Businesses are always looking for ways to maximize their profits and minimize expenses. One key factor in achieving this is choosing a country with a low tax rate.

South America has become increasingly attractive for businesses due to its growing economies, natural resources, and business-friendly policies. In particular, several countries in the region stand out as top destinations for businesses seeking lower tax rates.

High tax rates can significantly impact a company’s bottom line, making it difficult to remain competitive in an ever-changing global market. Many businesses are drawn towards countries with low tax rates to retain more profits and have more funds available for investment in growth opportunities.

These low tax rates, business-friendly policies, and stable economic conditions make these countries attractive destinations for foreign investment. So, read on to discover the top 10 low-tax countries in South America that are perfect for savvy entrepreneurs looking to grow their bottom line.

Benefits of Setting up a Business in Low-Tax Countries

1. Tax Incentives and Savings

One of the major benefits of doing business in low-tax countries is the lower corporate tax rates, which means companies can save significant amounts on their taxes, compared to operating in high-tax countries.

Additionally, many low-tax countries also offer various tax breaks and exemptions for specific industries or investments, making it even more appealing for businesses to set up operations there.

2. Lower Cost

Low-tax countries tend to have lower overhead and living costs, translating into lower operational costs. This can be beneficial for startups or small businesses as it allows them to maximize their profits and reinvest them into growing their business.

3. Government Support and Stability

Governments in low-tax countries are often pro-business and provide support through favorable policies, infrastructure development, and stable political environments. This can create a conducive environment for businesses to thrive and grow without constantly worrying about changing regulations or political instability.

Factors to Consider When Choosing a Low-Tax Country

Choosing a low-tax country can significantly reduce your company’s expenses and increase profitability. However, it requires careful consideration of various factors, such as corporate and individual income tax rates, double taxation agreements, VAT/GST rates, and available tax incentives.

1. Corporate Tax Rate

The first and most obvious factor to consider is the corporate tax rate of the country you are looking into. This refers to the percentage of profits businesses must pay as taxes.

Researching and comparing corporate tax rates is crucial since some countries may offer extremely low or even zero corporate tax rates. In contrast, others may have higher rates and provide various business incentives.

2. Individual Income Tax

If you plan on hiring local employees in the new country, it is essential to understand how much they will be taxed on their wages. High individual income tax rates affect your employees’ take-home pay and can make it challenging for businesses to attract and retain top talent.

3. Double Taxation Agreements

Many countries have signed double taxation agreements (DTAs) with other nations to avoid taxing individuals or companies twice on their incomes or profits.

These DTAs help eliminate any potential double taxation issues when conducting business internationally. It also ensures higher tax savings for digital nomads since they won’t be taxed in the country they’re staying.

4. VAT/GST Rates

Value-added taxes (VAT) or goods and services taxes (GST) are indirect taxes that apply to sales transactions within particular countries. If not carefully considered beforehand, these taxes can add up quickly and significantly impact a company’s expenses.

When researching low-tax countries, looking into their VAT/GST rates and any exemptions or incentives available for businesses is crucial.

5. Tax Incentives and Benefits

Some countries offer tax incentives and benefits to attract foreign investment, such as tax holidays, reduced tax rates for specific industries, and accelerated asset depreciation.

These incentives can significantly benefit a business’s finances in the long run and should be considered when comparing different low-tax countries.

Tax Rates and Benefits in South America

Understanding each country’s tax rates and benefits is crucial when considering setting up a business in South America. While some countries may offer lower tax rates, others may provide additional incentives or benefits that make them equally attractive options.

It is essential to carefully consider all factors before choosing the best location for your business in South America.

Tax Rates

There is significant variation in corporate tax rates among different countries in South America. Paraguay has one of the lowest corporate tax rates in the region, at 10%. This is followed closely by Uruguay, at 25%, and Colombia, at 32%. 

Personal income taxes also vary across South America. Some countries have progressive tax systems, where higher incomes are taxed at a higher rate.

Others have flat or fixed personal income tax rates. However, the average VAT rate across all countries in South America is around 16%.

Tax Benefits

Several governments offer incentives, such as reduced or waived taxes on foreign investments or specific industries, to attract more businesses. For example, Colombia has a free trade zone where companies can enjoy a 0% corporate tax rate for up to 20 years. 

Additionally, many South American countries have entered into double taxation treaties with other nations. These treaties help prevent businesses from being taxed in both their home country and the country they operate in, making it easier for foreign companies to do business in these countries.

Top 10 Low-Tax Countries in South America

1. Panama 🇵🇦

Panama has established itself as a major player in the international business world, thanks to its strategic location and territorial tax system. This means that only income earned within Panama’s borders is subject to taxation at a fixed rate of 25%.

Additionally, various incentives and exemptions are available for businesses in certain industries, providing significant tax savings for foreign companies operating in the country.

Panama can be a very tax-friendly place to go, depending on where your company is set up. A Panama International Company (IBC) that operates overseas will be taxed at 0% if there is no substance locally.

