How to pay 0% tax with the Territorial tax system of Paraguay, while not having to actually live there?

duzt

New member
Is it really possible to pay 0% tax as an Expat in Paraguay because of the territorial tax system? (Assuming you have a remote job from Switzerland/USA/EU or have a foreign company and you don't perform any work activities in Paraguay)

So this means the company that employs you, your tax residency, and the place where you work are in 3 separate countries and you don't pay tax in any of them? Is this really possible?
  1. You are employed by a company from USA/Switzerland/EU or have a foreign company in another country, but you don't pay tax there, because you are a tax resident of Paraguay
  2. You are a tax resident of Paraguay, but you don't pay your tax there because it's a territorial tax country and you perform all your work activities in other countries.
  3. You perform all your work in other countries, but you don't pay your taxes in any of those countries because you are not in those countries long enough to trigger tax residency (don't spend 6 months a year in those countries), and because you are a tax resident of Paraguay.

Here is the ultimate plan for saving up as much money as possible while traveling the world:​

  • Get a remote job in a country with high salaries (For example Switzerland or USA) OR form a foreign company
    • I assume you have to pay 0% tax in the country of the company you work remotely for if you are a tax resident in Paraguay. Likewise, I assume you pay 0% tax in the country of your foreign company if you are a tax resident in Paraguay.
  • Become a tax resident in Paraguay
    • You only need to be in Paraguay once every third year to remain a permanent resident there
    • IMPORTANT: Cut your ties with your current tax residency country. (Different how you do that depending on your country)
  • Travel in 3rd world countries while working
    • If you perform your work activities inside Paraguay, then you have to pay your tax there because it's territorial taxation. So by performing them in other countries you pay 0% tax in Paraguay.
    • Avoid working/traveling in other countries than Paraguay for more than 6 months each year per country, to avoid triggering tax residency in those countries. For example, 3 countries with 4 months in each is a way to travel for a year without triggering tax residencies in any of those countries (but you still need Paraguay as your tax residency, to say where you are paying your tax).
  • Get travel insurance (You don't want to be surprised by a $100.000 medical bill or personal liability)
...

Why chose Paraguay for tax residency?
  • Territorial tax system, so I only have to pay tax on money earned within the country (So I can get a remote job from USA/Switzerland or form a foreign company and do all my work activities while being outside Paraguay and thereby pay 0% tax in total because the work activities were performed outside the country. No tax anywhere.)
  • Not blacklisted as a tax haven, so it should be possible to open up a bank account in another country with good banking. So I could for example open up a Revolut- or Wise bank account and use one of those to receive money from a remote job in Switzerland/USA or receive money from a foreign company.
  • You only have to physically be there once every 3rd year, so it's easy to travel while remaining a permanent resident in Paraguay. However, I can't figure out if that means you are still a tax resident if you are only there once every 3rd year, but that's what I assume...For most other countries you HAVE to stay there 183 days a year to be a tax resident (Except UAE or those citizenship by investment programs, but it's expensive to become/remain a tax resident in those places...)
Is it really possible to pay 0% tax with territorial tax systems?

This is one of my doubts about the plan... With territorial tax systems, you only pay tax on locally-sourced income and not on foreign-sourced income. For a remote job or business, this usually means you can't perform work activities in the country with the territorial tax system. However, in Paraguay, you don't need to actually live there (only to be there once every 3rd year), so you could be a tax resident there, but perform all of your work while traveling in other countries. You just need to stay less than 6 months in those other countries to avoid triggering tax residency in those countries. So theoretically it should be possible to choose 3 new countries for traveling and work each year and stay 4 months in each to avoid triggering tax residency while being a tax resident in Paraguay and paying 0% taxes (because it's a territorial-based tax system and I didn't perform my work there).

Disclaimer: I'm not a tax professional or lawyer and have not tried implementing this strategy. I'm actually only posting this so people can pinpoint why this plan won't work or the drawbacks of the plan.
 
@duzt Overall solid and practiced all over the world. Don't know anyone who implemented that with Paraguay, but Thailand, Georgia or Hong Kong also don't have taxes on foreign sourced income, for example.

