investment in Paraguay. It is our hope that this report will serve as a useful reference guide for local and foreign investors, as well as helping to identify obstacles that still need to be removed if optimum conditions are to be ensured for Paraguay to become a destination for investment.

Translated from “Negocios en el Paraguay: Elementos del Costo País” published in November 2007
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CREDITS AND ACKNOWLEDGMENTS

The report Doing Business in Paraguay: Country Cost Elements 2007 has been prepared within the framework of the first stage of the project of the United Nations Industrial Development Organization in Paraguay entitled Institutional Support and Capacity Building in Competitiveness Analysis (XP/PAR/06/001), within the Industry Division (SSEI) of the Ministry of Industry and Commerce. This study aims to meet the needs of investors for information relevant to decision-making, particularly as concerns the costs of the necessary procedures. The work was carried out under the supervision of Aníbal Giménez Kullak, Deputy Minister for Industry and National Project Coordinator, and Diana Hubbard, Chief of the Commercial Analysis and Conformity Infrastructure Unit of UNIDO. Manuel Albaladejo, an international adviser, offered assistance and made available his valuable experience during the first stage of the work; César Pastore, Director-General for Industrial Policy, acted as national economic adviser. The team of professionals of the Technical Unit for Industrial Studies (UTEPI) were responsible for planning, organization, collection of data and the drafting of the report; the team consisted of Ángel Benítez (researcher), Guido Brítez (researcher) and Nathalia Rodríguez (coordinator). Thanks are expressed to all the UTEPI staff for the review and analysis of the various sections of the document. José Hidalgo (Corporation for Development Studies -CORDES-) was the editor of the original Spanish text; Roger Peniston-Bird edited the English translation, and Andrés Dávila (CORDES) was responsible for the graphics. More than 120 institutions in the public and private sectors cooperated in the preparation of the document, including: six government ministries and their departments concerned with matters relating to investors; the decentralized State agencies; the Central Bank of Paraguay, banks and financial institutions in the public and private sectors; private sector organizations and associations; and 13 municipalities, including the capital, Asunción, and the main cities of the interior of the country. We are deeply grateful to all these institutions, since the work would not have been possible without their cooperation. Thanks are also expressed to all institutions and individuals who contributed directly or indirectly to the preparation of this report.

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TABLE OF CONTENTS

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii Credits and acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Abbreviations and acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii CHAPTER 1. Issues of interest to the investor . . . . . . . . . . . . . . . . . . . . . . 1 1.1. General information about Paraguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2. Economic environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3. The Paraguayan industrial sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4. Domestic and foreign investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 5 6

CHAPTER 2. Incorporation of companies . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1. Institutional relationship and regulatory framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2. Processes of incorporation, registration and monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2.1. Modernization and technological development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2.2. Approval and registration through the Unified System for the Opening of Businesses . . . . . . . . . . . . 10
2.2.2.1. Registration with the Directorate-General for Public Registers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.2.2. Immigrant visas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.2.3. Business licences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.2.3. Fees of notaries public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.2.4. Services, monitoring and auditing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2.3. Environmental licences and certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.4. Industrial registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 CHAPTER 3. Industrial land and property rental costs . . . . . . . . . . . . . . . . . 17 3.1. Industrial parks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.1.1. Technological Park Itaipú . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.1.2. Taiwan Industrial Park. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.1.3. Avay Industrial Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.1.4. MERCOSUR Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

3.2. Property taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

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CHAPTER 4. Employment and labour costs . . . . . . . . . . . . . . . . . . . . . . . 21 4.1. Legislation and labour institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.2. Minimum wages and statutory benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.2.1. Minimum monthly wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.2.2. Sectoral tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.2.3. Additional benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.2.4. Regulations on working hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.2.5. Termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.2.6. Social security contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.3. Labour market recruitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.4. Public and other holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 CHAPTER 5. Communication services . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.1. Legal and institutional framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2. Fixed telephony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3. Mobile telephony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4. Internet services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5. Postal service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 27 28 29 31

CHAPTER 6. Electricity, drinking water and fuel costs . . . . . . . . . . . . . . . . . 33 6.1. Electricity sector and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.1.1. Legislation and institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.1.2. Electricity production and consumption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.1.3. Price systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

6.2. Drinking water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.3. Cost of fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 CHAPTER 7. Other industry costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.1. Fees for trademark, design and patent registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.2. Fees for public services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 7.3. Membership in chambers of commerce and industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 CHAPTER 8. Accreditation and certification agencies . . . . . . . . . . . . . . . . . 45 8.1. National Accreditation Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2. National Institute of Technology and Standardization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3. National Service for Animal Health and Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4. National Service for Plant and Seed Quality and Health. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 45 46 47

CHAPTER 9. Transportation services and infrastructure . . . . . . . . . . . . . . . . 49 9.1. Road and land transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.2. Rail transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

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9.3. Maritime transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4. Storage facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5. Air transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.6. Insurance services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53 55 56 58

CHAPTER 10. Cost of living . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 10.1. Costs for the rental of housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2. Domestic service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3. Security services for dwellings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4. Health insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5. Education: School enrolment and tuition fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6. Rental of vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7. Vehicle insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 59 60 60 61 62 62

CHAPTER 11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.1. Tax on income from commercial activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2. Tax on personal income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3. Value added tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4. Excise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5. Vehicle licence tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6. Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 64 64 65 66 66

11.6.1. Tax on documents and deeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 11.6.2. Tax on agricultural income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

11.7. Other municipal taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 11.8. Agreements to avoid double taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 CHAPTER 12. Financial costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 12.1. Reference interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 CHAPTER 13. Foreign trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 13.1. Export regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
13.1.1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 13.1.2. Exports of soya and meat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 13.1.3. Certificate of origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 13.1.4. Drawback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

13.2. Import regime. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 13.3. Customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 13.4. Foreign trade agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 CHAPTER 14. Incentives for investment and exports . . . . . . . . . . . . . . . . . . 81 14.1. Law 60/90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 14.2. Maquiladora regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
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14.3. National Regime for Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 14.4. Regime for Imports of Raw Materials and Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 14.5. Free trade zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Legislation consulted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

TABLES Table 1: Manufactured exports per capita, 2000-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Table 2: Types of companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Table 3: Registration of enterprises through the Unified System for the Opening of Businesses . . 11 Table 4: Requirements for the registration of commercial companies . . . . . . . . . . . . . . . . . . . . . . 12 Table 5: Requirements for the registration of single-owner businesses and single-owner limited liability companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Table 6: Tariffs for immigration visas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Table 7: Business licence charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Table 8: Fees of notaries public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Table 9: Requirements for obtaining the Environmental Impact Statement . . . . . . . . . . . . . . . . . 15 Table 10: Additional environmental impact studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Table 11: Requirements for obtaining industrial registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Table 12: Minimum monthly wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table 13: Sectoral tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table 14: Additional benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 15: Annual leave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 16: Cost of night work and overtime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 17: Termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Table 18: Social security contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Table 19: Wages on the freely-contracted labour market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Table 20: National public holidays and other holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Table 21: Cost of and time needed for telephone line installation . . . . . . . . . . . . . . . . . . . . . . . . 27 Table 22: Telephone charges by category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Table 23: Cost of mobile phones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Table 24: Mobile phone plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Table 25: Internet rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Table 26: Rates for regular national mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
x

Table 27: Rates for airmail and the international Express Mail Service*. . . . . . . . . . . . . . . . . . . . 32 Table 28: Development of electricity coverage in Paraguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Table 29: Costs for connection to the electricity grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Table 30: Electricity rates, low and medium voltage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Table 31: Electricity rates, high and very high voltage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Table 32: Electricity rates for electricity-intensive enterprises. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Table 33: Prices of electricity supply for residential consumers . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Table 34: Prices for electricity supply for industrial consumers. . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Table 35: Connection charges – Empresa de Servicios Sanitarios del Paraguay S.A. . . . . . . . . . . . 37 Table 36: Drinking water rates – Empresa de Servicios Sanitarios del Paraguay S.A. . . . . . . . . . . 38 Table 37: Drinking water rates – sanitation boards and private companies (average) . . . . . . . . . 38 Table 38: Prices for fuels in the capital and the metropolitan area . . . . . . . . . . . . . . . . . . . . . . . . 39 Table 39: Fees for trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Table 40: Fees for patents and utility models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Table 41: Monthly charges for refuse collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Table 42: Monthly charge for public lighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Table 43: Fees for membership in chambers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Table 44: Accreditations with the National Accreditation Agency . . . . . . . . . . . . . . . . . . . . . . . . . 45 Table 45: Procedures for exporting and importing products of plant origin . . . . . . . . . . . . . . . . . 47 Table 46: Basic characteristics of the road infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Table 47: Fees at the toll stations managed by the Ministry of Public Works and Communications 50 Table 48: Tolls charged by Tape Porá . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Table 49: Land transport freight costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Table 50: Duty-free storage facilities granted to Paraguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Table 51: Cost of maritime shipping to major ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Table 52: Monthly storage costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Table 53: Incentives for imports at particular terminals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Table 54: Port costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Table 55: Flight time between cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Table 56: Air fares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table 57: Air freight costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table 58: Rates for insurance of international freight against all risks . . . . . . . . . . . . . . . . . . . . . 58 Table 59: Rental costs per month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Table 60: Monthly wages for domestic service in Asunción . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Table 61: Monthly cost for security services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Table 62: Monthly cost of health insurance plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
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Table 63: School enrolment and tuition fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table 64: Cost of rental of vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Table 65: Tax on personal income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Table 66: Value added tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Table 67: Excise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Table 68: Vehicle licence tax in Asunción . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Table 69: Vehicle licence tax in the interior of Paraguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Table 70: Other municipal taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Table 71: Bilateral tax agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Table 72: Reference annual interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Table 73: Credit options through the Development Finance Agency . . . . . . . . . . . . . . . . . . . . . . . 71 Table 74: Procedure for exporting soya using the Single Window for Exports . . . . . . . . . . . . . . . 74 Table 75: Process for exporting meat using the Single Window for Exports . . . . . . . . . . . . . . . . . 74 Table 76: Certificates of origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Table 77: Certificate of origin for wood products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Table 78: Fees of customs clearance agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Table 79: Import regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Table 80: Other taxes and charges payable in customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Table 81: Foreign trade agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

DIAGRAMS Diagram 1: Population of Paraguay by age group, forecast for 2007 . . . . . . . . . . . . . . . . . . . . . . . 2 Diagram 2: Changes over time in the gross domestic product, 2000-2007 . . . . . . . . . . . . . . . . . . . 2 Diagram 3: Structure of the Paraguayan economy in 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Diagram 4: Inflation and interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Diagram 5: Average monthly exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Diagram 6: Outstanding external debt as a percentage of the gross domestic product . . . . . . . . . . 5 Diagram 7: Domestic investment and net flows of foreign direct investment . . . . . . . . . . . . . . . . . 7 Diagram 8: Share of imports of hydrocarbons in the total imports of Paraguay . . . . . . . . . . . . . . 38 Diagram 9: Changes over time in the number of passengers transported (1998-2006) . . . . . . . . 57 Diagram 10: Trends in investment under the incentives regime established by Law 60/90 . . . . . 82 Diagram 11: Development of exports using the maquiladora regime . . . . . . . . . . . . . . . . . . . . . . 83 Diagram 12: Trends in the production of motorcycles and bicycles . . . . . . . . . . . . . . . . . . . . . . . 85

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BOXES Box 1: Macroeconomic forecasts for 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Box 2: Goals, achievements and services of the Unified System for the Opening of Businesses . . 10 Box 3: Potential of the Paraguayan hydroelectric sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Box 4: Outlook for the fuels sector in Paraguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Box 5: Land transportation: outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Box 6: Development Finance Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Box 7: Investment and Exports Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

xiii

INTRODUCTION

The availability of information, besides being an essential condition for successful decision-making, helps to minimize the costs of transactions and reduce the risk of errors in the operations of enterprises. The different processes involved in satisfying a particular procedural requirement are usually handled by a number of different institutions and departments, which generates a high bureaucratic cost. In order to simplify the requirements for investing in Paraguay, the Industry Division and the Investment and Exports Network, with the assistance of UNIDO, have prepared the present document, setting out the main economic and legal aspects that need to be known to and considered by potential investors and by those already established in the country. The preparation of the document has required consultations with the official institutions responsible for each procedure, surveys of enterprises offering different services and summaries of the laws and decrees relating to the business environment. An important advantage of the report is the up-to-date nature of the data and information given; the data was collected between June and November 2007. The tables showing the costs for the different procedures are expressed in both guaraníes and United States dollars; the exchange rate used represents the average for September 2007, namely 5,012 guaraníes to one dollar. The document is divided up in the following manner. Chapter 1 describes the main characteristics of the country, the culture, the economic environment, trends in investment flows and participation in world markets. Chapters 2 to 8 discuss aspects relating to the operation of enterprises: the procedures for starting up operations, the industrial areas available for establishing plants, labour costs, labour regulations, access to road communications and services that are offered to enterprises. Information is also given on the costs of basic services, such as electricity and water, and other industrial costs such as those for trademarks and registration, public services and membership in chambers of industry; the agencies responsible for the certification of products are also described. Chapters 9 to 14 detail other factors that affect enterprises, such as the road infrastructure, transport costs and living costs in the capital, the nearby towns and Paraguay's main cities. Another sphere that affects the capacity of a country to attract investment relates to taxes. The taxes levied on different economic activities are specified. Regarding the financial area, reference interest rates and the products offered on the Paraguayan financial market are indicated. Concerning foreign trade, the document includes a chapter describing export and import regimes. Lastly, a summary is given of the main incentives offered to enterprises under special regimes designed to promote and accentuate Paraguay's export profile.

xv

ABBREVIATIONS AND ACRONYMS

ADSL AFD AFIDI ALADI ANDE ANNP BCP CAB CADELPA CAMP CAN CAPADI CAPECO c.i.f. CMC CNCSP CNIME CONACYT CONATEL COPACO S.A. CPI CTA DGCE DGEEC DGGC DGM DGPI DGRP DIGECIPOA DINAC

Asymmetric Digital Subscriber Line Development Finance Agency (Agencia Financiera de Desarrollo) Phytosanitary Import Accreditation (Acreditación Fitosanitaria de Importación) Latin American Integration Association (Asociación Latinoamericana de Integración) National Electricity Administration (Administración Nacional de Electricidad) National Authority for Navigation and Ports (Administración Nacional de Navegación y Puertos) Central Bank of Paraguay (Banco Central del Paraguay) Basic Environmental Questionnaire (Cuestionario Ambiental Básico) Cotton Chamber of Paraguay (Cámara Algodonera del Paraguay) Centre for Arbitration and Mediation of Paraguay (Centro de Arbitraje y Mediación del Paraguay) Andean Community (Comunidad Andina de Naciones) Paraguayan Internet Chamber (Cámara Paraguaya de Internet) Paraguayan Chamber for Cereals and Oilseeds (Cámara Paraguaya de Cereales y Oleaginosas) cost, insurance and freight Council of the Common Market National Chamber of Commerce and Services of Paraguay (Cámara Nacional de Comercio y Servicios de Paraguay) National Board of Maquiladora Industries for Export (Consejo Nacional de Industrias Maquiladoras de Exportación) National Council for Science and Technology (Consejo Nacional de Ciencia y Tecnología) National Telecommunications Commission (Comisión Nacional de Telecomunicaciones) Compañía Paraguaya de Comunicaciones S.A. Consumer Price Index Customs Procedure Centre (Centro de Trámites Aduaneros) Directorate-General for Foreign Trade (Dirección General de Comercio Exterior) Directorate-General for Statistics, Surveys and Censuses (Dirección General de Estadísticas, Encuestas y Censos) Directorate-General for Major Contributors (Dirección General de Grandes Contribuyentes) Directorate-General for Migration (Dirección General de Migraciones) Directorate-General for Intellectual Property (Dirección General de Propiedad Intelectual) Directorate-General for Public Registers (Dirección General de Registros Públicos) Directorate-General for the Quality and Harmlessness of Products of Animal Origin (Dirección General de Calidad e Inocuidad de productos de Origen Animal) National Directorate of Civil Aviation (Dirección Nacional de Aeronáutica Civil)

xvii

DINATRAN DNA DRE EAP EMS EPH ERSSAN ESSAP FEPAMA f.o.b. FOCEM G GATT GDP GSM GSP ICT IDB IMF INTN IPS ISC ISIC ISO ITU kW-h MAG MCC MERCOSUR MH MIC MJyT MOPC MW-h ONA PETROPAR PROCAR PTI-MD

National Transport Directorate (Dirección Nacional de Transporte) National Customs Directorate (Dirección Nacional de Aduanas) Directorate for Special Regimes (Dirección de Regímenes Especiales) economically active population Express Mail Service Permanent Survey of Households (Encuesta Permanente de Hogares) Regulatory Body for Public Health Services (Ente Regulador de Servicios Sanitarios) Empresa de Servicios Sanitarios del Paraguay S.A. Wood Industry Federation of Paraguay (Federación Paraguaya de Madereros) free on board Structural Convergence Fund of MERCOSUR (Fondo de Convergencia Estructural del MERCOSUR) guaranies General Agreement on Tariffs and Trade gross domestic product Global System for Mobile Communications Generalized System of Preferences information and communications technologies Inter-American Development Bank International Monetary Fund National Institute of Technology and Standardization (Instituto Nacional de Tecnología y Normalización) Social Security Institute (Instituto de Previsión Social) excise tax (Impuesto Selectivo al Consumo) International Standard Industrial Classification of All Economic Activities International Organization for Standardization International Telecommunication Union kilowatt-hour(s) Ministry of Agriculture and Livestock (Ministerio de Agricultura y Ganadería) Millennium Challenge Corporation Southern Common Market (Mercado Común del Sur) Ministry of Finance (Ministerio de Hacienda) Ministry of Industry and Commerce (Ministerio de Industria y Comercio) Ministry of Justice and Labour (Ministerio de Justicia y Trabajo) Ministry of Public Works and Communications (Ministerio de Obras Públicas y Comunicaciones) megawatt-hour(s) National Accreditation Agency (Organismo Nacional de Acreditación) Petróleos del Paraguay Property Register Programme (Programa de Catastro Registral) Technological Park Itaipú - Margen Derecha (Parque Tecnológico Itaipú - Margen Derecha)

xviii

PYMES RAN REDIEX RUC RUE SEAM SENACSA SENAVE SET SNC SOFIA STP SUAE UIP UNDP UNESCO USAID UTEPI VAT VUE WTO ZFI

small and medium enterprises (pequeñas y medianas empresas) National Regime for Motor Vehicles (Régimen Automotor Nacional) Investment and Exports Network (Red de Inversiones y Exportaciones) Single Taxpayers' Register (Registro Único de Contribuyentes) Single Register for the Exporter (Registro Único del Exportador) Secretariat of the Environment (Secretaría del Ambiente) National Service for Animal Health and Quality (Servicio Nacional de Calidad y Salud Animal) National Service for Plant and Seed Quality and Health (Servicio Nacional de Calidad y Sanidad Vegetal y de Semillas) Taxation Division (Sub Secretaria de Estado de Tributación) National Cadastre System (Sistema Nacional de Catastro) System for the Fiscal Organization of Customs Levies (Sistema de Ordenamiento Fiscal de Impuestos Aduaneros) Technical Secretariat for Planning (Secretaría Técnica de Planificación) Unified System for the Opening of Businesses (Sistema Unificado de Apertura de Empresas) Paraguayan Industrial Union (Unión Industrial Paraguaya) United Nations Development Programme United Nations Educational, Scientific and Cultural Organization United States Agency for International Development Technical Unit for Industrial Studies (Unidad Técnica de Estudios para la Industria) value added tax Single Window for Exports (Ventanilla Única de Exportación) World Trade Organization International Free Trade Zone (Zona Franca Internacional)

xix

.

CHAPTER

1

Issues of interest to the investor

T

he Paraguayan economy has shown positive results in the last four years and the prospects for 2007 are encouraging. This constitutes a favourable setting for attracting investment and for successful business activities.

This first chapter presents Paraguay’s main characteristics and its macroeconomic indicators, obtained from the official institutions responsible for preparing them.

1.1. General information about Paraguay
Paraguay is situated in South America, sharing borders with Brazil, Bolivia and Argentina and having an area of 406,752 km2. The river Paraguay divides the country into two regions: the Eastern and Western Regions. Paraguay is blessed with abundant water resources, as it forms part of the Guaraní Aquiferous System, considered the largest freshwater reserve in the world. In addition, the numerous rivers that traverse the country make its soil very suitable for the cultivation of various products, some of them exportable, such as soya, cotton, etc. The copious waters of the river Paraná provide the country with abundant hydroelectric energy, produced at the binational Itaipú and Yacyreta power stations and at the national Acaray plant. Paraguay has various sites of natural and historical interest, such as the Jesuit ruins of Jesús and Trinidad, declared world heritage sites in 1993 by the United Nations Educational, Scientific and Cultural Organization (UNESCO). The hydroelectric dams, the numerous national parks, “ranch tourism” and many other attractions bring large numbers of tourists to the country every year. Paraguay is a nation with an identity of its own, having two official languages, Spanish and Guarani, and its customs are deeply rooted in the population, the majority of whom are young, as is shown in diagram 1. There is consequently abundant labour available in Paraguay.
GENERAL INFORMATION OF PARAGUAY
Location: Capital: Area: Population:* Official languages: Currency: South America (shares borders with Brazil, Bolivia and Argentina) Asunción 406,752 km2 6,119,642 Spanish and Guarani Guaraní

Gross domestic product (GDP) per capita, 2007 forecast (current US Dollars)** 1,858
* Forecast for 2007 by the Directorate-General for Statistics, Surveys and Censuses (DGEEC). ** Forecast by the Ministry of Finance (MH).

1

Doing Business in Paraguay: Country Cost Elements

Diagram 1: Population of Paraguay by age group, forecast for 2007
80+

70-74

60-64

50-54

Age group

40-44

30-34

20-24

10-14

0-4 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000

Population Source: Technical Secretariat for Planning (STP)/Directorate-General for Statistics, Surveys and Censuses.

1.2. Economic environment1
According to official forecasts, economic growth in Paraguay for 2007 will be 4.5%. If this prediction proves correct, it will be the fifth consecutive year with positive results, encouraging a climate of optimism and economic stability. These results are supported by the dynamic nature of domestic demand, which is the result of the increase in investment and in levels of public and private consumption, and also by growing external demand, which has led to an increase in Paraguayan meat exports.
Diagram 2: Changes over time in the gross domestic product, 2000-2007
5

4

Percentage variation (constant 1994 dollars)

3

2

1

0 2001 -1 2002 2003 2004 2005 2006* 2007**

* Preliminary figures. ** Forecasts. Source: Central Bank of Paraguay (BCP).

