Paraguay – Business Opportunities in a Little Known Tax Haven

If I told you about a de facto tax haven with a liberal constitution where you can buy land for $25 per acre, where you could have made 25% return on a simple bank account in the last year due to currency appreciation against the dollar, and where you can probably qualify for a second passport with visa-free travel to Europe in as little as three years… would I have your attention?

I thought so. I’m probably even more excited than you are about this country, which I first ‘discovered’ in 2003 and I have returned to many times since. You might be surprised when I tell you what country I’m talking about, but here goes anyway. It’s the Republic of Paraguay, in South America.

Paraguayans fondly describe their country, in fact, as the heart of South America. Their neighbours in Brazil and Argentina, however, have frequently used less flattering corporal analogies when referring to this small (by South American standards), little-known landlocked country.

But that attitude is changing… and fast! August 15th this year saw the swearing in of new Paraguayan President Lugo, a former Catholic archbishop, now ex-communicated (whatever you may like to deduce from that). The point is the change that is coming. More and more smart investors in just those neighboring countries – Brazil, Argentina and Uruguay – are profiting from the head start they have simply from being nearby and understanding the regional situation. Paraguay in late 2008 looks increasingly attractive as a place to live and do business.

This article is about how you can become involved. Paraguay is of interest to offshore wealth builders for several reasons:

o Excellent investment opportunities

o Tax Free Residence

o Second Citizenship and Passport

Whether you are looking for a place to live and retire, invest, save taxes or all three – and most importantly, why you would want to!

As somebody told me last month, in Paraguay “everything is virgin.” That is the reason for investing in Paraguay right now. There is lots of opportunity in all areas. But my prediction is that for the next decade or so, natural resources will be the driving force in the economy. In the very short term (read now), speculation on land prices looks interesting, bearing in mind that you can buy vast tracts of virgin land for as little as $25 per acre (up from $15 in 2007) Many smart investors from the US and Europe are joining Paraguay’s neighbours in snapping up bargains. It was even rumoured that family of President George Bush has been buying up land in Paraguay, though I have been unable to confirm this.

After a number of visits to Paraguay over the past five years, I’ve recently set up and am now in the process of developing a website for those who are interested in doing business, living and/or investing in Paraguay. This article will serve as an introduction, and if you would like to know more or follow updates as they are added, I’ll give you my web address in the Resource Section at the end.

Paraguay is a poor country on the surface, but it is very rich in natural resources, which are only now attracting serious attention from outsiders. Paraguay has water, oil, iron ore, gold… and vast unexploited agricultural capacity. With commodity and food prices at record highs and still climbing, these factors mean Paraguay has suddenly popped up on the radar of international investors. By the way, it’s also one of the world’s few forgotten tax havens, with no personal income taxes.

Nobody Bothers Paraguay

For many years travelers had little reason to visit poor, empty, landlocked Paraguay. Those who did had specific reasons to seek out its remoteness and the resultant freedom and privacy. Varied immigrants included both the persecutors and the persecuted from European wars, as well as religious groups as varied as the Mennonites and the Moonies who searched for and found their safe havens.

In Paraguay, nobody really bothers you, or even watches what you are doing, provided you don’t upset locals. From that point of view it’s very much “live and let live.” There is no Big Brother in Paraguay. (The rumour of a secret American military base in Paraguay is not true – I checked it out personally)

Back in 1864-1870, around the time North America was embroiled in its own civil war, the second bloodiest war ever to be fought in the western hemisphere, The War of the Triple Alliance, was being fought. After the war, having lost two thirds of its male population, Paraguay was in no fit state to carry on its development for the next few generations.

Somehow, as the Paraguayan population slowly recovered, the world passed Paraguay by. A few million poor, mainly indigenous people were simply not worth a second look, as the world was far more concerned with the Eva Peron in Argentina or the bikinis on Brazilian beaches.

From 1954-1989, military man Alfredo Stroessner ruled Paraguay with an iron first, throttling all political opposition but dividing his significant financial gains enough to keep enough people happy. The country became still more isolated, relying mainly on smuggling. Luxury goods were extremely highly taxed in Brazil and Argentina at that time, while Paraguay had only a few, very low taxes and a very liberal if under-developed economy.

Stroessner’s grand project was the Itaipu power plant, the construction of which in the 1970s gave Paraguay the highest growth rate of all Latin America. Still today, Paraguay is the world’s largest exporter of hydro-electric power. Paraguay doesn’t need oil at all, because it already has far more electrical energy than it needs. That’s one reason why those hydrocarbon reserves in the Chaco were never really developed.

After Stroessner’s exile in 1989, his Colorado Party remained in power through a series of debatably-free elections. High levels of corruption have ensured that the country’s significant natural wealth has been concentrated in the hands of a few, maybe 500, families. This elite shipped nearly all their wealth out of the country, in the form of foreign investments and importation of luxury goods like cars.

Now fast forward to 2008, the end of the Colorado regime. The new President Lugo, a former Archbishop who was excommunicated by the Catholic Church, has just been sworn in. Nobody I talked to will give a committal answer about Lugo. He might be the next ally of Hugo Chavez and neighbor Evo Morales. Then again, most signs point towards him following the successful, free market moderate stance of another ex Communist neighbor, Brazil’s President Lula.

