For years, Paraguay was an accidental tax haven. What I mean is that it was not a tax haven by design, but the government simply never introduced personal income taxes. This has changed in recent years, but the good news is that, as a resident with no local income, you are not liable to Paraguayan taxes and nobody will bother you. There is simply no culture of taxpaying in Paraguay.
After years of postponement, a personal income tax was finally introduced in 2012, at the rate of 10%. This tax seems more of a token measure than anything else—it is aimed at the Paraguayan upper-classes, who are, in any case, likely to structure their affairs so as to avoid paying.
The tax does not apply to worldwide income—it only applies to income generated in Paraguay. So, for example, if you own property in Paraguay and receive a rental income, or if you receive a salary from a local company, you are liable to pay income tax. But if you live in Paraguay off income earned outside the country, you are exempt from income tax and there is no obligation to file a return. Many retirees or Internet-based workers are taking advantage of this, along with the low living costs, to enjoy life in Paraguay.
For Europeans, Canadians, and indeed anyone who is a non-U.S. citizen, being tax-resident in Paraguay is therefore an excellent proposition. The United States, unfortunately, requires its citizens to pay taxes on their worldwide income even if they don’t live there. The only way for Americans in Paraguay to escape the tax net is to acquire a second citizenship and renounce their American citizenship.
Other taxes are relatively low in Paraguay. The VAT is also 10%, property tax is between 0.5% and 1% of the cadastral value annually, capital gains tax is 10% (20% on 50% gross) for non-residents and there are no wealth or inheritance taxes. All bond yields in Paraguay pay no income tax whatsoever, though dividends are taxed at 5%.