1

The data were taken from official statistics of the Central Bank of Paraguay.

2

Chapter 1. Issues of interest to the investor

In constant terms, the GDP of Paraguay increased from USUS$8,228 million in 2005 to USUS$8,560 million in 2006, the most dynamic sectors being animal production, services and manufacturing industries. In 2004, the rate of real growth of GDP was 4.1%, the highest since 2001. This was a consequence of the recovery of important meat markets and the good performance of the crop-farming sector, supported by the increase in international prices. As can be seen from diagram 3, the sectors with the highest shares in the economy of Paraguay are commerce, crop production, government services and animal production.
Diagram 3: Structure of the Paraguayan economy in 2006
C O M ER C I O Commerce A CropCproduction G R I ULTUR A SER VC I S G UBGovernment services O ER N A M EN TA LES G A production A AnimalN A D ER I

20.4 17.9 7.5 7.1 6.5 6.3 4.5 4.2 3.9 3.3 2.8 2.5 2.3 2.1 2.1 2.0 2.0 1.2 1.1 0 5 10 15 20 25

Others O TR O S
SER VI Services O G A R ES C I S A H for homes O

Transport TR A N SP O R TES
C O M UN I A C I N ES C O Communications

Construction C O N STR UC C I N O
P R O D UC C IMeat E C A R N E O N D production SER VI I S A LA S for enterprises C O Services EM P R ESA S

Textiles and clothing TEXTI LES Y P R EN D A S D E VESTI R
I TER M ED I C I N FI Abrokerage N A Financial N C I A O N ER

Beverages and B A C O B EB I A S Y TAtobacco D
FO RForestry ESTA L

Letting and dwellings A LQ UI LER D E VI EN D A VI Electricity Y A G UA ELEC TR I I A D and water C D
R ESTA URRestaurantsH O TELES A N TES Y and hotels

Manuf. S N O M ETA LI O S FA B .D E P R O D UC TONon metallic products C

Share in GDP (%) Source: BCP.

It may be said that the positive growth of the Paraguayan economy in recent years has been due to the good performance of the services (mainly telecommunications), animal production and manufacturing sectors. In addition, crop production has benefited from the increase in international prices and favourable climatic factors. Inflation, for its part, fell from 14.6% in 2002 to 2.8% in 2004. In 2005 and 2006, however, inflation increased again, reaching 9.9% and 12.5% respectively. According to the preliminary economic report for 2006 of the Central Bank of Paraguay, inflation has resulted primarily from the increases recorded in the volatile items of the Consumer Price Index (CPI) basket, which have been affected by a commercial policy seeking to encourage local production in order to bring about self-sufficiency in the short and medium term. In October 2007, cumulative inflation reached 7%, mainly as a result of trends in the prices of foodstuffs, affected by external factors including, inter alia, the costs of agricultural inputs. Based on a weighted average of private banks, the real active interest rate for loans in foreign currency decreased from 9.94% in 2002 to 8.29% in September 2007; for loans in national currency, the rate fell from 34.22% in 2002 to 18.44% in September 2007, representing a significant decrease. This trend may be due to various factors such as the lowering of interest rates worldwide, the appearance of alternative credit possibilities and greater liquidity in the market.

3

Doing Business in Paraguay: Country Cost Elements

Diagram 4: Inflation and interest rates
40% Inflation Interest rate, foreign currency 35% 30% Interest rate, national currency

25% 20%

15% 10%

5% 0% 2002 2003 2004 2005 2006 2007*

* Cumulative inflation as at October 2007 and interest rates in September 2007. Source: BCP.

Diagram 5 shows that, from January 2006 to September 2007, the guaraní appreciated vis-à-vis the dollar. It should be stressed, however, that the United States currency has been losing value in relation to many other currencies.
Diagram 5: Average monthly exchange rate
6,500

6,000

Guaraníes/Dollars

5,500

5,000

4,500

4,000 Ene-06 Feb-06 Mar-06 Abr-06 May-06 Jun-06 Jul-06 Ago-06 Sep-06 Oct-06 Nov-06 Dic-06 Ene-07 Feb-07 Mar-07 Abr-07 May-07 Jun-07 Jul-07 Ago-07 Sep-07

Source: BCP.

One of the commitments of the present Paraguayan Government is to lower the external debt. Between the end of 2003 and May 2007, the outstanding debt was reduced from US$2,478 million to US$2,174 million, representing a decrease of 12.3%, and it is hoped that this trend can be continued. If so, net international reserves, which are currently at levels close to the level of the external debt, could come in the medium term to exceed it, putting Paraguay in a better position to comply with its contracted obligations. At the present time the external debt represents 24.1% of Paraguay’s GDP (diagram 6).

4

Chapter 1. Issues of interest to the investor

Diagram 6: Outstanding external debt as a percentage of the gross domestic product
35%

30%

Debt as percentage of GDP

25%

20%

15%

10%

5%

0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*

* Preliminary estimate. Source: Ministry of Finance.

In the year 2004, the Law on Administrative Reorganization and Fiscal Adjustment was adopted, aimed at the formalization of the economy, improved competitiveness, more equity in the tax burden and incentives for investment.2
Box 1: Macroeconomic forecasts for 2007 The Ministry of Finance and the Central Bank of Paraguay have made the following forecasts for 2007:
Real GDP growth Inflation (movement of CPI) Net international reserves (millions of US$) Average nominal exchange rate (G/US$) Nominal GDP (millions of US$) Per capita GDP (current US$) 4.5% 7.1% 2 015.0 5 043.0 11 402.5 1 858.0

As may be seen, 2007 could be the fifth consecutive year in which the Paraguayan economy achieves positive results, which would continue to promote a greater flow of foreign capital into the country. It is important to note, however, that the increase in international monetary reserves, which went up from US$531.9 million in July 2007 to US$2,150 million in June 2007, was partly due to momentary factors such as the reduction of the interest rate, the flow of remittances, the good year enjoyed by soya producers, etc

1.3. The Paraguayan industrial sector
Between the years 2003 and 2006, the Paraguayan industrial sector showed an average growth of 2.9%. Manufactured exports, for their part, increased at a rate of 11.4% between the years 2000 and 2005. During this period, the most important role was played by medium- and high-technology products, exports of which increased at rates of 33% and 26% respectively. Table 1 shows manufactured exports per capita for all Latin American countries. As may be seen, Paraguay ranked fifteenth in 2005, moving up one place in relation to the year 2000. At the same time, whereas manu2

See chapter 11, “Taxes”.

5

Doing Business in Paraguay: Country Cost Elements

factured exports of Paraguay per inhabitant came to US$76.4 in 2005, the average for the region was US$374.2.
Table 1: Manufactured exports per capita, 2000-2005
Ranking 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 2000 1 2 3 6 7 5 10 11 9 4 8 14 15 13 16 12 17 Country Mexico Costa Rica Chile Argentina Brazil Uruguay Guatemala Peru Colombia Venezuela El Salvador Ecuador Honduras Bolivia Paraguay Panama Nicaragua Current US Dollars per capita 2005 1 693.8 1 242.8 1 217.6 570.9 459.9 458.4 304.1 299.5 216.3 196.2 179.6 149.5 144.1 97.6 76.4 65.3 51.2 2000 1 465.7 1 020.1 570.5 367.4 242.9 374.8 117.4 99.9 130.5 470.0 144.4 90.6 58.6 98.3 54.3 99.5 30.0

Note: The data for El Salvador correspond to the year 2004. Source: United Nations Commodity Trade Statistics Database (UN Comtrade).

The destinations of many Paraguayan manufactured exports are concentrated in the region, mainly in the countries of the Southern Common Market (MERCOSUR). In 2006, 69% of Paraguayan manufactured exports went to Latin America and 64.2% to the MERCOSUR countries. Further away, other important destinations for manufactured exports from Paraguay are the United States of America, which accounts for 10.51%, Italy (3.54%) and China (2.86%). Manufactured exports represent 29% of total exports from Paraguay, the most important being products based on natural resources, followed by low-technology products, medium-technology products and, lastly, high-technology products.

1.4. Domestic and foreign investment
The Government of Paraguay, through the Ministry of Industry and Commerce, has been making efforts to attract greater flows of investment to the country, both domestic and foreign. In this context, there are special regimes which the investor can take advantage of, such as that provided by Law 60/90 on the System of Fiscal Incentives for the Investment of Domestic and Foreign Capital, the Maquiladora Regime, the National Regime for Motor vehicles and the Regime for the Importation of Raw Materials and Inputs.3

3

For more details on these regimes, see chapter 14 concerning systems of incentives for investment and exports.

6

Chapter 1. Issues of interest to the investor

According to the national accounts published by the Central Bank of Paraguay, between 1996 and 2006 domestic investment (measured by gross fixed capital formation) reached its highest level in 1997 and, from then on, decreased until 2002. Since 2003, however, domestic investment has shown an upward trend (diagram 7).
Diagram 7: Domestic investment and net flows of foreign direct investment
400 Foreign direct investment 350 Domestic investment
2,500

Foreign direct investment (million dollars)

300 250

1,500

200
1,000

150

100
500

50

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*

0

*Preliminary figures. Source: BCP.

In 2006, according to estimates by the Central Bank of Paraguay, net flows of foreign direct investment increased substantially. As can be seen in diagram 7, foreign direct investment went up from US$5.6 million in 2002 to approximately US$103 million in 2006. The main destinations of foreign direct investment were the food and beverages sector, chemical industries and telecommunications.

Domestic investment (million dollars)

2,000

7

.

CHAPTER

2

Incorporation of companies

E

nterprises may be divided into two types: there are single-owner businesses and there are companies, with two or more partners. In this chapter we shall consider companies and the procedures required for their legal incorporation.

2.1. Institutional relationship and regulatory framework
The incorporation of companies is subject to the Civil Code, Law 438/94 on Cooperatives and Law 117/93 on Capital and Industry; the legislation recognizes ten types of companies, detailed in table 2.
Table 2: Types of companies
Types of companies Simple partnership General partnership Simple commandite (sociedad en comandita simple) General partners Limited partners Partnership limited by shares (sociedad en comandita por acciones) General partners Limited partners Cooperative society Capital-and-industry partnership Private limited company (sociedad de responsabilidad limitada) Open company (sociedad anónima) 20 or more Two or more Two to twenty-five Two or more Contribution certificates Business capital and labour, knowledge or skill Corporate shares (cuotas sociales) Shares Two or more Shares Number of partners Two or more Two or more Two or more Form of capital contribution Cash and/or kind Cash and/or kind Cash and/or kind

Source: Paraguayan Civil Code, Law 438/94 on Cooperatives and Law 117/93 on Capital and Industry.

The articles of association must be transcribed by a notary public, then presented to a judge for civil matters under the auspices of a lawyer and, when the judge so authorizes, registered with the Directorate-General for Public Registers, a dependency of the judicial branch of government, with a view to obtaining the necessary legal personality.

2.2. Processes of incorporation, registration and monitoring
2.2.1. Modernization and technological development
As from 2007, efforts have begun to accelerate the procedures for starting up an enterprise. For this purpose, the Unified System for the Opening of Businesses (SUAE) has been established; the aim is to facilitate and

9

Doing Business in Paraguay: Country Cost Elements

simplify the process of incorporation of enterprises and make it less bureaucratic. This System is being developed within the framework on an inter-agency agreement which receives support under the “Umbral” Programme.4 In its first stage, SUAE seeks to reduce the time, cost and number of steps needed for the incorporation of an enterprise. In a second stage, it is planned to modify the legal aspects in order to simplify requirements and procedures. SUAE also has an online service for following up the status of registration of the enterprise, available through its website or through the website of the Ministry of Industry and Commerce.5
Box 2: Goals, achievements and services of the Unified System for the Opening of Businesses Below are shown the goals that were set when SUAE was established and achievements up to June 2007. As may be seen, the time that it takes to start up an enterprise has gone down from 74 to 25 working days, on average. Goals for the first stage: Reducing enterprise start-up time from 74 to 36 working days. Reducing the number of steps from 17 to 9. Reducing the cost per registration from US$725 to US$250. Achievements up to the present date: Time required for the start-up of an enterprise: 25 working days on average (it may take less). Number of steps required: six. Average cost per registration: US$80 (following the methodology used by the World Bank). Services: Entry in the Register of Legal Entities. Entry in the Public Mercantile Register. Certification of Registration and of Entry in the Single Taxpayers’ Register (RUC). Certification of Worker and Employer Registration with the Social Security Institute. Certification of Employer Registration with the Ministry of Justice and Labour. Approval of the premises. Commercial licence.
Source: http://suae.mic.gov.py.

2.2.2. Approval and registration through the Unified System for the Opening of Businesses
SUAE, a system developed by the Ministry of Industry and Commerce, centralizes all the procedures for the start-up of an enterprise, thus reducing the cost of the process both in terms of money and time. There are six institutions in which the procedures for the legal initiation of an enterprise have to be carried out. Table 3 details these institutions and the procedures to be carried out in each one. At the present time, SUAE includes only the services of the Municipality of Asunción. Consequently, if the investor wishes to set up a business in another locality, the procedures must take place in the corresponding municipality. The procedure involves obtaining approval of the premises and the business licence.
4

5

The Umbral Programme has been designed by the Government of Paraguay, is sponsored by the Millennium Challenge Corporation (MCC), implemented by the Presidential Council for Modernization of Public Administration and administered financially by the United States Agency for International Development (USAID). Among its activity areas, the Programme provides for the “design and implementation of 1-stop shops user support centres to facilitate the legal incorporation of enterprises”. http://suae.mic.gov.py (http://www.mic.gov.py).

10

Chapter 2. Incorporation of companies

Table 3: Registration of enterprises through the Unified System for the Opening of Businesses
Steps 1 2 3 4 5 6 Instructions Directorate-General for Public Registers Ministry of Justice and Labour (MJyT)* Ministry of Finance Social Security Institute Municipality of Asunción** Directorate-General for Migration (DGM)*** Services Registration of legal entities Entry in the Public Mercantile Register Certification of Employer Registration with MJyT Certification of Registration and of RUC Entry Certification of Worker and Employer Registration with the Social Security Institute Approval of the premises Business licence Residence visa Summary Total Guaraníes**** Total US Dollars**** Approximate time
* The cost is G1,000 per form. ** The cost in the municipalities varies, depending on the locality in which investment is desired. *** Applies only to foreign investors. **** The amount in guaraníes is calculated by UTEPI and the amount in US Dollars is the average cost calculated by SUAE. Source: SUAE.

Cost (Guaraníes) 46,916 1,000 Free of charge

10,200 365,940 424,056 80 25 days

Investors who are foreign nationals must obtain residence visas, which are issued by the Directorate-General for Migration. The following sections discuss the procedures for registration in the public register, and for obtaining immigrant visas and business licences. These procedures can be complied with through SUAE. 2.2.2.1. Registration with the Directorate-General for Public Registers The Directorate-General for Public Registers (DGRP), which comes under the judicial branch, is responsible for granting enterprises legal personality. The necessary steps are the following. First, a public document containing the articles of association of the enterprise must be transcribed by a notary public. The cost of this procedure is specified in Law 1.307/87 on the Fees of Notaries Public and described in section 2.2.3 below. When the public document has been drawn up, it is presented to a court for civil matters so that its registration with DGRP can be approved. Within DGRP the enterprise is entered in the Public Register of Legal Entities, after verification that the name , adopted by it is available. Finally, the enterprise or company is given legal personality, which enables it to commence its activities. Table 4 shows the requirements for registration of the different types of commercial companies. The requirements for single-owner businesses and single-owner limited liability companies (EIRL) are different. Table 5 shows the costs for forms and the corresponding rates.

11

Doing Business in Paraguay: Country Cost Elements

Table 4: Requirements for the registration of commercial companies
Requirements Sworn statement form for registration Form for judicial proceedings concerning registration Proceedings fee Fee for entry in the Register of Legal Entities Fee for entry in the Public Mercantile Register Special fee for entry in the Public Mercantile Register Total
Source: SUAE.

Costs Guaraníes 3,000 5,000 18,766 23,458 23,458 18,766 92,448 US Dollars 0.60 1.00 3.74 4.68 4.68 3.74 18.45

Table 5: Requirements for the registration of single-owner businesses and single-owner limited liability companies
Requirements Form for registration Proceedings fee Judicial fee for entry in the Public Mercantile Register Special fee for entry in the Public Mercantile Register Total
Source: SUAE.

Costs Guaraníes 5,000 18,766 18,766 23,458 68,990 US Dollars 1.00 3.74 3.74 4.68 13.76

2.2.2.2. Immigrant visas The granting of visas for immigrants is the responsibility of the Directorate-General for Migration, which reports to the Ministry of the Interior. Table 6 sets out the relevant scale of tariffs, established by Executive Decree No. 7,402 of 26 April 2006.
Table 6: Tariffs for immigration visas
Category Permanent residence Temporary residence Change of occupation Change of category Certificate of settlement Certificate of return Certificate for customs purposes Fine (art. 32), Regulatory Decree No. 1,8295/97
Source: Directorate-General for Migration.

Guaraníes 406,600 365,940 203,300 406,600 81,320 81,320 81,320 328,405

US Dollars 81.13 73.81 40.56 81.13 16.23 16.23 16.23 65.52

2.2.2.3. Business licences The business licence is one of the requirements for the commencement of commercial activities and its issue is the responsibility of the municipality where the trade premises are located.

12

Chapter 2. Incorporation of companies

The Municipality of Asunción has its own by-law establishing a taxation system; the other municipalities of Paraguay (referred to as the municipalities of the interior) are governed by Law 620/76 and its amendments in Law 135/91. Table 7 gives the scales for the payment of the charge for the business licence in Asunción and in the other municipalities. The licence charge is made up of a percentage of the amount of total assets declared by the enterprise and a basic tax, which also depends on the amount of the assets.
Table 7: Business licence charges
Asunción Total assets Guaraníes Lower limit 0 100,001 500,001 1,000,001 5,000,001 10,000,001 50,000,001 100,000,001 300,000,001 500,000,001 1,000,000,001 1,500,000,001 2,000,000,001 2,500,000,001 1,000,000 1,000,001 3,000,001 6,000,001 30,000,001 60,000,001 300,000,001 600,000,001 1,800,000,000 3,000,000,001 6,000,000,001 9,000,000,001 12,000,000,001 15,000,000,001 Upper limit 100,000 500,000 1,000,000 5,000,000 10,000,000 50,000,000 100,000,000 300,000,000 500,000,000 1,000,000,000 1,500,000,000 2,000,000,000 2,500,000,000 Upwards 1,000,001 3,000,000 6,000,000 30,000,000 60,000,000 300,000,000 600,000,000 1,800,000,000 3,000,000,000 6,000,000,000 9,000,000,000 12,000,000,000 15,000,000,000 Upwards 0 20 100 200 998 1,995 9,976 19,952 59,856 99,761 199,521 299,282 399,042 498,803 200 200 599 1,197 5,986 11,971 59,856 119,713 359,138 598,563 1,197,127 1,795,690 2,394,254 2,992,817 US Dollars Lower limit Upper limit 20 100 200 998 1,995 9,976 19,952 59,856 99,761 199,521 299,282 399,042 498,803 Upwards Interior of Paraguay 200 599 1,197 5,986 11,971 59,856 119,713 359,138 598,563 1,197,127 1,795,690 2,394,254 2,992,817 Upwards 13,800 13,800 34,200 58,200 190,200 310,200 982,200 1,642,200 4,024,200 6,202,200 10,702,200 14,602,200 17,602,200 20,002,200 3 3 7 12 38 62 196 328 803 1,237 2,135 2,913 3,512 3,991 0.00% 0.85% 0.80% 0.55% 0.40% 0.28% 0.22% 0.20% 0.18% 0.15% 0.13% 0.10% 0.08% 0.05% 2,300 2,300 5,700 9,700 31,700 51,700 163,700 273,700 673,700 1,033,700 1,783,700 2,433,700 2,933,700 3,333,700 Basic tax Guaraníes US Dollars 0.5 0.5 1 2 6 10 33 55 134 206 356 486 585 665 0.00% 0.85% 0.80% 0.55% 0.40% 0.28% 0.22% 0.20% 0.18% 0.15% 0.13% 0.10% 0.08% 0.05% Percentage of total assets

Sources: Asunción Ordinance No. 331/06, Law 620/76 and Law 135/91.

2.2.3. Fees of notaries public
The fees charged by notaries public are established in Law 1,307/87 on the Fees of the Notaries Public. Table 8 shows the most important rates from the point of view of an investor.
13

Doing Business in Paraguay: Country Cost Elements

Table 8: Fees of notaries public
Value of the legal documents Up to G1,000,000 Over G1,000,000 Above G50,000 000 Above G75,000,000 Above G100,000,000 Above G150,000,000 Above G200,000,000 Other items For the transcription of the articles of association Administrative expenses Drafting of articles of association
* At the present time, the minimum daily wage is G51,607. Source: Law 1,307/87 on the Fees of Notaries Public.

Tariff Five times the minimum daily wage* 2% of the value of the legal documents 1.75% of the value of the documents 1.50% of the value of the documents 1.25% of the value of the documents 1.00% of the value of the documents 0.75% of the value of the documents Ten minimum wages Five minimum wages 20% on what is calculated for the legal documents

The determination of the amount of the fee for each public document is based on: (a) the price of the object; (b) the value assigned to the object by the parties; (c) the amount of a loan or total value of an obligation; (d) the value or total cost of a contract; and (e) the capital authorized, subscribed, paid in, issued, increased, reduced, liquidated or withdrawn.

2.2.4. Services, monitoring and auditing
It is for the law courts to settle legal disputes in which a company may be involved. As from 2002, under Law 1,879, the Centre for Arbitration and Mediation of Paraguay (CAMP) was set up under the National Chamber of Commerce and Services of Paraguay (CNCSP). The purpose of this Centre is to promote, in institutionalized form, the application of alternative, extrajudicial methods for the solution of disputes in companies. Finally, the Directorate-General for Taxation Monitoring, under the Taxation Division (SET), is responsible for monitoring compliance with tax obligations, apart from those under the supervision of the DirectorateGeneral for Major Contributors (DGGC).

