Paraguay Pension & Retirement Tax Guide: 2026
How to manage your international pension from Paraguay, understand tax implications by nationality, and maximize your retirement income under the territorial tax system. This is the deep-dive complement to our general retirement guide.
Looking for the general retirement overview? This page focuses on pension management and taxation. For cost of living, residency process, best places to live, and the full retirement picture, see our Complete Guide to Retiring in Paraguay.
How Paraguay's Territorial Tax Works for Pensions
Paraguay's primary competitive advantage for retirees is its territorial tax system. Only income generated inside Paraguay is taxed. Pensions, Social Security, 401(k) withdrawals, superannuation drawdowns, and investment dividends from abroad are all 0% taxed locally. This is the foundation of why Paraguay is one of the most tax-efficient retirement destinations in the world.
Foreign Pensions
0% Paraguay tax on all foreign-source pension income. Social Security, state pensions, private pensions, 401(k)/IRA withdrawals, and annuities from abroad are not taxed locally.
Local Income (IRP)
The Impuesto a la Renta Personal only applies to income earned inside Paraguay. If your local income exceeds PYG 80 million (~$11,000-$13,000), you pay 8-10%. Most retirees with no local business pay 0%.
No Wealth Taxes
Paraguay does not impose taxes on wealth, inheritance, gifts, or global capital gains on foreign assets. Your overseas investment portfolio, property, and savings are untouched.
IRP Tax Brackets (Local Income Only)
| Local Income Bracket (PYG) | Tax Rate | Impact on Retirees |
|---|---|---|
| 0 - 80,000,000 | 0% | Most retirees pay zero |
| 80M - 130M | 8% | Local consulting income |
| 130M - 230M | 9% | Mid-level local businesses |
| 230,000,001+ | 10% | Maximum cap |
Important: Your Home Country Still Taxes You
Paraguay's 0% pension tax does not eliminate your home country's tax obligations. US citizens are taxed on worldwide income regardless of residence. Canadian pensions face 25% non-resident withholding. UK pensions may remain UK-taxable. Always consult a cross-border tax advisor for your specific situation.
US Retirees: Social Security & 401(k)
For US retirees, Paraguay offers a clean local tax situation: 0% on Social Security, 401(k)/IRA withdrawals, pension income, and investment dividends. However, the US taxes citizens on worldwide income regardless of where they live, so the IRS remains your primary tax concern.
Receiving Social Security Abroad
- SSA can send payments via direct deposit to US bank accounts
- Most retirees keep a US bank account and transfer via Wise or similar multi-currency services
- Paraguay does not withhold on incoming pension transfers
- No double-tax treaty between US and Paraguay
US Tax Obligations
- Form 1040: Required annually regardless of residence
- FBAR (FinCEN 114): Required if foreign accounts exceed $10,000 at any point in the year
- FATCA (Form 8938): If foreign financial assets exceed $200,000 (single) at year-end
- Paraguay doesn't tax it, but the IRS still does
Bottom Line for US Retirees
Your Social Security, 401(k) withdrawals, and pension income are 100% untaxed by Paraguay. The US taxes you as a citizen, but you may qualify for the Foreign Earned Income Exclusion on active income and Foreign Tax Credit on any local taxes paid. For most retirees living primarily on Social Security and retirement accounts, the Paraguay advantage is a clean zero on the local side, with your existing US tax situation unchanged.
UK Retirees: State & Private Pensions
UK retirees face a more bureaucratic path but can achieve excellent tax outcomes. There is no double-tax treaty between the UK and Paraguay, but HMRC provides mechanisms to reduce or eliminate UK withholding on pension payments for non-residents.
State Pension
The DWP state pension is generally paid gross but remains taxable in the UK if you are still a tax resident under the Statutory Residence Test. Once you establish non-resident status, the state pension can be received with minimal UK tax liability.
- Paid gross by DWP (no automatic withholding)
- UK-taxable if you remain UK tax resident
- Paraguay does not tax it regardless
Private & Workplace Pensions
Private pensions can often be paid gross if you obtain a "Nil Tax" (NT) code from HMRC. This is done by submitting Form DT-Individual along with a Certificate of Residency from Paraguay's tax authority (SET).
- Form DT-Individual: Apply to HMRC for NT code
- Certificate of Residency: Obtained from SET (Paraguay tax authority)
- With NT code, private pensions can be paid gross
25% Tax-Free Lump Sum
The 25% tax-free pension lump sum is fully preserved for residents of Paraguay. Because Paraguay does not tax foreign capital gains or income, the entire lump sum is received net of all local taxes. This makes Paraguay one of the most attractive destinations for UK retirees looking to access their pension commencement lump sum.
