investing in paraguay - alfa international...paraguay has substantial natural resources mainly for...

INVESTING IN PARAGUAY

Berkemeyer Attorneys and Counselors | Asunción - Paraguay

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CONTENTS

A. AREAS OF INTEREST

1. Introduction 2. Economic Sectors for Investment in Paraguay 3. Privatization of State Enterprises 4. Telecommunications 5. Water Supply and Sewage 6. Energy 7. Natural Resources 8. International Waterway “Hidrovía Paraguay-Paraná” 9. Free Trade Zones 10. Maquila Operations 11. Leasing 12. Real estate 13. Competition Act 14. E-commerce 15. Public-private alliances

B. FISCAL AND LEGAL INCENTIVES

1. Equal Policies for National and Foreign Investments 2. Investment Act 3. Investment Promotion Act 4. Investment Guarantees 5. Banking and Insurance 6. Stock Markets 7. Trust and Fiduciary Relationships 8. Migration Act 9. Labor Legislation 10. Representation, Agency and Distribution Act 11. Pharmaceutical and Health Products 12. Intellectual Property Protection 13. Acknowledgment and Enforcement of Foreign Judgments 14. Arbitration 15. MERCOSUR Preliminary Measures

C. MERCOSUR

1. General Principles 2. Instruments for meeting MERCOSUR’s objectives 3. Benefits for Paraguay in joining the MERCOSUR

D. ESTABLISHING A COMPANY IN PARAGUAY

1. Branches or Representatives of Foreign Companies 2. Limited Liability Corporations


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3. Corporations 4. Hague Apostille

E. SOURCES


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A AREAS OF INTEREST

1. INTRODUCTION

Paraguay is located in the heart of South America with no maritime coast. Historically the economy has

been characterized by the predominance of agriculture and cattle production. Today it has positioned

itself as the eight leading exporter of meat and the fifth ranking nation as an exporter of soybeans. In

addition, Paraguay also always stood out as the main exporter of energy in South America and was one

of the principal net exporter world-wide clean energy with two international hydroelectric dams.

However, over the years a moderately diversified economy has been developed, achieving in 2010, the

largest economic expansion in Latin America. The industrial sector's growth is mainly consequence of

foreign direct investment by multinational companies in the production of edible oils. In addition,

important advances have occurred in the mining sector with the discovery of deposits of titanium,

uranium and gold.

As a member of MERCOSUR (Common Market of the Southern Cone), the trading block formed in 1991

by Brazil, Argentina, and Uruguay. It is also a member of the World Trade Organization (WTO) since

1997.

Regarding foreign trade, the country has an open economy with principal trading partners such as

Brazil, Argentina, China, the United States and Russia. There are no restrictions, discriminations or

limitations for foreigners in any sector, and investment law sets forth equal policies for local and

foreign investors in all sectors. The private investment laws also grant fiscal exemptions, as well as

administrative and legal incentives with special regimes to foreign and local investors.

So, Paraguay’s economic system is based on free trade, making a free currency exchange system, free

import and export, and free transfer of capital have been introduced. There are no restrictions or

limitations for foreigners in any sector, and its investment legislation set forth equal policies for local

and foreign investors in all sectors.

Regarding economic activity, national legislation limits the Government´s intervention in

entrepreneurial activities and grants private initiative a more important role in investment and

economic growth. The private investment legislation, which grants fiscal exemptions and

administrative and legal facilities to foreign and local investors, has established these grounds.

Law also grants private initiative a more important role in investment and economic growth with

recent legislature such as Public-Private Partnership (PPP) and Competition Law. For instance, the goal

of the Public-Private Partnership law is to establish standards and mechanisms to promote


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partnerships between the public and private sectors for investment in public infrastructure and the

provision of services, as well as in the production of goods. The law establishes a clear framework for

public-private partnership contracts, and regulates private initiatives and regulates the use of trusts for

the purposes specified in the law. Contracts may include management of infrastructure and services,

which include road projects, rail, port, airport, waterway dredging and maintenance of the rivers which

surround Paraguay, social infrastructure, electrical equipment and urban development.

In sum, currently Paraguay has a growing and diversifying economy with abundant natural resources

and excellent human capital, which is always been accompanied by an open trade principle and

promotion of a legal framework to protect investors. The upcoming years promise to be an excellent

year for Paraguayans and those who are betting on the country.

2. ECONOMIC SECTORS FOR INVESTMENT IN PARAGUAY

Paraguay offers important options for private investment in the telecommunications sector. The

sector was opened to private investors in 1995 and has experienced growth beyond expectations ever

since, particularly in mobile phone services. The sector is set to further experience a major change as

the State telecommunications company is passed on to the private sector.

Water supply and sewage services in sectors of the countryside have been opened to private

investment, having set up the appropriate legal framework and created the regulating agency in late

2000.

As a country rich in energy generated by two main sources, the bi-national hydroelectric dams built

together with Brazil and Argentina, Paraguay also constitutes a convenient location for energy-

sensitive industries.

Industries focused on local market supply and export activities are seen as other options, among which

are cast metals, textiles, vegetable oils, dairy products, leather and hides, beef and timber products,

cold storage facilities and transportation.

Paraguay’s main products are: cotton, soybean, sugarcane, meat, timber, vegetable oils, corn, rice,

tobacco, manioc (cassava), fruits and vegetables, among others.

Overall, the main investment attractions in Paraguay could be listed as follows:

abundance of natural resources

abundant electrical energy, environmentally clean and renewable;

mainly young population that is trainable;

stable macroeconomic and a fiscal policy with the lowest tax burden in the region;

ample advantage and benefits for foreign and domestic investments;


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quick return on investment with fast growing economy;

it is among the world's top exporters of soybean and beef, with high productivity and capacity

for expansion;

strategic location in the heart of South America with free access to MERCOSUR;

center of the Paraguay-Parana Waterway with free navigation throughout the year for river

sea trade;

good levels of quality of life and safety.

Paraguay's advantages for investors include open business environment and a geographical location

conductive to business. It offers macroeconomic stability by providing a healthy environment for

investors, including low inflation, financial stability and legal incentives for investment discussed

further below.

One of the key areas to invest in projects involving the improvement of infrastructure. As mentioned

before, Paraguay has developed a diversified economic growth in the primary and industrial sector.

Nevertheless, the country lacks of the proper road, rail, port, airport connectivity; waterway dredging

and maintenance of the rivers; social infrastructure; electrical equipment and urban development.

Considering this situation, the government has recently passed the Public-Private Partnership Law in

order to promote projects in this area with favorable conditions to the private sector.

Another current key area is the real estate market, a renovated business with world class hotels and

apartment buildings as flag ship.

3. PRIVATIZATION OF STATE ENTERPRISES

Enactment of Act 1615/2000, addressing government reform and privatization of State companies,

opened the way for a series of privatizations and extensive structural reforms in Government

administration. Earlier privatizations enabled the transition of steel, alcohol and fleet companies to the

private sector, as well as the State airline.

4. TELECOMMUNICATIONS

The sector must rely on foreign investment to level the average impact of other countries of the

region. The expansion of mobile phone services has overtaken the number of fixed lines, while other

value-added services have also experienced outstanding growth.


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The National Telecommunication Commission – CONATEL – created by Act 642/1995 is the regulating

agency for telecommunication services. It may be said that the sector is open to competition, except

for fixed lines and international carrier services, which remains under State monopoly.

CONATEL processes all concession, license and permit applications and it is in charge of developing,

implementing and enforcing the regulatory policy, analyzing and proposing tariff regimes, approving

technical standards, assessing conformity of equipment, monitoring quality of service, and preventing

anti-competitive practices among other duties. Telecommunication services are classified into two

basic services, broadcasting and value-added services. Basic services may be rendered under a

concession granted by the State, which must be approved by Congress. Broadcasting and value-added

services may be rendered under a license or permit. Concessions are granted for a period of 20 years

and may be renewed in accordance with the terms and conditions of the contract. Broadcasting

licenses are granted for a period of 10 years, and may be renewed for an additional period. All other

services may be licensed for a period of five years and are renewable upon Licensee’s request.