2.3. Environmental licences and certificates
Under Law 293/93 on Environmental Impact Assessment and other legislation in force, all projects that affect the environment (i.e., that affect life in general, biodiversity and the quality or utilization of natural or environmental resources, or require a significant quantity of such resources) are obliged to undertake an evaluation of their environmental impact. The Secretariat of the Environment (SEAM) is in charge of the coordination, supervision and implementation of environmental measures, and for ecological and environmental management in general. Thus this agency executes and regulates environmental policy and is the body responsible for issuing the Environmental Impact Statement. This Statement, which must be issued for all projects involving possible damage to the

14

Chapter 2. Incorporation of companies

environment, constitutes a licence for beginning or continuing the work or activity in question. In addition, this document is an indispensable requisite for obtaining subsidies or tax exemptions and for taking advantage of the various special regimes offered by the Paraguayan Government. Table 9 shows the costs of the requirements for obtaining an Environmental Impact Statement. The normal process is as follows. The Basic Environmental Questionnaire (CAB) is obtained and must be completed by an environmental consultant accredited by SEAM.6 The CAB is then submitted along with the Municipal Location Certificate and, if the project is located outside the capital, the no-objection certificate from the Office of the Governor of the corresponding department.7
Table 9: Requirements for obtaining the Environmental Impact Statement
Requirements Basic Environmental Questionnaire Notarized copy of the title deed Municipal Location Certificate No-objection certificate from the departmental Governor’s Officel Photocopy of the identity card of the proponent Collection of the environmental decision Environmental consultant
Source: SEAM.

Costs Guaraníes 375,000 46,915 72,350 free of charge 400 70,372 Depending on nature of project US Dollars 74.82 9.36 14.44 free of charge 0.08 14.04 Depending on nature of project

Within a maximum period of 30 days from the submission of these documents, SEAM will rule as to whether or not it is necessary for an environmental impact assessment to be carried out. If such an assessment is necessary, the investor must cover the costs set out in table 10.
Table 10: Additional environmental impact studies
Requirements Environmental impact study* Environmental management plan* Study on effluent disposal* Environmental consultant** Costs Guaraníes 70,372 70,372 70,372 Depending on nature of project US Dollars 14.04 14.04 14.04 Depending on nature of project

* These payments cover the submission of these documents, but not the study carried out by the environmental consultant and SEAM experts. ** Some indicative prices are between US$400 and US$2,000. Source: SEAM.

It should be noted that the Directorate for Technical Matters Concerning the Environment, attached to the Ministry of Industry and Commerce, provides information and guidance on environmental regulations in force to industrialists, investors and consultants, and advises them on adjusting their projects to these requirements.

6 7

The list of environmental consultants accredited by SEAM will be found on its website: www.seam.gov.py. The majority of the 17 Governors’ Offices in Paraguay issue the certificate free of charge, and the others charge a very low fee.

15

Doing Business in Paraguay: Country Cost Elements

2.4. Industrial registration
For purposes of the registration of industrial enterprises, the Ministry of Industry and Commerce, in its Resolution No. 228/07, has established that industrial activities are understood to mean the transformation, in essence and/or form, of raw materials or other materials into new products, including assembly activities, and that an industrial establishment is an economic unit which, coming under a single legal entity, devotes itself exclusively or principally to a category of industrial activity at a single location. The object of the register is to provide basic information on industrial activities for purposes of formulating national industrial policy. The Directorate for Industrial Registration, depending on the Ministry of Industry and Commerce, is the organ in charge of issuing industrial registration certificates, which are necessary so that industrial enterprises of any kind can take advantage of the tax benefits and incentives for investment offered by the Paraguayan Government.8 If the project is in its initial stage, the enterprise receives a provisional certificate, valid for six months, and the certificate valid for three years is issued to it subsequently.
Table 11: Requirements for obtaining industrial registration
Requirements Request for renewal or registration Industrial registration form Authenticated photocopies of: RUC registration, identity card of the responsible officer, articles of association, title deed or rental contract, balance sheets, municipal licence and receipt of payment of the technical verification fee Environmental licence and photographs of the industrial establishment Technical verification fee
Source: Directorate for Industrial Registration.

Costs Guaraníes Free of charge Free of charge Free of charge Free of charge 200,000 US Dollars Free of charge Free of charge Free of charge Free of charge 39.90

The process for obtaining industrial registration is the following: the Directorate for Industrial Registration receives all the required documents, following which an expert appointed by the Ministry of Industry and Commerce carries out a technical check of the establishment and, finally, once a decision has been taken, the industrial registration certificate is issued. The average time needed for these procedures is one week. At the present time, the Industrial Register is being digitalized and this will allow the documents necessary for obtaining industrial registration to be submitted via the Internet.

8

See chapter 14 concerning systems of incentives for investment and exports.

16

CHAPTER

3

Industrial land and property rental costs

3.1. Industrial parks

F

actories may be erected in cities or on their peripheries, but “development poles” facilitate the formation of production clusters. This leads to the concept of the industrial park, which offers an appropriate infrastructure for the development of industrial activities.

These parks, besides promoting development in the area in which they are situated, encourage the relocation of industry from highly urbanized areas and the grouping of factories so that synergies can be created among them. Industrial parks, in which industrial activities are established with their sites and infrastructure determined in advance, provide common services for these activities. In general, such parks offer certain minimum conditions such as: reinforced internal streets, illumination of streets and approaches, sewerage and storm drains and basic services. Another advantage offered by these areas is the lower cost of land, infrastructure and common services, which are centralized. Mention may also be made of greater reliability in the supply of electricity, drinking water and telecommunications. It should be stressed, in addition, that there is more effective environmental control in industrial parks.

3.1.1. Technological Park Itaipú
In June 2006, the Technological Park Itaipú was started up, with the aim of promoting the economic and social development of Paraguay through the practical application of scientific and technical knowledge. The Technological Park Itaipú – Margen Derecha (PTI-MD) includes an industrial park of 54 hectares, situated in the area that housed the workers during the construction of the Itaipú Hydroelectric Power Station.9 This area has been overhauled and is awaiting investment under the comodato10 system in the establishment of industrial activities on the site, using or altering what exists or erecting new premises. There is also a site with an area of 154 hectares in the town of Hernandarias. Although there are no constructed premises here, it is ready for the establishment of industrial activities of any kind, using the comodato system. The industrial park situated in PTI-MD also benefits from the experience of other organizations established on the site, such as the Industrial Incubator and the Technological Research Centres. Apart from these organizations, PTI-MD can boast of seven organizational units, programmes for cooperation between universi9 10

See box 3, “Potential of the Paraguayan hydroelectric sector”. The comodato is a contract under which one party makes available an object or movable or immovable property, free of charge, for the other party’s use. The user, who acquires possession but not ownership of the property, must return it when its use ends.

17

Doing Business in Paraguay: Country Cost Elements

ties and enterprises, telecentres for making available information and communications technologies (ICT) to the Paraguayan population, the Environment Unit and a cultural centre. The industrial park offers all basic services: electricity, drinking water and access to telephone lines. In spite of the short time in which PTI-MD has been operating, several enterprises have already started business. Noteworthy in the Industrial Incubator are two companies producing machinery and developing research processes with a view to improved production of biodiesel, and an enterprise that develops software. In the Enterprise Centre there are three companies engaged respectively in the production of motorcycles and three-wheeler vans, motor vehicle parts and textiles. Two further companies are engaged in the final procedures for starting up operations; they will be devoted to the production of satchels, handbags and suitcases and of computer and telecommunication products. The main achievements of PTI-MD are the attraction and establishment of direct productive investment and the development of new high-technology industrial sectors.

3.1.2. Taiwan Industrial Park
The Taiwan Industrial Park is situated in the department of Alto Paraná, 23 kilometres from Ciudad del Este and only 5 kilometres from Guaraní International Airport, located in the town of Minga Guazú. The park covers an area of 40 hectares and, in view of its proximity to Ciudad del Este and the commercial zone integrated with MERCOSUR, is strategically situated, which represents a big advantage for commercial investment. It should be stressed that, in the near future, a Consultation Centre will be established to help investors solve their problems and concerns. Industrial and commercial advice will also be offered and the investors will have at hand the tools for taking advantage of the incentives offered by the Ministry of Industry and Commerce. The rate of occupation of the park is 36%, which means that 64% of the park is available for new investment. At the present time three enterprises are operating, devoted to the production of fishing articles, tape for packaging, and stuffed animals and toys, respectively, and employing about 200 workers. These same companies have already submitted expansion projects for an approximate amount of US$5 million which, if implemented, will allow the creation of 300 new jobs in the period 2007-2008. Apart from the excellent rental prices offered in the park, in 2007 and 2008 all investors setting up operations will be exempt from rental payment, and in 2009 and 2010 rebates of 50% are envisaged. After this period, the rent will be US$0.625 (G3,133) a month per square metre. Plots of different sizes can be rented, depending on the investor’s needs. The possibility of selling the lots is currently under study. The park is totally walled and urbanized and equipped with sanitary systems, drinking water, a permanent security service, electricity with the park’s own substation, asphalted streets, green areas and recreation areas. In addition, all the lots have communication and fire prevention systems. Condominium maintenance charges are US$0.1 (G500) per square metre a month.

18

3.1.3. Avay Industrial Park
The Avay Industrial Park is situated in the town of Villeta, 35 kilometres from Asunción and 1,500 metres from the port of Villeta, one of Paraguay’s main port terminals. The area of the park is 350 hectares. The administration offers sewerage and storm drains, drinking water and fixed telephone lines. There are also completely asphalted streets, a permanent security service, a porter’s lodge service and a substation of the National Electricity Administration, ensuring a reliable and secure electricity supply for all users. There is a firefighting vehicle to deal with fires. The average purchase price of the sites is around US$7 (G35,084) per square metre, but the price varies depending on the capacity occupied and the proximity of the plot to the access gates and to the river Paraguay, which flows alongside the park. Instalments may be payable monthly or yearly, as stated in the contract. The minimum size of a site, according to the internal regulations of the park, is half a hectare; no upper limit has been established. The charges for maintenance and security to be paid monthly by users depend on the area of the plot and the buildings on it. However, the average charge per hectare is US$173.16 (G867,900). There are 10 industrial undertakings operating in the park at the present time, engaged in the manufacture of chemical products and agrochemicals; two grain silos have also been set up, and there are enterprises producing spurge oil and paper bags and recycling plastics.

3.1.4. MERCOSUR Park
The MERCOSUR Industrial Park is strategically situated on the International Highway, 9 kilometres from the centre of Ciudad del Este and a similar distance from the city’s port. The site has an area of 30 hectares, with 20 hectares already built on and construction in process on the other 10. The purchase price for a shed of 800 m2 is US$70,000 (G350,840,000) – i.e., US$87.5 (G438,550) per square metre. The sheds are standardized models and do not include offices. For the maintenance of each shed of 800 m2 (refuse collection and general maintenance), US$186.55 (G935,000) is paid per month. The complex offers: permanent security, a porter’s lodge service, drinking water, electricity (the administration is responsible for complete external lighting) and telephone lines. In this park, 60 enterprises of different sectors and sizes are operating: 8 industrial enterprises, 15 importing firms, 10 distributors and 27 warehouses.

3.2. Property taxes
The urban and rural property tax system is governed by Law 125/91, in the section relating to taxes on immovable property, and by Decree 14,956/92, which defines the technical rules for the establishment and updating of the property register. The National Cadastre Service (SNC), coming under the Ministry of Finance, is responsible for keeping an official register of all immovable property in Paraguay.

19

At the present time SNC is implementing the Property Register Programme (PROCAR) with financing from the Inter-American Development Bank (IADB) in an amount US$9 million, with US$1 million as local counterpart funds. Among the aims of the programme are to provide an appropriate legal framework for the establishment of the property register and to convert to digital format all the archives of the Directorate-General for Public Registers. The Tax on Immovable Property is payable annually and is collected by the municipality where the piece of land subject to tax is situated.11 Both natural and legal persons may be liable to tax. The taxable base of the Tax on Immovable Property is provided by the assessed value established by SNC, taking into account factors such as the purpose for which the lot is being used, the area covered by buildings and the public utilities available. In the case of rural properties, improvements or buildings do not form part of the taxable base. The tax rate for the Tax on Immovable Property is 1% of the taxable base. There are additional taxes for unused urban land (waste land) and for large plots of land.

11

The Tax on Immovable Property became a municipal tax under the 1992 Constitution.

20

CHAPTER

4

Employment and labour costs

ccording to the Permanent Survey of Households (EPH) for 2006, the economically active population (EAP) represents 59.4% of the Paraguayan population of working age (approximately 2,735,646 persons). The overall employment index is 93.3% and the total unemployment rate (open plus concealed unemployment) is 11.4%. It should be stressed that more than 50% of the employed population works in the tertiary sector.

A

4.1. Legislation and labour institutions
The legal framework for employment in Paraguay is defined in various laws. In the Constitution, chapter VIII, section I, mention is made of the rights of workers and of the mandatory nature of a minimum wage to cover a person’s basic needs and of social security. The Labour Code establishes the norms that govern relations between workers and employers. Finally, Law 1,626/00 on the Civil Service regulates the employment situation of civil servants and public employees. The State organ responsible for ensuring proper compliance with employment provisions is the Ministry of Justice and Labour. For its part, the National Council on Minimum Wages, made up of representatives of the Government, employers and workers, decides on policy regarding minimum wages. The minimum wage is reviewed every two years or when, within this period, the CPI shows a variation of 10% or more; any proposed change is submitted to the Executive for consideration. All enterprises, whether single-owner businesses or companies, must be registered, free of charge and within the time limits laid down, in the Employers’ Register of the Ministry of Justice and Labour.

4.2. Minimum wages and statutory benefits
4.2.1. Minimum monthly wages
As has already been mentioned, the National Council on Minimum Wages proposes to the Executive any change in the minimum monthly wage, such a change being introduced by presidential decree. Table 12 shows minimum wages by occupational group, taking into account the decisions of the Ministry of Justice and Labour.

21

Doing Business in Paraguay: Country Cost Elements

Table 12: Minimum monthly wages
Occupational group Workers in general Domestic service Micro-enterprise workers (excluding handicrafts) Handicraft workers Minimum daily wage, 30-day basis Minimum daily wage, 26-day basis
Source: Ministry of Justice and Labour and surveyed companies.

Guaraníes 1,341,775 500,000 1,355,197 1,341,775 44,726 51,607

US Dollars 267.71 99.76 270.39 267.71 8.92 10.30

When the worker’s tasks require less than a month, remuneration is on a daily basis. The worker’s minimum daily wage is the result of dividing the corresponding minimum monthly wage by 30; however, for workers paid on a daily basis, their minimum wage must be divided by 26.

4.2.2. Sectoral tables
The Ministry of Justice and Labour and the National Council on Minimum Wages publish sectoral tables every year showing specific minimum incomes for the various economic branches and activities of the private sector. The wage levels change on the basis of the inflation indices provided by the Central Bank of Paraguay. For reference purposes, table 13 shows the wages for certain jobs.
Table 13: Sectoral tables
Post Employee, insurance firm Employee, commercial, industrial or private desk Employee, transport sector Bus or lorry driver Employee, meat-packing plant Employee, textile industry Employee, processing of plant raw material Employee, skins and hides sector Miscellaneous unspecified activities Journalist - chief editor Journalist - reporter Graphics - linotypist Masons and carpenters - skilled worker Masons and carpenters - labourer Employee, banking sector (1 year's seniority) Employee, animal production sector Employee, crop-farming establishment Employee, commercial sector
Source: Ministry of Justice and Labour.

Monthly wages Guaraníes 1 355 197 1 361 957 1 341 775 1 355 197 1 341 775 1 358 380 1 355 197 1 341 775 1 341 775 1 987 299 1 454 958 1 648 395 1 569 271 1 355 197 2 196 490 476 802 1 341 775 1 341 775 US Dollars 270.39 271.74 267.71 270.39 267.71 271.03 270.39 267.71 267.71 396.51 290.29 328.89 313.10 270.39 438.25 95.13 267.71 267.71

22

Chapter 4. Employment and labour costs

4.2.3. Additional benefits
Table 14 shows the benefits additional to the monthly wage required by the Labour Code, to which all formal workers in Paraguay are entitled.
Table 14: Additional benefits
Benefit Aguinaldo (Christmas bonus)* Family bonus Paid annual leave
* The aguinaldo is paid once a year in December. Source: Ministry of Justice and Labour.

Percentage or value One twelfth of the total annual wage 5% of the total wage for each child Contractual monthly wage

Under the Labour Code, the annual leave entitlement increases with the seniority of workers in their job. Table 15 indicates the days of leave to which workers are entitled depending on their seniority.12
Table 15: Annual leave
Seniority From 1 to 5 years From 5 to 10 years Over 10 years
Source: Labour Code.

Time established 12 working days 18 working days 30 working days

4.2.4. Regulations on working hours
Under the Labour Code, the duration of the working day in the case of work during daytime is 8 hours and, in the case of night work, the working day is 10 hours (from 8 p.m. to 6 a.m. the following day). The payments to be made by an employer whose employees work a night shift or overtime are detailed in table 16.
Table 16: Cost of night work and overtime
Period Night shift Overtime (normal working day) Overtime (holidays)
Source: Ministry of Justice and Labour.

Amount Daily wage + 30% Daily wage + 50% per day Daily wage + 100% per day

4.2.5. Termination costs
When it is desired to terminate an employment relationship covered by a contract for an indefinite period, the parties must notify their decision with a “period of notice” established in the Labour Code and varying according to the seniority of the worker in the post. The Code provides for compensation in the case of absence of notice or unjustified dismissal, the amount of compensation depending on the worker’s seniority (table 17).
12

According to Article 218 of the Labour Code, leave is to begin on a Monday or on the following working day if the Monday chosen is a holiday.

23

Doing Business in Paraguay: Country Cost Elements

Table 17: Termination costs
Seniority Up to 1 year From 1 to 5 years From 5 to 10 years Over 10 years
Source: Labour Code.

Days of notice 30 45 60 90

Compensation for absence of notice 30 daily wages 45 wages 60 wages 90 wages

Compensation for unjustified dismissal 15 wages for each year of service

30 wages for each year of service

4.2.6. Social security contributions
To protect workers in the event of sickness, maternity, occupational accidents or old age, the Paraguayan Government, through Law 1,860/50 and its updating amendments, has made social security mandatory. Contributions to the Social Security Institute (IPS), the public entity responsible for social security, are mandatory and must be made both by employers and by employees. The various social security benefits cover both contributors and their families. It should be mentioned that there are also private social security schemes, negotiated directly between the contributor and the insurer. However, those who contract for private insurance are still required to contribute to IPS.
Table 18: Social security contributions
Monthly contribution Employee’s contribution to IPS Employer’s contribution to IPS Total contribution
Source: IPS.

Percentage of total wage 9% 16.50% 25.50%

4.3. Labour market recruitment
Several private organizations carry out wage surveys among enterprises. One of the most complete is the General Wage Survey undertaken every six months by the international firm PricewaterhouseCoopers. This survey covers 113 firms, 50% of which are national enterprises and the other 50% international enterprises. Depending on the activity of the businesses, the survey is broken down as follows: 20% industrial enterprises, 5% pharmaceutical concerns, 42% commercial enterprises, 28% service enterprises and 5% non-governmental organizations.13 Table 19 shows average monthly wages for the various employment levels.

13

More details on the survey are available at www.pwc.com/py and from abelando.depaula@py.pwc.com.

24

Chapter 4. Employment and labour costs

Table 19: Wages on the freely-contracted labour market
Level Managerial Middle management Subordinate staff General sample Guaraníes 11,880,000 4,529 000 2,283,000 US Dollars 2,370 904 456 National sample Guaraníes 9,831,000 3,967,000 2,050,000 US Dollars 1,961 792 409 International sample Guaraníes 14,967,000 5,769,000 2,758,000 US Dollars 2,986 1,151 550

* Average for July 2007. Source: PricewaterhouseCoopers (General Wage Survey).

4.4. Public and other holidays
In Paraguay, national public holidays and other holidays are established by presidential decree. There are nine official holidays per year, set out in table 20. In addition to the dates indicated, some towns in Paraguay have local holidays.
Table 20: National public holidays and other holidays
Date 1 January 1 March Changing each year 1 May 15 May 12 June 15 August 29 September 8 December 25 December
Source: UTEPI.

Celebration New Year's Day Death of Marshal López, the country's principal hero Maundy Thursday and Good Friday Labour Day Independence Day Peace of Chaco Founding of Asunción Battle of Boquerón Day of the Virgin of Caacupe, Patroness of Paraguay Christmas Day

25

.

CHAPTER

5

Communication services

5.1. Legal and institutional framework

T

he National Telecommunications Commission (CONATEL), established by Law 642/95 on Telecommunications, is responsible for the development, monitoring and regulation of national telecommunications and has the aim of promoting and strengthening competition on the market and attracting new private investment. For this purpose, CONATEL must follow the guidelines laid down in Decree 14,135/96, adopting regulatory provisions under the Law on Telecommunications.

5.2. Fixed telephony
At the present time, the Compañía Paraguaya de Comunicaciones S.A. (COPACO S.A.) is the only firm providing fixed telephony services. During the process of privatization of public entities (a process that has not yet been completed), the State telephone service became an enterprise under private law in which the largest shareholder is the Paraguayan State. COPACO S.A. is currently engaged in a campaign for the installation of low-cost telephone lines. The connection cost for each line went down from G825,000 (US$164.60) to G350,000 (US$69.83).
Table 21: Cost of and time needed for telephone line installation
Permanent connection Residential category Commercial category Temporary connection Periods of up to 5 days Periods of 6 to 10 days Periods of 11 to 20 days Periods of 21 to 30 days Periods of 31 to 60 days Periods of 61 to 90 days
* Approximate time. ** From the submission of the request. Source: COPACO S.A.

Connection charge Guaraníes 350,000 350,000 Guaraníes 206,250 275,000 324,500 495,500 569,800 666,600 US Dollars 70 70 US Dollars 41 55 65 99 114 133

Time* 15-22 días 15-22 días Time** Inmediata Inmediata Inmediata Inmediata Inmediata Inmediata

Between the years 2000 and 2006, the number of users of the basic fixed telephony service increased at an average rate of 5% per year. According to data from the Permanent Survey of Households for 2006, 16.7% of the Paraguayan population has access to the fixed telephony service.

27

Doing Business in Paraguay: Country Cost Elements

Table 22: Telephone charges by category
Basic monthly charge (value added tax (VAT) included) Residential category Commercial category Urban tariff (VAT included) Normal times* Cheaper period** Interurban tariffs (VAT included) From 1 to 100 km Over 100 km International tariffs (VAT included) MERCOSUR (including Bolivia, Chile and Peru) United States and Canada Cuba Rest of the Americas Rest of the world Border calls Fixed/mobile calls (VAT included)
ND: no difference with regard to time of call. * Normal times: from 6 a.m. to 8 p.m. ** Cheaper period: from 8 p.m. to 6 a.m. Source: COPACO S.A.

