"Tax-Free" US LLC from Paraguay? Not for Work Done Here

0:00Is a US LLC tax-free from Paraguay?

Lucía builds software in Asunción. Online, she keeps hearing the same promise: a US LLC is tax-free from Paraguay. So, can she have one? As far as America goes, yes. No social security number, and no trip to the US. Cheyenne, in Wyoming, is three hours behind Asunción in July, and four in January. And is it tax-free? Not for work she does at home. We're BaseAcross. We set up US companies for founders outside America, so we'll be straight with you.

Let's draw it out, one part at a

0:36What the company is for

time. First, what is the company for? Start with whether you need a US company at all, and where the work will be done. The big card processor doesn't take Paraguayan businesses, and a US company is a common route to it. A US company with a US bank account lets you apply, and you can still be turned down. A US client who wants a US contracting party is another reason. Lucía wants card payments for her product, so she has the first one.

1:05The rule: territorial, but your work here is Paraguayan

Now the rule. Paraguay taxes only income from Paraguayan sources. That part of the promise is true. But income from activities carried out in Paraguay counts. And that includes pay for your own work. So when Lucía writes the code in Asunción, the work is done in Paraguay, whoever sends the invoice. Business income is taxed at a flat rate. Pay for your own work is taxed in steps, a little more on each band.

So the promise leaves out one thing. Territorial, yes. But your work here is Paraguayan. Moving the invoice to America doesn't move

1:43The bill: a worked example in guaraníes

the desk. Here's the guide's own illustration. Say Lucía's US company pays her two hundred million guaraníes in a year, for her work in Asunción. The first band is taxed at the lowest rate. The next band at the middle rate. And the rest at the top rate. Add the three, and the bill comes to eighteen million guaraníes, before any deductions her adviser finds. That's an illustration, not a quote.

And how her pay is classed, for those bands, is a question for her adviser.

2:14The company: run from Paraguay, still not Paraguayan

Now the company itself. Running a US company from Paraguay doesn't make it Paraguayan by itself. A company is Paraguayan when it's set up under Paraguay's law, or registers its home there. Paraguay also has no rules that tax profit just because it sits in a foreign company. So profit kept abroad isn't taxed to you through them. You become a tax resident after more than a set number of days in a year.

Three things the rules don't settle: whether dividends from the company are taxed in Paraguay, whether it has a taxable presence there, and how Paraguay classes a US LLC. Ask your adviser.

2:54Forming it: Wyoming or Delaware, and the EIN

Forming it is the quick part. A Wyoming LLC for a business you run yourself. A Delaware C-Corp if US investors want shares, though it pays US corporate tax. The company needs a registered agent, an address in that state for legal papers, not where you work. Tell us where the work will be done. Then the EIN. Without a social security number, it's a paper form to the IRS. And when you pay from Paraguay, check your card's exchange rate and fees.

3:24The bank, no treaty, and Form 5472

Then the bank, and the American side. One of the US fintech banks most videos recommend takes applications from founders in Paraguay. Others don't give US account details there, or want a US address for every owner. Each one decides for itself. There's no tax treaty between Paraguay and the United States. So US withholding on some US income stays at the full rate, unless an exemption applies.

But nothing is withheld on work done in Paraguay. The company still files a report with the IRS every year, even without sales, and missing it is expensive. It's usually due in the spring, and there's a form to ask for more time, filed before the deadline.

4:08The order to do it in

So here's the order. Work out where the work is done, and how your pay is classed, with your adviser. Then plan the bank. Then form. Put the IRS report and your Paraguayan filings on one calendar. The full guide, with every source and a checklist for your adviser, with every question also in Spanish, is linked below. And Lucía? She stopped believing the tax-free promise, and asked her adviser first.