5. WATER SUPPLY AND SEWAGE

Act 1614/2000 established the framework for water supply and sewage services and created the

regulatory agency – the Regulating Entity for Sanitary Services – ERSSAN. ERSSAN is in charge of

developing regulatory standards for suppliers and users, preventing anti-competitive practices,

supervising investment and tariffs and, in general, enforcing applicable legislation. Concessions may be

granted for up to 30 years, whereas permits for a maximum of 2000 individual connections may be

granted for a 10-year-term.

The sector must rely on foreign investment for expansion in order to level the average impact of other

countries in the region.

6. ELECTRICITY

Paraguay has abundant hydroelectric energy provided by the Acaray (national), Itaipú (binational) and

Yacyretá (binational) power stations, with countrywide supply networks.

Reforms are being proposed to unbundle the sector and allow private investment in hydroelectricity

and thermal power.

7. NATURAL RESOURCES


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Paraguay has substantial natural resources mainly for forestry, agriculture and cattle raising, as well as

potential reserves of natural gas and non-ferric minerals.

Abundant fresh water sources and rainfall provide a wide range of investment opportunities related to

the industrialization of timber, agricultural products and food production.

Reforestation is encouraged through tax incentives.

The economic, political and legal framework for investment in the hydrocarbon sector in Paraguay

moment is outstanding. The government decided to give a strong boost to oil and gas exploration,

which, added to the growth of the Gross Domestic Product (GDP) and the results of geological studies,

predict excellent prospects for the activities of this nascent industry, with potential incalculable.

As for the chances of finding oil, the expectations based upon the work of the private companies

within areas that belong to the same basins from which oil is extracted since several years ago on the

Argentine side, are encouraging.

Paraguay shares five sedimentary basins with neighboring countries, in four of which there is

production of hydrocarbons. Experts say that the prospects for finding hydrocarbons in Paraguay are

high. However, it is recognized that at the country level exploration is still in its infancy because of 25

exploratory blocks in only two activities are carried out, so that there is a great task to develop yet.

The studies and oil exploration works made recently showed that serious work began in this area in

Paraguay, so exploratory projects will come into its decisive phase in 2014 with the drilling of wells.

There is no technical reason why this country lacks such resources, but obviously, perforations must be

made to make contact with the potential reservoir.

General Hydrocarbon Act 779 of 1995, provides significant tax advantages to investors, and expressly

stipulates as follows: "With the exception of fees, prospecting and exploration are exempt from any

tax, state and municipal taxes, including permit applications and exploration concessions, and the

respective contracts".

Only during the exploitation period, paraguayan Act provides the following tax system, low impact

compared to other countries:

a) An initial fee of USD 0.30 per hectare;

b) An annual operating fee per hectare:

i. From 1st to 5th year : USD 0.20

ii. From 6th to 10th year : USD 0.60

iii. From 11th to 15th year : USD 1.60

iv. From 16th to 20th year : USD 2.00

For royalties, the grantee shall pay to the Paraguayan Government on the gross production of crude oil:

a) From one hundred (100) barrels until 5000 (five thousand) barrels, 10% (ten percent);


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b) Since 5001 (five thousand one) barrels per day, up to 50000 (fifty thousand) barrels 12%

(twelve percent) and,

c) Since 50001 (fifty thousand one) barrels onwards 14% (fourteen percent).

8. INTERNATIONAL WATERWAY “HIDROVÍA PARAGUAY-PARANÁ”

MERCOSUR member countries (Argentina, Brazil, Paraguay and Uruguay) and Bolivia have designed an

ambitious multi-lateral project known as the “Hidrovía Paraguay-Paraná” (hereinafter called the

“waterway”), an international waterway seeking rivers Paraguay and Paraná to be permanently

navigable along 3.500 km from Puerto Cáceres (Brazil) to Puerto Nueva Palmira (Uruguay). Paraguay’s

geographical location, the Waterway, other projects such as the Paraná-Tieté Hidrovia (Paraná-Tieté

Waterway) in Brazil, the Bioceanic Corridor connecting the Atlantic and Pacific Oceans, will significantly

facilitate communication between countries of the region and shall turn Paraguay into an important

alternative as center of production, supply and rendering of services within the framework of the River

Integration Plan between MERCOSUR member countries and Bolivia

9. FREE TRADE ZONES

Act 523/1995 that rules free trade zones has the purpose of encouraging investments, employment,

exports and international trade. Export transactions in a free trade zone are exempt from all national,

departmental and municipal taxes. Significant fiscal incentives are guaranteed to Licensees and Users

to facilitate establishment and operation in free trade zones.

Concessions are executed through a joint agreement signed by the Paraguayan Government to build

and operate a specific area as a free-trade zone. Concessions shall be granted for a term of thirty (30)

years, unless the licensee applies for a shorter period of time, counted as from the date of the granting

of the agreement. The term may be extended for an equal term in accordance with the Acts ruling free

trade zones at the time of the extension, provided that the licensee has duly met its legal and

contractual obligations.

10. MAQUILA OPERATIONS

Act 1064/1997 created the framework to facilitate the establishment of assembly plants or maquila

factories that could profit from the country’s lower industrial and labor costs compared to other

countries of the region. The Act provided further incentive to export-oriented investment, and further


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strengthened a legal framework, which has long given foreign investors unrestricted access in all

sectors of the Paraguayan economy.

The legal scope embraces both the assembly of products and the performance of services. The

National Council administers the program for the Maquila Export Industry and the Program Unit, a

one-stop-shop that handles the reception and processing of all applications and approvals.

Materials and equipment for processing are imported under the drawback system that suspends tax

and tariffs payment until the final product is re-exported. The Customs Authority demands a guarantee

in order to clear goods imported under the drawback system. It is possible to obtain a bond from an

insurance company in order to fulfill this requirement. Processed materials must be re-exported within

a maximum term of six months. Machinery and equipment may remain in the country during said

term, at the end of which they must be re-exported without incurring in tax payment. MERCOSUR

regulations of origin are applicable to trade with Brazil, Argentina and Uruguay, whereas WTO

regulations of origin apply to trade with all other countries.

The Act practically eliminates income tax and, instead, establishes a 1% tax to be levied on the value

added within the country. The tax is effectively assessed on the value invoiced by the exporting

company.

Paraguay offers good opportunities for maquila operations given its low labor cost, abundant energy

supply, and a central geographical location with easy access by road or river to the largest South

American markets.

11. LEASING

Leasing or Financial Lease Act 1295/1998 introduced a commercial and financial alternative into the

Paraguayan market. The Act focuses on two main objectives: to offer legal security to both the lessor

and the lessee and provide tax incentives making the operation attractive for all parties.

Leasing companies that wish to operate in Paraguay must constitute a stock corporation and include

the following legal denomination after its trade name: “Sociedad Anónima de Arrendamiento

Financiera” or “Sociedad Anónima de Leasing Financiero.” Registered stocks must represent capital

and the corporate purpose must be limited to the performance of financial and commercial leasing

operations subject to legal terms.

12. REAL ESTATE

In the period between 2013, 2014 and 2015, the Capital city will see the emergence of more than

600,000 m2 in luxury buildings.


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Right now, the boom of economic sustainability has attracted 18 companies, members of the

Paraguayan Chamber of Real Estate Developers (CAPADEI, in Spanish), which are running several

major projects whose investments now exceed USD 500 millions.

Corporate and commercial buildings and residential units are the main attractions.

These figures only relate to the square meters by 18 firms that are part of the Paraguayan Chamber of

Real Estate Developers (CAPADEI).

The enterprises have the security of a solid law, property matters guarantor of private property,

constitutional support; well as administrative procedures tend to progressive simplification of procedures

related to building permits.

The main references, including the World Trade Center (WTC) resulted in the generation of 39,500

industrial sources.

CAPADEI has gone beyond the capital city and it has gestated the idea to form committees in some

country areas where industrial projects, commercial complexes and apartments are rising rigorously to

quantify the investments made in the country.