Guaraníes 22,000 30,800 Guaraníes per impulse 100 100 Guaraníes per minute 200 100 400 100 Guaraníes per minute 2,200 1,980 3,720 2,750 3,850 500 450 Guaraníes per minute 1,230

US Dollars 4.39 6.15 US Dollars per impulse 0.02 0.02 US Dollars per minute 0.04 0.02 0.08 0.02 US Dollars per minute 0.44 0.40 0.74 0.55 0.77 0.10 0.09 US Dollars per minute 0.25 Specification One impulse per minute One impulse per 5 minutes Times Normal times Cheaper period Normal times Cheaper period Times ND ND ND ND ND Normal times Cheaper period

5.3. Mobile telephony
The share of the communications sector in GDP (at constant prices) increased from 2.17% in 1996 to 3.57% in 2005, mainly thanks to the expansion of cellular telephony.14 Four companies offer mobile telephony services in Paraguay: Millicom Internacional Cellular S.A., using the trademark TIGO; Núcleo S.A., with the trademark Personal; Hola Paraguay S.A., with the trademark VOX; and América Móvil, with the trademark CTI MOVIL. According to the International Telecommunication Union (ITU), the coverage of such services in Paraguay increased from 8.13% of the population in 1999 to 51.31% in 2006. The operators use GSM technology, with its different variants. In general, obtaining a mobile telephone line in Paraguay costs nothing. Users who already have a mobile phone need only buy the GSM chip, which costs little, and pay the cost of calls and text messages through pre-paid cards or other arrangements offered by the companies. The mobile phones are sold directly by the operators or in a large number of shops which offer varying prices. Table 23 shows, for reference purposes, the prices for the models of mobile phone most widely sold.

14

Preliminary national accounts of the Central Bank of Paraguay. System of National Accounts of Paraguay, series 1996-2005.

28

Chapter 5. Communication services

Table 23: Cost of mobile phones
Company Tigo Model Nokia 1108 Nokia 6070 Motorola V3 Sagem My 400 L Vox Motorola ROKR E1 Motorola V3
Source: Mobile telephone companies surveyed.

US Dollars 50 130 270 180 270 299

Company Personal

Model Motorola C115 Nokia 1108 Motorola V3 Nokia 1112

US Dollars 60 66 385 39 141 244

CTI

Nokia 6080 Motorola V3

The user may choose plans covering six months, one year or more. The costs of calls and text messages under these plans are much lower than if pre-paid cards are used. Table 24 summarizes the standard plans of the

Table 24: Mobile phone plans
Price of calls (US Dollars/second) Company Personal Vox Tigo CTI Plan Plan Control Plan Límite Plan Tigo Kit Prepago Monthly cost (US Dollars) 10.0 9.8** 9.9 9.8** To the same network Normal times 0.0016 0.0020 0.0016 0.0027 Cheaper period* 0.00083 0.00083 0.00083 0.00170 To COPACO 0.0016 0.0020 0.0024 0.0035 To other mobile networks 0.0016 0.0020 0.0042 0.0061

* Cheaper period: from 9 p.m. to 7 a.m. ** The exchange rate used to give prices in US Dollars is G5,110 to 1 dollar. Note: The services offered by operators vary with regard to area of coverage, price for text messages and multimedia functions. Source: Mobile telephone companies surveyed.

four mobile telephone operators. However, it must be mentioned that the four companies offer various plans and packages with different peak/non-peak hours, call times, equipment and additional services. The four mobile telephone operators also offer corporative plans, with benefits including, besides lower costs for calls, free minutes, invitations to events, mobile phones at lower cost or even free, and others.

5.4. Internet services
All the companies that provide Internet services in Paraguay, except COPACO S.A., belong to the Paraguayan Internet Chamber (CAPADI). These companies offer various technologies, such as wireless, optical fibre, ADSL, dial-up, etc. It should be mentioned that the mobile telephone companies also offer an Internet service to their customers via mobile phone. Table 25 gives the rates of some Internet providers. As may be seen, the user has several options, depending on the bandwidth that he chooses. This information, updated to 10 July 2007, comes from the websites of the companies concerned.

29

Doing Business in Paraguay: Country Cost Elements

Table 25: Internet rates
COPACO S.A. Description Connection charge (VAT included) Bandwidth 64 kbps 128 kbps 256 kbps 384 kbps 512 kbps 1 Mbps
* There is also a dial up service costing US$7 a month.

PARAWAY Net US$100 Normal plan 73 145 290 435 580 1 160 TIGO Description Household plan

CLICK ADSL US$30 Commercial plan 33 52 78 147 278 Monthly cost (US Dollars) 25 41 54 78 145

Connection charge (VAT included): US$88 Bandwidth 128 kbps 128/256 kbps 256/512 kbps 512/1024 kbps 1024/2048 kbps 2048 kbps CONEXION Description Connection charge: US$100 Bandwidth 144 kbps 188 kbps 232 kbps 276 kbps 320 kbps
* Shared bandwidth.

Broadband PYMES Plan WIMAX 73 96 184 290 445 891 Plan XL 73 96 184 290 -

Monthly cost (US Dollars)

WIRELESS Plans* Plan for individuals 200 250 300 350 ADSL NET MAX Plan for companies 200 250 300 -

Monthly cost (US Dollars)

Plans for individuals Connection charge (VAT included): US$33.00 Plan Full (Full 24 h), monthly Plan Mega, monthly Plan Mega Plus, monthly Plans for companies Connection charge: US$99.00 64 kbps 128 kbps 256 kbps 512 kbps 1024 kbps
Note: Under the plans for individuals, speeds are 64 kbps and 96 kbps. Source: Websites of the companies, telephone consultations, COPACO S.A.

Monthly costs (US Dollars) 33.00 44.40 66.60 Monthly cost (US Dollars) 91.20 + IVA 158.40 + IVA 308.80 + IVA 617.60 + IVA 1170.00 + IVA

30

Chapter 5. Communication services

5.5. Postal service
At the present time, postal services in Paraguay are in the hands of the Paraguayan National Postal Service, which comes under the Directorate-General of Postal Services, and also of private companies, including international companies for the transport of mail and parcels such as DHL, UPS and FedEx. Tables 26 and 27 show the rates for regular mail and for airmail and the Express Mail Service (EMS). The costs vary depending on the type of mail and the weight of what is being sent.
Table 26: Rates for regular national mail
Letters, cards, packages and printed material Weight in grams Up to 20 Up to 50 Up to 100 Up to 250 Up to 500 Up to 1,000 Up to 1,500 Up to 2,000 For each additional 500 g Literature for the blind Special national rates Charge for certified mail Fee for advice of receipt Fee for notification by telephone Fee for change of address Rates Guaraníes 700 900 1,000 1,800 2,400 4,500 6,500 9,500 2,500 Free Rates Guaraníes 500 500 1,000 500 Regular national mail service for corporate clients Weight in grams 101-500 501-1 000 1,001 upwards
Source: Paraguayan National Postal Service.

US Dollars 0.14 0.18 0.20 0.36 0.48 0.90 1.30 1.90 0.50

US Dollars 0.10 0.10 0.20 0.10 Rates

Guaraníes 600 500 400

US Dollars 0.12 0.10 0.08

31

Doing Business in Paraguay: Country Cost Elements

Table 27: Rates for airmail and the international Express Mail Service*
Regular airmail Description Letters, cards, small packages and printed material Solely for printed material Weight in grams From 0 2,001 EMS Description Weight in grams From 0 Documents 251 10,001 0 Goods
* Average values. Source: Paraguayan National Postal Service.

Rates To Guaraníes 45,400 194,980 Rates To 250 Guaraníes 105,000 305,055 722,400 114,800 336,125 798,015 US Dollars 20.95 60.86 144.13 22.91 67.06 159.22 US Dollars 9.06 38.90

2,000 7,000

10,000 20,000 250 10,000 20,000

251 10,000

32

CHAPTER

6

Electricity, drinking water and fuel costs

6.1. Electricity sector and costs
6.1.1. Legislation and institutions

T

he provision of electric power services is regulated by the Constitution of Paraguay, by Law 966/64 Creating and Organizing the National Electricity Administration (ANDE), and by Law 976/82, which expands the original Law in connection with security and service areas for electricity transmission and distribution lines. The agency responsible for the electricity sector is ANDE, a decentralized, autonomous entity with the task of meeting the country's electricity needs in order to contribute to its development. This agency is linked to the Executive through the Ministry of Public Works and Communications. The functions of ANDE are: to draft plans and programmes for the development of the energy sector; to design, build and operate facilities for power generation, transmission and distribution; to regulate all matters relating to electric power; and to decide on the pricing system, which has to be approved by a decree of the Executive.

6.1.2. Electricity production and consumption
According to the data of ANDE, which has a monopoly for the supply of electricity at national level, about 93.85% of Paraguay's territory is covered by electricity services, a high rate in comparison with the other countries of the region. Coverage is 100% in the capital and over 90% in the departments of Central, Alto Paraná, Guairá and Cordillera, the most populated departments of Paraguay. In 2002, according to the last National Census, coverage reached 95% in the urban areas of the country and 70% in the rural sector. Table 28 shows the development of electricity coverage in Paraguay in recent years. If the trend observed is maintained, coverage could reach 100% of the national territory in a few years.

Table 28: Development of electricity coverage in Paraguay
Year 2001 2002 2003 2004 2005 2006
Source: ANDE.

Coverage (percentage of the territory) 83.90% 88.87% 90.20% 91.51% 92.58% 93.85%

33

Doing Business in Paraguay: Country Cost Elements

During 2006, electricity consumption per inhabitant in Paraguay was 852 kW-h, 8% more than in 2002, when it was 791 kW-h. As for industrial consumption, which gives a better idea of the growth of the electricity sector, it increased from 1,074 gigawatt-hours in 2002 to 1,408 gigawatt-hours in 2006, representing a growth of 31%.
Box 3: Potential of the Paraguayan hydroelectric sector Paraguay is one of the few countries whose energy consumption is met almost entirely from clean and renewable sources. In 2006, 99% of the 8,493,551.70 MW-h produced in Paraguay came from hydroelectric power stations. That same year, 87% of energy consumed in Paraguay was generated at the Itaipú Binational Hydroelectric Power Station, the largest in the world in terms of installed capacity, with 14,000 MW (20 generating units of 700 MW each). The plant of this power station has exceeded its historical records for various consecutive years. In 2006, the power station achieved the second highest electricity production in its history: 92,689,963 MW-h. Paraguay has at its disposal 50% of what this plant generates, but the present national consumption is less (in 2006, Paraguay consumed about 16% of the energy belonging to it). The situation is somewhat similar with the Yacyreta Binational Hydroelectric Power Station, so that there is a wide margin of growth for energy demand, particularly for highly electricity-dependent investment projects. In view of the energy crisis affecting several countries of the region, therefore, Paraguay is in an excellent situation to attract new industrial undertakings.

6.1.3. Price systems
The rates charged by ANDE for the supply of electricity have been kept relatively stable, and the last change occurred in May 2005. ANDE offers four supply alternatives, depending on the needs of the user: low voltage (380 volts), medium voltage (23,000 volts), high voltage (66,000 volts) and very high voltage (220,000 volts). In addition, ANDE divides consumers into three general categories: residential, industrial and commercial. Costs vary depending on the voltage required, the category of consumer and the type of meter used. Table 29 shows reference costs for the installation of electricity services for the different categories of consumers, assuming low-voltage supply.
Table 29: Costs for connection to the electricity grid
Categories Residential Industrial Commercial
* Includes connection charges and security deposits. Source: ANDE.

Cost* Guaraníes 684,245 1,045,625 1,101,115 US Dollars 136.52 208.62 219.70

Once the electricity service has been installed, the monthly rates to be paid by customers depend on the category to which they belong, the voltage of the connection and consumption (table 30).

34

Chapter 6. Electricity, drinking water and fuel costs

Table 30: Electricity rates, low and medium voltage
Low voltage Category Monthly consumption 1-50 kW-h Residential 51-150 kW-h Over 150 kW-h Commercial 1-50 kW-h Más 50 kW-h 1-50 kW-h Industrial 51-500 kW-h Over 500 kW-h Medium voltage Category Residential Commercial Industrial
Source: ANDE.

Price Guaraníes per kW-h 311.55 349.89 365.45 332.10 389.57 225.18 252.87 296.56 Price Guaraníes per kW-h 256.65 298.16 208.99 US Dollars per kW-h 0.05 0.06 0.04 US Dollars per kW-h 0.06 0.07 0.07 0.07 0.08 0.04 0.05 0.06

It should be noted that residential users of low-voltage connections whose monthly consumption does not exceed 75 kW-h receive a subsidy of 75% in their rates, in relation to the normal residential rates, including VAT. Those users whose monthly consumption is between 76 and 150 kW-h receive a subsidy of 50% in relation to the normal residential rates, including VAT. The industrial sector utilizes connections with high and very high voltage, the charges for which are calculated differently and are shown in table 31.
Table 31: Electricity rates, high and very high voltage
High voltage Reserve power Excess power at peak hours Excess power outside peak hours Electricity Very high voltage Reserve power Excess power during peak hours Excess power outside peak hours Electricity Price Guaraníes 44,201 71,275 32,080 57.12 Price Guaraníes 31,032 51,649 13,977 47.91 US Dollars 6.19 10.31 2.79 0.01 US Dollars 8.82 14.22 6.40 0.01 Measurement unit Kilowatt-months Kilowatt-months Kilowatt-months Kilowatt-hours Measurement unit Kilowatt-months Kilowatt-months Kilowatt-months Kilowatt-hours

Note: Peak hours: from 6 to 10 p.m. in summer and from 5 to 9 p.m. in winter. Source: ANDE.

For projects that are highly dependent on electricity, as is the case with the iron and steel industry, there are special rates (table 32).15
15

Decree 2,109/1994, approving the electricity rates to be applied by ANDE to electricity-intensive industries.

35

Doing Business in Paraguay: Country Cost Elements

Table 32: Electricity rates for electricity-intensive enterprises
Types of supply Price Guaraníes 46,110 47,213 US Dollars 9.20 9.42 Measurement unit

With an operating regime involving peak-hour disconnection (3 hours daily) 220,000 volts Energy ensured 21.00 m US Dollars/kW-h 66,000 volts Energy ensured 21.50 m US Dollars/kW-h With a continuous operating regime 220,000 volts Energy ensured 24.00 m US Dollars/kW-h 66,000 volts Energy ensured 25.20 m US Dollars/kW-h
Source: ANDE.

Kilowatt-month Kilowatt-month

52,676 55,332

10.51 11.04

Kilowatt-month Kilowatt-month

Electricity costs have to be considered when choosing where to invest in sectors that are highly dependent on this utility. Tables 33 and 34 show the prices charged by the various electricity suppliers in Chile and the countries of MERCOSUR. It should be stressed that Paraguay has the lowest prices in many of the ranges of consumption considered.
Table 33: Prices of electricity supply for residential consumers
75 kW-h/month Company (country) ANDE (Py) EDELAP (Ar) EDENOR (Ar) COPEL (Br) CPFL (Br) CEMIG (Br) ENERSUL (Br) Chilectra (Ch) CGE (Ch) UTE (Uy) US Dollars/ MW-h 16 35 35 60 73 91 94 137 140 145 150 kW-h/month Company (country) EDELAP (Ar) EDENOR (Ar) ANDE (Py) COPEL (Br) CPFL (Br) ENERSUL (Br) CEMIG (Br) Chilectra (Ch) CGE (Ch) UTE (Uy) US Dollars/ MW-h 31 31 33 78 95 122 124 131 131 134 200 KW-h/month Company (country) EDELAP (Ar) EDENOR (Ar) ANDE (Py) CPFL (Br) COPEL (Br) CGE (Ch) Chilectra (Ch) UTE (Uy) ENERSUL (Br) CEMIG (Br) US Dollars/ MW-h 27 27 67 104 120 128 129 137 193 201 400 kW-h/month Company (country) EDELAP (Ar) EDENOR (Ar) ANDE (Py) COPEL (Br) CGE (Ch) Chilectra (Ch) UTE (Uy) CPFL (Br) ENERSUL (Br) CEMIG (Br) US Dollars/ MW-h 20 20 70 120 125 127 134 150 193 201 800 kW-h/month Company (country) EDELAP (Ar) EDENOR (Ar) ANDE (Py) COPEL (Br) UTE (Uy) CGE (Ch) Chilectra (Ch) CPFL (Br) ENERSUL (Br) CEMIG (Br) US Dollars/ MW-h 17 17 71 120 121 123 126 150 193 201

Note: Data updated to March 2007. Source: ANDE.

36

Chapter 6. Electricity, drinking water and fuel costs

Table 34: Prices for electricity supply for industrial consumers
10 kW-h/month1 MW-h/month Company (country) ANDE (Py) EDENOR (Ar) EDELAP (Ar) CGE (Ch) Chilectra (Ch) UTE (Uy) COPEL (Br) CPFL (Br) CEMIG (Br) ENERSUL(Br) kW-h/ MW-h 54 71 77 96 104 107 112 136 197 200 15 kW-h/month2 MW-h/month Company (country) ANDE (Py) EDELAP (Ar) EDENOR (Ar) CGE (Ch) Chilectra (Ch) UTE (Uy) COPEL (Br) CPFL (Br) CEMIG (Br) ENERSUL(Br) US Dollars/ MW-h 56 67 67 88 94 96 112 136 197 200 300 kW-h/month50 MW-h/month Company (country) EDELAP (Ar) EDENOR (Ar) ANDE (Py) UTE (Uy) COPEL (Br) CGE (Ch) Chilectra (Ch) CPFL (Br) ENERSUL(Br) CEMIG (Br) US Dollars/ MW-h 40 44 61 99 101 111 117 118 138 147 1 750 kW-h/month500 MW-h/month Company (country) EDELAP (Ar) EDENOR (Ar) ANDE (Py) UTE (Uy) CGE (Ch) Chilectra (Ch) COPEL (Br) CPFL (Br) ENERSUL(Br) CEMIG (Br) US Dollars/ MW-h 33 36 44 78 90 95 102 123 142 150 10 000 kW-h/month5 000 MW-h/month Company (country) ANDE (Py) EDELAP (Ar) EDENOR (Ar) UTE (Uy) COPEL (Br) CGE (Ch) Chilectra (Ch) CPFL (Br) ENERSUL(Br) CEMIG (Br) US Dollars/ MW-h 20 24 25 49 70 73 76 98 101 111

Note: Data updated to March 2007. Source: ANDE.

6.2. Drinking water
In Paraguay, the supply of drinking water is the responsibility of: the Empresa de Servicios Sanitarios del Paraguay S.A. (ESSAP), which covers a large part of the metropolitan area; associations of users or sanitation boards; and private enterprises, which provide services in the rest of the national territory. The institution in charge of regulating the sector is the Regulatory Body for Public Health Services (ERSSAN), which is governed by the provisions of Law 1,614/2000, the General Law on the Regulatory and Tariff Framework for the Paraguayan Public Service for Drinking Water Provision and Sewerage. Tables 35, 36 and 37 show the connection charges applied by ESSAP and the drinking water rates of this enterprise, of the sanitation boards and of the private companies registered with ERSSAN.
Table 35: Connection charges – Empresa de Servicios Sanitarios del Paraguay S.A.
Type of connection Connection of ¾” Connection of 1” Type of terrain General General Earth 2” connection Stone paving Pavement Reinforced concrete 4” connection Use of ESSAP only
Note: Data updated to June 2007. Source: ESSAP.

Connection Guaraníes 600,000 880,000 858,000 858,000 858,000 858,000 US Dollars 119.71 175.58 171.19 171.19 171.19 171.19 Guaraníes 0 0

Extension US Dollars 0 0 3.04 3.78 10.03 10.03

15 255 + VAT, linear metre 18 955 + VAT, linear metre 50 255 + VAT, linear metre 50 255 + VAT, linear metre

37

Doing Business in Paraguay: Country Cost Elements

Table 36: Drinking water rates – Empresa de Servicios Sanitarios del Paraguay S.A.
Category Residential Basic charge Range of consumption 1-15 m3 16-40 m3 Over 40 m3 Non residential Basic charge Range of consumption
Source: ESSAP.

Consumption

Subsidized Guaraníes 3,089 1,124 1,606 US Dollars 0.62 0.22 0.32

Not Subsidized Guaraníes 5,405 1,606 1,606 1,767 15,444 US Dollars 1.08 0.32 0.32 0.35 3.08 0.37 0.41

1-40 m3 Over 40 m3

1,853 2,038

Table 37: Drinking water rates – sanitation boards and private companies (average)
Description Basic consumption Rate per m3 Central Guaraníes 21,310 1,737 US Dollars 4.25 0.35 Ciudad del Este Guaraníes 22,800 2,111 US Dollars 4.55 0.42 Encarnación Guaraníes 27,500 1,833 US Dollars 5.49 0.37

Note: Data updated to June 2007. Source: Regulatory Body for Sanitation Services.

6.3. Cost of fuels
As Paraguay has no oilfields of its own, its entire demand for fuels has to be covered by imports. Imports of petroleum and its by-products make up a considerable part of the country's total imports (diagram 8).
Diagram 8: Share of imports of hydrocarbons in the total imports of Paraguay
4,000 Imports of petroleum and its by-products 3,500 Remaining imports

3,000

Million US Dollars

2,500

2,000

1,500

1,000

500

0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: UN Comtrade.

