Exports: Decree Brings Brazilian Firms Closer To Getting Tax Advantages in Export Zones
| April 20, 2009 |
Brazil's President Luiz Inacio Lula da Silva April 9 signed a decree creating the regulatory organ for companies in special export processing zones to receive tax advantages.
These zones, called ZPEs, were created by a 1988 law, and although 17 of them have been approved, they have never become operational because of disputes over their rules and other regulatory questions. In June 2008, the rules passed Brazil's congress, but they could not take effect without the presidential decree signed by Lula.
The decree established a special governmental council that will be responsible for overseeing the export zones. “This is not a new process and most countries have export zones that function with great success. Here in Brazil the only thing that was missing was the regulation of the zones,” said Minister of Development and Trade Miguel Jorge.
Grace Periods
Under the rules, during their first 20 years companies operating within the special zones will not have to pay six federal taxes on the goods they import. The taxes are the import tax, the IPI excise tax, the Cofins social security tax, the Cofins import 19 tax, the PIS/Pasep social security taxes, and the merchant marine freight tax on imports.
The federal taxes also will be suspended on goods purchased domestically by ZPE firms. In addition, companies operating out of export zones in the north and northeast regions of Brazil will not have to pay income taxes for five years and for the next five will have their income taxes reduced by 75 percent.
To be allowed to operate within an export processing zone, a company must agree to export at least 80 percent of its production. The remainder can be sold on the domestic market, but in this case the company will be forced to pay all of its federal taxes on the goods sold within Brazil. If the regulatory council determines that a firm's production is harming domestic competitors, it can adopt punitive measures
that could include an outright ban on domestic sales.
At the moment, only one of the 17 approved zones is close to becoming operational. Foreign Trade Secretary Welber Barral admitted that because of the global crisis and Brazil's declining exports, few companies will be willing today to invest in the zones. He added, though, that in the future the zones “will increase the competitiveness of Brazil.”
By: Ed Taylor, Source: BNA (www.bna.com)
