GSGA – Special Report – Brazilian Tax Review 06/2014 – July/August

Brazilian Government extends Manaus Free Trade Zone

The Manaus Free Trade Zone was conceived as an import and export free trade area with special tax incentives (tax breaks, extra tax credits and deferrals) that was supposed to last until 2023. However, the Brazilian Congress enacted Constitutional Amendment 83/2014 on August 6, extending the life of the Manaus Free Trade Zone for an additional fifty years, from 2023 to 2073.

New rules to facilitate Drawback System

Drawback is a special customs method that allows tax and duty suspensions or exemptions on imported goods used to manufacture products for export. This tax break applies to the Import Duty, PIS/COFINS taxes, IPI (Excise Tax) and ICMS (State Value-Added Tax), as well as to the domestic acquisition of items used to manufacture products for export.

The Brazilian Federal Revenue Office and the Foreign Trade Secretariat recently published a joint ordinance that contains new regulations for the drawback method. The most significant change is the possibility of substituting products imported using the method for equivalent products acquired without the tax break in order to meet export commitments. This option eliminates the need to keep drawback inventory separate from products that do not take advantage of the tax break, which has been a major inventory control problem for exporters.

New regulations for "Ex Tarifarios"

Importers can apply for a temporary reduction in import duties when importing equipment or machinery (capital goods and IT goods) for which there is no equivalent produced in Brazil. This tax break reduces all the taxes levied on customs clearance (IPI, ICMS and PIS). This tax break is referred to as "ex tarifario" in Portuguese.

On August 15, the Chamber of Foreign Trade (CAMEX) published new requirements and procedures for the ex tarifario method. The new regulations fully describe all the procedures for applying the ex tarifario method and will help to eliminate subjective criteria and will make it easier to grant the tax break.

New decision on service exports holds that Services Tax (ISS) does not apply when the result of the service is received abroad

Under Brazilian law, the Services Tax (ISS) does not apply to the export of services. However, if the result of the services is manifest in Brazil, the ISS tax is due to the city where the entity that provided the service is located, even if the party purchasing the service has no establishment in Brazil. In this...