38

Chapter 6. Electricity, drinking water and fuel costs

In Paraguay, the importation of fuels is free of controls, but the main importer is the public enterprise Petróleos del Paraguay (PETROPAR), from which the various distributors obtain their supplies. The price of fuels depends on market conditions. The exception is diesel, which is of great importance in the transport of products and whose price is regulated by PETROPAR. The fuels sector is subject to Law 779/95, amending Law 675/60 on Hydrocarbons of the Republic of Paraguay, which establishes the legal framework for prospecting and exploration for petroleum and other hydrocarbons and for their exploitation. At the present time, foreign companies, under Article 2 of this Law, are prospecting for hydrocarbons in the Paraguayan Chaco. According to the Directorate-General for Fuels of the Ministry and Industry and Commerce, 12 private companies are currently operating in Paraguay, with about 1,300 fuel retail outlets distributed throughout the territory. Table 38 shows the prices of fuels offered by the different distributors.
Table 38: Prices for fuels in the capital and the metropolitan area
Products Companies PETROBRAS ESSO STANDARD PARAGUAY SRL COPETROL SA B&R SA LUBRIPAR SAECA PETROSUR SA COPEG SA TEXACO PARAGUAY DP SRL GAS CORONA SA COMPASA INTEGRAL SA CPC SA Average 3,900 3,900 3,850 3,890 3,890 3,850 3,890 3,890 3,883 0.78 0.78 0.77 0.78 0.78 0.77 0.78 0.78 0.77 4,440 4,440 4,440 4,440 4,440 4,440 4,440 0.89 0.89 0.89 0.89 0.89 0.89 0.89 SR* petrol Económica SR petrol RON 85 SR petrol RON 95 (Guaraníes per litre) 5,190 5,190 5,190 4,980 4,980 4,980 4,980 4,980 4,980 5,050 (US Dollars per litre) PETROBRAS ESSO STANDARD PARAGUAY SRL COPETROL SA B&R SA LUBRIPAR SAECA PETROSUR SA COPEG SA TEXACO PARAGUAY DP SRL GAS CORONA SA COMPASA INTEGRAL SA CPC SA Average 1.04 1.04 1.04 0.99 0.99 0.99 0.99 0.99 0.99 1.01 1.29 1.29 1.29 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85 0.85 6 490 6 490 6 490 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 SR petrol RON 97 Diesel

* Straight-run. Note: Data updated to 23 October 2007. Source: Directorate-General for Fuels (Ministry of Industry and Commerce).

39

Doing Business in Paraguay: Country Cost Elements

Box 4: Outlook for the fuels sector in Paraguay The fuels sector in Paraguay is governed by Law 2,478/05 on the Promotion of Biofuels and by the decisions regulating the percentages of raw material and imported hydrocarbons to be used in the production of biofuels. The development of this sector, whose most important products are ethanol and biodiesel, is one of the objectives of the regional plan aiming to make South America the main world producer of biofuels, taking advantage of the availability of raw material in the region. Paraguay has various products that can be used as raw material for the preparation of biofuels. The main products are: - Coconut - Castor oil - Sugar cane - Animal fats The main advantages of biofuels are as follows:
• They can be used immediately, as engines do not have to be modified for the use of biodiesel; • Availability in the short term, as the resources are renewable; • Combustibility, because biofuels have a higher flashpoint than diesel from petroleum; • They are more environmentally friendly, reducing greenhouse gas emissions; • Their lubrication qualities, enabling the useful life of engines to be prolonged.

The institution responsible for regulating the biofuels sector and promoting its development is the Ministry of Industry and Commerce, through the Office of the Director of the Biofuels Unit, whose task is to “coordinate, plan and strengthen the production chains in order to attract and promote investment in the production of biofuels and bring about a shared commitment to development among public and private actors, directed towards improving the quality of life of the Paraguayan people”.

40

CHAPTER

7

Other industry costs

7.1. Fees for trademark, design and patent registration
araguayan legislation on international property rights is relatively new. It was not until 1981, with the adoption of Law 868/81 on Industrial Models and Designs, that intellectual creations received legal support. In the last years of the twentieth century and the opening years of the twenty-first century, in a joint effort by the Directorate-General for Intellectual Property (DGPI) and various civil society actors, a set of laws has been adopted promoting the development of intellectual creation.16 DGPI, which reports to the Ministry of Industry and Commerce, is the department responsible for promoting intellectual creation, in the literary, artistic and scientific fields and in the industrial area, and monitoring compliance with the laws relating to intellectual property. Tables 39 and 40 show the cost of the different procedures through which creations and inventions are protected.
Table 39: Fees for trademarks
Description Application for registration or renewal of a trademark Annual fee for maintenance of registration Registration of powers Official report on a trademark Statement of objection Registration of the licence for the use of each trademark Registration of transfer of a trademark Issue of a duplicate of the certificate of registration Registration in the list of agents or renewal Cost Guaraníes 51,607 258,035 51,607 25,804 25,804 51,607 25,804 25,804 25,804 US Dollars 10.30 51.48 10.30 5.15 5.15 10.30 5.15 5.15 5.15

P

* These amounts, stipulated in Law 1,294/98, are linked to the minimum daily wage for workers, which is G51,607. Source: DGPI.

16

Law 1,630/00 on Patents for Inventions and Utility Models and its Regulating Decree 14,201/01; Law 1,294/98 on Trademarks and its Regulatory Decree 22,365; Law 1.328/98 on Copyright.

41

Doing Business in Paraguay: Country Cost Elements

Table 40: Fees for patents and utility models
Description Application for an invention patent Application for a patent for a utility model Modification of the patent application without additional substantive examination Modification of the patent application with additional substantive examination Conversion of the patent application Modification of patent claims Annual fees* Renewal of a patent for a utility model Copy of the registration document Cost Guaraníes 378,095 252,063 252,063 378,095 302,476 378,095 504,127 378,095 200,000 US Dollars 75.44 50.29 50.29 75.44 60.35 75.44 100.58 75.44 39.90

* This payment increases progressively until the twentieth year of the patent, when it reaches G1,134,285 (US$226.31). The payments are due as soon as the application is submitted. Note: These amounts are updated annually by ministerial resolution. Source: DGPI.

7.2. Fees for public services
This section covers the charges for public services such as refuse collection, public lighting and sewerage. The latter two appear as additional charges in the bills for light and water respectively. Refuse collection is the responsibility of each municipality, which may contract out this service in order to meet the needs of its area more efficiently.
Table 41: Monthly charges for refuse collection
Description Collection of residential refuse Collection of industrial refuse
* Minimum values. Source: Municipalities consulted.

Asunción* 6,156 + 1,5 per day 17,463 + 4,4 per day

Greater Asunción 16,025 255,438

Ciudad del Este 25,000 + variable charge 600,000

Encarnación 88 G/m2 209 G/m2

(Guaraníes)

The sewerage service is offered by the Empresa de Servicios Sanitarios del Paraguay S.A. The rate applied, both for the residential sector and for the industrial sector, is 50% of the consumption of drinking water. Another service is public lighting, which is the responsibility of the National Electricity Administration. The monthly charge is fixed and is set out in table 42.

Table 42: Monthly charge for public lighting
Description Up to 10 watts/metre Over 10 watts/metre
Source: National Electricity Administration.

Cost Guaraníes 427.14 482.88 US Dollars 0.085 0.096

42

Chapter 7. Other industry costs

7.3. Membership in chambers of commerce and industry
In Paraguay there are various chambers bringing together the different local businesses and associations. Table 43 shows the fees for admission and the periodic fees (yearly or monthly) which are charged by the main Paraguayan chambers, on average.
Table 43: Fees for membership in chambers
Chambers Production Industry Commerce
Source: Associations consulted.

Admission fee Guaraníes 0 2,000,000 500,000 US Dollars 0 399.04 99.76 (Yearly) (Monthly) (Monthly)

Periodic fee Guaraníes 833,500 187,500 473,750 US Dollars 166.30 37.41 94.52

43

.

CHAPTER

8

Accreditation and certification agencies

8.1. National Accreditation Agency

T

he National Accreditation Agency (ONA), a dependency of the National Council for Science and Technology (CONACYT), is the institution responsible for directing and administering the National Accreditation System. It is empowered to accredit enterprises interested in issuing certifications of products, of quality control, of environmental management and of individuals, and also assumes responsibility for the accreditation of other agencies or entities that need to demonstrate their competence, under recognized international systems. It is obligatory for laboratory undertakings to be accredited by ONA. Table 44 shows the costs for the different stages of the accreditation process.

Table 44: Accreditations with the National Accreditation Agency
Stages of accreditation 1 2 Receipt and study of applications for accreditation by ONA Documental evaluation by evaluation leader (charged by the day) Prices Guaraníes 900,000 600,000 each 1,000,000 each 670,000 each 3,000,000 1,800,000 600,000 US Dollars 179.57 119.71 each 199.52 each 133.68 each 598.56 359.14 119.71

3.a Evaluation on site by evaluation leader (national evaluator paid by the day) 3.b Evaluation on site by evaluator and technical expert (nationalevaluator paid by the day) 4 5 6 Granting of the accreditation National tariff for use of the accreditation symbol and for maintenance on the register of accredited entities Receipt of application for extension of the scope of the accreditation

Source: National Accreditation Agency.

The evaluations can be carried out by national or international experts. The daily rate for the latter is as fixed in the country of origin. For both national and foreign evaluators, the applicant must cover the costs of travel and stay. In general, for a standard certification two evaluators are needed and the studies in situ last from two to three days approximately. It should be stressed that all certifying enterprises accredited by ONA may issue ISO (International Organization for Standardization) certifications.

8.2. National Institute of Technology and Standardization
The National Institute of Technology and Standardization (INTN) is the entity responsible for certifying products (either by batches or by mark-of-conformity systems), processes and services. The INTN mark certifies that the products meet certain quality standards. The procedures for obtaining it are as follows:
45

Doing Business in Paraguay: Country Cost Elements

a) The relevant application is submitted, with data on the enterprise attached; b) A communication is received from the Director-General of INTN explaining that the application has been admitted and stating the costs that will be incurred; c) The Director-General nominates the quality inspectors and technical experts for the quality system evaluation and the taking of samples of the products to be certified; d) The Director for Standardization and Certification informs the responsible officer of the commencement of certification studies; e) If concession of the INTN mark is approved, the Director-General of INTN so notifies the applicant in writing. The costs for obtaining the certificate are divided into basic costs, amounting to US$83.80 (G420,000), and variable costs, which depend on the type of product that is to be certified. For enterprises located more than 50 kilometres from the capital there is an additional charge, depending on the distance. The time that it takes to obtain certification depends on the product being considered, as there is a different process for each product. To establish a programme for production monitoring, the enterprise concerned and INTN sign a contract for two years, but it is the manufacturer who is responsible for the quality of the product.

8.3. National Service for Animal Health and Quality
The National Service for Animal Health and Quality is the agency responsible for certifying products of animal origin. The process begins with the approval of the slaughterhouse and/or processing establishment, then the enterprise itself is approved and, finally, the Health Certificate is granted, after which the sale of the products can begin. The certification of the product depends on volume and destination. The requisites for obtaining product certification are:

• Having an adequate infrastructure for the type of animal being processed; • Application for the inspection of the plant; • Possession of an Environmental Licence issued by the Secretariat of the Environment; • Proof of entry in the Single Taxpayers' Register; • Presentation of the enterprise's taxation documents
The cost of obtaining approval, which takes about a week, depends on the type of enterprise. In the case of a meat-packing plant, the amount is US$299.28 (G1,500,000). For enterprises processing other products of animal origin, the cost is US$99.76 (G500,000). The cost is the same for annual renewal of approval. The

46

Chapter 8. Accreditation and certification agencies

Health Certificate is obtained immediately and free of charge, but ongoing veterinary inspections are required. Once the enterprise has been approved and the Health Certificate obtained, products may be sold on the national and international market.

8.4. National Service for Plant and Seed Quality and Health
The National Service for Plant and Seed Quality and Health (SENAVE) is the agency responsible for supervising the quality and health of products and by-products of plant origin. For this purpose, there are various border crossings where products are checked coming in and out in order to avoid or reduce to a minimum the introduction and propagation of diseases that will affect crops. For importing or exporting products and by-products of plant origin, it is necessary to have the plant health certificate issued by SENAVE, guaranteeing the quality and health of the products. The necessary procedures can be complied with at the various border crossings, where documentary and health checks of the products take place. Without these documents, the goods cannot enter Paraguay or other countries where plant health certificates are required. Table 45 sets out the necessary procedures for exporting or importing products of plant origin.
Table 45: Procedures for exporting and importing products of plant origin
Procedures for export: a) Registration at the Single Window for Exports of the Ministry of Industry and Commerce b) Submission of an application for export of plant products with SENAVE c) Payment of the corresponding charge d) Inspection of the products e) Issue of the Export Certificate of Plant Health Procedures for import: a) Registration with SENAVE b) Application for Phytosanitary Import Accreditation (AFIDI) c) Submission of the import application at any border crossing d) Documentary inspection e) Payment of the corresponding charge f) Issue of the Import Certificate of Plant Health
Source: National Service for Plant and Seed Quality and Health.

The cost of export and import certificates is composed of the basic charge, which is US$2.10 (G10,513), the charge for the application, namely US$0.69 (G3,500), the registration fee (solely for the importer) which amounts to US$17.98 (G90,117) and the inspection fee, which depends on the plant product being considered. The time required for issue of export certificates depends on the requirements of the country of destination of the products and the category of phytosanitary risk. The import certificates are issued without delay if the importer has satisfied the requirements set out in the Phytosanitary Import Accreditation of the country of origin.
47

.

CHAPTER

9

Transportation services and infrastructure

T

ransportation plays a vital role in Paraguay's economy. Being landlocked, Paraguay needs to develop this sector in order to open itself up to the world through the neighbouring countries. A transport sector is therefore needed that will minimize the costs resulting from the lack of direct access to the sea.

Roads and the basic transport infrastructure are the responsibility of the State, but the State may delegate certain functions to the private sector in order to bring about greater efficiency. In 2006, the share of the transport sector in Paraguay's GDP was around 4%.17 This percentage was similar to that achieved in the period 1996-2005, when the share of the sector, in constant 1994 prices, was 3.66%. This sector therefore needs investment on a large scale in order to develop the necessary basic infrastructure to facilitate the sustained growth of the economy.

9.1. Road and land transport
The Ministry of Public Works and Communications (MOPC) is the body responsible for developing, proposing and implementing policy regarding the basic services and infrastructure necessary to ensure the integration of the country. Paraguay has a road network which is little developed in comparison with other Latin American countries. Table 46 shows the characteristics of the country's road infrastructure.
Table 46: Basic characteristics of the road infrastructure
Description a) Broken down by network National roads Departmental roads Local roads Combined national road network b) By road type Paved Stone-paved Unpaved Total national road network 4,295.48 592.68 23,656.70 28,534.86 15% 21% 82% 100% 9,763.92 5,550.34 13,220.60 28,534.86 34% 20% 46% 100% Length (kilometres) Percentage of the total national network

Source: Directorate for Road Planning of the Ministry of Public Works and Communications.

Of the 17 departments of Paraguay, those with the most extensive road infrastructure are: Itapúa (3,484.34 km), San Pedro (3,417.55 km), Boquerón (2,460.05 km) and Alto Paraná (2,116.69 km).
17

Preliminary national accounts of the Central Bank of Paraguay. System of National Accounts of Paraguay, series 1996-2005.

49

Doing Business in Paraguay: Country Cost Elements

For some years, in order to increase efficiency in infrastructure provision, the Government has been granting concessions to private companies to operate key segments of the country's road network. For example, a concession was granted in 1997 to the company Tape Porá for a stretch of 141 kilometres between the cities of Coronel Oviedo and Ciudad del Este. MOPC is responsible for regulating toll charges for the country's roads. Where concessions have been granted, the amount of the toll is stipulated in the contract signed between the operating company and the State. MOPC administers 15 toll stations distributed around the national territory. At these stations, tolls are collected only in one direction. The company Tape Porá has two toll stations on the stretch of road operated by it. Tables 47 and 48 show the toll charges at public and private toll stations:
Table 47: Fees at the toll stations managed by the Ministry of Public Works and Communications
Type of vehicle Light vehicles Trucks and buses with 2 axles Light vehicles with trailers Trucks with 3 axles Trucks with more than 3 axles
Source: Income Department, Informatics Division of MOPC.

Category I II III IV V

Charge Guaraníes 5,000 7,000 7,000 8,000 15,000 US Dollars 1.00 1.40 1.40 1.60 2.99

Table 48: Tolls charged by Tape Porá
Type of vehicle Car, jeep, light truck, van Truck, truck tractor or bus (2 axles) Truck, truck tractor or bus (3 axles) Truck, truck with trailer or semi-trailer (4 axles) Truck, truck with trailer or semi-trailer (5 axles) Truck, truck with trailer or semi-trailer (6 axles) Motorcycles
Source: Income Department, Informatics Division of MOPC.

Category I III IV V VI VII VIII

Minga Guazú Guaraníes 10,000 17,000 28,000 37,000 40,000 40,000 3,000 US Dollars 2.00 3.39 5.59 7.38 7.98 7.98 0.60

Pastoreo Guaraníes 9,000 15,000 26,000 33,000 36,000 36,000 2,000 US Dollars 1.80 2.99 5.19 6.58 7.18 7.18 0.40

According to the National Transport Directorate (DINATRAN), the total number of motor vehicles in Paraguay in 2006 was 537,785, a figure similar to that of previous years. In 2006, there were 5,334 authorized cargo-carrying vehicles in Paraguay, 6% more than in 2005. The majority of these vehicles were authorized for journeys to the MERCOSUR countries and Chile. The national transport system is regulated by Law 1,590/00. DINATRAN, in addition to establishing policies and technical guidelines for all levels of transport, is responsible for regulating all matters concerning national land transport, except for the fee schedule. However, DINATRAN must ensure that these are calculated on the basis of modern organizational and operational criteria and norms.

50

Chapter 9. Transportation services and infrastructure

For this purpose, DINATRAN conducts periodic studies on the operational costs of land transport companies. These studies serve to determine the minimum prices that these companies may charge. These prices, which are established by decrees of the Executive, may not be below those fixed in a model approved by the World Bank, according to which a land transport vehicle with a capacity of 25.25 tons may not charge less than G300 (US$0.06) per metric ton per kilometre, a sum that already includes a profit margin of 25%. In Paraguay, international freight transport is covered by Law 1,128/97, confirming the agreement on international land transport concluded between the countries of the Southern Cone. Table 49 gives reference prices for the international transport of freight by land.

Table 49: Land transport freight costs
International routes Asunción - Buenos Aires (Argentina) Imports-normal cargo Imports-dangerous cargo Exports-normal cargo Exports-dangerous cargo Asunción - Santiago (Chile) Normal dry cargo Dangerous dry cargo Normal refrigerated cargo Dangerous refrigerated cargo Asunción - Montevideo (Uruguay) Imports-dry cargo Exports-dry cargo Asunción - San Pablo (Brazil) Imports-dry cargo Imports-refrigerated cargo Exports-dry cargo Exports-refrigerated cargo
Source: Surveyed companies.

Freight rates for a truck of 27 tons Guaraníes 6,014,400 7,016,800 5,012,000 6,014,400 9,021,600 to 10,024,000 10,024,000 to 11,026,400 17,542,000 to 20,048,000 20,048,000 to 22,554,000 6,014,400 5,513,200 10,024,000 12,028,800 9,522,800 11,527,600 US Dollars 1,200 1,400 1,000 1,200 1,800 to 2,000 2,000 to 2,200 3,500 to 4,000 4,000 to 4,500 1,200 1,100 2,000 2,400 1,900 2,300

Prices depend on the company's method of billing, on whether the cargo is for export or import, on the form of cargo (dry or refrigerated) and on the care with which the goods have to be handled during transport.

51

Doing Business in Paraguay: Country Cost Elements

Box 5: Land transportation: outlook The Ministry of Public Works and Communications, with financing from the Structural Convergence Fund of MERCOSUR (FOCEM), plans to invest US$71,965,630 in various construction works: feed roads for regional integration corridors, rehabilitation and improvement of the access and perimeter roads of Greater Asunción and rehabilitation of road corridors. In 2007, work on the Paraguayan segment of the Interoceanic Corridor was completed. When the other countries involved complete their parts, the Corridor will connect the Pacific and Atlantic oceans, which will allow Paraguay, as a landlocked country, to have direct access to the main ports on each ocean. The Corridor is also beneficial in itself, as it passes through a number of markets with a total population of 280 million.

Source: National Board of Maquiladora Industries for Export.

9.2. Rail transport
At the present time the national railways are used for tourism, except for the goods trains in the city of Encarnación which provide a connection with the river ports, moving 200,000 kg of freight a year, mainly soya beans. Rail trips for tourists leave the capital every fortnight for the city of Areguá. The number of passengers per trip is between 100 and 150. It should be noted that Ferrocarriles del Paraguay S.A. is the only public corporation that is in the process of privatization, and for this purpose international investment studies on the sector are taking place. In view of the interest shown by several foreign investors in the Paraguayan rail system, it is hoped to finalize some investment by the middle of 2008.18
18

According to Ferrocarriles del Paraguay S.A., the investors interested are from Russia, India, Austria and China

52

Chapter 9. Transportation services and infrastructure

9.3. Maritime transport
Several rivers and their tributaries flow across the territory of Paraguay, favouring the development of the port and maritime transport sector. The most important rivers are the Paraguay and the Paraná, which are navigable the year round over nearly all their length. On the river Paraguay, there are 63 port terminals, both private and State-run. The most important of these is the country's main port at Asunción. This port has 900 metres of linear wharf for the mooring of large vessels, a beach with an area of 26,500 m2 for loaded containers and another of 51,250 m2 for empty containers. It should be noted that the products unloaded at this terminal have "green channel" status (that is to say, they are released immediately without the need for document examination, physical check or value control19) and that the process, since the introduction of the Customs Procedure Centre (CTA),20 lasts thirty minutes. Other major ports are that at Villeta, which has a beach for the storage of loaded and empty containers with an area of 60,000 m2, and that of PETROPAR, where all imports of crude oil and its by-products arrive. On the river Paraná, there are currently a total of 52 private or public port terminals, the most important being that of Ciudad del Este, where a large proportion of the imports of high-technology products sold in the city arrive. The port and river system of Paraguay is regulated by Law 1,066/65 Establishing the National Authority for Navigation and Ports (ANNP); this body monitors the proper functioning of the port infrastructure and fixes the prices for port services. Another important entity is the Directorate-General for the Merchant Marine, dependent on the Ministry of Public Works and Communications and responsible for supervising boats and cargoes that pass through Paraguayan territory. Under Law 295/71 on Reservation of Cargoes, all boats flying the Paraguayan flag must be registered with this agency. In 1994, for the purpose of developing the port infrastructure in all its aspects, Law 414/94 on Private Ports was adopted, authorizing the construction and operation of private ports, which must have adequate installations and equipment for users. The rates charged for the use of these ports are decided directly by the operating companies. The ports can also benefit from the fiscal incentives offered for capital investment.21 To promote the export of its products by ship to the world's main destinations, Paraguay has a large number of duty-free storage facilities in various countries of the region (table 50).

