Paraguay's government will put a bill on corporate reserves before Congress as soon as the 2027 national budget is filed, Economy Minister Óscar Lovera said this week. The constitutional deadline for that budget is 1 September, which places the reserves bill days away rather than months. Its target is roughly US$ 9.5 billion of company profit booked into reserve accounts instead of paid out, and never taxed as a result.
None of that money is hidden and none of it is illegal. It sits on audited balance sheets, in a line item that article 42 of the tax code places outside the reach of the dividend tax for as long as it stays there. The bill would change the "for as long as it stays there" part.
Why $9.5 Billion Sits Untaxed
Paraguay's Impuesto a los Dividendos y Utilidades (IDU) came in with Ley 6380/2019. Article 40 sets the taxable event at the moment profits are distributed or made available to owners, partners or shareholders. The rate is 8% for residents and 15% for non-residents.
Article 42 then carves out the exception that built the pile. Profits assigned to the legal reserve, to reservas facultativas (discretionary reserves) or to capitalization "no estarán sujetas al presente impuesto, salvo en ocasión de darse el rescate del capital": not subject to the tax, except where capital is redeemed.
Discretionary reserves are the loose category. A shareholders' meeting creates one by resolution, with no statutory ceiling and no expiry attached, which makes it a legitimate home for working capital or a planned investment. It is also somewhere profits can sit indefinitely.
The DNIT's own series shows what followed. Reserves of this kind stood at about US$ 600 million in 2019, the year the IDU was legislated. By 2026 the tax authority counted US$ 9.5 billion.
Two Versions of What the Bill Does
Officials have described the measure in two ways, and the difference is not cosmetic.
DNIT director Óscar Orué frames it narrowly. The intention, he has said, is neither to eliminate reserves nor to create a tax or lift a rate, but to set rules on how reserves may be used. Earlier reporting had him preferring limits on use over fixed deadlines.
Lovera's August account is the harder reading. He put the objective as establishing timeframes for how long reserves may remain recorded on a company's balance sheet. A deadline turns deferral into a bill that eventually falls due.
No draft has been published, so the operative question, whether the rule bites on the use of the money or on the calendar, stays open. The MEF and DNIT wrote it jointly and say it goes to the Unión Industrial Paraguaya (UIP) and other sectors before anything is final.
The arithmetic explains the interest. The 8% resident rate applied to the full $9.5 billion comes to roughly US$ 700 million. Officials have also modeled a half-distribution scenario at about $350 million, and named $100 million as the floor worth pursuing.
The Rule Already in Force
This is not the opening move. In March 2026 the DNIT issued Resolución General 49/2026, which covers financial statements closed on 31 December 2025 and requires corporate income tax filers to open the books on retained earnings.
Filers must reconcile accumulated profits, identify the distributable portion, and state where it went: dividends paid, profits capitalized, reserves constituted, amounts still pending distribution. Reserves are broken out by type, with opening balance, movements, closing balance, the year the profit arose and its intended purpose.
Disclosure alone moved the numbers. "Desde que empezamos a hablar de esto solo la recaudación del IDU creció 30%," Orué said: since the discussion started, dividend tax collection rose about 30%. March 2026, the month after the resolution landed, is reported at 90% growth in IDU payments year on year.
Ever Otazú, DNIT's internal revenue manager, said the agency had found cases where reserves served to avoid distributing dividends at all. Where that is established the penalties already exist: up to 50% of the unpaid tax for omission, and 100% to 300% where fraud is proven.
What Business Objects To
The private sector's case is practical rather than constitutional.
A reserve on a balance sheet is not a balance at a bank. Profits booked to reserves are frequently already at work in stock, machinery or receivables, so a company told to distribute can be solvent on paper and short of cash on the day. The UIP, under Enrique Duarte, has been in the room for that reason.
Accountants have pressed for open debate instead of administrative fiat, an argument Alba Talavera of the Colegio de Contadores made in May. The second objection is structural: squeeze reserves and profits move into capitalization, which article 42 shelters just as well. That relocates the money rather than taxing it.
What It Means If You Own a Paraguayan Company
This concerns Paraguay-source corporate profit, and that distinction carries the whole reader question. Income arising abroad is untouched, because the territorial system tests where income arises, and no reserve rule alters that test.
Where it does reach you is a local operating company. Anyone who set up an S.A. or S.R.L. here, whether through the investment route or for an ordinary local business, has a reserves line in the accounts and may never have looked at it.
One figure is easy to misread. The 8% in every headline is the resident rate. A shareholder who is not a Paraguayan tax resident pays 15% on the same distribution, so what an eventual payout costs turns on your status rather than the company's. Our company formation guide sets out how the two interact.
The useful step is a small one. Ask your accountant what sits in reservas facultativas, when it was generated and what the plan for it is, before the 2026 statements close. Resolución General 49 already obliges the company to answer that in writing.
US citizens and green-card holders: a Paraguayan company creates US reporting, not only Paraguayan tax. The United States taxes worldwide income on the basis of citizenship, and a foreign corporation you control carries filing obligations of its own whatever Paraguay decides about reserves. Take US-qualified advice before restructuring anything, and see our guide for US persons.
Frequently Asked Questions
Is Paraguay creating a new tax on company reserves?
No. DNIT director Óscar Orué has said the bill neither creates a tax nor raises a rate. The IDU already exists under Ley 6380/2019 at 8% for residents and 15% for non-residents. What the bill would govern is how long profits may stay in a reserve account before the deferred tax becomes payable.
Does this affect the 0% tax on foreign income?
No. The territorial rule taxes income by where it arises, and this debate concerns profits earned by Paraguayan companies. Foreign-source income of a Paraguayan tax resident stays outside the local net on exactly the basis it did before. Paraguay's tax system explains where that line falls.
When would the bill take effect?
Nothing has been introduced yet. Lovera has tied the filing to the 2027 budget, constitutionally due by 1 September 2026, and the text would then need to pass both chambers. Any effective date is unknown until a draft is published.
Holding earnings inside a Paraguayan company rather than drawing them out? Where that money is booked is about to carry more consequence than it has for the past seven years, and the answer is worth having before your next statements close. Send us a message.
Disclaimer: General information on a proposed law and on existing tax rules, not legal, accounting or tax advice. No bill has been published, and the descriptions here come from ministerial statements. Confirm your own position with a Paraguayan accountant or tax lawyer before acting.
Sources
- ▹Última Hora: Proyecto sobre reservas empresariales se presentará tras PGN
- ▹ABC Color: DNIT detecta uso indebido de reservas empresariales y advierte sobre sanciones
- ▹La Tribuna: Óscar Orué pone bajo la lupa reservas empresariales de USD 9.500 millones
- ▹Última Hora: Tras control a reservas, pago de IDU creció 30%, sostiene DNIT
- ▹ABC Color: El IDU, ¿cómo se calcula y quiénes están obligados?
- ▹BACN: Ley N° 6380/2019 de Modernización y Simplificación del Sistema Tributario Nacional
- ▹Economía.com.py: El Gobierno apunta a recaudar hasta USD 700 millones gravando las ganancias acumuladas
About the author
Yannick Schroth
Founder · Paraguay relocation advisor
Lives in Asunción and guides international nomads, entrepreneurs and investors toward residency, a cédula and a tax-efficient structure in Paraguay.