The odds are in favor of keeping this increasing rate as more high estate plans, including the Sheraton

WTC and Ciudad del Este, more shoppings at the country borders and industrial developments in

Chaco'i and Acceso Sur.

On July 10, the presentation of the first official report of Asuncion property will be held in conjunction

with the Municipality.

CAPADEI also points to the generation of housing products aimed at the middle class and these

products will be presented within 3 months.

13. COMPETITION ACT

Act 4956/2013, defends and promotes free market competition, expressly prohibiting anti-competitive

acts. Competition Act was consolidated and strengthen with the enactment of Decree 1490 of April 14,

2014, opening an attractive and substantial national and international business world panorama.

The application of the Act refers to all acts, practices or agreements held by individuals or

corporations, domestic or foreign, with legal residence in the country or abroad, whether public or

private, or any entities develop economic activities, or nonprofit and produce effect on competition, in

all or part of the country, except the limitations established by law , duly justified by reasons of general

interest, excluding the central government entities and decentralized bodies exercising State

monopoly.

The competition presupposes the freedom to buy, sell and efficient market access and non-

discriminatory conditions, without restrictions other than those arising from the Act; it was precisely,

the Merchant Law of 1983, which allowed the holding of competition covenants, as follows: The

competition restricting covenant shall be valid if it is restricted to a particular area and activity and not

more than five years, provided it is not intended to harm others . If the restricting covenant had been

stipulated for a longer period, it will only last for five years.

The prices of goods and services will be determined and offered freely.


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Simple market conquest resulting from the natural process of the greater efficiency of the subjects

included in the scope of this Act in relation to its competitors, does not constitute a restriction of

competition. It was the Merchant Law who established the figure of sole supplier, as follows: If any be

sole provider of a service or is obligated to supply to all stakeholders on equal terms and price product.

To verify the existence of agreements, decisions or concerted practices or consciously parallel,

whether written or oral, formal or informal aimed to produce, prevent, restrict or distort competition

in all or part of the national market , the burden of proof is on the CONACOM , but once proven the

existence of an infringement, the burden of proof on the existence of profits in economic efficiency

that outweigh their negative effects on the market will fall on the natural or legal person who alleged.

14. E-COMMERCE

Since a company reported last year, two million transactions worth USD 1.3 billion dollars, the Central

Bank of Paraguay (BCP) emphasized a project aims to regulate the cash withdrawals and purchase

transactions that are managed through mobile phones and establish guidelines for the electronic

media payments entities (EMPES), in this case the telephone companies, that perform these services

with increasing acceptance by the public.

Mobile companies performing non-bank wire transfers and payments using mobile phones as tools,

shall be subject to the control and supervision of the Superintendency of Banks (SIB), which will

become the regulatory body of the entities identified as EMPES.

The BCP endowed the electronic money with the necessary security, by issuing Resolution N° 6,

approved by the Board of BCP as Act 18 of March 13, 2014. Electronic money transactions are:

conversion and reconversion; payments and non-bank wire transfers.

As a way to facilitate the inclusion of more people into the banking system through remote

management and minimum requirements, the limit of 40 minimum wages for transactions is not a real

limitation to people to make non-bank wire transfers bigger, but from that number the customer must

request a savings account through a financial institution from its own cell, without going to a bank to

complete the formalities.

The legislation seeks, among other things, increase the levels of financial inclusion and braking

operations to finance LD/ FT/ FP (money laundering, terrorist financing and financing of proliferation

of weapons of mass destruction).

15. PUBLIC-PRIVATE ALLIANCES


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The PPP Act 5102/2013 seeks to establish standards and mechanisms to promote, through innovative

public-private participation, investments in public infrastructure as well as in the production of goods

and provision of services that are themselves the subject of agencies, entities, public companies and

companies in which the Government is party. For the first time, the Government assumes the role of a

responsible modern State, leaving behind sterile and paternalistic customs.

To achieve these laudable goals, the figure of contracts of public-private partnerships or PPP contracts

is established, which include the figure of the private sector and regulates the use of trusts, present in

Paraguayan Act since the enactment of the Act 921/1996.

The guiding principles of this new way of work ar: monitoring and control of the State, transparency

and accountability, social profitability , economic efficiency , competition and equality, legal security,

temporality, fiscal responsibility, environmental sustainability, legality, rationality, efficiency and

general interest. These principles are set out in the Act itself and Decree 1350 complements and

integrate them. The principles are mandatory and they design the entire structure of the Act

B FISCAL AND LEGAL INCENTIVES

Paraguay’s government policy is to promote foreign investment in all economic sectors with no

Government approval required, enabling companies to be fully foreign-owned.

In general, all types of business activities are open to foreign investment. However, special preference

is given to those that will use local raw materials and labor. Act 60/1990 foresees the system for

economic development through incentives by granting special benefits, enabling repatriation of capital

and profits, and providing guarantees against inconvertibility. An application must be filed to obtain

the special benefits granted by Act 60/1990.

Recent years have revealed the implementation of a new legal framework in terms of banking and

financial issues, insurance, stock market, taxes, labor Act, environment, intellectual property,

investments, telecommunications, among others.

Investment environment in Paraguay is attractive for its long-standing free-enterprise support, which

relatively low labor cost, abundant energy and the lowest tax burden in Latin America investors benefit

from. It should be noted that personal income tax has not yet been introduced in Paraguay.


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1. EQUAL POLICIES FOR NATIONAL AND FOREIGN INVESTMENTS

There are no restricted areas, no discrimination and no limitations. The only difference between

foreign investments and those made by Paraguayan nationals lies on taxation on net earnings, as

foreign investments are subject to a five percent additional tax on remittances or credits in favor of

beneficiaries, who are not residents of this country. Said profits or dividends are taxed 5% (the general

rate of tax is 20%, adding a 10% if incorporated as foreign branches). If these funds are reinvested in

the improvement of installations, renewal of the capital assets or destined to cover the costs of

planting, forestation and reforestation in rural areas, then this additional tax is not levied. The profits

and dividends are exempt from taxation for a period of five (5) years if the investment is benefited by

Act 60/90, paragraph (h), of article N° 5.

2. INVESTMENT ACT

The Investment Act promulgated in late 1991 as Act 117/1991 guarantees a framework of equal

conditions for local and foreign investment aiming to promote Paraguay’s social and economic

development. This Act allows investors to obtain investment insurance locally or overseas. It also sets

the requirements for the establishment of joint ventures.

3. INVESTMENT PROMOTION ACT

Investment Promotion Act 60/1990, promulgated on March 26, 1990, establishes a special tax system

offering incentives for foreign investment projects. Companies falling under this legislation enjoy total

exemption from all kinds of taxes on certain aspects of the investment project, such as taxes on the

incorporation or recordal of companies, capital increase, exchange operations and the import of

capital goods. Additional benefits are applicable on investments of at least US$5 million.

The procedure for obtaining benefits include the submission of a feasibility study to the Investment

Council, based on information required by legal provisions; the Investment Council’s approval of the

project; and a joint resolution by the Ministry of Finance and Ministry of Industry and Commerce

granting the respective fiscal benefits.

The recent fiscal reform introduced a reduction of the income tax rate in contrast with our previous

tax Act from 30% to 20% in 2006, dropping to 10% the following year.

4. INVESTMENT GUARANTEES


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The Paraguayan Ministry of Foreign Affairs has signed Investment Guarantee agreements with the

governments of: Argentina, Austria, BENELUX, Brazil, Chile, China (ROC), Ecuador, France, Germany,

Great Britain, Hungary, Korea, Peru, Romania, South Africa, Spain, Switzerland, United States of

America, Uruguay and Venezuela. These agreements seek to promote commerce, investments and

industrial cooperation.

The Paraguayan Government has also signed an agreement with the World Bank’s Multilateral

Investment Guarantee Agency (MIGA), ratified by Act N° 124 dated February 6, 1992. Moreover,

investment guarantee agreements have been signed with the Overseas Private Investment

Corporation (OPIC), ratified by Act N° 155 dated May 3, 1993.

In addition, within the framework of the MERCOSUR, a protocol has been signed for mutual promotion

and protection of investments in the member countries and conflict resolution therein.