See section 13.2, "Import regime". Source: National Authority for Navigation and Ports. 21 See chapter 14, where reference is made to Law 60/90 on the System of Fiscal Incentives for the Investment of National and Foreign Capital.
19 20

53

Doing Business in Paraguay: Country Cost Elements

Table 50: Duty-free storage facilities granted to Paraguay
Locality In operation Duty-free deposit, Montevideo Duty-free deposit, Antofagasta Duty-free deposit, Rosario Duty-free deposit, Nueva Palmira Duty-free deposit, Rio Grande do Sul Duty-free deposit, Santos Duty-free deposit, Buenos Aires Duty-free deposit, Paranagua Under negotiation Duty-free deposit, El Callao Duty-free deposit, Mejillones
Source: ANNP.

Country Uruguay Chile Argentina Uruguay Brazil Brazil Argentina Brazil Peru Chile

Table 51 shows some reference rates for sending cargo by sea.
Table 51: Cost of maritime shipping to major ports
Journey Asunción-New York* Asunción-New York* Asunción-New York* Asunción-Long Beach (California)* Asunción-Long Beach (California)* Asunción-Long Beach (California)* Asunción-Bilbao (Spain) Asunción-Bilbao (Spain) Asunción-Bilbao (Spain) Asunción-Rotterdam (Netherlands) Asunción-Rotterdam (Netherlands) Asunción-Rotterdam (Netherlands) Asunción-Hong Kong Special Administrative Region (SAR) Asunción-Hong Kong SAR Asunción-Hong Kong SAR Asunción-Shanghai (China) Asunción-Shanghai (China) Asunción-Shanghai (China) Asunción-Xiamen (China) Asunción-Xiamen (China) Asunción-Xiamen (China)
BAF: bunker adjustment factor (part of the charge depending on oil prices). Vatos: valid at time of shipment. DV: dry van or standard container (not refrigerated). HC: high cube (container with more volume than the 40 DV). * Including International Ship and Port Security Charge (ISPS), Chassis Usage Charge (CUC), United States Destination Terminal Handling Charge (DTHC) and SMDF. Wharfage will depend on the POD (US$3 per ton, minimum US$25 per bill of lading). Observation: All prices are free on board (f.o.b.) and subject to change depending on market conditions. Non-dangerous cargo is defined according to the standards of the International Maritime Organization, the specialized agency of the United Nations system concerned with issues of maritime transport safety. Source: ANNP.

Basic charge, US Dollars* Goods: general cargo (not dangerous) 2,400 2,950 3,050 3,100 3,850 3,950 2,300 3,100 3,200 2,100 2,800 2,900 2,300 3,200 3,300 2,300 3,200 3,300 2,300 3,200 3,300

Additional charge, US Dollars* BAF vatos US$425 x 20 DV. BAF vatos US$850 x 40 DV. BAF vatos US$850 x 40 HC. BAF vatos US$425 x 20 DV. BAF vatos US$850 x 40 DV. BAF vatos US$850 x 40 HC. BAF vatos US$450 x 20 DV. BAF vatos US$900 x 40 DV. BAF vatos US$900 x 40 HC. BAF vatos US$450 x 20 DV. BAF vatos US$900 x 40 DV. BAF vatos US$900 x 40 HC. BAF vatos US$500 x 20 DV. BAF vatos US$1 000 x 40 DV. BAF vatos US$1 000 x 40 HC. BAF vatos US$500 x 20 DV. BAF vatos US$1 000 x 40 DV. BAF vatos US$1 000 x 40 HC. BAF vatos US$500 x 20 DV. BAF vatos US$1 000 x 40 DV. BAF vatos US$1 000 x 40 HC.

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Chapter 9. Transportation services and infrastructure

9.4. Storage facilities
In addition to transport costs, the user must take into account the cost of storage of goods while procedures are taking place. ANNP and the private ports offer storage facilities. Table 52 shows the costs of using the ANNP warehouses.
Table 52: Monthly storage costs
General goods Imports 1st period 2nd period 3rd period 1st period 2nd period 3rd period Exports 1st period 2nd period 3rd period
Source: ANNP.

Dangerous goods (explosives and gases) Percentage of the dutiable value

Calendar days

0.65% 1.25% 1.50% 0.325% 0.63% 0.75% 0.325% 0.63% 0.75%

0.90% 1.45% 1.75% 0.45% 0.73% 0.88% 0.45% 0.73% 0.88%

30 20 20 30 20 20 30 20 20

Imports under the maquiladora regime

By decision of ANNP the cost of storage at some ports shows differences due to criteria relating to commercial , and regional development (table 53).
Table 53: Incentives for imports at particular terminals
Port terminal Villeta port Port of Encarnación, Algesa and Campestre Port of Ciudad del Este Puerto Falcón
Source: ANNP.

Observation 1st period, 0.50% on the dutiable value for general, agrochemical and related goods 1st period, 0.50% on the dutiable value for agrochemical and related goods 1st period, 0.40% from US$50,000 and 0.45% from US$150,000 1st period, 0.50% from G300 million

Another additional cost of maritime transport consists of payments to the port management for the services rendered in the loading and unloading of goods. Table 54 gives a summary of these costs at the terminals belonging to ANNP .

55

Doing Business in Paraguay: Country Cost Elements

Table 54: Port costs
Service Slinging charge Handling Truck on board Use of dock Use of electricity for refrigerated containers Use of electricity for vessels Supply of drinking water (basic cost) Supply of drinking water (additional cost)
Source: ANNP.

Guaraníes 1,800 1,200 960 1,000 464 300 8,500 850

US Dollars 0.36 0.24 0.19 0.20 0.09 0.06 1.70 0.17

Observation Per metric ton or cubic metre Per metric ton or cubic metre Per metric ton directly unloaded Per linear metre of vessel and per day or fraction Per kilowatt-hour Per kilowatt-hour Equivalent to 10 m3 Per cubic metre

9.5. Air transportation
The national aeronautical sector is governed by the Paraguayan Aeronautical Code and the entity responsible for regulating this sector is the National Directorate of Civil Aviation (DINAC), which reports to the Ministry of National Defence. There are several airlines currently operating in Paraguay, such as TAM Mercosur, Aerosur and Gol, which fly to various destinations around the world. Paraguay has 11 airports managed by the Airports Department of DINAC, and of these the airports Silvio Pettirossi, Asunción, Guaraní and Ciudad del Este are international airports. There are also airstrips for private and military use in different parts of the country. Several of the principal cities of South America are no more than three hours' flight away from Paraguay, which allows lower transport costs and facilitates communication with other countries. Table 55 indicates flight time between Asunción and other important South American cities.
Table 55: Flight time between cities
From Asunción Asunción Asunción Asunción Asunción Asunción Asunción
Source: Airlines consulted.

To Buenos Aires Curitiba São Paulo Montevideo Santiago Iquique La Paz

Time 1h 20m 1h 1h 15m 1h 40m 2h 45m 2h 30m 2h 40m

The total number of passengers transported in 2006 was 584,403, 49% more than in 2005 (diagram 9). Table 56 shows air fares from Asunción to national and international destinations.

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Chapter 9. Transportation services and infrastructure

Diagram 9: Changes over time in the number of passengers transported (1998-2006)
700,000

600,000

500,000

Number of passengers

400,000

300,000

200,000

100,000

1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: National Directorate of Civil Aviation.

Table 56: Air fares
National Asunción – Ciudad del Este International Asunción - Buenos Aires Asunción - Lima Asunción - Londres Asunción - Madrid Asunción - Milan Asunción - New York Asunción - Miami Asunción - Montevideo Asunción - Paris Asunción - Santa Cruz Asunción - Santiago Asunción - São Paulo
* Round-trip fares. Source: Airlines consulted.

US Dollars* 40 US Dollars* 219 510 969 1,202 899 924 827 289 969 334 329 219

In 2006, a total of 13,683,251 kg of cargo was carried by air via Paraguay's two international airports. Most of this went through the Guaraní Airport, because a large quantity of goods enter by that airport to be marketed in Ciudad del Este, the country's commercial pole. Table 57 shows reference costs for air freight to the principal world destinations.

57

Doing Business in Paraguay: Country Cost Elements

Table 57: Air freight costs
Origin-destination Asunción – Frankfurt Asunción – Madrid Asunción – Dubai Asunción – Hong Kong Asunción – Narita Asunción – Buenos Aires Asunción – São Paulo Asunción – Santiago de Chile Asunción – Santa Cruz Asunción – Miami Asunción – New York
Rates updated to 17 August 2007. Source: The agency Airemar S.R.L.

US Dollars/kg From 10.60 10.60 12.30 12.30 18.90 1.20 1.20 2.95 1.50 4.60 5.00 To 3.10 3.30 4.20 4.20 5.70 0.55 0.60 0.65 0.70 1.70 2.40 From 53,127 53,127 61,648 61,648 94,727 6,014 6,014 14,785 7,518 23,055 25,060

Guaraníes/kg To 15,537 16,540 21,050 21,050 28,568 2,757 3,007 3,258 3,508 8,520 12,029

9.6. Insurance services
The insurance sector is regulated by Law 827/96 on Insurance, promulgated in 1996. The Superintendency of Insurance is the body responsible for the oversight of all insurance and reinsurance companies. This institution comes under the Central Bank of Paraguay, but enjoys operational and administrative autonomy. Insurance for the transport of cargo covers goods from when they leave the warehouse of the exporter to when they arrive at the importer's warehouse. Although there are different types of coverage depending on the needs of the customer, transport insurance can be divided into two types: insurance "free of particular damage" and insurance against all risks, which is the more comprehensive form. The insurance premiums charged by the private sector depend on prevailing market conditions. For reference purposes, however, table 58 shows rates charged for insurance against all risks.
Table 58: Rates for insurance of international freight against all risks
Activity Imports (normal goods) Imports (refrigerated goods) Exports (normal goods) Exports (refrigerated goods)
Source: Surveyed insurance companies.

Percentage of goods value 0.50% 0.70% 0.75% 1.00%

Rates for goods needing refrigeration are higher because, if there is an accident and refrigeration stops, there is a complete loss - that is to say, it is not possible to recover a portion of the goods. For transport within Paraguay the procedure is different: customers must estimate the value of the goods that they will transport during a year and the insurer charges an annual premium of 10% of this amount.

58

CHAPTER

10

Cost of living

T

he cost of living in Paraguay is among the lowest in the world. According to the cost-of-living survey published by the firm Mercer and updated to June 2007, Asunción is the cheapest city for the fifth consecutive year. The study considers 143 cities in the five continents and compares costs for housing, transport, food, clothing and household articles.

10.1. Costs for the rental of housing
The information here relates to housing in the Paraguayan capital and its surroundings, where the real estate market is relatively highly developed. Table 59 shows rental costs for apartments and houses in the centre of Asunción and in the residential districts, broken down according to the number of rooms.
Table 59: Rental costs per month
Apartments Centre Three rooms Four rooms Residential district Three rooms Four rooms Houses Centre Three rooms Four rooms Residential district Three rooms Four rooms
Source: Estate agencies and newspaper advertisements.

Guaraníes 750,000 to 1,800,000 1,000,000 to 2,500,000 700,000 to 1,750,000 2,000,000 to 4,000,000 Guaraníes 800,000 to 1,500,000 1,500,000 to 2,500,000 2,000,000 to 4,000,000 2,500,000 to 7,000,000

US Dollars 149.64 to 359.14 199.52 to 498.80 139.66 to 349.16 399.04 to 798.08 US Dollars 159.62 to 299.28 299.28 to 498.80 399.04 to 798.08 498.80 to 1 396.65

10.2. Domestic service
The difficulties encountered by unskilled personnel, especially women, in finding employment in the formal sector of the economy and the increasing migration from rural to urban areas result in an abundant supply of labour for performing household duties. Table 60 shows the average wages paid to those who perform these tasks in the capital. The amounts may, however, vary considerably depending on the size of the home and whether work is full-time or not.22
22

Many domestic employees live in the homes where they work and leave only at weekends.

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Doing Business in Paraguay: Country Cost Elements

Table 60: Monthly wages for domestic service in Asunción
Services All services* Care of children
* Includes cleaning of the home and the care of children. Source: Employment agencies consulted and advertisements.

Guaraníes 500,000 400,000

US Dollars 99.76 79.81

10.3. Security services for dwellings
Several companies provide security services for dwellings. Costs depend on the number of guards needed by customers, the appliances at their disposal and the duty hours (round the clock, daytime or night-time). Table 61 shows the average cost of security services for houses and buildings.
Table 61: Monthly cost for security services
Type of dwelling Houses Buildings Guaraníes 2,447,500 2,447,500 US Dollars 488 488

* Amounts include VAT and refer to the cost of a security guard working 12 hours a day. Source: Security companies consulted.

10.4. Health insurance
In Paraguay, all insurance and reinsurance services, including health insurance, are governed by Law 827/96 on Insurance. The Paraguayan insurance market is relatively competitive. In 2006, the company with the largest share controlled 14% of the market. There are 33 insurance companies in operation at the present time.23 The earnings of insurance companies from life insurance premiums increased by 16% between 2003 and 2006, showing the sector’s dynamism. Of the total value of premiums collected in 2006, 7.11 per cent represent group life insurance policies and 0.17% individual policies. Health insurance, with a variety of plans and services offered, has also shown an upward trend. Table 62 shows two options for health insurance plans offered by two companies operating in the local market. The costs vary according to the services included in the plans. In general, companies offering health insurance have a national coverage as well as complementarity agreements with other companies within MERCOSUR. Persons covered by health insurance in Paraguay constitute 21.7% of the population. Of this segment, 78.5% have private insurance and the remainder are insured with the Social Security Institute. However, health insurance coverage is considerably greater in the urban area than in the rural area.24

23 24

Analytical indicators for the insurance sector, 2005-2006. Superintendency of Insurance. Central Bank of Paraguay. Atlas de Desarrollo Humano Paraguay 2005. United Nations Development Programme (UNDP).

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Chapter 10. Cost of living

Table 62: Monthly cost of health insurance plans
Type of insurance Company OAMI Policyholder, spouse and three minor children Unmarried policyholder plus two relatives Individual policyholder up to age 65, without maternity coverage Company ASISMED Policyholder, spouse and children up to age 22 Policyholder and spouse Policyholder alone
Source: BL&ASOCIADOS S.A.

Plans OAMI BL PLUS Guaraníes 540,000 540,000 290,000 VIP Guaraníes 540,000 460,000 290,000 US Dollars 107.74 91.78 57.86 481,000 481,000 250,000 US Dollars 107.74 107.74 57.86 481,000 481,000 230,000 MEDICAL Guaraníes US Dollars 95.97 95.97 49.88 OAMI BL Guaraníes US Dollars 95.97 95.97 45.89

10.5. Education: School enrolment and tuition fees
According to the Permanent Survey of Households for 2005, 28.5% of the Paraguayan population have ten or more years’ education and 95% can read and write, a rate higher than the average for Latin America. In Paraguay there are many educational institutions, mainly in urban areas, where there is a wide variety of options. There are both public and private institutions of a high level, although the private schools can generally offer more in terms of additional services such as the study of foreign languages and computing, and artistic and extracurricular activities. Noteworthy within the range of choices are certain bilingual and other schools where the International Baccalaureate diploma can be obtained, permitting entrance into universities worldwide recognizing the diploma.25 Table 63 shows the costs of schools in the upper and medium range. The classification is based on the area in which the school is located and the particular services it offers. As far as higher education is concerned, there is also a wide variety of universities and courses of study. The public universities generally emphasize technology and natural sciences, while private universities tend to concentrate on commercial courses and the social sciences.

Table 63: School tuition and enrolment fees
Range Upper range Primary Secondary Medium range Primary Secondary 472,500 558,750 94 111 3,727,500 5,062,313 744 1,010 1,322,619 1,565,667 264 312 11,471,131 14,983,208 2,289 2,989 Enrolment Guaraníes US Dollars Annual tuition fee Guaraníes US Dollars

* Average figures for all the years making up each educational level. Source: Educational institutions consulted.

25

For more information on the International Baccalaureate programmes consult www.ibo.org.

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Doing Business in Paraguay: Country Cost Elements

10.6. Rental of vehicles
There is an ample supply of rental cars in Paraguay, both for foreign customers and for nationals. The companies offering this service are of national scope. Most have branches in the main Paraguayan cities and offer a wide range of vehicles. The rental costs depend on the type of vehicle chosen and the additional services requested, with regard to insurance for oneself and third parties, the area of coverage, hours for assistance services, etc.
Table 64: Cost of rental of vehicles
Type of vehicle Economy Compact Pick-up truck 4x4 Estate car Estate car (van type) Basic charge (US Dollars)* 47.75 65.50 76.25 56.00 99.00 Charge per additional kilometre (US Dollars) 0.52 0.63 0.82 0.63 0.82

10.7. Vehicle insurance
It is not mandatory for vehicles in circulation in Paraguay to be covered by insurance, with the exception of vehicles used for public transportation. However, an increasing number of people are taking out insurance for vehicles, occupants and even third parties. The coverage of such insurance extends to the whole national territory and, where agreements with other companies exist, also to the MERCOSUR countries. The minimum capital required for the establishment of an insurance company is US$500,000.26 The premiums charged by these companies may vary greatly, and the Superintendency of Insurance does not establish upper limits. However, as a market average, the annual premium for a vehicle valued at G 75,000,000 (US$14,964.09) is around G5,265,000 (US$1,050.48) and the annual premium for a vehicle insured for G100,000,000 (US$19,952.11) is around G6,710,000 (US$1,338.79). These premiums cover all risks (theft, collision and third party claims) and include the green card, valid for one year.27

26 27

Law 827/96 on Insurance, article 17. Card certifying civil liability insurance, valid for circulation in other countries of the region.

62

CHAPTER

11

Taxes

ith the adoption in 2004 of Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment, which seeks to increase equity in tax treatment, the Paraguayan taxpayer base was broadened. This Law modifies key aspects of Law 125/91 (in force since 1991), which had regulated tax matters until then. Aspects in which the new Law introduces changes include taxes on business income, on agricultural income, on small contributors and on consumption. A Tax on Personal Income was also introduced. The changes began to be applied in 2005, but most of them, apart from the tax on personal income, which is not yet applied, were fully implemented in 2006 and 2007. The philosophy of the new tax regime can be summed up under three aspects: reduction of tax on the income of enterprises, generalization of value added tax and formalization of the economy, through the involvement of all actors with a requirement for the legal documentation of their operations, thus generating greater equity and justice in the distribution of the tax burden. In 2006, taxes on consumption represented 62% of Paraguay’s tax revenue. Taxes on commercial activities constituted only 15%. To encourage investment, the State has had to sacrifice part of its revenue. Of the total decrease in revenue, 38% has been due to the incentives provided for in Law 60/90 on the System of Fiscal Incentives for the Investment of Domestic and Foreign Capital.28

W

11.1. Tax on income from commercial activities
This is a direct tax applicable to all income from Paraguayan sources derived from commercial, industrial or service activities, except activities of a personal character. Income from Paraguayan sources is income generated by activities within the Republic, irrespective of the nationality or residence of those engaged in such activities.29 Liable to such tax, inter alia, are single-owner businesses, companies of any kind, associations, corporations and other private entities of whatever nature, and also foreign-based entities or persons carrying out activities taxable in Paraguay.30 At the present time, the general rate applied under this tax is 10%, or 20 percentage points less than the 30% rate that applied before the tax reform. However, if the enterprise distributes profits to its shareholders, an additional tax of 5% is applied to the net amounts credited or paid. In the case of companies domiciled abroad, the head office or the shareholders must pay 15% on net amounts remitted.

Informe Económico Tributario Enero a Diciembre de 2006. Directorate for Taxation Planning and Methodology. Department for Economic Studies on Taxation. Ministry of Finance. 29 Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment, articles 2 and 5. 30 To determine the taxable income of persons or entities domiciled abroad, the branch of activity concerned is taken into account. The law also provides for certain expenditures that may be made.
28

63

Doing Business in Paraguay: Country Cost Elements

11.2. Tax on personal income
This is a direct tax applicable to income from Paraguayan sources derived from activities that generate personal income – that is to say, professions, trades, occupations and the rendering of services of any kind. Also included are 50% of the dividends, profits or surpluses obtained by a shareholder or partner in an enterprise engaged in activities liable to the Tax on Income from Commercial Activities.31 This tax was due to come into effect at the beginning of 2006 but it was suspended by the Paraguayan Congress. However, table 65 gives the rates that will apply when the tax comes into effect.
Table 65: Tax on personal income
Personal income Monthly income exceeding 10 times the minimum wage or annual income exceeding 120 times the minimum monthly wage Monthly income exceeding 3 times the minimum monthly wage (but below 10 times) or annual income exceeding 36 times the minimum monthly wage (but below 120 times) Percentage payable in tax 10% 8%

Note: During the first year of application of the tax, only persons whose monthly income exceeds 10 times the minimum wage or whose annual income exceeds 120 times the minimum monthly wage will be liable to tax. Subsequently, the level of income taxable will be lowered each year by once the monthly minimum wage, until the amount of 3 times the monthly minimum wage is reached. Source: Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment.

11.3. Value added tax
VAT is an indirect tax applicable to all operations involving the delivery of goods, whether with transfer of ownership or with the effect of giving recipients the right to use the goods as if they were their owners.32 Each player in the value chain pays his or her predecessor the corresponding VAT, and it is the final consumers who bear the burden of the tax. In 2006, this tax, which has many contributors, represented 45% of the tax revenues of the Paraguayan State.33 Under the new taxation regime, the rate of VAT depends on the type of product. A rate of 5% is applied to certain basic household purchases and certain transactions. In the remainder of cases, the rate applied is 10% (table 66).

Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment, Article 10. Law 2.421/04 on Administrative Reorganization and Fiscal Adjustment, Article 82. 33 Informe Económico Tributario Enero a Diciembre de 2006. Directorate for Taxation Planning and Methodology. Department for Economic Studies on Taxation. Ministry of Finance.
31 32

64

Chapter 11. Taxes

Table 66: Value added tax rates
Nature of transaction Contracts for the cession of the use of goods and the transfer of real property Purchase of the following basic household goods: rice, noodles, maté, edible oils, milk, eggs, uncooked meat, flour and iodized salt Payment of interest, commissions and charges for loans and financing Sale of pharmaceutical products All other cases
Source: Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment.

Tax rate 5% 5% 5% 5% 10%

Although the nominal rate for the transfer of real property is 5%, the Law on Administrative Reorganization and Fiscal Adjustment treats as the taxable value 30% of the sales price of the property transferred, with the result that the effective rate is 1.5%.34 It should also be noted that agricultural products in their natural state are exempt from VAT, as are handicraft products, whether for export or for sale on the local market.35

11.4. Excise tax
This tax is applied to products whose consumption is considered socially undesirable and to products considered luxury goods, irrespective of whether they are produced in Paraguay or abroad. Table 67 shows the rate of excise tax (ISC) applied to certain representative products.

