Analysis

Regional incentives

Doing Business in Brazil

Manaus free trade zone (zona franca de Manaus)

The Manaus Free Trade Zone, regulated by Decree-Law No. 288/1967, is a free import and export trade area where special fiscal incentives apply. It was set up with the objective of creating in the Amazon Region an industrial, commercial and agricultural center under economic conditions that allow its development, given local factors and the great distance separating it from its markets.

Today, around fifty years after it was founded, the Manaus Free Trade Zone represents a virtuous Brazilian government development model that has managed to make a socio-economic base in the Amazon region feasible, promote the better productive and social integration of the region with the rest of Brazil, and guarantee national sovereignty over its borders.

During its historical evolution, the Manaus Free Trade Zone has enabled three economic hubs to be devel-oped: industrial, commercial and agricultural. The first of these, represented by the Manaus Industrial Sector (PIM), is considered the foundation stone that sustains the model.

The Manaus Free Trade Zone has a set of tax and other incentives available especially to attract and keep investments in its area of influence. These incentives have been made available by a joint action between the Federal and State Governments, offering:

Federal Taxes Incentives
  • Import Duty Reduction (II): 88% reduction for consumables used in industrialization;
  • Excise Tax Exemption (IPI);
  • Corporate Income Tax Reduction (IRPJ): 75% reduction of Income Tax and Non-Refundable surcharges, exclusively for reinvestments. Common to all the Legal Amazon.
  • Social Integration Program Tax (PIS) and Social Security Contribution (COFINS) Exemption/Reduction: Exempt for imported goods and internal sales between industries within Manaus Free Trade Zone, and reduction for 3.65% aliquot – rather than 9,25% – on finished goods sales to the rest of the country.
State Taxes Incentives
  • State Value Added Tax Reduction (ICMS): Reduction from 55% up to 100% of the ICMS, depending on the investment project. In all cases, to use the incentives, companies must contribute with funds for financing high education, tourism, R&D, and small and micro-companies.
Other Incentives
  • As well as the tax incentives, the Superintendence of the Manaus Free Trade Zone provides land for investors for a subsidized price, with urbanized road system, water supply network, telecommunications network, sanitary sewer and rainwater drainage.

To be eligible for MFTZ’s incentives the produced goods must meet the Brazilian PPB (Basic Productive Process), which determines the level of nationalization required for each type of product, since the initiative aims to encourage the national industry. The PPB is defined by joint decree of the Ministry of Science, Technology and Information and the Ministry of Development, Industry and Trade.

North and Northeast

Before the 1930s – Brazilian development policy was based primarily on exports, but in the late 1930s, Brazil implemented a development policy based on import substitution. As a result of this action, South and Southeast Regions increased their share of the industrial provision at the expense of the other Regions (North, Northeast and Midwest), leaving those regions far behind.

In the 1960s – Brazilian government implemented policies to counterbalance the Regional development by stimulating investments, consequently, economic growth on the lagging regions. As a result of these policies, Development Agencies were established in the North (Superintendence for the Development of the Amazon - SUDAM) and Northeast (Superintendence for the Development of the Northeast) regions with the purpose of coordinating the development funds and granting tax incentives.

This tax incentive mechanism intends to benefit investments in the North and Northeast regions, in the State of Mato Grosso and in some municipalities in the northern region of Minas Gerais and Espírito Santo, in activities considered vital for Brazilian development.

Historically, the vast majority of foreign investment has been concentrated in the country's Southern and Southeastern states. However, recent data suggests that this dynamic is changing. In order to achieve a competitive edge and access markets with incredible growth potential, multinationals are beginning to look to investment opportunities outside the traditional investment centers.

The North and Northeast regions are being seen as potential destinations. These two regions have tremen-dous room for future growth and investors are starting to realize these opportunities.