5. BANKING AND INSURANCE

Act 861/1996 establishes the requirements and procedures for the opening of banks, financial

undertakings, general stores and warehouses, security, brokerage firms and other credit entities,

without restriction, except for compliance with operational and supervisory regulations.

Act 827/1996 regulates the Insurance market. This Act foresees the requirements for authorization to

operate, as well as the minimum capital. The Insurance Superintendent, a technical body of the Central

Bank of Paraguay, acts as enforcement authority.

6. STOCK MARKETS

The Stock Market Act 1284/1998 was approved replacing an earlier Act for the sector. The National

Securities Commission has produced a series of regulations covering requirements for the issuance of

securities, opening of securities exchange and brokerage agents, qualification of issuing corporations,

etc.

The Stock Market Act established fiscal incentives for companies listed on the Asuncion Stock

Exchange. The recent fiscal reform introduced an exemption from corporate income tax for interests

and profits earned on securities placed through the local exchange and on government and municipal

bonds.

The Act is aimed at strengthening the local stock market to provide a source of capital for private

investments.


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7. TRUST AND FIDUCIARY RELATIONSHIPS

Trust and Fiduciary Relationships are regulated pursuant to Act 921/1996. This Act defines trust and

fiduciary relationships and establishes procedures to be upheld to form and execute a trust.

The Central Bank of Paraguay is charged with oversight responsibility for all fiduciary or trust

instruments. Only banks and financial institutions may act as trustees. Trust assets may be transferred

to the institution acting as trustee or not. Transferred assets form part of a special autonomous fund

not included in the institutions’ assets and therefore not subject to bankruptcy proceedings. The Act

also establishes basic rules that are applicable to the auditing and bookkeeping requirements for trust

and moneys.

8. MIGRATION ACT

Act 978/1996 regulates immigration of foreigners and nationals with the purpose of promoting

immigration and incoming of labor force required by the country.

This Act establishes categories of immigrants, on the basis of particular characteristics and the

objectives of foreigners entering the country. Foreigners can become permanent residents under one

of the following categories: spontaneous immigrants, assisted immigrants, immigrants with capital,

investors, retirees and those who have independent incomes.

The Act creates an interesting concept: “organized immigration”, seeking to facilitate the entry and

permanence in Paraguay of communities that devote themselves to activities that are of interest to

the Nation. It is to be regulated by the Executive Branch, with the intervention of the General

Migration Office.

In addition, the procedure established to obtain residence is innovative, since it permits a foreigner

abroad to initiate immigration procedures through a third party who may submit the required

documents to the General Migration Office.

9. LABOR LEGISLATION

Paraguayan labor legislation is based on the Labor Code, adopted by Act 213/1993. Parties subject to

the provisions contained in the Code are employees with intellectual, manual or technical skills in a

dependency relation, and their employers; teachers of private academic institutions and those

performing sport or professional activities; labor unions and employers of the private sector; and,

employees of State and Municipal offering goods and services. All other State employees, or those


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employed by Decentralized entities or by the Municipality or Departments shall be ruled by a special

Act. Therefore, if an employee enjoys notorious independence in view of his/her position as company

representative, pay level, nature of work and technical ability, such administrators, he/she is not

subject to the Labor Code, in which case the general regulations of the Civil Code would apply.

Furthermore, Article 3 of the Code sets forth that the rights recognized by such code may not be

waived, limited, renounced, or transacted upon in any way. The Code is inspired by the principles

contained in the Universal Declaration of Human Rights and the American Bill of Rights and remaining

international labor conventions ratified by Paraguay. Paraguay has also ratified numerous

International Labor Organization Agreements such as the Regulation for Safety, Hygiene, Convenience

and Medicine in the Workplace.

The Government sets minimum daily wages and monthly salaries according to the type of work.

Current levels set for unskilled labor amount to Gs. 70.155, per day and Gs. 1.824.055, per month,

which at the current exchange rate amount to USD 15,59 and USD 405,35 respectively.

Except for special cases mentioned in the Labor Code, ordinary working hours shall not exceed 8 hours

per day or 48 hours per week for dayshift; 7 hours per day and 42 hours per week for nightshift.

There is no Unemployment Insurance in Paraguay. The Social Security Act and Regulations rule Social

Security. The Social Security Institute [Instituto de Previsión Social] is an autonomous entity with legal

capacity created by Decree-Act N° 17071/1943, in charge of directing and administrating social

security. It is funded with contributions from employers and workers, as well by its own sources; 9% is

deducted from employees’ base salary to be paid to IPS, and 14.50% contributed on employee base

salary by employer (employer is also obliged to pay 1% to the National Professional Promotion Service

and an additional 1% to the Ministry of Health). Social security covers risks of non-professional

sickness, maternity, occupational accidents and illness, handicapped conditions, old age and death of

salaried workers in the country.

The Constitution and the Act guarantee labor organizations. The role of unions and federations is still

very limited. The great majority of these organizations are new and lack the experience and standing

of higher level organizations. However, they do participate in the defense of worker’s interests. The

perception of the organizations’ actual ability to represent the sector is another problem. Lack of

tradition of association for the representation and defense of interest is an additional factor in the

limited representation of unions and federations. Employers’ unions can be formed with a minimum of

three members. Workers’ unions require a minimum of 20 members for company unions, 30 for trade

unions and 300 for industrial unions. The recordal of a Union gives it full legal status.

The recordal of an individual labor contract is not compulsory, except in the case of apprentices.

10. REPRESENTATION, AGENCY AND DISTRIBUTION ACT


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Act 194/1993 was adopted together with the amendments thereto pursuant to Decree Number 7,

dated March 1991. This Act, as amended, establishes specific provisions for representation, agency

and distribution agreements.

The Act foresees representation, agency and distribution agreements between foreign firms or

manufacturers and real or legal persons domiciled in Paraguay. Any other type of distribution, agency

or representation agreement remains subject to the general provisions of the Civil Code.

The Act establishes that any party of one of the above mentioned types of contracts may cancel,

revoke, modify or refuse to grant the renewal of such agreement without the need to prove cause

thereto; however, said party will be obliged to pay and indemnify the other party within three months

of cancellation, revocation or non-renewal. The amount of indemnity is to be set according to two

main factors: the length of the contractual relationship and the average of all annual gross profit

obtained under the representation, agency or distribution agreement. The Court or the Arbitral

Tribunal will use these factors to establish the minimum amount that will be required as an indemnity.

In the event the contract is terminated, canceled, revoked, modified or not renewed, the

representative, agent or distributor holds the option of selling back to the other party the stock or

inventory merchandise, under the terms and conditions of the agreement, at a price at which normal

profit would be performed in conformity with current prices established in the market place.

The Act also states that any type of foreign firm or manufacturer that is a party to a representation,

agency or distribution agreement may cancel, revoke, modify or deny renewal of such agreement if

justified reasons set forth by the Act are caused. In the event justified cause for cancellation exists, the

foreign firm shall not pay any type of indemnity.

Justified reasons must be proved before the competent Judge or Arbitror, if so agreed. Otherwise, it

shall be shall be assumed that the termination, revocation, amendment or denial of extension is

unjustified.

According to the Act, the above-mentioned provisions may not be waived. Moreover, the Act requires

that the parties submit themselves to the jurisdiction of Paraguayan Courts. Finally, as from the date of

enactment of this Act, the documents and agreements referred must be recorded at the Public

Registry of Commerce.

11. PHARMACEUTICAL AND HEALTH PRODUCTS

Act 1119/1998 introduces important innovations as well as an integral system regulating health

products. The Act not only offers a more adequate consumer protection but also provides national and

foreign companies with more legal assurance as to what the norms related to authorization, registry,

inspection, laboratory analysis, liability, quality control, and applicable sanctions, among others, are.


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This Act seeks to regulate the manufacturing, elaboration, partition, quality control, distribution,

prescription, dispensation, trading, representation, import, export, storage, rational usage, price

regime, information, publicity and evaluation, authorization and registry of medical products for

human use, drugs and chemical products, reagents and all other products used and applied in human

medicine, as well as products considered as cosmetics and cleansing products.

