Countries › Paraguay › Guide › 6. Taxes › Interest deductibility and thin capitalisation in Paraguay: the 30 percent cap and the BCP rate ceiling

Interest deductibility and thin capitalisation in Paraguay: the 30 percent cap and the BCP rate ceiling

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Last verified: 2026-10-28 · Status: Stable

Paraguay has no debt to equity ratio, but it limits intercompany financing in three ways. Interest, royalties and technical assistance paid to shareholders, head office or related companies are deductible only up to 30 percent of net income before those payments, only at rates not above the Banco Central del Paraguay average passive rate, and only if the taxes due were paid. Any interest is deductible only if taxed for the lender, and INR is withheld on the full amount even when the deduction is denied.

USD figures use PYG 5,868.31 per US dollar, the Banco Central del Paraguay reference quotation for 28 October 2026 (planilla de cotizaciones of that day). Conversions are for orientation only.

Key facts

Cap on deductible related party interest, royalties and technical assistance, share of net income before them	30 %Ley 6380/2019 art. 15 num. 23, as of 2026-10-28 · in force
Debt to equity ratio rule	None in Ley 6380 Ley 6380/2019 art. 15, as of 2026-10-28 · in force
Maximum deductible interest rate	BCP average banking passive rate for similar operations Ley 6380/2019 art. 15 num. 10 and 23, as of 2026-10-28 · in force

The rule

1. General interest rule. Interest, rents and payments for use of assets and rights are deductible only when they are taxable income for the creditor under some income tax and do not exceed market price or, for interest, the average passive rate of the banking market published by the BCP for similar operations. Banks and financial entities under Ley 861/1996 are exempt from the rate test.
Cost to do it: Interest above the BCP average passive rate is not deductible.
Example: Interest paid to a Paraguayan individual not registered in IRP is at risk of disallowance. / Interest to a foreign lender is taxable for it through INR, so it meets the first test.Ley Nº 6380/2019 De modernización y simplificación del sistema tributario nacional, Art. 15 num. 10, 2019-09-25 official text · verified 2026-10-28

2. Related party cap. Interest on loans, royalties and technical assistance paid to a shareholder (if it is an income taxpayer), to the head office or other foreign branches, or to related companies are deductible only if not above market or the BCP average passive rate, the corresponding taxes have been paid, and together they do not exceed 30 percent of the year's net income before deducting them. INR withholding applies regardless of deductibility.
Cost to do it: Excess payments are a permanent difference: no carryforward is provided.
Example: Net income before related payments PYG 1,000,000,000, related interest and royalties PYG 400,000,000: deductible PYG 300,000,000, disallowed PYG 100,000,000, extra IRE PYG 10,000,000. / On US$170,407 of pre deduction income, related payments of US$68,163 lose US$17,041 of deductions, costing US$1,704 of IRE.Ley Nº 6380/2019 De modernización y simplificación del sistema tributario nacional, Art. 15 num. 23, 2019-09-25 official text · verified 2026-10-28

3. Minimum rate on loans made. Loans and placements made by a company must not carry interest below the BCP average passive rate for similar instruments and terms at grant date; staff advances and loans by banks and cooperatives are excepted.
Cost to do it: Deemed interest at the BCP average rate if lent below it.
Example: An interest free upstream loan to a parent is taxed as if it earned the BCP average rate, and may also be a deemed dividend. / Cash pooling into a foreign treasury needs a market interest rate.Ley Nº 6380/2019 De modernización y simplificación del sistema tributario nacional, Art. 8 num. 11, 2019-09-25 official text · verified 2026-10-28

4. Withholding on the interest. Interest paid to related foreign lenders bears INR on 100 percent of the amount (15 percent effective); to unrelated foreign banks and multilaterals on 30 percent (4.5 percent effective).
Cost to do it: INR is final and not reduced by the deduction cap.
Example: Related interest of PYG 300,000,000: INR PYG 45,000,000. / Related interest of US$51,122: INR US$7,668; to a bank, US$2,300.Ley Nº 6380/2019 De modernización y simplificación del sistema tributario nacional, Art. 75 and 76, 2019-09-25 official text · verified 2026-10-28

Item	Related party loan	Unrelated foreign bank loan	Equity
INR on return	15% of interest	4.5% of interest	IDU 15% on dividends
IRE deduction	Within 30% cap and BCP rate	Within BCP rate	None
Return of principal	No tax	No tax	Capital reduction from paid in capital last in order (art. 40)

Funding a Paraguayan subsidiary: debt versus equity (Ley 6380/2019)

Worked example

A Paraguayan EAS has net income of PYG 1,000,000,000 (US$170,407) before paying its US parent PYG 250,000,000 of interest and PYG 150,000,000 of royalties.
Cap: 30 percent of PYG 1,000,000,000 = PYG 300,000,000. Disallowed: PYG 100,000,000. Taxable income PYG 700,000,000, IRE PYG 70,000,000 (US$11,928).
INR on the full PYG 400,000,000 at 15 percent: PYG 60,000,000 (US$10,224).
If the interest rate also exceeds the BCP average passive rate, the excess interest is disallowed first.

Step by step

Benchmark intercompany interest against the BCP published average passive rates for the currency and term.
Project net income and keep related interest, royalties and technical fees within 30 percent of it.
Withhold and pay INR on every payment, including offsets.
Consider unrelated bank financing, which avoids the 30 percent cap and bears 4.5 percent INR.
For approved Ley 7548 projects of at least US$13,000,000, apply for the INR exemption on foreign bank project loans.

Common traps

The 30 percent cap bundles interest with royalties and technical assistance (art. 15 num. 23).
There is no carryforward of disallowed amounts in the law.
The BCP average passive rate is a deposit rate, often well below lending rates.
Upstream loans to shareholders are deemed dividends (art. 40).

Sources

Related: Paraguay country profile · live dashboard · central bank and release calendar · our posts on X · where Argentina is involved, see The Argentine Thread guide

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