Goncalves joined Hero in the middle of 2019 after a long stint at Honda, which included finishing runner-up to Marc Coma in the 2015 Dakar.
The Portuguese rider had scored three top 10 stage finishes when he suffered a cardiac arrest following a crash on the 546km Riyadh-Wadi Al Dawasir test. He was airlifted in a helicopter to Layla Hospital, but was pronounced dead on arrival.
Following the incident, Hero has announced that it will sit out the rest of the Dakar, and all its trucks have already departed for Jeddah.
‘Words cannot describe our shock and loss at this moment," Mr. Wolfgang Fischer, Head – Hero MotoSports Team Rally said.
"It isn’t just a team, it is a family for us and we are devastated with the passing away of one of our members, Paulo Goncalves.
"He joined the Team in April last year and within no time became an integral part of the Hero MotoSports Team family. He will be dearly missed and always be fondly remembered by us.
"Paulo was a true champion, gentleman, reliable friend to everyone in the racing world and a role model as sportsman and personality. We extend our deepest condolences to his family and friends.’
Monday's stage for bikes and quads had already been cancelled by Dakar organiser ASO.
Hero, which was fielding a four-strong line-up in Dakar, had been hit by a string of mechanical issues in the first week of the marathon. CS Santosh was the only rider in the team to be still classified in overall rankings after Stage 7, occupying 35th position.
Goncalves’ brother-in-law and teammate Joaquim Rodrigues retired on the opening stage and has since been competing in the Dakar Experience class, while Sebastian Buhler also suffered a DNF in Stage 6.
Hero has finished inside the top 10 in Dakar in the last three years, with its last two standout results coming courtesy of Oriol Mena - who was forced to skip this year’s edition due to an injury and was replaced by Buhler.