Tax Reduction for the Oil Industry in Brazil
In this article you will learn about three measures taken by the government in order to stimulate investments on the oil sector: REPENEC, REPETRO and REPEX.
Brazil provides a wide range of incentives to the oil and gas sector. There are plenty of programs depending on the aim of the investors, and most of them are related to tax reductions or exemptions for determined regions or purposes. Programs which intend to develop the sector in the North, Northeast and Mid-West regions are also prioritized in order to reach a development level similar to the Southeast and South regions of Brazil.
REPENEC
Short for Regime Especial de Incentivos para o Desenvolvimento de Infraestrutura da Indústria Petrolífera nas Regiões Norte, Nordeste e Centro-Oeste, it is the Special Regime of Incentives for the Development of the Oil Industry Infrastructure in the North, Northeast and Mid-West Regions. Created in 2010 to stimulate investments and to reduce the regional inequality, REPENEC was supposed to last until July 30, 2011, but in July 2013 it was postponed for four years.
REPENEC suspends the contribution of PIS/PASEP and Cofins which applies to the revenue earned from:
- sales of new machines, equipments and instruments
- sales of construction materials
- service providing
- rental of machines, instruments and equipments.
It applies to the revenue of the items mentioned above when purchased by a legal entity registered in the regime, which must have an approved project for infrastructure works in the North, Northeast and Mid-West regions, in the sectors of petro-chemistry, oil refining and production of ammonia and urea from natural gas.
REPENEC also suspends IPI in the exit of the industrial establishment or when the purchase in the national market of the machines, instruments and equipment is made by a legal entity registered in the regime.
Also, it suspends IPI for the imports of goods and construction materials that don't have any similar product in the national production. Only legal entities, previously registered at the Federal Revenue, which didn't opt for the Simples Nacional regime, and that have a regular situation regarding taxes and contributions can get the benefits of this regime. The project's approval is decided by the Ministry of Mines and Energy.
REPETRO
It is short for Regime Aduaneiro Especial de Importação e Exportação de Bens Destinados à Pesquisa e Lavra de Petróleo e Gás, a special custom regime for importing and exporting goods destined to the research and exploration of oil and gas. Created in 1999, it provides the exemption of IPI, PIS, Cofins and the Additional Freight for the Renewal of the Merchant Marine, known as AFRMM.
REPETRO allows the application for the following customs treatments:
- supposed exports* of equipments and vessels and their machines, spare parts, tools, parts and pieces produced in the country, destined to activities and services which are auxiliary to the acquisition of geological, geophysical and geodesical data, researches, exploration, perforation and stocks of oil and natural gas.
- supposed exports* of parts and spare parts, produced in the country, destined to goods already admitted on a temporary basis and mentioned above
- imports, under the suspension modality of Drawback regime, of raw materials, developed and semi-developed products and parts and spare parts, used in the production of the goods mentioned above.
*known in Brazil as “exportação ficta” or “saída ficta”, in this type of export, there is the export of products, but they don't leave Brazilian territory.
It allows the import of goods that must stay in the country for a determined period, with suspension of taxes, going back abroad without suffering any modifications that may turn them into a new individual product.
Companies which have concession or authorization to work in the country in the activities of research and exploration of petroleum and natural gas can get the benefits of this regime, as well as their contracted and subcontracted ones. Companies that have their headquarters abroad may authorize their companies in Brazil to participate in the regime.
REPEX
REPEX is the short for Regime Especial de Importação de Petróleo Bruto e seus Derivados, or Special Custom Regime for Imports of Crude Oil and its Products. It allows the import of these products without payment of federal taxes, contribution to PIS/PASEP and Cofins, for a subsequent export, in the same conditions as they were imported.
Only companies previously registered at the Secretariat of the Federal Revenue and that are authorized by the Agência Nacional de Petróleo, ANP, the national petroleum agency, can do the import, export and refine of the products.
To register at REPEX, the company must send an application to the Secretariat, with a proof of authorization issued by ANP, defining the products to which it refers and a computerized system which meets the demands for the proper information provision needed for the control of imports and exports submitted to Repex..
The admissible categories in the regime are crude oil, automotive petrol, aviation kerosene, diesel, liquefied petroleum gas and other fuel oils.
The imported product can be replaced by an equivalent product that has the same fiscal classification, whether it is national or foreign. This makes it possible to fill up the national market in moments of shortage, as well as import petrol or its products with non available specifications in the country, to substitute them, by others available.