Table 67: Excise tax
Product Cigarettes/cigars of any category Manufactured tobacco, cut or loose, as snuff or in any other form Aerated drinks without alcohol, sweet or not, and, in general, unspecified drinks without alcohol or with a maximum of 2% of alcohol Beer in general Distillery products, anisette, bitters, Fernet and the like, vermouth, punches, spirits in general Fuels obtained from petroleum Weapons and ammunition and their parts and accessories
* In all cases the tax is collected on a monthly basis, except for the excise tax on fuels, which is paid weekly. Source: Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment.

Maximum rate 12% 12% 5% 8% 10% 50% 5%

Under article 106 of the Law on Administrative Reorganization and Fiscal Adjustment, the Executive may fix differential rates for the different types of products, but only up to the maximum rate established. Excise tax represents 17% of Paraguay’s total tax revenue. The largest role in revenue under this tax is played by revenue from the excise tax on fuels.

Instructivo Tributario para Actividades e Ingresos de Personas Físicas (2007). High-level Technical Institute for Tax and Business Training. Nora Ruoti Emprendimientos S.R.L. 35 Law 2,448/04 on Handicrafts.
34

65

Doing Business in Paraguay: Country Cost Elements

11.5. Vehicle licence tax
In order to circulate in the country, any motor vehicle, whether for private or commercial use, must pay annually the vehicle licence tax. In Asunción, vehicles for private use whose owner lives in Asunción and vehicles for commercial use by businesses established in Asunción must be registered. Table 68 shows details regarding the payment of the tax in the capital.
Table 68: Vehicle licence tax in Asunción
Assessed value (guaraníes) Lower limit 0 500,001 1,000,001 2,000,001 3,000,001 3,500,001 4,000,001 Upper limit 500,000 1,000,000 2,000,000 3,000,000 3,500 000 4,000,000 Upwards Basic tax (guaraníes) Minimum 0 7,500 12,000 20,000 26,000 29,000 34,000 Maximum 7,500 12,000 20,000 26,000 29,000 34,000 Upwards Variable element based on excess over lower limit 0.00% 0.90% 0.80% 0.60% 0.60% 1.00% 1.00%

Source: Ordinance 331/06 of the Municipality of Asunción.

Table 69 shows the rates charged by the municipalities in the interior of Paraguay.
Table 69: Vehicle licence tax in the interior of Paraguay
Description Percentage of taxable value* Rate 0.5% 0.475% 0.25%
* For the payment of taxes on the importation of vehicles, the taxable value is established by the Ministry of Finance. Source: Law 620/76 and Law 135/91 on Municipalities in the Interior.

Age of the vehicle New Up to 10 years old Over 10 years old

In addition to this tax, each municipality may impose charges for the administrative costs of vehicle authorization and driving licences.

11.6. Other taxes
11.6.1. Tax on documents and deeds
This tax applies to obligations, acts and contracts whose existence is evidenced in some document. Among documents and contracts related to financial intermediation, it applies to bills of exchange, drafts, money orders, letters of credit and, in general, any operation involving the transfer abroad of funds or foreign exchange.

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Chapter 11. Taxes

It is the drawer of the document who is liable for this tax, and the withholding agents are the financial intermediary institutions. The rate varies between 1.5 per mille and 2 per mille. In 2006, this tax represented only 1% of Paraguay’s total tax revenues.36

11.6.2. Tax on agricultural income
Under article 27 of the Law on Administrative Reorganization and Fiscal Adjustment, agricultural activities are activities directed towards obtaining primary vegetable or animal products using the factors land, capital and labour (for example, the raising and fattening of livestock, the production of wool or leather and crop and milk production). The rate applied is 10% on the net income assessed.

11.7. Other municipal taxes
The municipalities of Paraguay, on the basis of Law 620/76 and of Law 135/91 amending it, have their own local ordinances on tax questions. In the case of the Municipality of Asunción, the tax regime is established by a special ordinance.37
Table 70: Other municipal taxes
Description Permit for opening of premises intended for economic activities Rates for public health services* Rates for cleaning of public thoroughfares Tax on transfers of real estate** Rates for disinfection services*** Special contribution for maintenance of the road surface**** Asunción Gran Asunción (Rates) G34,100 + 0.73% MDWa/ 2% to 5% G3,775 + 0.96% MDWm/ 3 per mille G446 + 0.01% MDW G37 200 + 0.79 MDW
a/

Ciudad del Este

Encarnación

G25,000 5% G8,500 2 per mille G300 G200

G1,800 5% G4,167 + 0.2%m/ 2 per mille 60 G/m G200
3

G1,800 5% 264 G/m2 2 per mille No data G518.

* Percentage of the business licence fee. ** Based on the value of the transaction. *** Limit, cubic metres of enclosed premises. **** Buildings located on asphalted roads, per square metre of road surface in front of the building. MDW: Minimum daily wage. a/ Annual payments. m/ Monthly payments. Note: Unless otherwise specified, payments are made at the request of the party concerned. Source: Local by-laws of the municipalities in question.

11.8. Agreements to avoid double taxation
Paraguay has signed bilateral agreements to avoid double taxation with several countries, which are listed in table 71. With the help of such agreements, Paraguay aims to attract investment, to align itself with world taxation practices through increased awareness of international agreements and to exchange taxation data in order to help avoid evasion.
Informe Económico Tributario Enero a Diciembre de 2006. Directorate for Taxation Planning and Methodology. Department for Economic Studies on Taxation. Ministry of Finance. 37 The municipalities included within Greater Asunción are: San Lorenzo, Lambaré, Fernando de la Mora, Luque, San Antonio, Villa Elisa, Villeta, Ñemby, Ypané and Mariano R. Alonso.
36

67

Doing Business in Paraguay: Country Cost Elements

Table 71: Bilateral tax agreements
Country Argentina Belgium Chile Chile Germany Uruguay
Source: Directorate for Treaties. Ministry of Foreign Affairs.

Subject Air, river and land transport Air transport Air and land transport Tax on income and capital Air transport Air transport

Entry into force 19 April 2000 1 July 1987 21 September 1995 Pending 13 April 1985 27 May 1993

68

CHAPTER

12

Financial costs

R

egulation of the Paraguayan financial sector is the responsibility of the Central Bank of Paraguay, through the Superintendency of Banks, which has the task of verifying that banks, finance companies and other credit institutions comply with the laws that concern them.

The Paraguayan financial system is regulated by Law 861/96 on Banks, Finance Companies and Other Credit Institutions, and by the Law Establishing the Central Bank of Paraguay, in which the functions of this supervisory body are set out. There are also several laws and resolutions regulating the various areas of financial intermediation. Since a minor crisis in 2002, deposits with the financial institutions of Paraguay have maintained high rates of growth demonstrating the confidence of the public in the country’s financial structure. As a result of the depreciation of the dollar in relation to the guaraní, local currency deposits have increased considerably. In June 2007, the assets of the banking system amounted to G19,545,400 million and liabilities to G17,329,300 million, representing increases of 26.8% and 27.6% respectively over June 2006.38 Since 2006, the Development Finance Agency has been acting as a second-tier bank, facilitating access to medium-term and long-term lines of credit at preferential rates.

12.1. Reference interest rates
By law, the Superintendency of Banks must disseminate the average lending and borrowing rates of the Paraguayan financial market, on a monthly basis, as reference rates, and establish maximum rates above which lending is considered to constitute usury.39 Within this limit, interest rates are governed by market conditions. Table 72 gives the reference lending rates and deposit rates for August 2007.

38 39

Informe Económico, June 2007. Bureau for Economic Studies. Central Bank of Paraguay. Law 2,339/03 to amend article 44 of Law 489/95 Establishing the Central Bank of Paraguay.

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Doing Business in Paraguay: Country Cost Elements

Table 72: Reference annual interest rates
Banks Lending rates Commercial (terms below or equal to one year) Commercial (terms above one year) Development (terms below or equal to one year) Development (terms above one year) Consumption (terms below or equal to one year) Consumption (terms above one year) Simple average of lending rates Maximum rates Terms up to 90 days Terms up to 180 days Terms up to 365 days Terms above one year Lending rates Demand deposits Term deposits 180 days Below or equal Above 365 days Simple average of deposit rates 3.27% 4.83% 9.27% 4.42% 3.31% 4.90% 9.49% 4.51% 3.19% 3.89% 4.77% 3.00% 3.23% 3.95% 4.84% 3.04% 6.34% 8.64% 11.17% 6.86% 6.49% 8.87% 11.66% 7.08% 2.75% 3.80% 6.08% 3.21% 2.77% 3.82% 6.21% 3.25% National currency Nominal 10.91% 8.57% 8.92% 11.48% 15.16% 25.00% 13.34% Actual 11.61% 8.81% 9.15% 11.83% 16.38% 28.62% 14.40% Foreign currency Nominal 7.32% 6.55% 8.28% 8.36% 9.81% 10.50% 8.47% Actual 7.55% 6.68% 8.50% 8.59% 10.15% 10.79% 8.71% Nominal 21.37% 30.44% 33.45% 37.18% 30.61% Finance companies National currency Actual 23.75% 35.33% 38.37% 44.24% 35.42% Foreign currency Nominal 10.45% 13.51% 12.57% 13.92% 12.61% Actual 10.89% 14.26% 12.91% 14.69% 13.19%

National currency 47.77% 40.35% 47.85% 49.48% Banks National currency Nominal 0.32% Actual 0.32% Foreign currency Nominal 0.13% Actual 0.13% Nominal 1.28%

Foreign currency 14.93% 16.51% 15.76% 17.32% Finance companies National currency Actual 1.29% Foreign currency Nominal 0.19% Actual 0.19%

Note: Updated to August 2007. Source: Superintendency of Banks. Central Bank of Paraguay.

Box 6: Development Finance Agency To facilitate the access of the Paraguayan productive sector to credit, Law 2,640/05 established the Development Finance Agency (AFD), a second-tier banking agency which, as such, offers its credit products exclusively through banks, finance companies and cooperatives. At the present time, AFD works with eight banks, eight finance companies, 16 cooperatives and the Livestock Fund, a decentralized public entity for promoting the animal production sector. Since the commencement of its operations in 2006, AFD has approved credit totalling G226,000 million (US$45,090,000) for approximately 2,500 beneficiaries, including both individuals and companies. For 2007, AFD was budgeted to make available a total of US$17.6 million. Table 73 shows the various credit options offered by AFD.

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Chapter 12. Financial costs

Table 73: Credit options through the Development Finance Agency
Products Purpose Type of currency Term Maximum amount Rate of interest* Term below two years: 12% + the rate of the IFI** Term above two years: 7.5% + the rate of the IFI

FIMAGRO

Agricultural machinery

US Dollars

Up to five years

US$500,000

PROCRECER Investment in general

Guaraníes and US Dollars

Up to ten years with a two-year grace period

Term below two years: U p t o 8 0 % o f t h e 12% + the rate of the IFI investment Term above two years: 7.5% + the rate of the IFI Term below two years: 12% + the rate of the IFI Term above two years: 7.5% + the rate of the IFI Term below two years: 12% + the rate of the IFI Term above two years: 7.5% + the rate of the IFI Term below two years: 12% + the rate of the IFI Term above two years: 7.5% + the rate of the IFI Term below two years: 12% + the rate of the IFI Term above two years: 7.5% + the rate of the IFI

MICRÉDITO

Micro and small enterprises

Guaraníes

Up to five years

G250,000,000

MICASA

Purchase, construction or renovation of houses and apartments

Guaraníes

Up to 20 years

Up to 80% of the value of the property or G400,000,000 Up to 100% of the investment

PROCAMPO

Investment in animal production

Guaraníes

Up to seven years with a two year grace period

PROCOOP

Investment by members of production cooperatives

Guaraníes and US Dollars

Up to twelve years

G250 000 000 per member

* The interest rate consists of the basic rate applied by AFD plus the profit margin of the IFI. For loans in US Dollars, the rate is 6 per cent plus the rate applied by the IFI. ** IFI: Intermediate financial institution. Source: AFD.

71

.

CHAPTER

13

Foreign trade

araguay’s international trade relations take place within the international legal framework established by the rules and regulations of the World Trade Organization (WTO) and the treaties for regional integration of the Latin American Integration Association (ALADI) and MERCOSUR. Paraguay also benefits from the Generalized System of Preferences (GSP), which provides for customs reductions and benefits for products coming from developing countries. At the national level, legislation on foreign trade is contained in the Customs Code and its regulations,40 Law 1,095/84 Establishing the Customs Tariff and other laws, decrees and regulations mentioned in the paragraphs below. The bodies concerned with external trade are the National Customs Directorate and the Ministry of Industry and Commerce, through: the Directorate-General for Foreign Trade (DGCE), the Investment and Exports Network and the Single Window for Exports (VUE).

P

13.1. Export regime
13.1.1. Overview
In order to simplify export procedures with the help of information and automation technologies, the Single Window for Exports was established in 2006, a system depending on the Ministry of Industry and Commerce and recognized by WTO and the United Nations. VUE is an electronic system for the approval or modification of data via the Internet. The process is as follows: export applications are received, they are transmitted to the relevant institutions, electronic authorizations are received and they are transmitted to the National Customs Directorate. The applicant can ascertain by means of the Internet the stage in the process where his document is. All persons and companies interested in exporting must be entered in the Single Register for the Exporter (RUE), through which they can have access to the VUE system and its services. The charge for the services of RUE is four times the minimum wage. It should be noted that export goods are exempt from customs and exchange charges.41

40 41

Decree 4,672/05 regulating the Customs Code. Law 1,095/84 Establishing the Customs Tariff, Article 7.

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Doing Business in Paraguay: Country Cost Elements

13.1.2. Exports of soya and meat
Paraguay is one of the main producers of soya beans at the regional and world level. This crop is cultivated over a wide area and uses advanced technology, making it an important source of foreign exchange for the country. Table 74 shows the procedures required for exporting soya and its by-products, making use of the Single Window for Exports.
Table 74: Procedure for exporting soya using the Single Window for Exports
Stages a) Commencement of the export process b) Phytosanitary check at the border crossing c) Request for and issue of the phytosanitary certificate d) Preparation of the export documentation e) Control and checking of the document f) Physical check of goods/evaluation g) Payment of rates and tariffs h) Custody/control and embarkation i) Closure of file
Source: VUE.

Steps 1) Export application 2) Check and control at the border crossing 3) Dispatch to the National Service for Animal Quality and Health (SENACSA), using the VUE system 4) Printing of the document 5) Officializing of the documentation 6) Checking of documents 7) Customs check 8) Load verification 9) Payment of rates 10) Checking of embarkation 11) Certification of embarkation 12) Closure of file

Meat also has considerable importance for Paraguay’s economy. Indeed, the good showing of this product in the past years, resulting to a great extent from the recovery of major markets and the maintenance of the status of Paraguay as a “country free from foot-and-mouth disease”, was responsible for much of the growth of the Paraguayan economy. Table 75 summarizes the procedures required for exporting meat.
Table 75: Process for exporting meat using the Single Window for Exports
Stages a) Commencement of the export process b) Approval by the Official Veterinary Inspector of the meat -packing/cold-storage facility c) Export authorization from the Directorate-General for the Quality and Harmlessness of Products of Animal Origin (DIGECIPOA) d) Certificate of the loading official - Official Veterinary Inspector of the meat-packing/cold-storage facility e) Preparation of the export documentation f) Control and checking of documents g) Physical check of goods/evaluation h) Payment of rates and tariffs i) Issue of the health certificate j) Custody/control and embarkation
Fuente: VUE

Steps 1) Entry into the VUE system 2) Application for export procedures 3) Dispatch to the National Animal Quality and Health Service (SENACSA), using the VUE system 4) Preparation of the export authorization 5) Loading of products 6) Preparation of the loading official's certificate 7) Officializing of the documentation 8) Checking of document acceptability in the VUE system and the Sys tem for the Fiscal Organization of Customs Levies (SOFIA) 9) Customs check 10) Checking in the meat-packing/cold-storage facility 11) Payment of rates 12) Preparation of the health certificate 13) Printing of the health certificate 14) Checking of embarkation 15) Embarkation check/SENACSA

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Chapter 13. Foreign trade

Box 7: Investment and Exports Network In December 2004, in order to create an appropriate framework for increasing the competitiveness of Paraguayan industrial exports, the Executive adopted by decree the National Export Plan and established the Investment and Exports Network (REDIEX), a network under the responsibility of the Ministry of Industry and Commerce.

The task of REDIEX is to implement the National Export Plan with the participation of the public sector, the private sector and universities. To promote dialogue between the players, sectoral boards have been established, presided over by a representative of the private sector and including governmental and private organizations and universities, all concerned with a specific sector. Their objective is to improve the competitiveness of exports in this sector. Eight sectoral boards have so far been created, concerned with meat and leather, information and communication technologies, tourism, textiles and clothing, forestry products, fruit and vegetables, bio-fuels and stevia.42 In addition to the sectoral boards, there are units that offer support to exporters and provide information relating to foreign trade, both for those wishing to export for the first time and for those who wish to improve their export capacity. In certain sectors, there are also consortia which, unlike the sectoral boards, are made up solely of private sector actors. The consortia at present in operation are concerned with mattresses, furniture and printing. A leather consortium is being set up. It should be stressed that REDIEX also finances investment projects directed towards promoting exports. Funding may constitute up to 65% of the value of projects if they involve one or two companies, up to 75% when there are three or more beneficiary enterprises and up to 100% for projects adopted at the initiative of REDIEX.43 In addition, there is financing for projects seeking to strengthen the sectoral boards. All the companies participating in any of these boards are eligible for such financing, which may constitute up to 85% of the value of the project or up to 100% if the proponent is REDIEX.44

13.1.3. Certificate of origin
The certificate of origin, showing that an item of merchandise has been produced in a specific country, is of particular importance in international trade as it permits the products of the country to benefit from the various customs preferences to which the country has access. To comply with the MERCOSUR origin regulations,45 Paraguay has introduced a system of electronic management for the issue of the certificate of origin for all products, except for those covered by the GSP for which , certificates must in all cases be applied for in the Ministry of Industry and Commerce. In order to obtain the MERCOSUR origin certificate, up to 2008 the national content of Paraguayan goods has to be only 40%. As from 2014, the national content must increase to 60%. In order to achieve greater efficiency, the Ministry of Industry and Commerce has decentralized the issue of certificates of origin to the various production chambers, namely: the Cotton Chamber of Paraguay (CADELPA), for cotton products; the Paraguayan Chamber for Cereals and Oilseeds (CAPECO), for cereals and their by-products and oil seeds and their by-products; the National Chamber of Commerce and Services of Paraguay, for all customs matters except with regard to wood in all its forms; the Wood Industry Federation of Paraguay (FEPAMA), for wood in all its forms; and the Paraguayan Industrial Union (UIP), for all customs

Stevia is a plant with sweet leaves whose chemical components can be used as a sugar substitute. Annex to REDIEX Resolution No. 32. Export Promotion Project. 44 Annex to REDIEX Resolution No. 32. Sectoral Projects of a Structuring Nature. 45 Complementarity Agreement No. 18 concluded between Argentina, Brazil, Paraguay and Uruguay.
42 43

75

Doing Business in Paraguay: Country Cost Elements

matters except those relating to wood in all its forms. The Ministry, through the Directorate-General for Foreign Trade, is responsible for authenticating the certificates. Electronic processing takes place through the VUE system, with the participation of the relevant chamber, to which the exporter must submit a sworn declaration from the producer and an authenticated copy of the commercial invoice. Obtaining the certificate of origin takes 40 minutes on average. Table 76 shows the current rates for obtaining the certificate of origin, 50% of which go to the Ministry of Industry and Commerce for the necessary authentication. Payments are made at the rate of exchange prevailing on the day.
Table 76: Certificates of origin
Value of exports (US Dollars f.o.b.) Up to 50,000 From 50,001 to 100,000 From 100,001 to 200,000 From 200,001 to 400,000 From 400,001 to 600,000 600,001 upwards
Source: Directorate-General for External Trade of MIC; authorized chambers.

Rate (US Dollars) 10 20 30 40 50 60

Under Resolution No. 72/02 of the Ministry of Industry and Commerce, wood products have varying rates. The rates differ for different tariff items of the Common MERCOSUR Nomenclature and External Tariff (table 77).
Table 77: Certificate of origin for wood products
Tariff items 4402, 4409, 4410, 4411, 4412, 4414, 4415, 4416, 4417, 4418, 4419, 4420, 4421, 9403 4401, 4403, 4404, 4405, 4406, 4407, 4408, 4413
Source: Directorate-General for Foreign Trade of MIC; authorized chambers.

Rate (US Dollars per metric ton) 0.5 1

13.1.4. Drawback
The drawback system allows for partial or total reimbursement of import duties paid for products that become part of export goods or for products consumed during the production of exportable goods.45 The Executive has to decide which goods can be covered by the drawback system.46

46 47

Law 2,422/04 on the Customs Code, article 177. Decree 4,672 regulating the Customs Code, article 236.

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Chapter 13. Foreign trade

13.2. Import regime
The body responsible for monitoring and improving customs operations is the National Customs Directorate (DNA). The import regime is regulated by the Constitution, the new Customs Code, Law 125/91, Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment and the various laws governing ports. Importers must be registered with DNA. The requirements for registration depend on the type of company or the legal capacity of the importer who, in turn, needs in all cases a customs clearance agent; these agents work as commercial and customs agents. The customs clearance agent must be authorized by DNA. The fees of customs clearance agents are fixed by law and depend on the value of the imports (table 78).
Table 78: Fees of customs clearance agents
Value of imports (guaraníes) From 1 10,000,001 50,000,001 100,000,001 250,000,001 To 10,000,000 50,000,000 100,000,000 250,000,000 en adelante Basic fee (guaraníes) 50,000 250,000 750,000 1,550,000 2,800,000 Additional fee (percentage of the value of the imports cleared) 2% 1% 0.80% 0.50% 0.30%

Source: Law 220/93 on the Fees Schedule for Customs Clearance Agents.

Depending on the level of risk involved, imported goods may enter the country through the following selective control channels: the green channel, in which goods are allowed through without documentary analysis, a physical check or a value control; the orange channel, with examination of documents only; the red channel, goods being released only after passing through all the monitoring processes established.48 All goods imported, except those expressly declared exempt, are subject to a customs tariff. The maximum rate of duty is 30% on the taxable value of the goods, depending on their category and tariff classification.49 Table 79 summarizes Paraguay’s structure of tariffs, depending on the origin of the imports and their type. Imports coming from MERCOSUR (intra-zone), with only a few exceptions, have a general rate of 0%, and the average common external tariff of the member countries for products coming from third countries (extra-zone) is 10%. In addition to customs duties, other taxes must be paid in customs (table 80), notable among them being value added tax and excise tax.

