Brazil's Tax Shock: Why Paraguay is the Winner

"While Brazil prepares to tighten the fiscal screws on high earners in 2026, Paraguay celebrates a record influx of capital, promising zero new taxes until 2028."

In recent years, Brazilians have grown accustomed to tax hikes with alarming frequency. But the outlook for 2026 has marked a turning point. With new legislation set to heavily tax annual incomes exceeding R$ 600,000, a historic migration of capital—and people—is underway.

Across the border, Paraguay isn't just watching; it's welcoming this exodus with open arms and a stable fiscal promise.

The Trigger: Brazil's 2026 Reform

Brazil's new fiscal policy targets high-income individuals and corporations to balance federal accounts. The new rules introduce a graduated tax on income and assets that were previously sheltered or taxed at lower rates.

This shift has shattered the "fiscal predictability" that investors crave. For many Brazilian entrepreneurs and high-net-worth individuals, the question is no longer if they should diversify, but where.

A Historic Exodus

The numbers speak for themselves. In 2025 alone, Paraguay received a record 22,000 residency requests from Brazilian citizens.

This isn't just about retiring cheaply. A significant portion of these new residents are business owners and investors fleeing the increased fiscal pressure. They are moving their tax residency to a jurisdiction that offers:

• 10% Personal Income Tax (IRE/IRP)
• 10% Corporate Tax
• 10% VAT (IVA)

Maquila Powerhouse

It's not just individuals moving; it's entire factories. The Maquila Regime—Paraguay's incentive program for foreign manufacturers—has seen explosive growth.

By late 2025, Maquila exports reached $1.05 Billion USD. The primary destination? Brazil, which absorbs 64% of these exports.

This trade surplus (exports exceed imports by 83% in this sector) proves that Paraguayan industry is no longer just "cheap labor"—it is efficient, competitive, and integral to Brazil's own supply chain.

The "No New Taxes" Promise

While Brazil tightens its belt, Paraguay is loosening its tie. The Vice Minister of Taxation, Óscar Orué, has officially announced that Paraguay foresees no tax increases until at least 2028.

This commitment to stability is Paraguay's "killer app." In a volatile region, the promise that your tax rate today will be the same five years from now is worth more than gold to foreign investors.

The Bottom Line

The contrast couldn't be sharper. Brazil's reforms aim to increase revenue to cover public spending. Paraguay's strategy is to increase revenue by expanding the base—attracting more taxpayers with lower rates.

For Brazilian companies, relocating operations to Paraguay (or setting up a Maquila arm) means:

1. Lower Operational Costs: Energy and labor are significantly cheaper.
2. Tax Efficiency: A flat 1% tax on invoice value for Maquila exports.
3. Market Access: Duty-free export back to Brazil under Mercosur rules.

As the 2026 deadline approaches, we expect the flow of capital from Brazil to Paraguay to turn from a stream into a flood.