Main taxes incentives offered by Sudam and Sudene

Corporate Income Tax Reduction
  • 75% reduction on the CIT and non-refundable surcharges due on operating profit (Lucro da Exploração), granted for 10 (ten) years term.
  • General preconditions for the incentive eligibility:
  • Submit the project until December 31, 2018;
  • Operate in SUDAM or SUDENE's covered region;
  • Be in an economic segment that is considered priority for regional development, as defined in Decree 4.212/2002 and 4.213/2002;
  • Invest to implement, expand, diversify or improve projects;
  • In case of modernization or expansion of an existing project, the minimum increase of production capacity eligible is 20% for investments in infrastructure and 50% for other investments.
Corporate Income Tax Reinvestment

Corporate entities may use 30% of the CIT due for reinvestment purposes. The 30% portion must be deposited in Northeast Bank (Banco do Nordeste do Brasil S/A – BNB) or Amazon Bank (Banco da Amazônia S.A.), plus 50% of its amount from own funds. In order to have the resources reimbursed, the company must submit a technical project to the competent Development Agency attesting that the company invested in modernization projects or equipment complementation projects. As soon as the project is approved, the amount invested is returned to the company.

Incentivized Accelerated Depreciation of fixed assets depreciation and discount of PIS/PASEP and Cofins contributions

Companies enjoying the 75% reduction of income tax incentive and located in less developed micro regions areas under the supervision of SUDENE and SUDAM are entitled to incentivized accelerated depreciation of assets acquired for the purposes of income tax calculations and to a discount on credits of PIS/PASEP and Cofins contribution. The incentive consists on the full depreciation within one year in the very year of the asset acquisition or up to the fourth year. The Regional Agencies may grant this benefit after analyzing beneficiaries' requests regarding compliance with the Law 11.196/05.

Special tax regimes

Special tax regimes are provided by Brazilian legislation to benefit some specific economic activity sectors. In most cases, taxpayers must comply with the application requirements due for each special tax regime, as well as other special requirements and ancillary obligations.

Special Tax Regime

Sectors

Activity

Benefits

REIDI

Law 11.488/2007

Transport, port, energy, basic sanitation, irrigation.

Implements infrastructure projects approved by the Ministry of the respective sector.

PIS and Cofins suspension on the acquisition (imports or domestic) of machinery, devices, and equipment, as well as services.

REPES

Law 11.196/ 2005

Software development or IT services.

Exports at least 50% of their annual gross revenue.

PIS, Cofins and IPI suspension on imports as well as domestic acquisitions.

PADIS & PATVD

Law 11.484/2007

Production of semiconductors and digital television equipment.

Manufacturing and R&D projects.

Zero percent rate of PIS, Cofins and IPI on the acquisition (imports and domestic) of machinery, devices and equipment, and on the sale of products; Reduction on the CIT due on operating profit (Lucro da Exploração); For PADIS only, zero percent Import Tax (II) and CIDE on remittances abroad in relation to royalties is applicable.

REPETRO

Decree 4.543/2002

Oil and gas exploration.

Imports of equipment destined to the exploration of oil and natural gas as well as its production.

Total suspension of federal taxes due on importation. * There may also be ICMS benefits, as well as the application of other custom special regimes.

RECAP

Law 11.196/2005

Export companies.

Exports at least 70% of their annual gross revenue.

Suspension of PIS and Cofins on imports of equipment, instruments and machinery.

RECINE

Law 12.599/2012

Movie theater industry.

Modernization and expansion of local movie theater industry.

Suspension of II, IPI and PIS/Cofins in case of domestic sales or import of new machinery, devices, instruments and equipment, for the incorporation on fixed assets and use in exhibition complexes, as well as materials for their construction.

REPORTO

Law 11.033/2004

Ports and railroad concessionaires.

Modernization and extension of port structure.

Suspension of II, IPI and PIS/ Cofins, in case of domestic sales or import of new machinery and equipment. Benefit granted until 31st December 2020.

RET

Law 10.931/2004

Real estate.

Real estate development.

IRPJ, CSLL and PIS/Cofins at a combined rate of 4%. *Reduced to 1% in case of residential projects with a social interest.

INOVAR-AUTO

Law 12.715/2012

Motor vehicle´s supply chain.

Investments in R&D activities, safety measures, power efficiency, environmental measures and quality improvement of automobile industry.

IPI offset, through deemed credit, based on the cost related to the purchase of raw material, tooling, research, technological development, technological innovation, suppliers development, engineering, basic industrial technology and payments made to FNDCT (National Fund for Scientific and Technological Development). This Regime is available until December 2017.

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