Originally published in the July 9 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s Senate on June 27 approved a law (Project No. 146/96) changing the tax regime applicable to the country’s special export processing zones (Zona Especial de Exportação, or ZPEs). The project has been submitted to President Luiz Inácio Lula da Silva for consideration, but it may be vetoed because of concerns raised by manufacturers in domestic markets.
Established in 1988, ZPEs are tax-beneficial manufacturing districts. Export processing companies in the ZPEs receive tax exemptions on imported materials used in the manufacturing of products intended for export to foreign markets. The regime has been criticized by local manufacturers, who say ZPEs harm domestic firms and promote unfair competition for exports. It took more than a decade for the new law to be approved by both the House of Representatives and the Senate, and it still may be subject to a presidential veto.
Firms located in ZPEs generally benefit from an exemption from the federal excise tax (IPI), P.I.S. (the Program for Social Integration contribution), and COFINS (the Contribution for the Financing of Social Security). ZPE companies also are subject to more flexible currency exchange rules enabling them to receive and make payments abroad.
One of the more controversial issues in the law is a provision that would allow ZPE companies to sell 20 percent of their production in the domestic market. In the original version of the bill, the allowance was limited to 10 percent.
After complaints from the private sector, Lula da Silva issued a provisional measure to regulate local sales. The measure may reduce the percentage of products eligible for sale in the domestic market and then require ZPE firms to pay the same taxes applicable to any other local company.
David Roberto R. Soares da Silva