In an increasingly complex international tax environment, multinational groups and internationally active service providers are under pressure to structure their cross-border operations in a way that is efficient, scalable, and defensible.
For companies providing services primarily to foreign markets — whether within a group or to independent overseas clients — the Paraguay Maquila regime offers a well-established and policy-driven framework that combines operational clarity with tax certainty.
The Maquila regime was introduced in the late 1990s as an export promotion framework for manufacturing and industrial activities, aimed at attracting foreign investment and supporting export-led growth. Over time, as services became increasingly tradable across borders, the regime evolved in practice to include export-oriented service activities. Today, the Maquila framework applies to exports in general, whether in the form of goods or cross-border services, provided that the activity is directed to foreign markets.
Rationale of the Maquila Regime
The Maquila regime in Paraguay is a special legal and tax framework under which a locally incorporated entity performs activities exclusively or predominantly for foreign markets. The Maquila entity may operate either as part of an international group or as an export-oriented service provider to independent foreign customers. In all cases, it functions as an integrated component of an international value chain rather than as a standalone domestic business.
From an economic policy perspective, the rationale is straightforward:
- Paraguay attracts foreign investment and employment;
- the Maquila entity operates under a simplified and predictable tax regime;
- entrepreneurial decision-making and market risk remain outside the Paraguayan domestic market.
This balance explains why the Paraguayan Maquila regime is both explicitly regulated and closely supervised.
Functional Profile
A Maquila service entity in Paraguay is often structured as a routine service provider within an international value chain.
The exact functional and risk profile depends on the specific operating model approved under the Maquila framework and on the contractual allocation of functions, assets, and risks with the foreign counterparty.
In practice, many Maquila service models are designed so that the entity:
- performs routine or support services for export-oriented activities;
- does not own or strategically develop intellectual property, unless expressly provided for in the approved model;
- does not independently define pricing or commercial strategy, where these are set by the foreign counterparty;
- operates on the basis of contractual arrangements with foreign counterparties.
Examples of Activities
IT & Digital Services
- software development and maintenance
- application support and help desk services
- data management and processing
- quality assurance (QA) testing
- operational cybersecurity monitoring
Shared Services & Back-Office Functions
- accounting and bookkeeping support
- accounts payable and receivable processing
- payroll administration for foreign entities
- management and financial reporting support
- document and records management
Customer Support & Operations
- multilingual customer service
- first- and second-level technical support
- order management and order processing
- claims and complaint handling
- subscription and account management
Finance & Risk Support
- financial data analysis
- credit analysis support
- treasury back-office operations
- reconciliations and operational controls
- compliance support (operational KYC/AML activities)
Engineering & Technical Services
- engineering design based on specifications
- drafting and modeling
- preparation of technical documentation
- non-strategic product customization
- technical and industrial support services
Marketing & Commercial Support
- market research and data collection
- campaign performance analysis
- CRM administration and data management
- lead qualification and pre-sales support
- content localization and adaptation
HR & Corporate Support
- recruitment and staffing support
- training delivery and coordination
- HR administration
- performance data management
- employee mobility support
Activities Typically Outside the Scope
- group-wide or client-wide strategic decision-making
- pricing and commercial policy setting
- ownership or strategic development of intellectual property
- assumption of market or entrepreneurial risk
- sales to the domestic market
Transfer Pricing Principles
The remuneration of a Paraguayan Maquila entity is determined in accordance with the arm’s length principle, as articulated in the OECD Transfer Pricing Guidelines, where applicable to the specific transaction.
- The OECD does not prescribe fixed markups or profit percentages.
- Remuneration must be determined case by case, based on an accurate delineation of the transaction and the functional profile of the entity.
- Where the Maquila entity performs routine services with limited risk, a transactional net margin method (TNMM) or cost-based approach is commonly the most reliable method.
In this context, the Maquila entity is remunerated on a cost-plus basis, meaning:
- operating costs are reimbursed under contractual arrangements with foreign clients;
- an arm’s length return is applied to those costs;
In practice, the arm’s length remuneration is identified with the assistance of a transfer pricing advisor in the jurisdiction of the foreign client or contracting party, ensuring consistency with applicable transfer pricing standards and proper documentation.
Flat 1% Corporate Income Tax
A defining feature of the Maquila regime in Paraguay is the statutory tax treatment applied to the Maquila entity.
The Maquila company is subject to a flat corporate income tax rate of 1%, applied only to its taxable profit, i.e. the arm’s length remuneration resulting from the cost-plus model.
Key implications:
- the tax base is limited to the routine return attributed to the Maquila entity;
- no taxation applies to residual or entrepreneurial profits generated outside Paraguay;
- the tax outcome is stable, predictable, and transparent.
This treatment is not the result of aggressive tax planning, but of an explicit legislative choice by Paraguay designed to support export-oriented activities.
Accessing the Maquila Regime
Entry into the Maquila regime in Paraguay is subject to a formal authorization process, intended to ensure that the regime is applied only to qualifying export-oriented activities.
In broad terms, the process involves:
- Incorporation of a local entity with an export-oriented purpose.
- Definition of the operating and functional model, including services provided and allocation of risks.
- Preparation of documentation, such as business plans, commercial contracts, and transfer pricing analysis.
- Submission of an application to the competent authorities (CNIME) for approval under the Paraguayan Maquila framework.
- Ongoing compliance, including reporting obligations and maintenance of supporting documentation.
Exepy can act as a coordination point for the Maquila procedure, working with local counsel and authorities to monitor the filing, address requests for clarification, and keep the process on track.
Strategic Value Beyond Tax
Although the 1% tax rate is often highlighted, the true value of the Maquila regime in Paraguay lies in its structural and organizational advantages.
For multinational groups, it enables:
- centralization of service functions;
- clear separation between routine services and entrepreneurial activities;
- reduced tax controversy risk;
- alignment between operational reality and tax outcomes;
- highly competitive labor costs;
- competitive infrastructure and facility-related costs.
In other words, Paraguay supports coherent business structuring, not merely tax efficiency.
Conclusion
The Maquila regime in Paraguay should be understood as a regulated operating model applicable to both intragroup and third-party export-oriented services, not a shortcut or loophole. When properly implemented, it provides a clear framework for organizing international service activities in line with OECD principles, while benefiting from a simplified and predictable tax treatment.