The Ministry of Health is the national authority in charge of verifying the compliance of the norms

contained in the Act hereof, issuing regulations in accordance with the Act, and the application of

sanctions. The National Department of Sanitary Surveillance (Dirección Nacional de Vigilancia

Sanitaria), dependent on the Ministry of Health, is the executive organ.

The manufacturing, import, trading and sales of pharmaceutical specialties shall be subject to

authorization from the national sanitary authority (Dirección de Vigilancia Sanitaria- DVS).

Pharmaceutical specialties authorized for expenditure within the national territory shall be, upon

manufacturer and representative’s request, registered in a specific registry at the Ministry of Health.

The latter shall also apply to any amendment, transfer or cancellation of the authorizations granted to

the pharmaceutical specialties.

In order to guarantee the quality of the raw materials, semi-elaborated products, products in process

and final products, the DVS shall set the type of control required. Such controls shall be extended

during commercialization and production. Any modification in regards to technological or scientific

developments shall be informed to the DVS.

The Ministry of Health shall regulate, according to the Act hereof and its corresponding decree, the

evaluation procedure, concession and denial of authorization as well as the registration in the

pharmaceutical registry.

The authorization or registration certificate of pharmaceutical specialties shall extend to five years and

may be renewed according to the Act. To such effect, the proprietor shall file the corresponding

application and, if required, a previous update of the technical documentation.

The Act also states that the authorizations granted may be temporarily suspended by the national

sanitary authority for reasons similar to the ones stated above with regard to the grounds for denial of

authorization, including the case when an international health organisms such as the World Health

Organization or the Pan-American Health Organization recommends the suspension. Likewise, the

national sanitary authority, may, for public health reasons, modify or restrict the conditions of the

authorization due to the composition, indications or adverse reactions. The national sanitary authority

may limit the validity of the authorization and restrict the commercialization and use for hospitals

only.

A special provision has been included for cases in which the medicine is well known and its

effectiveness, safety in usage and adverse reactions have been sufficiently tried nationally or

internationally. Consequently, the national sanitary authority may require an extract of the documents

available, exempting applicable requirements from compliance, adopting a simplified process of

authorization.


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12. INTELLECTUAL PROPERTY PROTECTION

A. TRADEMARK ACT

The new Trademark Act was promulgated on August 6, 1998 under Act 1294/98. This Act defines

trademarks in broader terms, including the concept of trade dress. Likewise, the Act namely states that

the list contained does not constitute a limitation to what may be considered as trademarks.

Regarding procedures and formalities, applicants may invoke a priority right based on the application

filed in a foreign country, which must be party to the treaties or conventions ratified by Paraguay.

The introduction of new concepts gives titleholders a better chance to prevent misappropriation;

provisions grant specific protection to notorious marks; the concept of risk of confusion is broadened

to embrace risk of association; protection against the risk of dilution is also introduced.

Registrations are valid for a term of ten years and may be renewed for indefinite periods of ten years.

A grace period of six months following expiration date is now allowed for renewal applications, subject

to a penalty fee.

An innovation of utmost importance is the introduction of cancellation for non-use. Any third party

may file a cancellation action against a trademark registration if it has not been used within the five-

year term following its concession, or if its use has been interrupted for a term of over five consecutive

years or if the mark has been used departing from its original appearance as recorded under the

registration certificate. Failure to use may be justified by force majeure. The Regulatory Decree

concerning the new Act states that the use in any country shall constitute valid use to prevent

cancellation based on non-use.

Additional innovations aiming to further protect titleholders were introduced, such as higher prison

terms and non-exoneration of imprisonment; preliminary measures such as seizure, suspension of

import or export and the suspension pendente lite of the effects of a registration obtained through

fraudulent means. Finally border measures were also introduced. Consequently, Customs Authorities

may suspend the import of presumably infringing goods upon request of a legitimate owner.

B. COPYRIGHTS AND RELATED RIGHTS.

Act 1328/98 follows relevant international conventions offering stronger protection to all kinds of

creative works regardless their class, means of expression, merits or purpose, author’s nationality,

author’s domicile or that of the titleholder or site where work was published. The enjoyment or

exercise of the rights acknowledged by the Act hereof is not subject to the registration requirements


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or compliance with any other type of formality. The author of a work, by the sole fact of having

created it, enjoys the legal entitlement derived from the right that may be held against everyone, and

includes the patrimonial and moral rights set forth by the Act.

According to Act 1328/1998, the National Copyrights Department, dependant on the Ministry of

Industry and Commerce, shall manage the national registry of protected works stated herein.

Registry’s effect is merely declaratory and not constitutive and, consequently, its omission does not

prejudice the enjoyment or exercise of the rights acknowledged by this Act.

Criminal offenses and misdemeanors included in the Act are, by virtue of Act 1444/1999, public

criminal action offenses, and may consequently be promoted or initiated ex officio without prejudice

to the victim’s prosecution of the action, as opposed to the original provision stating that all offenses

should be addressed by means of private action.

Finally, in accordance with the TRIPS (adopted by Act 444/1994), this Act foresees that the Judge, upon

request of the National Copyrights Department or any person legally entitled, his representative or

managing entity, may order the immediate execution of preliminary measures required to prevent the

commission of a breach, its continuance or repetition of one already committed. Therefore, the

titleholder of a right protected by this Act, aware of and with well- founded motives related to the

preparation of import or export of products that infringe said right, may request the Customs

Authorities the suspension of the import or export operation in accordance with the applicable

provisions regarding guarantees of preliminary measures.

C. PATENT ACT

Patent Act 1630/2000 is currently in compliance with international conventions on the subject.

Patents are valid for a term of twenty (20) years counted from the filing date of the application in

Paraguay.

In relation to Industrial models and designs only protect the ornamental features, not the technical

features. Novelty is mandatory. If it is already protected abroad, the term to apply in Paraguay is six

months from the date of registration in the country of origin. Up to ten variations of the same model

or design can be claimed under one single application. Industrial models and designs are protected for

five years from the date of application. Registrations are renewable for two consecutive five years

terms.

Patent Requirements

Power of Attorney granted by applicant, witnessed or sworn before a Notary Public. Consular

legalization is not required provided that Power of Attorney is granted only for the purpose of

applying for a patent of invention. A provisional faxed authorization or power is acceptable;

the original documents may be submitted within sixty working days from the filing date.


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Full name and address of the applicant.

Full name, nationality and address of inventor.

Assignment document (No assignment document is needed if a link between the applicant and

the inventor exists).

Date, number and country of the patent’s first application. If priority is to be claimed,

application must be filed in Paraguay within one year from the date of the original filing

abroad.

Priority in accordance with the Paris Convention can be claimed.

Four (4) Spanish copies of the Abstract, Specifications and Claims. If this material is in a foreign

language, translation into Spanish can be performed by our firm.

Four (4) copies of the designs or technical drawings, if any.

REMARKS

Medical and pharmaceutical inventions are patentable in Paraguay. The patents for

pharmaceutical products may be granted as of January 1, 2005.

Annuity payments are mandatory in order to maintain the patent in force in Paraguay.

It is also mandatory to file priority documents.

The revalidations or patent confirmations are no longer allowed in our country.

13. ACKNOWLEDGMENT AND ENFORCEMENT OF FOREIGN JUDGMENTS

Important treaties, signed and ratified by Paraguay, regulate the recognition of foreign judgments.

A) THE MONTEVIDEO TREATY OF 1889 AND 1940.

Argentina, Bolivia, Brazil, Colombia, Uruguay and Paraguay are Signatory States of this Treaty.

Judgments and arbitral awards issued in regards to civil and commercial matters by one of the

signatory States shall have the same force in the rest of the territories as in the country of origin,

provided that the following requirements are met:

a) the judgment must be rendered by a competent Court in the international sphere.

b) the judgment must be final or have the character of res judicata in the State where it has been

rendered.


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c) the party against whom the judgment has been rendered should have been duly notified, and

legally represented or declared in default according to the Acts of the country where the

action was pursued.

d) the judgment must not be contrary to the provisions of public order in the country where

execution is sought.