Some drawbacks to consider:
  1. Working on a tourist visa is illegal in most countries. So you might live there for a time without problems, getting caught working (even remotely) can get you into hot water.
  2. Most tourist visa are maxing out at 30-90 days, so 4 months in each place is often not easily achieved. Not impossible, but you might need to do some visa runs, which add to the cost and increase the risk of getting investigated.
  3. Some countries tax you for global income way earlier than those 4 months, so many sure you read up on local tax laws.
What you didn't mention:

What steps are necessary to become a permanent resident in Paraguay?
 
@resjudicata
What steps are necessary to become a permanent resident in Paraguay?

There are many good guides online. For example:

https://tucanoprod.com/en/paraguay-permanent-residency-permit-solution/

But basically, it will cost less than $2-3.000 that you won't get back, and then you have to deposit $5.000 that you can withdraw afterward. People from all countries can do it if they have a clean criminal record. But you have to be there physically to submit some of the applications. Everything should be straightforward if you can enter Paraguay without visa, which I can because I'm from EU.
 
@duzt Yep I've googled it in the meantime, very interesting. I've been looking at Mexico as a travel hub for Latin America since there you only need to show proof of owning 140k USD once and then you get permanent residency without any need to be there, but I didn't check out the tax implications yet.
 
@resjudicata I'm just wondering if the permanent residency means the same as tax residency and whether my current tax residency will accept Paraguay as a valid new tax residency if I don't spend much time there.
Also, maybe I'm not allowed to work in those other countries while traveling if I only have a tourist visa in those countries
 
@duzt What's your current tax residence?

When I moved out of Germany all I had to do was tell them where I'm going, and then once there, send my local tax number. I doubt that was ever validated.
 
@resjudicata My current tax residence AND citizenship is in Denmark.

They say that I have to call them and that maybe later I'll have to send them my first years tax paid in another country. But I don't know if it counts if I didn't pay anything. I'm also not sure if they will actually ask for it, since I heard from someone that they didn't ask for it.

You say you've lived in 9 countries so far? Did you ever try living somewhere where you didn't have to pay tax to anyone? Or very low tax?
 
@duzt Denmark could be challenging since you have an exit tax, but I don't really know how it works, only that it exists...

Personally I've lived in a bunch of African countries (5, in total) while being paid in Germany and didn't pay taxes or social security contributions whatsoever. In Europe there wasn't any opt out; neither is China where I am now, but the deductions are far lower than in the EU. I also don't have to declare foreign income, so at least the profit I'm making on stocks and crypto are free.

I also hold stocks in my Chinese company, and the plan is to move to a no-tax country before we do an IPO, so that I can reap in all profits from that. Let's see how it flies.
 
@resjudicata Where did you have to send your local tax number, to the German banks to not take capital gains tax anymore? Tax agency probably doesn’t care once the address is unregistered (unless they get evidence that one is still more than 183 days in the country)?

Don’t some banks close your account if you permanently live abroad? (At least many banks don’t allow to open new accounts if one doesn’t have a registered address in Germany.)
 
@elderjamesb Yes to my German bank and broker, they provide forms "Meldung als Steuerausländer".

Some might close accounts depending on where you move. America is a general problem since you become a de-facto US person once you are a resident there (even if only temporary and not with a green card), for other countries it depends on their internal policies. There is no law stating that residents elsewhere can't have German accounts.

I'm using DKB as a bank and FlatEx as broker, and both of them happily change my residency whenever I move countries (9 so far) and that's it. Only had to change my tax status the first time as well, afterwards they never asked for updated tax ID elsewhere.
 
@duzt Every country has their own definition of tax residency. One can be tax resident in multiple countries.

Tax residency is not directly linked to immigration status like permanent residency.
 
@resjudicata What is the motivation of the hosting state to enforce the ban on tourists who work remotely? The government only profits from this (the working tourists pay their expenses and thus support the local economy).

Better to have working tourists than no tourists at all.
 
@1shae123 The incentive is to go through the proper channels and apply for a work visa, and then report your income and pay taxes.

The spending would still come on top.
 
@resjudicata But if remote workers would need to pay for the red tape and pay taxes this will make these countries non-competitive against other countries that do not tax the working tourists and do not force them to pay for a red tape.
 
@duzt My worry world be in dealing with the last country you were a tax resident of before "emigrating" to Paraguay. Of course it depends on the country, but I can easily see them arguing that if you have not established a genuine residence in another country, then you never really severed ties.
 
@duzt Yes, this possible, and there are many nomads going through it- My friend recently visited to go through the process, and I'm considering as well
 

Similar threads

Back
Top