Tax breaks are available for Brazilian based producers engaged in exportation or looking to start. Presented in this article is a general overview of tax breaks, industry specific programs and other fiscal incentives for Brazilian exporters.
Competitive exportation from Brazil requires a comprehensive tax planning strategy. There are many tax incentive programs available across several industries for Brazil based exporters. Incentives vary from region to region and exporters located in the north and northeast regions can take advantage of local incentive programs in addition to federal programs. Incentives come in several forms such as tax exemptions on exports, tax refunds, tax exemptions on imports for goods used in the production of exports and more. In order to maximize tax reduction benefits, it is vital to carefully analyze and understand the full complexity of program requirements and purposes.
Free Trade Zones - ZPE
The Export Processing Zone, in Portuguese Zona de Processamento de Exportação - ZPE, is a free trade zone for export goods. A ZPE is not considered part of Brazilian territory for customs purposes and a maximum of 20% of the goods produced in a ZPE are permitted for sale on the domestic market. Companies operating in ZPEs benefit from the following tax incentives for a period of 20 years:
- Suspension of the import duty
- Suspension of the taxes IPI, PIS, PIS-import, COFINS, COFINS-import and AFRMM
- Exemption from customs and administrative controls and constraints such as export /import licenses for certain goods
- Exemption from tax withholding due on payments of services rendered by foreign companies
- 5 year corporate tax exemption
Regrettably, there are currently no Export Processing Zones in operation in Brazil. There is however, the Manaus Free Trade Zone, MFTZ, which offers similar tax incentives as well as other local and regional benefits in order to attract business to the area.
General Tax Incentives for Export Companies
Companies with 70% of its revenue from exportation are eligible for tax exemptions for IPI, PIS and COFINS on the importation of raw materials, intermediate products, and packing material. Producers of specific goods like leather wallets, shoes, harvest equipment, and more are entitled to the same tax incentives provided that 60% of its revenue is export based.
Certain commodity producers are also exempt from taxes such as ICMS, PIS and COFINS. For example soy producers selling soybean commodity are exempt from these taxes when the commodity is exported. If the soybean commodity goes under any value-adding procedures ie, grinding into soy meal and extracting soy oil, then ICMS is collected on the these steps in the supply chain and the rest of the taxes are exempt if the value added products are subsequently exported.
Sector Specific Tax Incentive Programs
REPES - The Special Tax Regime for Technology Information Services
REPES allows for PIS and COFINS tax exemption on imported goods and services utilized in the development of software and information technology services. The exemption is only available for companies that directly import the goods.
REPES also allows for suspension of the IPI, tax on industrialized products, on certain imported goods that will become a part of the fixed assets of the REPES benefiting company.
RECAP - The Special Regime for the Acquisition of Capital Goods by Export
RECAP is the acronym for Regime Especial de Aquisição de Bens de Capital para Empresas Exportadoras, or The Special Regime for the Acquisition of Capital Goods for Exporters. RECAP is applicable for the import of certain equipment, instruments, and machinery that are imported directly and used a fixed asset by the RECEP beneficiary. The tax incentive program allows for the exemption of PIS and COFINS taxes.
RECAP also allows for the same tax exemption on the local acquisition of equivalent asset types purchased by the program beneficiary. In order to qualify for the program the company must derive at least 70% on their sales from exports. A company with outstanding debt owed to the Federal Revenue Service, Ministério da Fazenda, must resolve debt problems before application to the program.
REPETRO - Tax Incentives for Goods the Oil and Gas Sector
REPETRO is the acronym for Regime Aduaneiro Especial de Exportação e Importação de Bens Destinados às Atividades de Pesquisa e de Lavra das Jazidas de Petróleo e de Gás Natural. The program facilitates the importation and exportation of goods that foster growth in the oil and gas industry. REPETRO is a tax incentive program for both importation and exportation. The tax benefit for exportation allows a company to export a good without it actually physically leaving Brazilian territory and reimport the good under the temporary import regime and the tax benefits extended under the program.
It is important to note while many exports are exempt from taxes in Brazil, there is still hidden risk lurking in the Brazilian world of tax free exportation. For instance, an exporter produces X product that is exempt from taxes A, B and C upon exporting. However, if there is an accident with the shipment during transit to port, the previously exempt taxes are applied due to the fact that the goods are no longer destined for international markets. Fortunately there is insurance available to hedge this risk. In any case, it is important to carefully examine and consult a professional in order to maximize the financial benefit of an export orientated tax strategy and minimize financial risk.