Another critical factor that makes Panama an attractive option for businesses is its stable economy and currency. 

The US dollar has been legal tender in Panama since 1904, providing businesses with a reliable currency for transactions and investments. Furthermore, Panama offers flexible company formation options for foreign investors.

Companies can be registered as corporations or limited liability companies (LLCs), with no restrictions on shareholding structure or nationality requirements. 

2. Chile 🇨🇱

Chile has been consistently ranked as one of the top countries in terms of ease of doing business by the World Bank. In addition, it offers a variety of incentives for foreign investors, making it an ideal location for entrepreneurs looking to expand their business ventures.

One major business advantage in Chile is its low corporate tax rate of 25%. This makes Chile an attractive option for companies seeking to maximize their profits and minimize their tax burden.

Moreover, Chile’s tax system is designed to promote investment and encourage entrepreneurship. The country offers several benefits and exemptions to foreign investors, such as a flat tax rate on dividends received from foreign subsidiaries and exemptions on capital gains taxes if reinvested within specific time frames. These incentives make it easier for businesses to access capital and grow without being hindered by excessive taxes.

In addition to its low corporate tax rates, Chile has a simple and efficient taxation system. Unlike many other countries, where businesses have to navigate complex regulations and high bureaucratic barriers, Chile’s streamlined process makes it easy for companies to comply with tax laws.

The country has implemented electronic invoicing systems, which have greatly reduced paperwork and minimized human error in record keeping.

3. Uruguay 🇺🇾

Uruguayhas become an attractive destination for local and foreign entrepreneurs. One of the critical factors that make Uruguay a desirable location for businesses is its low corporate tax rate.

Companies in Uruguay are subject to a flat corporate tax rate of 25%, which is significantly lower than other countries in the region, such as Brazil (34%) and Argentina (30%). 

In addition to its competitive corporate tax rate, Uruguay offers various incentives for foreign investors.

For example, companies that invest at least $1.6 million in certain sectors, such as tourism or technology, can benefit from a temporary income tax exemption for up to 10 years. This incentive aims to attract foreign investment and stimulate economic growth within specific industries.

Another advantage of doing business in Uruguay is its simplified tax system. Unlike some neighboring countries with complex tax laws and regulations, Uruguay has a straightforward taxation system that makes it easy for businesses to comply with their obligations.

The country also has a well-developed financial infrastructure and efficient banking system, providing businesses with easy access to financing options.

4. Paraguay 🇵🇾

With a low tax rate and various incentives for foreign investors, Paraguay has emerged as one of the top destinations for businesses looking to establish themselves in South America.

The corporate income tax rate is only 10%, significantly lower than most other countries in the region. Additionally, there are no capital gains taxes or withholding taxes on dividends paid to non-residents. This makes it an ideal location for companies looking to maximize their profits.

To attract foreign investment, Paraguay offers various incentives, such as tax exemptions and subsidies in specific industries. The Maquila Law provides tax breaks and customs duty exemptions to companies engaged in manufacturing goods exclusively for export.

Additionally, the Special Economic Zones (SEZs) offer even more extensive benefits, such as reduced taxes on imports and exports and simplified administrative procedures.

5. Costa Rica 🇨🇷

One of the biggest advantages of doing business in Costa Rica is its territorial tax system, meaning only income generated within its borders is taxed. Furthermore, the corporate income tax rate is one of the lowest in the region, at 30%, with deductions available through different investment programs.

In addition, Costa Rica offers various tax exemptions and incentives for businesses operating in specific industries. 

Another advantage of establishing a business in Costa Rica is its skilled workforce. The country has invested heavily in education and has a high literacy rate, making it easy for companies to find qualified employees.

Additionally, the labor costs are relatively lower compared to other developed countries, making it cost-effective for companies to operate here.

6. Peru 🇵🇪

Peru has also emerged as one of the top low-tax countries in South America for businesses.

The corporate income tax rate in Peru is a flat 29.5%, which is significantly lower than other countries in South America, such as Argentina (30%), Brazil (34%), and Uruguay (25%).

This makes Peru an appealing destination for foreign investment and business expansion.

Another advantage of doing business in Peru is its simplified taxation system. Companies with annual revenues below 3 million Peruvian soles (approximately USD $850,000) can opt for a streamlined regime known as “New Regime Taxpayers.”

Under this regime, businesses only have to pay a flat rate on net sales instead of calculating income taxes based on profits.

Furthermore, Peru has also introduced the SME Tax System for small and medium-sized enterprises. In this scheme, businesses with a net annual income not exceeding 1700 UIT (approximately USD 2,050,000) enjoy a progressive tax rate of 10% on their yearly net income for the first 15 UIT (USD 18,000) and a 29.50% tax rate for the rest.

However, Peru’s Special 1.5% Income Tax System is the most lucrative tax benefit for businesses. It will ensure a monthly tax rate of 1.5% on gross revenue, provided the net annual income remains below PEN 525,000 (USD 156,250) as of 2024.