The Judge before whom the petition for foreign judgment execution is filed, may, without any further

step, and upon party’s request, as well as ex officio, order any preliminary measure necessary to

ensure the enforcement of the judgment, according to the local legislation related to seizure and

attachment, restraining orders and other preliminary measures. (Art. 8)

B) INTER-AMERICAN CONVENTION ON EXTRATERRITORIAL ENFORCEMENT OF FOREIGN

JUDGMENTS AND ARBITRAL AWARDS

Paraguay is a signatory of the 1979 Montevideo, Uruguay Convention. Act 889/81 ratified the

Convention and it applies to any judicial judgment and arbitral award rendered in civil, commercial, or

labor procedures in a signatory State, provided that at the moment of the ratification, any one of them

expressly reserves the right to limit the application to the condemnatory judgments on patrimonial

matters. Likewise, any of them may declare at the time of ratifying the Convention that it shall also

apply to final judgments rendered by authorities with jurisdictional duties as well as to criminal

judgments when referring to the compensation of damages caused by an offense.

Judgments, arbitral awards and foreign judicial judgments referred to above shall have extraterritorial

effectiveness in the signatory States if the following conditions are met:

a) judgments must comply with all required external formalities and be considered authentic in

the State from where they proceed.

b) judgments, awards and jurisdictional resolutions and annexed documents, required pursuant

to the present convention, must be duly translated into the official language of the State

where they are to become effective.

c) they must be duly legalized according to the Act of the State where they are to become

effective.

d) the competent Judge or Court must have jurisdiction in the international sphere to judge and

hear the case in accordance with the Act of the State where it should have effect;

e) the defendant must be duly served or summoned according to the Act, which should be

substantially equivalent to the Act of the State where the judgment, award and jurisdictional

resolution should have effect;

f) the defense of the parties involved must have been secured;


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g) the judgment must be final or have the characteristic of res judicata in the State where it has

been rendered;

h) it must not be manifestly contrary the principles and Acts of public order of the State

requesting its acknowledgment or the execution;

The procedures, including the jurisdiction of the respective judicial organs shall be regulated by the Act

of the State in which execution is being requested to ensure the effectiveness of the judgments,

arbitral awards and the foreign jurisdictional resolution.

14. ARBITRATION

A) ARBITRATION IN PARAGUAY IS RULED BY ACT 1879/2002, ACT DRAFTED BASED ON

THE UNCITRAL MODEL OF THE ARBITRATION ACT

B) THE INTER-AMERICAN CONVENTION ON INTERNATIONAL COMMERCIAL ARBITRATION

– PANAMA, 1975.

Paraguay is a signatory of the Panama Convention. The Convention was ratified by Act

611/1976.

C) THE UNITED NATIONS ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN

ARBITRAL AWARDS – NEW YORK, 1958.

Paraguay adopted the 1958 New York Convention. The Convention was ratified by Act

948/1996.

15. PRELIMINARY MEASURES

The Protocol of Preliminary Measures, ratified by Paraguay by means of the Act 619/1995, became

effective on April 13, 1996 for MERCOSUR member countries.

Article 3 of the Protocol namely states that: “Preparatory preliminary measures, incidental to a

principal action and the ones that seek to guarantee the execution of a judgment, shall be admitted”.


24

Article 11 states that: “The Judge or Court before whom the execution of a foreign judgment is

requested may order preliminary measures to ensure the execution, pursuant to their legislation”.

Preliminary measures shall be complied with, unless lack of main requirements, documents or

information, making its granting inadmissible. In this case, the Judge or Court shall summon applicant

in order to immediately amend such defect.

Consequently and according to the provisions above-mentioned, it is perfectly possible to order

preliminary measures over any company’s assets in order to ensure the execution of a foreign

judgment, provided that they do not contravene public order provisions and comply with the above-

mentioned provisions.

C MERCOSUR

In international relations, Paraguay has achieved important agreements for cooperation and

commerce, including the Mercosur Treaty, signed in Asuncion in 1991 by the Presidents of Argentina,

Brazil, Uruguay and Paraguay. The MERCOSUR opens a large market of nearly 200 million consumers

and its objective is the total elimination of customs tariffs by establishing gradual reductions every six

months after the signing of the Treaty.

The improvement in the possibility of productive specialization for a market of 200 million of

inhabitants, with further possibilities of supplying external markets with Paraguayan products is

among the effects caused by the creation of the MERCOSUR.

This also implies new requirements for the national production, including quality, entrepreneurial

capability and productivity, use of the adequate technology, and renewal of products destined to

larger markets. In addition, integration will help satisfy the needs of the nation’s population regarding

employment, together with a better use of natural resources.

Paraguay has an attractive geography with a wide range of natural resources of interest to investors.

With the MERCOSUR and the process of internationalization of its economy, Paraguay opens its doors

to capital investment.

Expectations for the country’s future are highly positive and Paraguay is expected to become an

important business center in South America.

1. GENERAL PRINCIPLES

Gradual implementation: to establish a reduced number of projects in each stage, integrated in all

aspects, including the harmonization of policies.


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Flexibility: to bring about adjustments in scope, pace and objectives.

Equilibrium: to stimulate inter-sector integration and the progressive exchange balance between

large sectors and segments through the expansion of trade.

Reciprocity: to promote reciprocal rights and obligations among the signatory States.

2. INSTRUMENTS FOR MEETING MERCOSUR’S OBJECTIVES

A Free Trade Program to be implemented among member States, which consists of gradual and

automatic tariff reduction, the elimination of non-tariff restrictions or measures with similar effects, as

well as restrictions to commerce among member countries.

≠ A Common Tariff of 0% as from January 1 1995, except for a list of items for which the tariff

rate is above 0%.

≠ A Common External Tariff applied to third countries, with rates of 0-20%. Each member

country has its List of Exceptions. The List of Exceptions includes capital goods; computer science and

telecommunication items; automotive products; tractors and their parts; other exceptions. The tariff

rates for products on the List of Exceptions are to converge towards the Common External Tariff by the

year 2006.

≠ Coordination of macroeconomic policies and regional agreements among the member

Countries.

≠ An Origin Regime, establishing the minimum requirements for products, in order to be

considered as coming from the member Country, which will enable them to enjoy exemption-related

benefits.

≠ A System for Conflict Resolution. Any controversy arising among the MERCOSUR countries

shall be resolved through mechanisms included in the provisions of the Protocol of Olivos; those that

arise with a third country are to follow the terms of the World Trade Organization.

3. BENEFITS FOR PARAGUAY IN JOINING THE MERCOSUR

As an economic block, the Common Southern Market – MERCOSUR - offers its member countries a

better chance defending the block’s common interests in negotiations with the European Union, the

World Trade Organization, and within the future Free Trade Area of the Americas.

Paraguay enjoys advantages regarding production, among which are three factors that contribute to

profitable export: natural resources, location and human resources. The combination of these


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conditions provides both factories and assembly plants a competitive edge towards production for

regional and world markets. Some of those advantages are:

≠ The protection of investments and interests of economic units (both private and public) set

forth by the Asunción Treaty, the Ouro Preto Protocol (an addendum to the former) and the Brasilia

Protocol on Conflict Resolution.

≠ The creation of a greater export capacity to other countries, as well as the possibility of gaining

easier access to the world market, based on a more competitive local production.

≠ Increase of direct investments due to a larger market, simplification and harmonization of

norms and procedures.

≠ Participating with neighboring countries in regional production by furnishing certain links of

the productive chain of an enlarged market.

D ESTABLISHING A COMPANY IN PARAGUAY

1. BRANCHES OR REPRESENTATIVES OF FOREIGN COMPANIES

Companies established in a foreign country that wish to undertake commercial transactions in

Paraguay may establish a branch or any other type of representative. The branches are subject, as are

Paraguayan companies, to the Civil Code’s provisions regarding the recordal of documents, bylaws and

powers of attorney at the Public Registry of Commerce and at the Registry of Juridical Persons and

Associations.

