Tax Reduction for the Semi-Conductor Industry in Brazil
The Brazilian Government has created a tax incentive program PADIS for the semiconductor industry. The program provides fiscal incentives for companies that pledge to invest in R&D and in the national development of the sector in the country. Here you will find out all the specifics about this program.
PADIS is the Programa de Incentivo ao Setor de Semicondutores, which is the Program of Incentives for Semiconducter Sector. It was created in 2007, together with the PATVD. The program permits the reduction of certain federal taxes in order to encourage the production of microelectronic goods.
In Brazil, the semiconductor sector is growing. In the past few years, investments have increased significantly: Ceitec, HT Micron and SIX are three examples of companies that are investing in semiconductor operations domestically. The increase in the semiconductor sector can be attributed to PADIS, to apply for this program the company must perform some specific activities related to semiconductors and displays as well as investment in R&D.
Benefits provided by PADIS
Reduction of the PIS/Pasep and Cofins
PADIS reduces the tax rate to zero for PIS/Pasep and Cofins contributions levied on purchases in the Brazilian market of:
- new machines, appliances, instruments and equipment related to the technological development of the semiconductor industry.
- software and inputs designated for the development of the sector.
Reduction of PIS/Pasep-Import and Cofins-Import
PADIS reduces the tax rate to zero for PIS/Pasep and Cofins contributions levied on the import of:
- new machines, appliances, instruments and equipment related to the technological development of the semiconductor industry.
- software and inputs designated for the development of the sector.
Reduction of IPI
PADIS reduces the tax rate to zero for IPI contributions levied on:
- new machines, appliances, instruments and equipment related to the technological development of the semiconductor industry.
- software and inputs designated for the development of the sector.
Besides the aforementioned exemptions, companies accredited by PADIS will also be exempt of paying the contribution CIDE, when charged on remittances abroad.
Benefited Companies of PADIS
To apply for the PADIS the Company must be accredited by the Receita Federal, or the federal revenue service. The legal entity must invest in R&D activities related to semiconductors and displays. The activities that are included in PADIS are:
semiconductors electronics
- concept, development and project (design)
- encapsulation
- testing
displays
- conception, development and project (design)
- fabrication of photosensitives, photo-luminescent (PDP) or electroluminescent (LED) and light-emitting (LED, OLED, TFEL)
- final assembling of the display and testing
PADIS Obligations
The company benefited by PADIS will have to invest at least 5% annually of its gross revenue in R&D that is performed in Brazil. At least 1% of the gross revenue must be designated for centers or institutes of research or Brazilian educational entities accredited by:
- Comitê da Área de Tecnologia da Informação, also known as CATI, which is the Committee of the Technology of Information Area.
- Comitê das Atividades de Pesquisa e Desenvolvimento na Amazônia , also known as CAPDA, which is the Committee of R&D activities in Amazônia
The intellectual property acquired with R&D must be protected by the proper government organization and must remain domestically. The protection provided by the government will permit that the intellectual property produced will remain in Brazil, improving the national industry of semiconductors.
How to keep PADIS benefits
In order to remain a beneficiary of PADIS, companies must report to the Ministry of Science and Technology every year. They must report qualification eligibly by demonstrating the completion of obligations and requirements by July, 31st each year.
If investments in R&D do not achieve the minimum percentage established by PADIS, the rest of the value must be applied in the Fundo Nacional de Desenvolvimento Científico e Tecnológico, also known as FNDCT, which is the National Fund of Scientific and Technological Development. In this case, the company will also be subjected to a fine of 20% and interest will be charged according to Selic tax.
Getting PADIS Application
Companies interested in applying for PADIS benefits must present their projects to the Minister of the State, the Minister of Science and Development and the Minister of Development, Industry and Foreign Trade. The ministers will evaluate the projects and send them to the Federal Revenue Secretariat who will perform the following process to grant PADIS eligibility to the company.
- collect data of the interested company and the CNPJ
- verify that the company has no outstanding tax obligations with the Receita Federal
- decide if the company will or will not be allowed to join the program
- inform the decision to the legal entity
If the company is approved to join PADIS, the Ato Declaratório Executivo, known as ADE, which is the Executive Declaratory Act, will be published in the Official Journal of the Union and in the Federal Revenue web page.