Canadian Retirees: CPP, OAS & the 25% Hit
Canada imposes a mandatory 25% non-resident withholding on pension payments to residents of countries without a tax treaty, which includes Paraguay. This is the most significant source-country hit faced by any nationality retiring to Paraguay. Despite this, the dramatically lower cost of living often results in higher net purchasing power than remaining in a high-cost Canadian province.
Canadian Pension Withholding Summary
| Benefit Type | Withholding | Reduction Strategy |
|---|---|---|
| CPP / QPP | 25% | File Form NR5 for reduction based on net world income |
| OAS | 25% | OAS clawback if income exceeds $93,454 |
| RRSP / RRIF | 25% | No treaty reduction available for Paraguay |
Annual Filing Requirements
- • Form NR5: Request reduction of non-resident withholding
- • OASRI: Old Age Security Return of Income filed annually to avoid benefit suspension
- • Section 217 election: May allow lower effective rate by filing a Canadian return
Despite the 25%, Still Worth It
A Canadian couple receiving $3,000/month combined CPP/OAS nets $2,250 after withholding. In Paraguay, $2,250 provides a comfortable lifestyle: nice apartment, domestic help, dining out, and private healthcare. The same income barely covers rent in Vancouver or Toronto.
Australian Retirees: Superannuation
Australian retirees have a relatively straightforward path. Superannuation is recognized as valid income for the Rentista visa, and Paraguay does not tax drawdowns from foreign super funds.
Key Considerations
- Super drawdowns recognized as valid income for Rentista visa ($1,300/month requirement)
- Keep your super fund active for regular pension-phase drawdowns
- Paraguay imposes 0% tax on all foreign super income
- Australian tax treatment depends on your residency status with the ATO
DASP vs. Ongoing Stream
The Departing Australia Superannuation Payment (DASP) option exists for permanently departing residents, but most retirees prefer to keep their fund active for an ongoing pension stream. Regular drawdowns provide:
- • Steady monthly income for visa compliance
- • Continued investment growth within the fund
- • Flexibility to adjust drawdown amounts
- • Avoids the one-time DASP tax hit
Private Healthcare for Seniors
Paraguay's private healthcare sector is robust for retirees. The tiered sanatorio system in Asuncion offers modern facilities with internationally trained physicians. Insurance is not legally required for residency but is strongly recommended for anyone over 60. For a full breakdown, see our Asuncion Healthcare Guide.
Centro Medico La Costa
Most modern facility in Paraguay. Strong cardiology and oncology departments. State-of-the-art diagnostic equipment.
Sanatorio Britanico
International standards, favored by the English-speaking community. Part of the Santa Clara group. Familiar environment for expats.
Centro Medico Bautista
Personalized care with a high concentration of US-trained physicians. Excellent for retirees wanting familiar medical culture.
Insurance Plans for Retirees (60+)
| Provider | Type | Coverage | Monthly (60+) |
|---|---|---|---|
| Asismed | Local | Full hospital, suite, diagnostics | $120-$180 |
| Santa Clara | Local | Britanico network, ICU, ER | $80-$130 |
| Cigna Global | International | International, med-evac, US access | $300-$600 |
| Allianz Care | International | High limits, global specialists | $350-$700 |
Carencia (Waiting Period)
Most local plans impose a "carencia" of 12-24 months for pre-existing conditions such as diabetes or hypertension. During this period, these conditions are not covered. Some international plans like VUMI or Bupa offer "moratorium" underwriting, allowing coverage after a two-year symptom-free period. Plan your insurance well before you need it.
Forced Heirship Warning
Critical for Common Law Retirees
Paraguay operates under a civil law "forced heirship" regime. You cannot necessarily leave your Paraguayan assets to whoever you choose. The law reserves a specific portion of the estate for "forced heirs" (spouse and children), regardless of what your will says.
Forced Heirship (Legitima) Breakdown
| Heir Composition | Reserved (Legitima) | Freely Disposable |
|---|---|---|
| Spouse and Children | 50-66% | 33-50% |
| Spouse Only | ~50% | ~50% |
| No Spouse or Children | 0% | 100% (full freedom) |
What You Must Do
- Get a local Paraguayan will (your US/UK will may not be recognized for local property)
- Consult a Paraguayan estate attorney before purchasing real estate
- Consider fideicomisos (guarantee trusts) for asset protection
- Holding companies can bypass probate for desired asset distribution
Keep Foreign Assets Separate
Forced heirship generally applies to assets located in Paraguay. Your home country investments, bank accounts, and property are typically governed by your home country's laws. This is one reason many retirees keep the bulk of their assets abroad and maintain only operating funds in Paraguay.
