Originally published in the April 9 edition of World Tax Daily (Copyrights Tax Analysts)
Following the launch of a government home construction program, Brazil’s official gazette on March 31 published Provisional Measure 460, which introduces a series of construction tax breaks.
The Brazilian government on March 25 introduced a program to build 10 million low-cost houses for low-income individuals. Programa Minha Casa, Minha Vida (My Home, My Life, or PMCMV) was created by Provisional Measure 459, which was published in Brazil’s official gazette of March 26. Provisional Measure 459 included no tax breaks but designated public funds for financing home construction.
Provisional Measure 460 changes the current special tax regime (regime tributário especial, or RET) for construction companies that was created in 2004 by Law 10,931/07. Under RET, eligible construction companies may reduce their overall taxation to 7 percent of gross income, which includes corporate income tax (2.2 percent of gross income), the social contribution on net income, or CSL (1.15 percent), the Social Integration contribution, or P.I.S. (0.65 percent), and the Contribution for the Financing of Social Security, or COFINS (3 percent).
For construction companies that are eligible to build low-cost homes under the PMCMV, RET overall taxation is reduced from 7 percent to 1 percent of gross income (income tax, 0.31 percent; CSL, 0.16 percent; COFINS, 0.44 percent; and P.I.S., 0.09 percent). The reduction is an incentive for the private sector to build low-cost housing and reduce Brazil’s housing shortage. The RET reductions for companies under the PMCMV are valid until December 31, 2013.
For companies that aren’t part of the PMCMV, Provisional Measure 460 reduces the overall tax burden under RET from 7 percent to 6 percent (income tax, 1.89 percent; CSL, 0.98 percent; COFINS, 2.57 percent; and P.I.S., 0.56 percent).
COFINS Reduction for Motorcycles
Although Provisional Measure 460 focuses on the construction sector, article 4 reduces to zero the COFINS rate for the sale of motorcycles. The reduction applies for importers and manufacturers but excludes retailers.
Similar to the federal excise tax (IPI) reduction for vehicles that was effective earlier this year, the COFINS rate reduction is temporary and applies for sales concluded from April through June 2009.
David Roberto R. Soares da Silva