Critical Distinction
The Two Types of Residency
Legal Residency (Cédula)
Authority: Migraciones (Immigration)
- • Right to live in Paraguay legally
- • Cédula de Identidad (ID card)
- • Can open bank accounts
- • Can sign contracts
- • Path to citizenship
- • Does NOT determine tax status
Tax Residency (RUC)
Authority: SET (Tax Authority)
- • Subject to Paraguay's tax system
- • RUC (tax identification number)
- • Must file annual declarations
- • Foreign income NOT taxed (territorial)
- • Requires establishing fiscal home
- • Separate from Cédula
The 120-Day Myth
Common Misconception
"Spend 120 days in Paraguay and you're automatically tax resident."
Reality: This is a guideline, not a bright-line rule. Paraguay uses a "center of vital interests" test that considers multiple factors. Days spent are just one consideration among many.
What Paraguay Actually Considers
1. Physical Presence
How many days do you spend in Paraguay? 120+ days is a common guideline, but not definitive. Quality of presence matters too—are you just passing through or genuinely living there?
2. Economic Interests
Where is your financial life centered? Bank accounts, investments, business operations, property ownership. Having substantial economic activity in Paraguay strengthens your case.
3. Personal & Family Ties
Where does your family live? Where is your permanent home? Where are your social connections? These "vital interests" weigh heavily in tax residency determination.
4. Intention
What are your stated and demonstrated intentions? Registering for tax purposes, renting long-term housing, and joining local organizations all signal intent to be resident.
How to Establish Tax Residency
If you want to become tax resident in Paraguay (to benefit from the territorial system), follow these steps:
Obtain Legal Residency
Get your Cédula through the standard residency process. This is the prerequisite for tax registration.
Register with SET
Apply for a RUC (Registro Único de Contribuyente) at SET. This is your tax identification number.
Establish Fiscal Home
Create genuine ties: rent or buy housing, open bank accounts, register utilities in your name, join local organizations.
Spend Time in Paraguay
Aim for 120+ days annually, but remember it's about quality of presence, not just counting days.
File Tax Declarations
File annual tax returns with SET, even if your foreign income results in zero tax owed. Documentation creates a paper trail.
Break Old Tax Residency
Properly exit your previous tax residence. This is crucial and varies by country. Get professional advice.
Documentation is Key
Country-Specific Complexity
Breaking tax residency in your home country is often harder than establishing it in Paraguay:
| Country | Exit Complexity | Key Issues |
|---|---|---|
| United States | High | Citizenship-based taxation; exit tax for some |
| Germany | High | Extended tax liability (§2 AStG) for 10 years |
| United Kingdom | Medium | Statutory Residence Test; careful planning needed |
| Canada | Medium | Significant ties test; departure tax possible |
| Australia | Medium | Domicile and residency tests; CGT implications |
| EU Countries | Varies | Each country has different rules; some have exit taxes |
Common Mistakes
What People Get Wrong
- • Assuming Cédula = tax residency
- • Counting days without establishing ties
- • Not properly exiting old tax residence
- • Failing to register with SET
- • No documentation of Paraguay presence
- • Ignoring home country obligations
Best Practices
- • Get professional tax advice before moving
- • Establish genuine Paraguay ties
- • Formally break old tax residency
- • Register with SET and file returns
- • Keep meticulous documentation
- • Consult both local and home-country advisors
FAQ
What is the difference between legal and tax residency in Paraguay?
Legal residency (Cédula from Migraciones) gives you the right to live in Paraguay. Tax residency (RUC from SET) makes you subject to Paraguay's tax system. They are separate registrations with different authorities. You can have legal residency without being tax resident.
Is 120 days the rule for Paraguay tax residency?
No. The "120-day rule" is a common guideline, not a bright-line legal test. Paraguay uses "center of vital interests" to determine tax residency, considering: where you live, family ties, economic interests, social connections, and intention. Days spent are just one factor.
Do I automatically become tax resident when I get a Cédula?
No. Getting a Cédula (legal residency) does not automatically make you tax resident. Tax residency requires separate registration with SET (tax authority) and establishing Paraguay as your fiscal home. Many Cédula holders are not Paraguay tax residents.
How do I become tax resident in Paraguay?
To establish tax residency: (1) Obtain legal residency (Cédula), (2) Register with SET for a RUC number, (3) Establish center of vital interests in Paraguay (housing, bank accounts, utilities), (4) Spend meaningful time in Paraguay, (5) File annual tax declarations.
Why would I want to be tax resident in Paraguay?
Paraguay's territorial tax system means foreign-source income is not taxed. If you earn from outside Paraguay (remote work, investments, foreign businesses), being Paraguay tax resident can mean 0% tax on that income. This is the main attraction for digital nomads and investors.
Can I be tax resident in Paraguay and another country simultaneously?
Potentially yes, creating a complex situation. Most countries have rules to resolve "dual tax residency" through tax treaties. If your home country doesn't have a treaty with Paraguay, you may need to carefully document your break from that country's tax system.