Originally published in the May 9 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s House of Representatives on May 6 approved, with the addition of further tax incentives, Provisional Measure 418, which introduces a new tax regime applicable to the country’s special export processing zones (ZPEs).
Provisional Measure 418, published in the official gazette on February 15, includes in the ZPE regime the suspension of the import tax; the federal excise tax (IPI); P.I.S. (Program for Social Integration contribution); COFINS (the Contribution for the Financing of Social Security), including P.I.S./COFINS on imports; and the additional tax on international freight.
The House added to the provisional measure a proposal to extend for a period of 20 years the term a company can stay within a ZPE (and enjoy its tax incentives) for large investment projects. The ZPE National Council, which monitors ZPE companies, would have jurisdiction to authorize the extension.
To grant additional competitive advantages and make ZPEs more attractive to investors, the House version of the measure also includes a full corporate income tax exemption for the first five years of operation. From years 6 to 10, eligible companies would enjoy a corporate income tax reduction of 75 percent. However, to enjoy those income tax breaks, the relevant companies must be located in northeastern or northern Brazil, under the jurisdiction of the Superintendence for the Development of Northeastern Brazil (SUDENE) or the Superintendence for the Development of the Amazon (SUDAM).
For foreign-owned ZPE companies that enjoy tax breaks, Provisional Measure 418 provides for a withholding tax of 25 percent on profits and dividends remitted outside Brazil. The withholding tax would not apply, however, if the law in the foreign investor’s jurisdiction provides for income tax exemption on such dividends and profits received from ZPE companies.
The new provisional measure will now go to the Senate.
David Roberto R. Soares da Silva