Paraguay offers attractive investment incentives for assembly/distribution operations (tax breaks, duty free import of capital goods, and unlimited repatriation of capital) and the lowest factor costs (especially hydro-generated electricity) in the region. The government has been pushing for the development of this sector, which it sees as an alternative to the informal economy of Paraguay’s cities on the border with Brazil and Argentina.
There are few restrictions on the type of product that can be produced under the maquila system. The combination of relatively low labor and electricity costs makes Paraguay suitable for a variety of manufacturing industries.
Paraguay has a unique advantage under the Mercosur agreement that allows products to be marked as “made in Paraguay/Mercosur” with a minimum regionally-sourced content requirement of only 40 percent. The remaining 60 percent could be from any other country. Once labeled as “country of origin Paraguay/Mercosur,” the product may be re-exported to any Mercosur country tax free (in Paraguay, these products pay a one percent tax over the value-added in Paraguay). For example, an automotive spare part that is 60 percent complete could be imported into Paraguay (tax free) where components from Argentina, Brazil, Uruguay, or Paraguay are added in order to complete the product for sale. The finished product could be re-exported to any Mercosur country paying only a one-percent tax.
Although Paraguay is an active Mercosur member, Brazil and Argentina regularly find non-tariff reasons to block Paraguayan goods from entering their markets, especially in certain industries. Maquilas providing necessary semi-finished inputs for factories in Brazil or Argentina (such as auto parts destined for automobile factories in those countries) tend to find less resistance. Paraguay’s auto parts free trade deals with Argentina and Brazil, signed in 2019, allow tariff-free exports of certain automotive components to these two large consumer markets.
Paraguayan Export & Investment Promotion Bureau (REDIEX)
Paraguayan Maquila Industry Council
Paraguayan Ministry of Industry and Commerce