Climate & Accessibility Realities
Paraguay's climate and infrastructure are the most commonly underestimated challenges for retirees. The financial and tax benefits are exceptional, but you need to plan for the physical realities of subtropical living and a developing infrastructure.
Summer Heat (Dec-Feb)
- • Temperatures regularly reach 38-42 degrees C (100-108 degrees F)
- • High humidity amplifies the heat index significantly
- • Dengue risk peaks in summer months
- • ANDE power grid strain causes occasional outages
- • A/C is essential and non-negotiable
- • Many retirees with cardiovascular conditions avoid Dec-Feb
Mitigation Strategies
- • High-rise living (5th floor+) reduces mosquito exposure
- • Luxury condos have backup generators for outages
- • Split time: spend Dec-Feb in your home country
- • Winters (Jun-Aug) are pleasant at 15-25 degrees C
- • Best months: April-May, August-November
- • Encarnacion is slightly cooler than Asuncion
Accessibility Limitations
Paraguay is not a senior-friendly country for mobility. Sidewalks in Asuncion are often uneven, missing, or blocked by trees and parked cars. Wheelchair accessibility is virtually non-existent outside modern malls and high-end hotels. If mobility is a concern, choose a modern high-rise condo with elevator access and proximity to malls with medical facilities.
Best Locations for Retirees
Your neighborhood choice defines your retirement experience. Here are the top options ranked by retiree suitability. For a deeper look, see our Asuncion Housing Guide.
Asuncion Neighborhoods
| Neighborhood | Vibe | 2BR Rent | Best For |
|---|---|---|---|
| Villa Morra | Commercial / Upscale | $800-$1,200 | Walkability, services, healthcare access |
| Carmelitas | Residential / Luxury | $1,000-$1,500 | Premium lifestyle, security, malls nearby |
| Barrio Jara | Bohemian / Young | $500-$800 | Culture, restaurants, budget-friendly |
| Luque | Suburban / Family | $400-$700 | Budget retirees, space, quieter |
Encarnacion
"Pearl of the South." European-style boardwalk, river beaches, higher standards of cleanliness and urban planning. Quieter, safer, more orderly than the capital.
San Bernardino
Estate living near Lake Ypacarai. Rolling hills, large plots. Popular with German and Swiss retirees. 40 minutes from Asuncion for healthcare access.
Villarrica
Traditional university city focused on art and culture. Slowest pace of life. Most authentically Paraguayan of the expat destinations.
Cost of Living for Retirees
The affordability of labor and services is the biggest quality-of-life multiplier for retirees in Paraguay. Domestic help, which is a luxury in the West, is a standard component of the expat lifestyle. For a detailed monthly breakdown, see our Asuncion Tax Guide.
Everyday Costs
- Domestic help (full-time)$300-$400/mo
- Steakhouse dinner for 2 (with wine)$50-$70
- Local restaurant meal$5-$8/person
- Utilities (900 sq ft, heavy A/C)$100-$150/mo
- Fiber internet (up to 500 Mbps)$40/mo
- Private Spanish tutor$8-$15/hr
Shopping Tourism Benefit
Decree 2063 introduced a "shopping tourism" program that reduces effective VAT on 150+ products for foreigners and temporary residents. This makes high-end electronics and appliances significantly cheaper than in neighboring Brazil or Argentina.
Standard VAT (IVA) is capped at 10%, already among the lowest in South America.
Employer Obligations for Domestic Help
If you hire domestic help, you are legally required to register them with IPS (social security) and pay 16.5% employer contributions on top of their salary. This brings the true cost of a $350/month housekeeper to approximately $408/month. Most immigration lawyers can help you set up IPS registration.
Safety for Retirees
Paraguay is statistically safer than many major US cities. The homicide rate of 6.2 per 100,000 is lower than regional competitors like Brazil or Colombia. However, "common sense" security is essential.
Safety Positives
- Homicide rate 6.2/100K (lower than many US cities)
- Violent crime against foreigners is rare
- Expat neighborhoods (Villa Morra, Carmelitas) are well-secured
- Modern condos have 24-hour security and concierge
Precautions
- • Petty theft (phone-snatching) is the main concern
- • Use Uber instead of street taxis
- • Use ATMs inside bank branches or shopping malls
- • Avoid walking alone in unfamiliar areas after dark
- • Don't display expensive jewelry or electronics in public
- • Keep photocopies of passport and cedula separately
Integration & Language
Paraguay attracts a more self-sufficient, adventure-oriented expat demographic compared to the high-energy expat bubbles of Panama or Mexico. Functional Spanish is essential for quality daily life, and basic Guarani goes a long way.
