Engaging a contractor in Paraguay runs on the factura of an individual with an RUC. The contractor’s income from services falls under the personal income tax (IRP), a progressive 8% to 10% payable only above PYG 80 million of gross income a year, and the contractor files it. A foreign client pays the invoice gross. The legal risk is classification, because the Código del Trabajo presumes a contract between whoever gives work and whoever performs it. This guide covers the contractor’s tax, reclassification, the contract and the payer’s paperwork. The payment side is on our Paraguay payouts page. It is general information, not legal advice.
The contractor’s tax and VAT
IRP. Personal-services income is taxed on net income at 8% up to PYG 50 million, 9% from there to PYG 150 million and 10% above, each rate on its own bracket. Individuals whose gross income from personal services does not exceed PYG 80 million are not required to pay it (PwC, checked 2026-10-29). The annual return falls due in March, by the last digit of the taxpayer ID. On net income of PYG 200 million the tax is PYG 18 million: 4 million, 9 million and 5 million across the three brackets (yo-facturo.com, checked 2026-10-29).
IVA. The general rate is 10% and applies to individuals rendering personal services (PwC, checked 2026-10-29). A translator in Paraguay asked the tax authority whether work for a client abroad was outside IVA, and the authority answered that it is taxed (DNIT, consultation No. 677, checked 2026-10-29). It binds only the party who asked. We did not find a rule that exempts every service for a foreign client, so say in the contract whether the fee is gross of IVA. We did not confirm the rules for social-security contributions by independent workers and left them out.
Reclassification risk
Article 17 of the Código del Trabajo defines an employment contract as an agreement to carry out work or provide a service for an employer, under its direction or dependence and on its account, for pay. Article 18 says the contract is consensual and not formal, and article 19 presumes it between whoever gives work or uses a service and whoever provides it (Ley 213/93, checked 2026-10-29). A label on the contract does not decide it. Article 22 lets a worker hold contracts with several employers unless exclusivity was agreed, which is why exclusivity clauses in a contractor agreement draw attention.
A single client, fixed hours, a set monthly fee and your instructions are the facts a claimant would use (contractor misclassification). On dismissal without just cause, employment brings 15 daily wages per year of service or fraction of six months (art. 91), the aguinaldo is one twelfth of the year’s pay (art. 243) and the day week is 48 hours (art. 194) (Ley 213/93, checked 2026-10-29). If the role is a job, hire through an EOR.
What to put in the contract
- A written services agreement scoped to deliverables, with the fee, currency, receiving account, who bears transfer charges and whether IVA is included.
- A factura for every payment, matched to the payment reference.
- IP assignment in writing. Law 1328/98 presumes, unless the parties agree otherwise, that authors of a program have assigned their economic rights to the producer who took the initiative and responsibility (arts. 68 and 69), and requires contracts assigning economic rights to be in writing (art. 91) (Ley 1328/98, checked 2026-10-29). Assign the rights explicitly and ask local counsel about formalities.
- Independence markers: the contractor’s own equipment and schedule, the right to work for other clients, and a fee tied to deliverables.
Taxes and paperwork
The contractor’s side. Hold an RUC, issue a factura per payment, file the IRP return if gross service income passes PYG 80 million, and settle IVA where it applies.
The client’s side. Pay gross against the factura. US payers collect a W-8BEN from an individual and file no 1099: pay for work done in Paraguay is foreign-source income (irs.gov, checked 2026-10-29). Paraguay is not on the IRS list of US income tax treaties (irs.gov, checked 2026-10-29). We found no Paraguayan withholding rule for a foreign payer.
How to pay contractors in Paraguay
Wise pays guaraníes from its own bank account in Paraguay, typically within seconds, but availability depends on the sender’s country (wise.com, checked 2026-10-29). A SWIFT wire is the alternative, and some platforms pay in dollars or guaraníes. Rails, costs and platforms are compared on our Paraguay payouts page.
Contractor of Record in Paraguay
A Contractor of Record is the contracting party for the contractor and reduces reclassification risk; it does not remove it. In Paraguay the work still has to look independent, and the COR also collects the factura, keeps contracts consistent across a team and flags engagements that look like dependency. Read the liability clause in the contract rather than the product name. Where the role is a job, with your hours, your tools and core work, hire through an EOR instead. Compare providers in our COR rating.