Production Strategy:
The best place to manufacture the products is Paraguay because of the Paraguayan Maquila Law, the difference in the labor legislation of each country (Paraguay and Brazil) and both countries are part of MERCOSUR, so imports by Brazilian company will have import tax zero.
Taxes between commercial transactions in Brazil are among the highest in the world, and production in Brazil is expensive.
In Paraguay, under the Maquila Law, the only tax to be paid by the company is 1% of the added value of the product, in addition to recovering 100% of the tax paid on raw materials and services (VAT).
Large Brazilian companies already have a structure in Paraguay working with the Maquila Law, as an example: JBS (Friboi), Riachuelo, Vale, Bourbon, Camargo Correa, Eurofarma, Buddemeyer, Cargill, X-Plast, Estrela.
The following is an explanation of Paraguayan Maquila Law (A) and MERCOSUR (B):
A - Maquila Law of Paraguay:
The MAQUILA Project is a Law instituted by Paraguay, whose purpose is the generation of employment and income in the Paraguayan territory by means of differential tax treatment, destined to encourage industrial enterprises to be installed in the country.
The first operations that used MAQUILA was in the middle of 2001.
Companies registered in the Paraguayan Maquila Law have some benefits, as follows:
- Single Tribute of 1%: to be applied on the value added to the product within the Paraguayan territory.
- Vat Recovery (Goods and Services Circulation Tax): Companies registered in Maquila are exempt from VAT and can recover the VAT related to the purchase of goods and services in the form of Tax Credits.
- Suspension of Taxes and Import Tax: Maquila Law allows companies to import raw materials, machinery and the necessary inputs with the suspension of taxes and import tax.
General Aspects of Maquila Paraguayan Law:
- Modalities: Direct installation, joint venture or direct contracting.
- Type of Companies: all.
- Location: any part of the national territory.
- Capital: there is no minimum investment requirement.
- Sectors: there are no restrictions, except in relation to the exploitation of natural goods, highly polluting production, weapons of war.
- Legal representation: may be 100% foreign capital.
To know more about the Maquila Law, visit: https://www.maquila.org.py/ - Spanish.
B - Southern Common Market (MERCOSUR):
The Common Market of the South, better known as Mercosul, is an integration project founded by Brazil with Argentina, Paraguay and Uruguay on March 26, 1991, with the signing of the Treaty of Asunción, and has as its current objectives:
- The free movement of goods and services through the elimination of customs duties and non-tariff restrictions on the movement of goods;
- The establishment of a common external tariff and the adoption of a common trade policy in relation to other States, and the coordination of positions in regional and international trade and economic forums;
- The commitment of participating States to harmonize their laws to strengthen the integration process
Effective Members: Argentina, Brazil, Paraguay and Uruguay (Note: Venezuela does not appear because it has been suspended).
Associate Members: Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, Suriname.
Free Trade Agreements: Israel and Egypt.
With the certification of origin for textile products produced in Paraguay, the import / export tax to Brazil is zero.
To know more about the Mercosul, visit: https://www.mercosul.gov.br - Portuguese.
Percentage of the Price Difference in Paraguay Compared to Brazilian Prices:
Due to taxes in each country, in addition to benefits for Maquila companies in Paraguay, there is a big difference in the price of raw materials used, as follows:
Difference in Taxes with Employees of Companies in Brazil and Paraguay:
The value of US$ 321.30 is based on the Paraguayan minimum salary (quote of August 2, 2022).
In Brazil, there are variations that can change employee taxes, such as Food Tickets, Transportation Tickets and Health Insurance, an average was adopted. Values adopted to define the percentages of Brazilian companies were:
(Note: information obtained from Smart Spreadsheets - Spreadsheet Sector to Calculate Employee Cost - Link: https://smartplanilhas.com.br/planilha-gratuita/planilha-para-calcular-custo-de-funcionario).
