Brazil Tax Alert - 4 September 2012
Government extends period to obtain federal tax incentives
By Marcelo Natale and Cristina Arantes Berry
The Brazilian federal government enacted Law No. 12,712 on 31 August 2012, extending the term during which companies can obtain approval from the North (SUDAM) or Northeast (SUDENE) regional government development agency to obtain tax incentives designed to encourage economic development in those regions. Converting Provisional Measure 564 into law, Law No. 12,712 extends the deadline for obtaining such approval (which was scheduled to expire at the end of 2013) an additional five years.
Incentives include a 10-year, 75% reduction of federal corporate income tax for new projects (or the modernization or expansion of existing projects), accelerated depreciation and tax credits for PIS/COFINS purposes and an exemption from the freight tax.
The Brazilian business community (mainly companies with projects and investments in the affected regions) had lobbied for the government/Congress to extend the period to qualify for the incentives. Now, as a result of the five-year extension, investment projects that achieve the minimum production levels required by SUDENE/SUDAM to be considered as having “attained an operational phase” by 2018 will be eligible to benefit from the incentives.
The extension should provide more legal and economic stability and predictability for businesses that are expanding in Brazil’s less developed areas. It is important to note, however, that the incentives are not granted automatically, but require a robust business case to be presented during the application process.