What is the system of maquilas?
Maquiladoras are companies that import materials and replacement parts to be assembled and worked in a given country. Here, thanks to industrial development and to the work they are able to produce, they receive in exchange a beneficial tax treatment to be able later to export the finished product. Often, the final product is returned to the same country, where materials and parts come from. The incentive for companies is both workforce, that is really more economic, and tax benefits, because companies create jobs.
How did this system began spreading in the world?
During the second half of the XX century, the maquiladoras companies began spreading in the world and they evolved in different ways. For example, since this process began in Mexico, a country south of the border of United States, Mexico experienced all kinds of changes and conflicts. It especially depends on country and on existing government regulations.
What kind of differences and benefits has Paraguay?
In Paraguay the situation for companies taking the legal form of the system of maquilas, is really enviable. As a matter of fact, companies can not only count on a very economic workforce from a very young population, but the can benefit from the following advantages:
- VAT Recovery. Maquiladoras companies are exempted from paying VAT and they can recover the amount in acquiring items or services. Even rental and leasing operations related to machines or team are exempted from VAT.
- On the contrary, you have to pay a Unique Tribute, equal to 1%, that is applied to the value of the product within the territory of Paraguay. Operations carried out by companies under system of maquilas are exempt from any other tribute related to production process.
- Suspension of import duties. Since importation of components of raw material are a key part of the activity and they are components hardly obtainable in Paraguay, the system of maquilas allows companies to import raw material, machines and the necessary factors of production through a process, by which duties and importation taxes are temporarily suspended.
- Incomes and dividends abroad. Maquiladoras companies are exempted from paying any tax on company income and dividend remittance, although that particular point is being studied by legislators.
- Exemption from other taxes and contributions such as consular fees, port charges, taxes on received loans to finance maquila operations and taxes on construction, industrial plant and services of the company, city taxes and much more.
The context of MERCOSUR
At present one of the necessary requirements to be part of Mercosur, if we consider a product coming from a country belonging to a free trade zone, is that it has to contain a 40% coming from Mercosur. The remaining 60% may come from any other country. Once you have reached 40% in materials or components, the produced goods may have access to the market of any other countries in Mercosur and they are free from taxes and customs duties.
This requirement is necessary only if you want to sell goods produced within the territory of Mercosur, and if you want to benefit from the advantages previously mentioned. But you are not obliged to respect this percentage and it is not even necessary, if your objective is to sell them in other markets, as for example the markets in Eurozone.
The system of maquilas entails a worthwhile investment for European migrants moving to Paraguay, because in addition to tax benefits and an easy access to a market of 300 million inhabitants, they can also add to this their own skills such as, for example, their knowledge of the language of their home country and so then they can easier establish contacts to obtain materials and components from their home country.
Moreover, the low cost of living in Paraguay, if compared to other countries of the same area, means that the necessary materials to reach the required 40% and the related workforce are much more economical.
We of Living in Paraguay carried out a “targeted” advise for European customers who wanted to begin an activity for which they had a previous experience or for which they had a flair or about which they were passionate. Therefore, we could testify that the knowledge of the foreign investor established in Paraguay could find in this country an excellent ground to achieve great economic performances, to establishes companies and to invest with excellent results both in economic terms and in personal satisfaction.