Understanding the Maquila Regime
Paraguay’s Maquila Law (Law No. 1064/97) is a special economic regime that allows foreign companies to outsource part of their industrial or service process to a Paraguayan company, paying an extremely low effective tax rate in return.
It’s one of the most underutilized yet powerful business structures in South America — and for international entrepreneurs, it can be transformational.
How the Maquila Works
Under the Maquila regime:
- A foreign company (the “maquiladora”) enters into a contract with a Paraguayan company
- The Paraguayan company performs productive or service activities on behalf of the foreign company
- The outputs are exported back to the foreign company
- The Paraguayan company pays only a 1% tax on the value-added (the “maquila tax”)
Yes, you read that correctly. 1% tax on the added value — not on gross revenue.
Who Is the Maquila For?
The Maquila regime is ideal for:
- Software development companies outsourcing development to Paraguay
- Manufacturing businesses looking for a low-cost, low-tax production base
- Service companies that can outsource any productive activity
- E-commerce businesses using Paraguay as a logistics or fulfillment hub
- International entrepreneurs who want a legal, tax-efficient corporate structure
Key Benefits
1. Extremely Low Tax Rate
The 1% maquila tax on value-added is among the lowest effective business tax rates in the world. Compare this to 25–35% corporate tax rates in many other countries.
2. No Import Duties
Machinery, equipment, and raw materials brought in for maquila production enter Paraguay duty-free under a temporary admission regime.
3. No VAT on Exports
Goods and services exported under the maquila regime are exempt from Paraguay’s 10% VAT.
4. Currency Freedom
No currency controls. You can hold and transact in USD, EUR, or any other currency.
5. Political Stability
Paraguay has maintained stable economic and political conditions, making it a reliable long-term base.
Requirements to Set Up a Maquila Company
To operate under the Maquila Law, you need:
- Register a Paraguayan legal entity (SAE, SRL, or SA)
- Sign a maquila contract with the foreign principal company
- Register the contract with the Consejo Nacional de las Industrias Maquiladoras de Exportación (CNIME)
- Maintain proper accounting and submit annual reports
The process typically takes 2–4 months with professional assistance.
Real Example
Imagine you run a software development agency based in Germany. You establish a Paraguayan SRL under the Maquila regime. The German company contracts the Paraguayan company to develop software. The Paraguayan company:
- Employs local developers (relatively low labor costs)
- Produces deliverables (software) exported to Germany
- Pays only 1% tax on the value added in Paraguay
Meanwhile, you, as the owner with Paraguay tax residency, benefit from Paraguay’s territorial tax system on your personal income.
Combining Maquila + Tax Residency
The most powerful combination for international entrepreneurs is:
- Paraguay tax residency (personal tax optimization)
- Maquila company (corporate tax optimization)
This dual structure, when implemented correctly and legally, creates a highly efficient tax footprint while remaining fully compliant with both Paraguayan law and international standards.
Getting Started
Setting up a Maquila company requires specific expertise — the contract structure, CNIME registration, and ongoing compliance are all areas where mistakes can be costly.
ConnectUp specializes in Maquila setups. We guide you through the entire process and ensure your structure is airtight from day one.
Book your free consultation to find out if the Maquila regime is right for your business.