Bolivian capital migrates to tax-free Paraguay

The Bolivian-Paraguayan Binational Chamber of Commerce and Industry informed that at the moment, for every Paraguayan company that wants to invest in Bolivia, nine Bolivian companies seek to enter the Paraguayan market.

A simpler tax system where the fiscal liberation for foreign capital translates into the non-payment of customs duties and Value Added Tax (VAT) for the import of capital goods; also, the exemption of VAT for the local purchase of capital goods produced by national manufacturers, make Paraguay an attractive market for the arrival of investments and Bolivian companies to the Guarani territory.

Other tax ‘pardons’ are the non-payment of taxes on remittances and payments abroad for interest, commissions, and capital; and the non-collection of taxes on dividends and profits from approved projects for up to ten years from the start-up of the project.

According to analysts, this situation should worry President Luis Arce’s administration.

Another aspect to consider is the legal security that Paraguay offers since, according to Jorge Eguívar, general manager of the Bolivian-Paraguayan Binational Chamber of Commerce and Industry, Bolivia does not have legal security, which makes the businessman have doubts about his future, specifying that at the moment, on average, there are “nine Bolivian companies that want to leave for one Paraguayan company that wants to come”.

The World Bank’s Doing Business 2020 report, which analyzes 190 economies in the world, places Bolivia in the 150th position in the ranking of facilities for doing business and Paraguay in the 125th, a difference that does not seem very big until seeing the total taxes and contributions on the percentage of profits.

This percentage is 82% in Bolivia, and in Paraguay, it is 35%.

Néstor Loizaga, partner of the law firm Ferrere Paraguay, explained that what makes the neighboring country highly receptive to investments are its low production costs, strong tax and customs incentives, historically low unionization rates in the private sector, its logistical advantages, and a liberal investment environment.

In this context, so far, at least 50 Bolivian companies, according to the record of the Binational Chamber, are analyzing migrating and trying their luck. One of the last to reach this market was Bolivian Industrial Technology (BIT), which will start installing a tire-based synthetic diesel plant in that country in October.

After the negotiations with the government to produce this fuel in Bolivia were stalled, it was decided to take the project to Paraguay, where it was completed in a matter of months, said Xavier Iturralde, one of the investors.

“News like this should be a wake-up call for Bolivians because (BIT) is one of many companies in the same situation. There must be at least two dozen Bolivian companies making arrangements to leave the country for good,” said analyst Jaime Dunn.

The specialist explained that the attractive conditions offered by Paraguay to foreign capital are part of the great competition between countries to attract human talent and companies.

On the contrary, he said, “Bolivia has decided to look inward and not compete for talent or companies from abroad. That is why we have policies such as import substitution, which implies trying to produce things in the country without -often- having the technology” to do so.

Bolivia is one of the countries with the most bureaucracy for creating, managing, and closing companies, with 192 procedures, while in other countries in the region, this figure is between 60 and 70 procedures, said economist Lorgio Ardaya.

This situation damages the whole economy and encourages informality, tax evasion, and corruption said Ardaya.

What makes Bolivia unattractive to foreign and local investment is over-regulation, a heavy labor and tax burden, and the politicization of business, Dunn said.

“Foreigners are not interested in Bolivia, and we have reached a point where Bolivians themselves find it very difficult to do business in the country,” said the financial analyst.

With information from El Deber