A) REQUIREMENTS

For such purposes, the following documents must be prepared by the parent company, certified by a

notary public, and legalized before the nearest Paraguayan Consulate.

(1) The parent company’s bylaws or documents of incorporation.

(2) A certificate from a public officer or from the chamber of commerce proving that the

parent company is legally registered in the country of origin.

(3) A Minute from parent company’s Board of Directors resolving to:


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a. establish a branch office in the Republic of Paraguay.

b. allot a nominal capital to the branch office (a minimum of USD 10.000 to operate as

exporter).

c. establish the address of the branch office in Asuncion or in another city.

d. appoint the person or persons that will administer the branch office.

e. grant powers of attorney to the person or persons that will administer the

corporation.

(4) The powers of attorney for the administration of the corporation, granted by the parent

company in favor of the person or persons that will administer the said corporation.

B) RECORDAL

The documents are verified by the Internal Revenue Office and by the Ministry of External Affairs and

then registered at the protocol of a notary for recordal at the Public Registry of Commerce and in the

Registry of Juridical Persons and Associations.

C) REGISTRATION

At the same time, the branch office must register the corporation at the corresponding administrative

and tax offices so that it can operate and undertake commercial transactions. Government

authorization is not required. The procedure requires approximately 30 days.

The branch must comply with the tax Acts just as the local companies must. Inspectors of the Ministry

of Finance control the accounting records, annual balance and other documentation. The agents

(proxy holders) of the parent company that administer the branch as well as the administrators of local

companies share the same responsibilities before third parties.

2. LIMITED LIABILITY CORPORATIONS (SOCIEDAD DE RESPONSABILIDAD LIMITADA –

S.R.L.)

Companies in the form of an LLC (Limited Liability Corporation / S.R.L.) can be established by two or

more natural or juridical persons but no more than 25. Investment is made in fixed payments and

liability for corporate debts is limited to the amount of each partner’s contribution stated in the

charter.

A Limited Liability Corporation may not engage in activities typically conducted by banks, financial

organizations, insurance companies or savings and loan organizations.


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A) DENOMINATION

These corporations can adopt any denomination, including the name of one or more partners,

followed by the words “Sociedad de Responsabilidad Limitada” or “S.R.L”.

B) FORMATION AND CAPITAL STOCK

The legal contract is undertaken in the form of a legal document (deed), which must comply with

formalities set forth by the Civil Code. The S.R.L. may operate once the contract has been recorded at

the Public Registry of Commerce. This recordal is not binding, but its omission will hold all partners

jointly and fully liable for any act regarding third parties.

Nominative, bearer or endorsable shares cannot represent the capital stock. The capital is divided into

nominative shares of a value of Gs. (Guaranies) 1,000 each, or multiples of said amount to be indicated

in the contract.

The capital stock must be fully subscribed and at least 50% must be integrated in cash. There is no

minimum capital required but this must be sufficient to comply with the proposed objectives of the

S.R.L. 50% of capital paid in cash must be deposited at a local bank or the Central Bank. This is

recoverable once the S.R.L. is constituted.

Companies dedicated to export or import activities must meet certain requirements assessed by the

Central Bank of Paraguay.

The capital stock may also be incorporated by type kind or by fixed assets that shall be transferred to

the corporation in the initial document, or once the contract has been recorded at the Public Registry

of Commerce. The partners continue to be liable before third parties for the value of the assets and

capital according to the type incorporated into the company’s capital.

C) TRANSFER OF SHARES

If the S.R.L. has more than five partners, then a transfer of shares to third parties will have to be

approved by the partners representing three fourths of the capital. If the number of partners is less

than five, the approval must be unanimous. The transfer of quotas between partners does not have

limitations.

The partner willing to transfer shares must notify other partners of his/her intention, and the

remaining partners shall have a 15-day period to reply.

Approval is deemed as granted if not expressed otherwise. The partner that did not obtain the consent

required for the transfer of his/her shares will be unable to resort to court proceedings. If opposition is

considered unjustified, the other partners will be able to acquire the shares under the same conditions

offered by the mediator or to the same. The S.R.L. can also acquire shares with the net liquid profits, or


29

by reducing the capital. The transfer of shares must be made through a legal document and will not

have effect until it is recorded at the Public Registry of Commerce.

D) ADMINISTRATION

The administration and representation of limited corporations can be delegated to one or more

managers, who may or may not be partners, with the same rights and obligations as corporate

directors. There are no limitations to their mandate.

Managers are unable to act on their own in business operations included in the objectives of the S.R.L.,

nor may they assume the representation of a third party of a commercial enterprise with similar

commercial practice without express authorization of the partners. Managers are wholly responsible

before the S.R.L. for bad administration or for breach of contract.

E) DECISIONS RESOLVED BY PARTNERS

All partners have a right to take part in the decisions of any undertaking. If the S.R.L. contract does not

determine the way in which the partners shall resolve matters, then the norms ruling the corporation

shall be applied. Any decision that changes the objectives of the S.R.L., transforms, merges it with

other undertakings or reviews the contract, such as to raise the responsibility of the partners, shall

require partners’ unanimous consent. The majority of capital holders shall approve decisions. Each

share represents one vote.

F) RESERVE FUND

Five percent (5%) of the net profits shall be destined to each exercise to form a reserve fund until

reaching twenty percent (20%) of the S.R.L.’S capital.

G) BOOKS AND RECORDS

An S.R.L. must keep the same books and records as a corporation, except for the shareholder’s

register. The same stamping and registration formalities apply.

H) DISSOLUTION


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An S.R.L. is not dissolved by a partner’s death, interdiction or bankruptcy, nor by the

removal/resignation of the manager or managers or a managing partner appointed in the contract,

unless otherwise stated in the contract. Bankruptcy of an S.R.L. does not imply bankruptcy of the

partners.

3. CORPORATIONS (SOCIEDAD ANÓNIMA – S.A.)

The Civil Code contains provisions ruling the formation of corporations in which the participation of

the partner is represented by stock shares, and the corporation’s liability before third parties is only to

the extent of capital contribution or assets.

The Corporation’s name must contain the description that it is a corporation holding stock by including

the words “Sociedad Anónima” or the initials “S.A.” in Spanish.

Most large enterprises and foreign investors prefer this type of organization. Shares of stock

substantiate ownership of the corporation; capital ownership is described as shareholders or

stockholders and their liability is limited to the amount of their stock.

A) FORMATION

The procedures to form a corporation are as follows:

1. A founding shareholders’ meeting is held to approve the corporate by-Acts, appoint directors

and syndics and subscribe the entire corporate capital.

2. The bylaws must be notarized by public deed complying with formalities set forth in the Civil

Code.

3. The Civil and Commercial Court must approve the bylaws.

4. The bylaws must be recorded at the Registry of Legal Entities and Associations and at the Public

Registry of Commerce.

5. The bylaws must be published for three days in the Official Gazette and in another newspaper of

broad circulation.

Companies become corporate entities and begin to operate once their inclusion in the Registry of

Legal Entities and Associations has become into effect. Founder shareholders are jointly and severally

responsible, without limitation, for all acts and business entered into before the legal constitution of

the corporation and before its recordal at the Public Registry of Commerce.

The bylaws must contain the corporation’s name, which must include the words “Sociedad Anónima”

(or the abbreviation “S.A.”) and indication of the activity; commercial, industrial, farming, financial,


31

etc, business objectives, duration, corporate capital and regulations ruling its internal management

(e.g. election, duties and responsibilities of directors, meetings). A shareholder’s extraordinary

meeting must approve subsequent amendments to the bylaws with the same formalities required for

the initial formation.

Any unregistered stipulation that detracts from that established by the Civil Code shall not be valid

with regard to third parties, whether said stipulations restrict the rights of said third parties or the

powers granted to the administrators.

B) CAPITAL STRUCTURE

The Civil Code does not establish a minimum capital amount required to set up a corporation. It only

requires that capital be fully subscribed by the shareholders in order to form the corporation.

Stock shares may not be issued for less than their stated or nominal value. Capital may be issued as

bearer or registered nominative shares and as common or preferred stock, with different voting rights.

