Purchasing Farmland in Paraguay

By M. Yolanda Pereira Z., Antonio Villa Berkemeyer & Federico Valinotti, Berkemeyer Attorneys & Counselors

Paraguay’s excellent lands for agriculture, forestry and cattle raising at relatively lower prices in comparison with neighboring countries have attracted many newcomers to the country. The purchase of land is open to foreigners except for the restriction that the border security law imposes on nationals from neighboring countries – Argentina, Bolivia, Brazil – or companies originating from those countries, that prohibits ownership of lands within 50 kilometers of the border. Again, the restriction may be waived by decree on public interest grounds.

The purchase of real estate is governed by the Civil Code. Transfer of ownership must be effected by notarial deed which must be subsequently recorded with the Public Registry of Property. Title clearance certificates and tax certificates must have been obtained prior to drafting the deed. In addition to these formal requirements, conducting due diligence of the documentation is key to ensure that there are no flaws in the history of the title or any restrictions on land use under environmental or wildlife preservation legislation. Mining and oil exploration activities being on the increase make it advisable to determine the existence of any exploration or exploitation rights that could eventually affect the surface owner.

On transfer, VAT at a rate of 1.5% will apply on the purchase price and capital gains tax at different rates will apply depending on the taxpayer’s status, i.e. corporations, residents or non-residents. Unless agreed otherwise notarial fees and transfer costs will be divided equally between buyer and seller. Prior determination of the tax implications is advisable. Land tax is assessed on the fiscal valuation per hectare set by the National Cadastral Directorate, the general rate being 1%. An additional rate according to a sliding scale up to 1% applies to properties over 20000 hectares when located in the Western Region and over 10000 hectares if located in the Eastern Region.

Disappearing natural forests and low forestry plantation rates were the drivers for creating surface rights for timberlands. Surface rights on timberlands may be acquired for up to fifty years based on a contract; the rights may be sold or pledged as a guarantee. In turn, the land owner may freely sell or mortgage the property while respecting the timberland surface rights under the contract. Legislation allows a 50% reduction of land tax on any land that is subject to timberland surface rights.

By far the busiest market in the real estate sector is urban development followed up closely by deals of farmlands for agriculture and cattle raising. In the past few years real estate has experienced an impressive and constant value appreciation, exceeding the returns of many other investments.