Why and How to Start a Business in Paraguay?
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The landlocked country of Paraguay may not be the first place you consider when expanding your business internationally. However, this South American powerhouse is becoming a popular choice for savvy entrepreneurs looking to increase their brand presence in LATAM markets.
Below, we take a closer look at just some of the reasons why you should consider making an investment in the territory. We also offer guidance on how to start a business and maximize returns on investment to become a key player in Paraguay.
Geographic Position is good for business
Whilst Paraguay may be landlocked, it has powerful neighbours. The nation’s border is shared with Brazil, Argentina, and Bolivia, which have GDPs of US$2 trillion, US$640 billion, and US$37 billion respectively. This gives the country access to excellent trading partners and offers further trade opportunities. Paraguay is one of the leading exporters of energy in South America, and the country exports more than US$6.8 billion worth of goods and services per year (according to The Observatory of Economic Complexity), with products such as soybeans, corn, rice, wheat, and bovine meat topping the list of products. If you enter into a market such as Paraguay, you are not only offered demand from locals but demand across South America and further afield through international exports.
Something else to consider is that Paraguay is a founding member of the Southern Common Market (Mercosur) trading bloc. Alongside Argentina, Brazil, and Uruguay, it has a combined GDP of more than $2.9 trillion, making it one of the largest economic blocs in the world. The bloc trades with associate members such as Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname. Deals with the European Union are expected in the coming years, which would help to unlock significant revenue streams and a market of more than 500 million people, with a combined GDP of $19.1 trillion ($38,370 per capita).
Paraguay is close to major economies like Brazil.
Doing Business: Economic Growth
As of 2019, Paraguay’s economy is worth close to US$30 billion, with the county expected to perform well in the coming years. Paraguay saw a contraction in 2012, but since then the country has been in recovery. Production of agricultural goods and services has increased to record levels, and an increase in exports, particularly beef. According to the Central Bank of Paraguay, Paraguay saw growth of around 4.2% in 2018 alone, making it one of the fastest-growing economies in terms of GDP during the period. Trading Economics suggests that Paraguay’s GDP growth will hit 6.3% in 2020, and government debt will fall in the same period.
Growing Middle Class in Paraguay
With a population of around 7 million people, Paraguay offers a strong market for businesses looking to sell in the country. Around 48% of its population is economically active, and the middle class has grown more than 45% in recent years, now representing around 25% of the total population (around 1.75 million people). For businesses operating in the luxury goods and services market, this represents unique opportunities, as consumers have higher levels of disposable income and provide higher demand levels than other developing LATAM markets.
Ease of Access
One of the reasons why Paraguay commercial operations are on the up is because the country facilitates invest by foreign entrepreneurs. Indeed, setting up a Sociedad Anónima (S.A), a branch office or a Sociedad de Responsibilad Limitada (SRL) is a straightforward investment and requires capital of just US$5,000. Entrepreneurs are able to apply for a visa to secure residency when expanding their business in the country, which has resulted in entrepreneurs across the food, manufacturing and agricultural sectors setting up shop and becoming a major player in the sector, though finding a gap in the market is tough.
Green Energy Opportunities
If you’re still looking for reasons to incorporate in Paraguay, then consider the benefits of green energy. The country has converted almost entirely to renewable hydropower, getting the majority of its electricity from the Itaipu Dam. Not only does this reduce the country’s reliance on energy imports, but it allows the country to export electricity. Perhaps most importantly, this offers businesses access to cheap, reliable energy sources for their ventures, whether manufacturing, agriculture or another sector. Using green energy sources also reduces the footprint of your business, serving as a selling point to today’s environmentally conscious consumers – particularly millennial consumers around the world.
How To Start a Business in Paraguay?
Forming a company in Paraguay is a relatively simple and straightforward process, which has encouraged entrepreneurs and investors from around the world to enter the market. FDI hit US$228 million in the third quarter of 2018, although net inflows dropped US$54.9 million in the second quarter of the year. Foreign entrepreneurs are able to incorporate a Sociedad Anónima (although at least one resident director is required), a Sociedad de Responsibilad Limitada (SRL) (one national director required) or a Branch Office (one director must be a resident in the country, but does not need to be Paraguayan. Applying for a visa will help).
There is no minimum capital required for setting up companies which reduce barriers to entry, although businesses opening a Branch Office require USD$25,000 capital investment to be approved. Businesses can be formed in as little as ten weeks, and as there is very little red tape or government intervention.
Entrepreneurs from all backgrounds and nationalities should find the incorporation process easy. Having said that, working with a local corporate lawyer or solicitor will speed up the incorporation process and ensure your business remains fully compliant after being formed. Navigating Paraguayan business laws and regulations can take time, particularly if you’re not a native Spanish speaker. The importance of adhering to local laws and regulations can’t be overlooked or underestimated.
Unsure of the corporate compliance requirements in Latin America? Check out our short video below and ensure your company remains compliant when operating in Latin America.
Source: Biz Latin Hub
Post available in: English