Furthermore, you can also claim credits for taxes paid abroad, offering an appealing destination for entrepreneurs seeking more fiscal advantages for growth.

7. Colombia 🇨🇴

Colombia has emerged as one of the top tax heaven for businesses due to Its strategic location and pro-business policies. Colombia’s corporate income tax rate stands at 32%, which may seem high compared to other countries.

However, what sets Colombia apart is its competitive territorial tax system where companies are not subject to double taxation on their global profits, making it much more favorable for businesses operating internationally.

Furthermore, the Colombian government has implemented various incentives to attract foreign investment into the country. One such initiative is the Special Economic Zones (SEZs), which offer a range of benefits such as reduced income tax rates (up to 0%), and exemption from value-added taxes on imported goods and services used within the SEZs’ boundaries, among others.

These zones are strategically located near major ports and airports, providing easy access to regional markets.

Another advantage of doing business in Colombia is its extensive network of free trade agreements (FTAs). Currently, Colombia has FTAs with over 60 countries, including the United States, Canada, and European Union member states.

These agreements facilitate access to new markets and provide reduced tariffs on imports and exports, boosting international trade opportunities for businesses.

In addition to these measures to promote foreign investment, Colombia also offers several incentives for small and medium-sized enterprises (SMEs). Under Law 1429 of 2010, or “Entrepreneurial Statute,” SMEs can benefit from reduced income tax rates (up to 25%) during their first seven years of operation, along with other exemptions and deductions.

This has led to a significant increase in the number of small businesses and startups in Colombia, creating a vibrant entrepreneurial ecosystem.

8. Ecuador 🇪🇨

One of the main benefits of establishing a business in Ecuador is its low corporate tax rate. At 25%, Ecuador competitive tax rate allows businesses to keep more of their profits.

In addition to its low corporate tax rate, Ecuador offers various tax exemptions in specific industries such as agriculture, tourism, and renewable energy. There are also special benefits for foreign investors who bring new technologies or invest in underdeveloped areas.

Establishing a business in Ecuador enables entrepreneurs to benefit from inexpensive residences, low taxes, and attractive lifestyles. Their tax system combines territorial and worldwide models, allowing you to lower your taxes further.

If you’re not paying taxes in other countries, you’ll have to pay taxes in Ecuador as per their tax regime.

However, if you have overseas income and have paid at least 14% in taxes, you won’t have to pay anything using a tax credit in Ecuador. 

9. Brazil 🇧🇷

One of the main reasons why Brazil ranks among the top low-tax countries in South America is due to its simplified tax system. The biggest advantage of doing business in Brazil is its flexibility in corporate income tax rate.

While the standard rate is 34%, businesses with annual revenue of less than BRL 3.6 million (approximately USD 650,000) are eligible for a reduced corporate income tax rate of 15%.

In terms of indirect taxes, Brazil has a VAT called the “Imposto sobre Operações Relativas à Circulação de Mercadorias e Serviços” (ICMS). The standard ICMS rate is 18%, but it can vary depending on the state where the business is registered.

Some states offer reduced ICMS rates for specific industries or products as part of their economic development plans.

Furthermore, Brazil has no wealth or inheritance taxes, making it an appealing location for high-net-worth individuals looking to establish residence or invest in property.

However, compliance with local regulations can be complex and time-consuming. Therefore, foreign companies should seek professional advice from local tax experts to ensure compliance and maximize the tax benefits available.

10. Bolivia 🇧🇴

In recent years, Bolivia has become an attractive option for businesses looking for low tax rates in South America. The country offers a range of incentives and opportunities for foreign investors, making it an ideal location for business expansion.

One of the main reasons why many businesses choose Bolivia as their base is its favorable tax regime and low corporate income tax rate of 25%.

Moreover, unlike some countries where foreign investors face restrictions on owning assets or shares in local companies, there are no limitations on foreign ownership or control over Bolivian enterprises. This provides international businesses with total operational flexibility without having to worry about government intervention.

Setting up Your Business for Success

Starting a new venture in South America has tremendous potential for success due to its attractive tax policies and growing economies. However, it is crucial to have proper guidance throughout the entire registration and tax filing processes to avoid any legal or financial setbacks. And doola can help!

Our business-in-a-box solution empowers businesses with the necessary tools and resources to navigate the complexities of setting up an LLC efficiently and compliantly. While the traditional company registration method involves tedious paperwork and long processing times, we ensure all necessary documents can be completed online within minutes, saving time and money.

Furthermore, our Total Compliance Package solution ensures businesses comply with all legal requirements in their chosen country from the get-go. Since many countries have specific rules for foreign companies, we can help you create a bespoke tax strategy, enabling you to benefit from low corporate tax and personal income tax rates and, in some cases, even zero-tax systems.

To get started, book a free tax consultation with one of our expert CPAs today.