48 49

Law 2,422/04 on the Customs Code, article 177. Law 1,095/84 Establishing the Customs Tariff. Article 2.

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Doing Business in Paraguay: Country Cost Elements

Table 79: Import regime
Category Intra-zone tariff (MERCOSUR) Average of the Common External Tariff Average of the Basic List of Exceptions Capital goods Informatics and telecommunications Exception list - Decision No. 31/03 of the Council of the Common Market (CMC) Exception list - Decision No. 68/00 of CMC Average for the motor vehicle sector, intra-zone Average for the motor vehicle sector, extra-zone Sugar sector Raw materials Ad valorem tariff* 0% 10% 10% 0-6% 0-2% 0% 16% 8% 12% 30% 0%

The taxable base for the imported goods is the customs value determined in accordance with the terms of the “Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade”. Source: National Customs Directorate.

Table 80: Other taxes and charges payable in customs
Category Charge for valuation services General value added tax Value added tax under the tourism regime Excise tax Advance on income tax National Institute for Indigenous Affairs Vehicles tax
Source: National Customs Directorate.

Rate 0.5% 10% 1.5% 18% 0.6% 7% 2%

Observation On the value determined in customs. On the value determined in customs and on the customs and internal charges payable prior to withdrawal of goods from the customs area. This is of an exceptional and optional nature. It applies to products that will be sold to non-resident aliens. Average applied to the affected goods on the value determined in customs prior to withdrawal of goods from the customs area. On the value determined in customs. On the charge for consular expenses. On vehicles whose assessed value exceeds US$30,000.

13.3. Customs
In 2005, the new Customs Code came into force, its purpose being to adapt the customs structure for imports and exports of goods to current international trade requirements. The process included a new organizational structure and the adaptation of the legal instruments to give greater efficiency to the customs service. At the present time, all customs procedures are incorporated in the System for the Fiscal Organization of Customs Levies. This system allows the application of selective control channels, centralization of data for analysis and dissemination, interactive online consultation and electronic payments through banks established in Paraguay. In addition, there is a secure connection through this system with the other customs offices of MERCOSUR.50 A number of improvements have been introduced in the National Customs Directorate in recent years, and mention should be made of the electronic facility that will soon be available for shipping agents, which will facilitate advance submission of the cargo manifest. This system will benefit carriers and importers, reducing
50

For more information, check the web page www.aduana.gov.py.

78

Chapter 13. Foreign trade

delays, and also the customs service, which will be able to apply more efficient control. In addition, the movement of containers will be monitored through the Global Positioning System (GPS).

13.4. Foreign trade agreements
Paraguay, conscious of the limited size of its economy, has signed several bilateral and multilateral trade agreements (table 81). The main such agreement is that establishing the Southern Common Market (MERCOSUR), a regional grouping also including Uruguay, Argentina and Brazil, with Venezuela to be added shortly, and with associated countries such as Chile and Bolivia. The prime objective of this treaty is to bring about the integration of the countries concerned through the free movement of goods, services and factors of production.

79

Doing Business in Paraguay: Country Cost Elements

Table 81: Foreign trade agreements
Agreements signed Multilateral agreements World Trade Organization Latin American Integration Association MERCOSUR MERCOSUR - Andean Community (CAN) With international organizations for selected products Global System of Trade Preferences among Developing Countries (GSTP) MERCOSUR - Mexico MERCOSUR - Chile MERCOSUR - Bolivia MERCOSUR - Peru MERCOSUR - Egypt MERCOSUR - South Africa MERCOSUR - Canada MERCOSUR - Central American Common Market MERCOSUR - United States of America MERCOSUR - European Union MERCOSUR - Cuba MERCOSUR - Russia MERCOSUR - India Bilateral (commercial and investment agreements) Paraguay - Ecuador Paraguay - France Paraguay - United Kingdom Paraguay - Switzerland Paraguay - Spain Paraguay - Czech Republic Paraguay - Portugal Paraguay - Bolivia Paraguay - Peru Paraguay - Venezuela Paraguay - Chile Paraguay - United States Paraguay - Netherlands Paraguay - Germany Paraguay - Mexico Unilateral agreements Generalized System of Preferences Agreements under negotiation Free Trade Area of the Americas
Source: Technical Unit for Industrial Studies.

Scope or partner (country of region) Worldwide Latin America and the Caribbean Argentina, Brazil, Uruguay and (shortly) Venezuela Andean countries Worldwide (with the participating countries) Worldwide Mexico Chile Bolivia Peru Egypt South Africa Canada Central America United States European Union Cuba Russia India Ecuador France United Kingdom Switzerland Spain Czech Republic Portugal Bolivia Peru Venezuela Chile United States Netherlands Germany Mexico Worldwide Americas

80

CHAPTER

14

Incentives for investment and exports

14.1. Law 60/90

T

his law, which came into force in 1990, establishes a system of fiscal incentives for the investment of capital, both of domestic and of foreign origin. Its objectives are: to increase the production of goods and services, to create permanent jobs, to promote exports, to replace imports, to promote investment and reinvestment of profits in capital goods and to incorporate technologies that will allow an increase in productive efficiency and a greater and better utilization of national raw materials, labour and energy resources. As benefits, Law 60/90 offers a set of exemptions from national and municipal taxation for fixed capital investment, for a maximum period of ten years. Notable among such exemptions are:

• ·Total exemption from national and municipal taxation on the establishment, incorporation and registration of companies and enterprises;

• ·Total exemption from customs duties and charges with equivalent effect on imports of capital goods,
raw materials and inputs intended for local industry and foreseen in the investment project.51 Additionally, the Law on Administrative Reorganization and Fiscal Adjustment introduced substantial amendments to Law 60/90 and added the following benefits:

• ·Foreign investment exceeding US$5,000,000 is to be exempt from tax on remittances abroad for the
payment of interest and commissions and reimbursement of capital, during the period laid down in the investment project;

• ·An investment exceeding US$5,000,000 will also be exempt from taxes on the dividends and profits
of the investment project for a period of up to ten years, provided that this tax is not a fiscal credit for the investor in his country of origin. Under the new taxation regime, established in Law 2,421/04, investors covered by Law 60/90 are also exempt from VAT on capital goods, national or imported, directly used in the industrial or agricultural production cycle. The benefits of Law 60/90 and its amendments are available to individuals and legal entities covered by current legal provisions. In their application for such benefits, enterprises must indicate: the full name, whether the enterprise is an existing or new one, names of the top managers of the enterprise, the activity in which the enterprise is engaged (in the case of an existing enterprise), the reason for the investment, the location of the project and the goods to be produced or services to be rendered; they must also give details on the financial planning for the project, with special emphasis, inter alia, on the amount of labour that will be employed and the investment timetable. When all the documents have been submitted, and if there is no request for the clarification of certain aspects, the estimated time required for the issue of a decision is 60 days.
51

See Law 60/90, Article 5, for more information on the benefits.

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Doing Business in Paraguay: Country Cost Elements

The body responsible for recommending to the Ministers of Industry and Commerce and of Finance the approval or rejection of applications for the various benefits is the Investment Board, made up of five representatives of public institutions and two representatives of the private production sector. For its part, the Department for Industrial Development, a subdivision of the Ministry of Industry and Commerce, must study and analyse investment projects, verify that they comply with the requirements under the regime and monitor projects being implemented. It must be stressed that all the procedures within the Ministry of Industry and Commerce are free of charge, that there are no maximum or minimum amounts laid down for investment eligible for benefits and that a single enterprise can receive benefits on more than one occasion. In accordance with Ministerial Resolution No. 350/06, companies benefiting from the incentive regime under Law 60/90 must submit every three months a detailed report on investment made to date. As of August 2007, 41 investment projects have been approved for a total value of G550,069 million, equivalent to about US$110 million at the rate of exchange valid at the time of the present study. On the basis of the United Nations International Standard Industrial Classification of All Economic Activities (ISIC), the sector with the highest share in total investment under the incentives regime of Law 60/90 is manufacturing, followed by telecommunications, in which companies providing mobile phone services play a prominent role. Among companies based on foreign capital, companies from Argentina predominate, accounting for 68% of the total invested up to August of this year, and Brazilian and USA companies, each with 13% of the investment. Diagram 10 shows the recent recovery of investment under the incentives regime provided by Law 60/90. This recovery has had a significant effect on the general situation regarding investment in Paraguay. As can be seen, in 2006 a level of investment similar to that achieved at the end of the 1990s and in the earlier part of the present decade was again reached.
Diagram 10: Trends in investment under the incentives regime established by Law 60/90
600

500

Million US Dollars

400

300

200

100

0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (*)

* Up to August 2007. Source: Department for Industrial Development, Industry Division (Law 60/90).

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Chapter 14. Incentives for investment and exports

14.2. Maquiladora regime
Law 1,064/97 established the National Board of Maquiladora Industries for Export (CNIME), the purpose of which is to promote the establishment of maquiladora enterprises and regulate their operations. These enterprises use local labour and other resources and engage in the processing, manufacture, repair or assembly of goods of foreign origin imported temporarily for this purpose and for subsequent re-export, in implementation of a contract signed with a company domiciled abroad. In other words, the maquiladora system, also known as international subcontracting, is a system by which an enterprise operating in Paraguay produces specific goods and services and exports them to different parts of the world on behalf of a parent company abroad, under an international contract. At the present time, there are four types of maquiladora operation: (a) a maquiladora programme to utilize idle capacity (when an established company oriented to production for the domestic market obtains approval for a maquiladora programme); (b) a “shelter” maquiladora programme (companies with approved maquiladora programmes serving as export projects for foreign companies that provide technology and productive material, without directly controlling them); (c) submaquila activities (when it involves a supplementary part of the production process covered by the programme, the product being returned to the maquiladora that contracted the service for subsequent export); and (d) maquiladora operations involving an intangible service (a modality included within the services maquiladora operation, the object being to confer an intellectual or similar added value on intangible goods imported temporarily by any electronic medium).52
Diagram 11: Development of exports using the maquiladora regime
80,000 70,000 60,000 68,068

54,689

Million US Dollars

50,000 40,000 30,000 20,000 10,000 1,184 0 2001 2002 2003 2004 2005 2006 2007* 2,001 7,931 8,408 27,566

* Values as at November 2007. Source: National Board of Maquiladora Industries for Export.

The principal advantages of maquiladora operations in Paraguay are: the location of the country (in the middle of South America and on the Interoceanic corridor); its competitive prices (owing to the low cost of labour, low social charges, the availability of a young population and accessible costs for real estate); the low tax burden (the lowest in the region); and zero-tariff access to the market of MERCOSUR for products complying with the origin rules of the grouping.

52

Definitions taken from the text of Law No. 1,064/97 and Regulating Decree No. 9,585/2000.

83

Doing Business in Paraguay: Country Cost Elements

In addition, the maquiladora regime offers the following benefits:

• Single tax of 1% on national added value; • Suspension of payment of tariffs and taxes on imports of machinery, parts, tools, raw materials and
inputs;

• Indefinite duration of maquiladora contracts.
To begin maquiladora operations, the following steps must be taken: (a) registration with the Executive Secretariat of CNIME; (b) submission of the maquiladora programme/request for approval; (c) approval by CNIME; (d) promulgation of a ministerial decision; (e) commencement of operations. The procedures with CNIME are free of charge and the average time needed for approval of the programme is 25 days. However, there are other costs for the investor in connection with procedures for the incorporation of the enterprise.53 At the present time, 72 enterprises are registered with the Executive Secretariat of CNIME, 41 of them with approved programmes. Of these, 25 are already in operation, generating 3,518 jobs.

14.3. National Regime for Motor Vehicles
The National Regime for Motor Vehicles (RAN) governs Paraguayan industrial policy in the motor vehicles sector. The provisions of the regime cover cars, tractors, bicycles and other overland vehicles, together with their parts and accessories. The objective of RAN is to create employment, improve industrial competitiveness, enhance labour specialization through the transfer of technology, increase exports and consolidate the Paraguayan motor vehicles sector at national and regional level. This regime is regulated by Decree No. 21,944/98, with implementing regulations in Resolutions 91, 354, 478, 780, 193, 350 and 964, establishing the periodicity for submission of reports, the establishment of a basic production process, the calculation methodology for the incorporation of national components and the gradual integration of such components under the timetable established. To accede to RAN, the following steps are required: a) Send a note to the Ministry of Industry and Commerce; b) Submit an investment project; c) Submit evidence of industrial registration and a certificate concerning environmental impact; d) Send information on the project to the Directorate for RAN.

53

See chapter 2, “Incorporation of companies”.

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Chapter 14. Incentives for investment and exports

The necessary procedures with the Ministry of Industry and Commerce are free of charge and the approximate time needed for approval of the project is one month. RAN provides for exemption from customs duties on imported inputs, provided that their use in the production processes stated in the project are demonstrated; otherwise sanctions may be imposed, such as the total payment of the tariffs for the import of raw materials. Eligibility for this benefit depends on imports of raw materials being equal to or greater than US$5,000 c.i.f. Eleven companies benefit from this regime at the present time, eight of them being now in operation. RAN has generated 1,206 direct jobs and it is calculated that some 5,000 people are employed in related activities, such as design workshops, mechanical workshops and sales points for spare parts. Diagram 12 indicates the increase in the production of bicycles and motorcycles thanks to RAN.
Diagram 12: Trends in the production of motorcycles and bicycles
160,000 140,000 120,000 100,000
Motocycles Motocicletas Bicycles Bicicletas

Units

80,000 60,000 40,000 20,000 0 2002 2003 2004 2005 2006 2007*

* Up to the third quarter of 2007. Source: National Regime for Motor Vehicles.

14.4. Regime for Imports of Raw Materials and Inputs
The objective of this regime is to encourage imports of raw materials and inputs that are not produced in the country. The legal framework is provided by Decree No. 11,771/00, Decree No. 6,957/05 and Resolution No. 1/01. The procedures for access to this regime begin with the submission of the application, which is considered first by the Directorate for Special Regimes (DRE) and then by the Interinstitutional Technical Committee, consisting of representatives of the Paraguayan Industrial Union, the Ministry of Finance and the Ministry of Agriculture and Livestock (MAG). Once the application is approved, a certificate of eligibility for exemption from customs tariffs is issued and handed over to the applicant following authorization of the password issued at the Entrance Desk of the Ministry of Industry and Commerce.

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Doing Business in Paraguay: Country Cost Elements

To obtain certification, the following requirements must be met: (a) the company must be registered in the Industrial Register of MIC; (b) the raw material must not be produced in Paraguay; (c) the value of the imports must not be less the US$1,500 f.o.b.; and (d) applications must be accompanied by a favourable report from the Interinstitutional Technical Committee. The regime provides for a zero customs tariff on imports of raw materials, provided that it is demonstrated that they are used in the production processes. The necessary procedures with the Ministry of Industry and Commerce are free of charge and the period needed for the consideration of the application and the issuance of the certificate is five working days.

14.5. Free trade zones
Free trade zones are delimited geographical areas to which a different customs regime is applicable from that in the rest of a country (the customs territory). In general, free trade zones enjoy certain tax benefits, such as non-payment of import taxes. The main purposes of the free trade zones in Paraguay are: developing business centres, avoiding smuggling and piracy and increasing the competitiveness of exports. In Paraguay, Law 523/95 and its implementing decree establish and authorize the free trade zones regime.54 The new Customs Code established by Law 2,422/04 also contains some articles relating to this regime. Under Law 523/95, any individual or legal entity, by a contract with the Executive, may acquire the right to set up, administer and exploit a free trade zone. Concessions are granted for a period of 30 years, which may be extended. Concessionaires may avail themselves of the incentives for investment established in Law 60/90 and are exempt from value added tax. Projects for free trade zones must be submitted to the National Council of Free Trade Zones, to be submitted subsequently to the Ministry of Finance. The free trade zones in Paraguay are intended for activities in the areas of commerce, industry and services.55 The users are exempt from tax on the incorporation of companies, remittances of profits, payment of commissions and fee and any other remuneration for services, technical assistance, transfer of technology, loans and financing and any other service provided from third countries.56 Users whose activities are directed exclusively to exports pay a single tax known as the “free trade zone tax”, the rate being 0.5% of the total value of gross income derived from such sales.57 Imports into the Paraguayan customs territory from companies established in the free trade zones are subject to all import taxes. Capital goods imported into the free trade zones are exempt from all tax. Exports of any kind from the customs territory to a free trade zone are treated like exports to third countries.58 MERCOSUR also has its own legislation on free trade zones. A point that may be worth mentioning in this legislation is that goods maintain their initial origin when they are stored in free trade zones.

Decree No. 15,554/96, regulating the Free Trade Zones Law. Law 523/95, establishing and authorizing the free trade zones regime. Article 3. 56 Law 523/95, establishing and authorizing the free trade zones regime. Article 13. 57 Law 523/95, establishing and authorizing the free trade zones regime. Article 14. 58 Law 523/95, establishing and authorizing the free trade zones regime. Articles 20 and 22.
54 55

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Chapter 14. Incentives for investment and exports

At the present time, there are two free trade zones in operation in Paraguay: the Global Free Trade Zone of Paraguay and the International Free Trade Zone, both situated in Ciudad del Este, in the department of Alto Paraná. There are a total of 78 users in the two free trade zones, only one of them being engaged in industrial activities; the rest carry on commercial activities. It should be mentioned that exports to third countries from the free trade zones during the period from August 2006 to July 2007 increased by 610.9% in comparison with the period August 2005 to July 2006. The free trade zones offer the following advantages: reduction in volumes of stocks, reduction in financial costs resulting from goods in stock, facilities for the distribution of products under the MERCOSUR Rules of Origin, efficient distribution to the MERCOSUR countries as a result of the geographical situation and the infrastructure available, a stable legal framework, total complementarity with other special regimes, security, logistics, labour and low rental costs.59 Those wishing to become free trade zone users must apply in writing to the concessionaire, requesting registration, and transmit a copy of the documentation to the National Council of Free Trade Zones. The user must then present the certificate to the National Customs Directorate and to the Taxation Division for registration and authorization within the System for the Fiscal Organization of Customs Levies. The whole procedure lasts only 48 hours, approximately.

International Free Trade Zone (ZFI)
In this free trade zone, 53 companies are operating, all devoted to commercial activities. However, industrial concerns engaged in reconditioning mobile phones and electronic products for the home and in the production of plastic fabric and steel pipes are expected to confirm their intention to start operations in the coming months. The average rental cost of sheds for the installation of businesses is US$2 per square metre, although the amount is adjusted to the workplan proposed by the user. ZFI includes over 57 sheds of areas varying from 207 m2 to 800 m2, with 25 hectares available for construction. Among the services offered by ZFI, the following may be mentioned: access to the Internet, private security services, structured cabling for the offices, telephone lines and a direct medium-voltage connection with the National Electricity Administration. ZFI also has a large interior space for the storage of goods and raw materials, together with a restaurant for plant personnel.

59

Rental costs and sales prices for properties inside the free trade zones are governed by market conditions.

87

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LEGISLATION CONSULTED
Chapter I Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment Chapter II Civil Code Law 438/94 on Cooperatives Law 177/93 on Capital and Industry Law 1,307/87 on the Fees of Notaries Public Decree No. 7,402/06 Law 620/76 and its amendments in Law 135/91 Ordinance No. 331/06 of the Municipality of Asunción Law 1,879/02 on Arbitration and Mediation Law 293/93 on Environmental Impact Assessment Resolution No. 228/07 of MIC Chapter III Law 125/91 Establishing the New Taxation Regime Decree No. 14,956/92 Chapter IV Constitution of Paraguay Labour Code Law 1,626/00 on the Civil Service Law 1,860/50, updated by Laws 1,085/65, 427/73 and 98/92 Chapter V Law 642/95 on Telecommunications Decree 14.135/96 Chapter VI Constitution Decree No. 2,109/94 Law 966/64 and Law 976/82 expanding it Law Creating and Organizing the National Electricity Administration Law 1,614/00, the General Law on the Regulatory and Tariff Framework for the Paraguayan Public Service for Drinking Water Provision and Sewerage Law 779/95 on Hydrocarbons Law 2,478/05 on the Promotion of Biofuels
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Chapter VII Law 868/81 on Industrial Models and Designs Law 1,630/00 on Patents for Inventions and Utility Models Decree No. 14,201/01 Law 1,294/98 on Trademarks Decree No. 22,365/98 Law 1,328/98 on Copyright Chapter IX Law 1,128/97 Confirming the Agreement on International Land Transport, with its annexes and amendments Law 1,066/65 Establishing the National Authority for Navigation and Ports Law 295/72 on Reservation of Cargoes Law 414/94 on Private Ports Law 60/90 on the System of Fiscal Incentives for the Investment of Domestic and Foreign Capital Paraguayan Aeronautical Code Law 827/96 on Insurance Chapter X Constitution Law 1,334/98 on Consumer and User Protection Law 827/96 on Insurance Chapter XI Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment Law 125/91 Establishing the New Taxation Regime Law 2,448/04 on Handicrafts Ordinance No. 331/06 of the Municipality of Asunción Law 620/76, and Law 135/91 updating it, on Municipalities in the Interior Chapter XII Law 861/96 on Banks, Finance Companies and Other Credit Institutions Law 489/95 Establishing the Central Bank of Paraguay Law 2,339/03 to Amend Article 44 of Law 489/95 Establishing the Central Bank of Paraguay Law 2,640/05 Establishing the Development Finance Agency Chapter XIII Constitution Law 2,422/04 on the Customs Code Decree 4,672/05 Regulating the Customs Code Law 1,095/84 Establishing the Customs Tariff Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment Law 125/91 Establishing the New Taxation Regime Resolution No. 32 of the Investment and Exports Network

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Economic Complementarity Agreement No. 18 concluded between Argentina, Brazil, Paraguay and Uruguay Resolution No. 72/02 of MIC Chapter XIV Law 60/90 on the System of Fiscal Incentives for the Investment of Domestic and Foreign Capital Law 2,421/04 on Administrative Reorganization and Fiscal Adjustment Law 1,064/97 Establishing the National Board of Maquiladora Industries for Export Decree 21,944/98 Resolution No. 91 of MIC Resolution No. 354 of MIC Resolution No. 478 of MIC Resolution No. 780 of MIC Resolution No. 193 of MIC Resolution No. 350/06 of MIC Resolution No. 964 of MIC Decree No. 11,771/00 Decree No. 6,957/05 Resolution No. 1/01 Law 523/95 Authorizing and Establishing the Free Trade Zones Regime Law 2,422/04 on the Customs Code

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