On the other side we have first lady turned Presidenta Cristina Fernandez de Kirchner, running Argentina. Incredibly, she tried to all but ban export of one of Argentina’s major, well, exports – beef. Of course the wealthy Argentine farmers are furious and are fast buying up Paraguayan land over the border, with high commodity prices and lack of export taxes (or even income taxes, for that matter) making the small additional transport costs worthwhile.

Paraguay’s economy today is still hard to judge, because of the large informal sector. There is little industry, which I see as an opportunity over the longer term, as the country gradually grows wealthier.

Agriculture, too, is a great opportunity, in the shorter term. Many Argentine farmers have already noticed. Land prices in the Chaco have approximately doubled in the past year or so. That means they increased from $25 to $50 per acre. Yes, you read that right! European and American investors, too, have been quietly buying up vast tracts of virgin land recently.

Here are a few of the reasons why Paraguay is looking interesting:

o Water

What will happen when the oil runs out? People will find renewable energy sources. What will happen when the water runs out? Some of the world’s biggest cities, for example Los Angeles and Mexico City, are perilously short of water already. Paraguay does not have this problem. There is plenty of water to go around, most of it in sparsely populated areas. This creates ideal conditions for agriculture.

o Electricity

The Itaipu power plant is one of the seven wonders of the modern world. It produces 14 Megawatts of power (for comparative purposes, that is four times as much as America’s largest coal power plant, Plant Scherer). In terms of power, the energy this monster dam creates every day is equivalent to 433,000 barrels of oil. Except, of course, this is not oil. This is green, renewable energy. The total estimated hydropower potential of the River Pirana and its upstream tributaries is 40,000 megawatts. Wow! Paraguay is already the world’s largest exporter of hydroelectric power, but most of it is sold to Brazil at a fraction of market value as a result of cosy agreements made between corrupt politicians on both sides back during the military regimes of the 1970s. The new government is determined to change this. This will be interesting to watch.

o Oil and Gas

The Bolivian territory directly to the north-west of Paraguay has South America’s second largest natural gas reserves (second to Venezuela that is). It doesn’t take a genius to figure out that Paraguay’s northern Chaco bordering Bolivia might have similar resources. And that the country’s economy could transform almost overnight with a big find and the start of commercial production. The simple fact is there have been easier areas in the world for oil and gas exploration and distribution, which is why after the Suez Crisis big oil companies like Texaco who were looking for oil in Paraguay invested in exploration elsewhere instead. But with the high prices of today, exploration in remote areas is worthwhile, and technology makes it easier than it was a few decades ago. Oil and gas companies like Pantera Petroleum from the USA and CDS Oil and Gas UK are already there exploring and claim already to have identified substantial reserves.

o Land

This is another thing Paraguay has an abundance of. The land exists, is fertile and natural irrigation is easy. It is virgin. There are no people there. So nobody got around to developing it or putting in roads. High prices for soya, beef and other commodities have changed this. Argentina’s ban on beef exports has helped too… Argentinean farmers can’t export beef anymore, so they are quietly exporting their whole beef industry with all its expertise instead… to Paraguay. Meanwhile Brazilian farmers, hurt by the strong real, are also looking to reduce costs without having to move far from their familiar territory. Where are they headed? You guessed it – Paraguay.

o Minerals

Paraguay has established iron reserves, in the south of the country, along the Paraguay River and near the capital. It is likely that there is much more iron in the unexplored Chaco region. Once again, high iron ore prices are making exploration worthwhile. The new excitement, however, focuses on Gold and Uranium, which have been found in Paraguay and extracted informally by locals, but is not yet commercially mined. Most of the investment is coming from Canada, in particular the companies Latin American Minerals, Cue Resources and Crescent Resources. Cue’s COO Chris Healey was quoted as saying last month, to Business News Americas, “People are just starting to realize that there is something there. There is a lot of potential for gold, probably base metals, certainly uranium.” Of the new government, he says: “They are very keen on getting foreign investment and the new government is pretty favourable for us.”

These developments have not been lost on world markets. The Paraguayan currency, the Guarani, has long been the butt of jokes. But it appreciated more than 25% against the dollar over the past year. Paraguay is a dual currency country. Day-to-day business in Paraguay is in Guaranies, but most higher-priced items are tagged in US dollars. ATM machines pay out both currencies.

Paraguay is also very attractive as a personal tax haven, due to the fact that it has no income taxes on foreign source income. It is a relatively simple process to acquire formal residency as a foreigner, which can be used to reduce your tax liabilities elsewhere (depending, of course, on your personal situation). Then after as little as two to three years, you can apply for a Paraguayan passport with visa-free travel to Europe and much of the rest of the world. Dual citizenship is permitted.

Canadian Rob Montes is an author and lecturer on Latin American finance, investment, residence and citizenship. He is a frequent contributor to The Q Wealth Report, a publication dedicated to publishing freedom, wealth and privacy information for a select internationally oriented audience. You will also find articles about citizenship in Paraguay, The Dominican Republic, St Kitts and Nevis and the Commonwealth of Dominica in the “Second Passports” section at the official Q Wealth Report site. Rob offers a free sample copy to readers of EzineArticles. You can visit The Q Wealth Report and learn all about international living