Rebeca Duran

Rebeca Duran

Staff Writer
The Brazil Business


Tax Reduction for the Automotive Industry in Brazil

Rebeca Duran

Rebeca Duran

Staff Writer
The Brazil Business


A new tax reduction measure was adopted by the Brazilian Government in 2013 and it is known as Inovar. Here you will discover what are these incentives, for whom they are designated and how they will be applied.

In 2012 the Federal Government presented the new rules of the Programa de Incentivo à Inovação Tecnológica e Adensamento da Cadeia Produtiva de Veículos Automotores (Inovar), which is the Program of Incentive to the Technological Innovation and the Intensification of the Productive Chain of Automotive Vehicles. This measure is comprised of industrial, technological and foreign trade policies developed by the Brazilian government named as Plano Brasil Maior, and grants benefits regarding the IPI tax to companies that stimulate and invest in the innovation and in research inside the Brazilian territory.

The program, also called Inovar-Auto, intends to stimulate investments in the national automotive industry in order to promote its growth. It designates a reduction of 30% in the IPI of automobiles produced and sold in the country. However, the ones interested in these benefits must meet a list of requirements. It is estimated that until 2015 the program will lead to an increase of more than BRL 50 billion in investments over the automotive industry sector.

Companies Benefited by Inovar-Auto

The companies benefited by the reductions promoted by the regime are the ones which:

  • produce vehicles in the country
  • do not produce vehicles, but purchase them in the country
  • present investment projects in the automotive sector.

To apply for this regime, companies will have to commit and guarantee that all the requirements are met between 2013 to 2017. According to the Ministry of Development, Industry and Foreign Trade, Fernando Pimentel, there will be a reduction of more 2% in IPI for companies that achieve reduction goals of CO 2 emission. Another discount of 2% will be granted to companies that overcome their own goals of investments in innovation, engineering production and industrial components.

Requirements to Apply for Inovar-Auto

There are some requirements that companies must meet in order to get the benefits of Inovar-Auto.

The Production Steps to Achieve the Benefits

According to the government determinations, to apply for this regime car producers must  perform six out of the twelve steps physically in Brazil, for at 80% of the  production:

  • stamping
  • welding
  • anti-corrosion treatment and painting
  • plastic injection
  • engine manufacture
  • gearbox and transmitting manufacture
  • assembly of steering and suspension systems
  • assembly of electric system
  • assembly of brakes and axles systems
  • chassis or monoblock manufacture
  • assembly, final revision and tests
  • self-infrastructure of labs to the development and test of products.

Between 2014 and 2015, the number of steps that must be carried out in Brazil by car producers will increase to seven, and in 2016 and 2017 to eight.

R&D Investment Requirements for Inovar

In order to benefit from Inovar-Auto, companies must choose two of the three requirements below and invest accordingly:

  • investments in research and development
  • investments in engineering, basic industrial technology and empowerment of suppliers
  • participation in the Programa Brasileiro de Etiquetagem Veicular, which is the Brazilian Labeling Vehicle Program.

Import Companies: How to Get the Benefits

For companies that don't produce vehicles but only sell them, in other words the importers, the participation in Inovar-Auto is conditioned to:

  • import more economic vehicles
  • provide development and research in engineering, basic industrial technology and empowerment of suppliers
  • join the vehicle stamping program.

How Inovar-Auto Is Applied

In order to get the benefits provided by the Inovar-Auto, companies must first deliver to the Federal Government an investment project with the target capacity of production. After the investment approval, there will be conceded to the company a IPI credit quota corresponding to 50% of the capacity of the vehicles production presented in the plan. This quota will have to be divided in two parts:

  • 25% must be used to develop the production facilities
  • 25% of the credit must be used after the commercialization of the first vehicle produced.

All companies accepted by the new regime will be able to import approximately 4.800 cars per year without being subject to the increase of IPI. The exact number will be determined according to the average import of each company between 2009 and 2011.

Companies which Will be Benefited by the Tax Reduction

Lots of companies had committed to the tax reduction regime, such as:

  • Chevrolet
  • Honda
  • Hyundai
  • Fiat
  • Ford
  • Volkswagen
  • Mercedes-Benz
  • Mitsubishi Motors
  • Peugeot
  • Citroën
  • Renault
  • Toyota
  • Audi
  • Volvo.