Originally published in the June 15 edition of World Tax Daily (Copyrights Tax Analysts)
São Paulo state decree no. 54,422/2009, which suspends the state VAT (ICMS) on imports of fixed assets by São Paulo taxpayers, was published in the official gazette on June 6. It also allows immediate ICMS tax credits for purchases of fixed assets between São Paulo taxpayers. These measures are very important because the ICMS rate can be as high as 18 percent of the purchase price of a given asset.
The decree lists 119 manufacturing sectors that will benefit from the new ICMS measures upon acquiring fixed assets for their businesses.
For imports of new machinery and equipment, the decree requires that no similar product is being manufactured in Brazil and that customs clearance be conducted within state boundaries (that is, fixed assets cannot be imported through out-of-state ports or airports).
Under the new regime, qualifying manufacturers will no longer be required to pay ICMS at the time of customs clearance. The tax will be paid in 48 monthly installments after the imported asset has been delivered to the taxpayer’s premises.
For domestic purchases, the decree allows São Paulo purchasers of fixed assets, machinery, and equipment to take an immediate credit for the ICMS paid on those items. Previously, these taxpayers were required to take ICMS credits in 48 monthly installments, which had a significant impact on cash flow.
As a condition, the decree requires that the seller also be a São Paulo ICMS payer, which means that interstate purchases are not eligible for the immediate tax credit and are still subject to the 48-month tax credit rule.
For a São Paulo company to be eligible for the ICMS benefits, it must have no pending tax issues with state authorities. The benefits are effective from June 6 through December 31.
David Roberto R. Soares da Silva