Spanish Requirement
- • Professional services (banks, doctors, lawyers) may offer English
- • Daily life (shops, plumbers, restaurants) operates in Spanish
- • Private tutors: $8-$15/hour locally
- • Language schools available in Asuncion
- • Most retirees take 6 months of intensive classes
- • Paraguayans are famously patient with learners
Guarani: The Cultural Bridge
Paraguay is uniquely bilingual. While fluency in Guarani is not expected, learning basic greetings bridges the cultural gap and is viewed as deep respect by locals.
- • "Mba'eichapa" - How are you?
- • "Aguyje" - Thank you
- • "Nde reko pora" - You are well / Bless you
Frequently Asked Questions
Is my US Social Security taxed in Paraguay?
No. Paraguay's territorial tax system means 0% local tax on foreign pensions, including Social Security. However, US citizens must still file Form 1040 with the IRS annually and report worldwide income. If your foreign bank accounts exceed $10,000 at any point in the year, you must also file an FBAR. Paraguay does not tax it, but the IRS still does.
Is my UK pension taxed in Paraguay?
No local tax in Paraguay. Your UK state pension may still be UK-taxable if you remain a tax resident under the Statutory Residence Test. Private and workplace pensions can potentially be paid gross by applying for a 'Nil Tax' (NT) code from HMRC using Form DT-Individual, supported by a Certificate of Residency from Paraguay's tax authority (SET). The 25% tax-free lump sum from UK pensions is fully preserved.
What about Canadian pensions (CPP/OAS) in Paraguay?
CPP and OAS payments face a mandatory 25% non-resident withholding by Canada because there is no tax treaty between Canada and Paraguay. You can file Form NR5 to request a reduction based on net world income. RRSP and RRIF withdrawals also face the standard 25% withholding. Paraguay itself charges 0% on all foreign pension income. Despite the Canadian withholding, the significantly lower cost of living often results in higher net purchasing power.
Do I need health insurance as a retiree in Paraguay?
Health insurance is not legally required for residency, but it is strongly recommended. Local prepaid plans (medicina prepaga) like Asismed ($120-$180/month for 60+) and Santa Clara ($80-$130/month) cover private hospitals including ER, ICU, and diagnostics. International plans from Cigna Global ($300-$600/month) and Allianz Care ($350-$700/month) add medical evacuation and global access. Be aware of 'carencia' waiting periods of 12-24 months for pre-existing conditions on local plans.
Can I leave my assets to whoever I want in Paraguay?
Not entirely. Paraguay operates under a civil law 'forced heirship' system called the legitima. This reserves 50-66% of your estate for forced heirs (spouse and children), depending on the heir composition. You can only freely will the remaining 33-50%. Foreign wills may not be recognized for Paraguayan real estate. You should get a local Paraguayan will and consider fideicomisos (guarantee trusts) for asset protection and to ensure your wishes are followed.
What is the best neighborhood for retirees in Asuncion?
Villa Morra and Carmelitas are best for walkability, services, and proximity to hospitals and malls. Rent runs $800-$1,500/month for a 2-bedroom. Barrio Jara offers a bohemian feel at $500-$800/month. Luque is suburban and budget-friendly at $400-$700/month. Outside Asuncion, Encarnacion offers a quieter beach lifestyle, and San Bernardino suits estate living near Lake Ypacarai.
How hot does it get in Paraguay?
Summers (December-February) regularly hit 38-42 degrees Celsius (100-108 degrees Fahrenheit) with high humidity. Dengue risk peaks in summer. A/C is essential and standard in modern apartments. Many retirees with health concerns avoid December through February or live in high-rise condos above the 5th floor to reduce mosquito exposure. Winters (June-August) are pleasant at 15-25 degrees Celsius.
Do I need to speak Spanish to retire in Paraguay?
For quality daily life, yes. Professional services like banks, doctors, and lawyers may offer English, but shops, restaurants, plumbers, and everyday services operate in Spanish. Paraguay is also bilingual with Guarani. Learning basic Guarani greetings like 'Mba eichapa' (How are you?) is appreciated and bridges the cultural gap. Private tutors cost $8-$15/hour locally.
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