Shares may be deposited in banks for safekeeping. The banks shall issue a holder certificate for voting

purposes at shareholder’s meeting.

Capital may be increased or decreased upon authorization at the shareholder’s meeting. Authorization

from the Central Bank of Paraguay is required for banks, finance companies and insurance companies.

Shares may be freely transferred, unless a preferential right can be duly proved.

If allowed by corporate bylaws, corporations may obtain funding from private or public sources

through the issuance of negotiable debt securities or debentures.

C) ADMINISTRATION

One or more directors, appointed in the annual General Assembly shall undertake the administration

of the corporation. The number and duration of the mandate will be determined by the bylaws.

The directors may or may not be shareholders. They can be re-elected and their appointment is

revocable. The appointment of directors shall be made for one fiscal exercise, unless otherwise stated

by the provisions in the bylaws.

D) RESPONSIBILITY OF THE BOARD

Directors are not responsible for the obligations of the corporation, except in the event of incorrect

execution of duties, or breach of Law or bylaw or any other damage incurred by deceit, abuse of

powers or serious fault. In such cases, the director’s responsibility before the corporation,

shareholders and third parities shall be unlimited. The director that did not participate in the meeting


32

or resolution, or who has left a record in writing of his/her dissension shall be exempted from

responsibility.

The directors shall undertake commercial operations with the corporation only in special

circumstances. They shall not perform, in representation of the company, any operation that is

contrary to company’s objectives.

E) CONTROL

One or more internal auditors (syndics) may also be nominated by the annual Assembly to oversee the

administration of the corporation. Internal auditors should be competent regarding the control

entrusted to them by virtue of the bylaws.

The bylaws shall establish the time period for which the Internal Auditors shall be appointed, namely a

maximum of five years. The trustees should be domiciled in Paraguay and they may be re-elected.

The Internal auditor shall oversee the administration and management of the corporation and shall

participate without vote in the annual Assemblies and meetings of the Board. He/she shall also

oversee accounting records and documents when deemed convenient. Moreover the Internal Auditor

must ensure the corporation’s compliance with all the legal obligations and resolutions of the

Assembly.

F) SHAREHOLDERS’ ASSEMBLY

General Assemblies may be Ordinary or Extraordinary and they shall be held at the company’s

registered office.

Ordinary Assembly shall be called, each year, by the directors or by the internal auditors, to consider

and resolve the following:

a) Annual report of the directors, balance, profit and loss account, payment of dividends, report

of the trustee(s) and all other pertinent measures, according to the competency granted by

Act and the bylaws, or those submitted to the Board and Trustees’ decision.

b) The appointment of Directors and Internal Auditors and the establishment of their fees.

c) Responsibility of the board and internal auditors and their replacement.

d) Stock issues.

Extraordinary Assemblies shall be called by the directors at any time, or by the internal auditor(s)

when deemed necessary or convenient, or upon request of shareholders representing five percent

(5%) of the capital stock (unless otherwise stipulated by the bylaws) to consider the following:

a) Amendment of by-Acts.

b) Capital increase or reduction.


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c) Redemption, reimbursement or stock amortization.

d) Merger, transformation or dissolution of the company and all matters related to the

liquidation and the liquidators.

e) Debenture or stock exchange issuance

f) Share-bonds issuance

G) CALL TO MEETING

The call to meeting of the Assembly must include the complete agenda of the items to be considered

and any requirement contained in the bylaws regarding shareholders’ participation. The call to

meeting must be published for five days, at least ten days prior to the date of the Assembly. The

second call, if the first meeting was not held, shall be made within the following thirty days.

Resolutions adopted over matters not included in the agenda shall be null and void.

H) ATTENDANCE

To attend the Assemblies, shareholders shall deposit their stock certificates or bank deposit

certificates with the Secretary of the corporation for their registration, not less than three business

days prior to the meeting. Representatives (proxy) that are not directors, internal auditors, managers

or personnel of the corporation may represent shareholders at the Assemblies.

I) STOCK

Nominative (or bearer) stocks shall represent the corporation’s capital. The stock certificates should be

numbered and signed by one or more directors.

The certificates shall bear the name of the corporation, date and site of their constitution, amount of

the capital subscribed, number, face value and stock type. Stock certificates may be issued when fully

paid. Until then, shareholders may receive nominative provisional certificates and they may be

required to pay the balance due. The bylaws may create different stock types with different rights;

stocks may be nominative or issued to the bearer.

The alienation of nominative capital may be adjusted to particular conditions.

Corporations shall be able to acquire their own stock when the purchase is authorized in an

Extraordinary Meeting. Said purchase shall be made with the net profits, provided that the purchased

stock is wholly integrated.

J) PATRIMONIAL STATEMENT


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Directors shall prepare an annual inventory, itemized profit and loss account, balance sheet, annual

report and any other required documents to prove the patrimonial state of the corporation. The

accounts and annual report should be submitted to the Annual Assembly for consideration thereof.

Five percent (5%) of the net profit shall be annually destined for reserves until they represent twenty

percent (20%) of the subscribed capital. Only dividends originating from the corporation’s net profits

may be paid. Directors shall be jointly liable for the breach of this norm.

Act 772/1979 and the Civil Code authorize corporations to issue debentures pursuant to the provisions

established by Law.

4. THE HAGUE CONVENTION ON APOSTILLES

The Hague Convention is approved through Act 4987/2013 and symbolizes an important breakthrough

in overcoming the inconveniences, disadvantages and bureaucracy involved in the process of legalizing

of foreign documents.

The enactment of legislation N° 4987/2013 by the Paraguayan President on July 10, 2013, symbolizes

an important breakthrough in overcoming the inconveniences, disadvantages and bureaucracy

involved in the process of legalizing of foreign documents. The approved legislation makes The Hague

Convention of 5 October 1961 an internal Paraguayan law, abolishing the Requirement of Legalization

for Foreign Public Documents, commonly known as the Apostille Convention.

Even though Paraguay through this legislation approves and adopts the Apostille Convention it is not

immediately applicable. In order to become, applicable Paraguay must deposit the instrument of

accession at the Ministry of Foreign Affairs of the Kingdom of the Netherlands. Secondly, the above

mentioned Ministry of Foreign Affairs must notify the Contracting States of this enactment and

designate a the Competent Authority for Paraguay.

Finally, from the official notification the Contracting States dispose of a 6 month objection period to

object to the accession of a Country seeking to join the Convention. If an objection is raised, the

Convention does not enter into force between the newly acceding State and the objecting State.

Finally, the Convention will enter into force between Paraguay as an acceding State and each

Contracting State that has not objected its accession on the 60th day after the 6 month objection

period has ended or expired.

E SOURCES OF INFORMATION

REDIEX- Red de Inversiones y Exportaciones del Paraguay


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PROPARAGUAY – Office for the Promotion of Exports and Investments

CENTRAL BANK OF PARAGUAY

MINISTRY OF COMMERCE AND INDUSTRY

MINISTRY OF FINANCE

MINISTRY OF FOREIGN AFFAIRS


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FOR MORE INFORMATION:

Contact: Mr. Hugo T. Berkemeyer

Berkemeyer ATTORNEYS AND COUNSELORS

The Firm provides a broad range of legal services with particular expertise in international

transactional work, such as mergers and acquisitions, joint ventures, and foreign investments and a

historical strength in the area of intellectual property Act and protections. An increasingly important

part of our practice today also centers on the Agreement to create a Common Market among the

Mercosur Countries of South America and the economic liberalization policies that are propelling the

region into the mainstream of the world economy.

Corporate & Commercial Act: Formation of Corporations (Start-Ups); Joint Ventures; Foreign

Investment; Real Estate (Lease & Rental Agreements); General Contracts; Litigation; Privatization.

General Counsel: Administrative Act; International Act; Immigration & Nationality; Health Act; Labor

Act; Tax Act; Energy Act; Communication Act; Taxation and Customs Act; Integration Act; Mining and

Natural Resources.

Intellectual Property Act & Competition Act: Patents, Trademarks & Copyright Act; Licensing and

Franchising; Technology and Know-how; Anti-counterfeiting; Litigation.