Brazil’s latest tax legislation updates for the oil and gas industry
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Brazil’s latest tax legislation updates for the oil and gas industry

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The oil and gas industry in Brazil has historically been seeking specific tax rules for its specific activities. This landscape is finally changing, but not all the legislative amendments are positive for the sector.

Indeed, notwithstanding certain tax incentives designed specifically for the industry (Repetro being the major one), various tax rules relating to exploration and production (E&P) activities have been unclear and subject to different views since the market opened in Brazil.

There are still matters lacking clear guidance, but, particularly since the last quarter of 2017, federal and state governments seem to be giving special attention to the oil and gas industry. These administrations have been gradually introducing new tax rules seeking to close the legislative loopholes, amend existing tax rules, create new tax incentives for the industry (and the new Repetro-Sped) and introduce new requirements and conditions for the purposes of enjoying certain tax incentives.

Naturally, while the industry has responded positively to certain new tax rules, some others, notably those introducing new requirements and conditions for the enjoyment of tax incentives, have been raising concerns among businesses.

The purpose of this article is to presents a concise overview of the most relevant and recent updates in the tax legislation relevant to the oil and gas industry.

Federal Law No. 13,586

Federal Law No. 13,586 of December 28 2017 introduces and amends various provisions in the tax legislation relevant to the oil and gas industry. This law is a result of the conversion into law of Provisional Measure No. 795 of August 17 2017.

The main changes introduced by the rules include the following:

  1. Repetro and LNG-related activities. Extension of the Repetro and of the relief of federal taxes levied on the importation of goods used in LNG-related activities until December 31 2040 (both of them formerly scheduled to end on December 31 2020).

  2. Tax deduction. Introduction, for the first time, of specific provisions in the tax legislation allowing for a deduction, from the basis for calculation of corporate income taxes (IRPJ/CSLL), of expenses, depletion and depreciation incurred in E&P activities.

  3. Contractual split. Amendments in the rules concerning the zero rate of withholding income tax (IRRF) applied on cross-border payments for the charter of maritime E&P vessels whenever the charter agreement is executed simultaneously with a service agreement for the operations of the vessel (commonly known as contractual split structure). Those amendments comprise:

    • a reduction in the maximum ratios of charter and services remuneration under a contractual split structure from January 1 2018. Pursuant to these new ratios, the IRRF zero rate applies if the charter remuneration does not exceed 70% of the combined charter and service remuneration in the case of floating production, storage and offloading vessels; 65% in case of drilling rigs; 60% in the case of LNG-related vessels; and 50% for other types of vessels.

    • a new rule on cross-border charter payments to favourable tax jurisdictions (black-listed jurisdictions) or privileged tax regimes (grey-listed entities), which are now subject to an increased 25% rate of IRRF on the total amount paid.


    • a provision stipulating that the contractual split ratios do not apply to support navigation vessels.


    • clarification that the application of the contractual split ratios does not change the nature and conditions of a charter agreement for the purposes of the application of CIDE and PIS/COFINS-Importation (which are taxes generally applied in respect of the importation of technical services and therefore not imposed on cross-border charters).


    • introduction of an amnesty in respect of a contractual split, pursuant to which the difference in the IRRF due, accrued with interest at the Selic rate, is payable with a total waiver of fines and penalties in relation to the triggering events occurred prior to December 31 2014.


  4. New special regime for permanent importation. Introduction of a new special tax regime waiving federal taxes on importation, on a permanent basis, of goods to be used in E&P activities.

  5. New special regime for the local industry. Introduction of a new special tax regime waiving federal taxes payable by local industry on importation and local purchases of products to be used in the manufacture of end products to be used in E&P activities and of intermediate products to be supplied to a manufacturer of final E&P products, as well as of the purchase of end products to be used in E&P activities. Please note that this special regime is yet depending on further regulations in order to take effects. 

Normative Instruction No. 1,778

Normative Instruction No. 1,778, of December 29 2017, from the federal Brazilian Revenue Service regulates the tax deduction and contractual split rules introduced by Law No. 13,586 (as amended by Normative Instruction No. 1,786 of January 29 2018).

  1. Tax deduction. Clarification in respect of the exact activities and expenses for each exploratory and development phase for IRPJ/CSLL tax deduction purposes and of the proper bookkeeping of such expenses.

  2. Contractual split. Introduction of rules, criteria and formulas for the calculation of the ratios applicable to a contractual split for the enjoyment of the zero IRRF rate.

Normative Instruction No. 1,781


Normative Instruction No. 1,781, of December 29 2017, from the Federal Brazilian Revenue Service regulates the new special regime for permanent importation introduced by Law No. 13,586 and the new Repetro-Sped that will definitely replace the current Repetro as of 2021.

As amended by Normative Instruction No. 1,796, of March 2, 2018, this Normative Instruction revokes the former Normative Instructions No. 1,743, of September 22 2017, originally enacted to address the matter.

Normative Instruction No. 1,781 introduces the following:

  1. Sped. Provides for the adoption of a digital bookkeeping system (Sped) for the control of transactions under the new Repetro (Repetro-Sped).

  2. List of goods eligible for Repetro-Sped. Introduces two lists of goods that may benefit from Repetro-Sped, describing their technical and commercial use per the Mercosur classification code. Annex I lists equipment benefiting from the tax relief on permanent importation only, while Annex II lists equipment that may benefit from the tax relief on permanent or temporary importation. 

  3. General restriction for importations under temporary admission regime. Introduces general restriction for the enjoyment of the temporary admission regime, among which: the present value (calculated on the basis of 12-month LIBOR) of the total consideration arising from agreements for bareboat charter, rental, lease or assignment cannot be greater than the value of the imported equipment themselves; the corresponding agreement cannot stipulate a purchase option; and the relevant equipment must be imported directly by the entity responsible for the cross-border payments.

  4. Specific restriction for importations of a production platform and floating production storage and offloading (FPSO) under temporary admission regime. Introduces specific restrictions for temporary importations of production platforms and FPSO, which are now only permitted when:

    • the corresponding charter, lease or rental agreement is executed: (a) at the same time as the agreement for the operating services of the platform or FPSO; and (b) between unrelated entities (the lessor and operating companies under these contracts cannot be related to the contracting concessionaires which hold the production rights); or

    • the production platforms and FPSOs are used on a temporary basis (up to four years) in oil and gas blocks/fields for production tests or anticipated production systems.

Normative Instruction No. 1,802

Normative Instruction No. 1,802 of March 27, 2018, from the Federal Brazilian Revenue Service, amends specific rules concerning Repetro.

  1. New list of goods eligible for the Repetro. Although the period for new temporary imports under Repetro was extended recently to December 31 2018, this Normative Instruction limited the scope of Repetro, establishing that no new temporary importation of platforms and vessels may occur within such regime. In that regard, this Normative Instruction introduces a new list of goods that may be subject to Repetro, limited to machines, equipment and tools the customs value of which, per unit, exceeds $25,000 and which are used for E&P activities (except for subsea equipment, pipelines, lines and pipes).

  2. Repetro-Sped. Any new temporary importation of vessels, production platforms and other goods not listed in this Normative Instruction must be carried out in accordance with the new Repetro-Sped rules.


ICMS Agreement No. 3

ICMS Agreement No. 3, of January 16 2018,from the National Council of Fiscal Policy authorises Brazilian states to grant reductions in the basis of calculation and exemptions from ICMS levied on transactions involving goods used on E&P activities and carried out under Repetro-Sped. In that regard, Brazilian states are authorised to grant:

  • A reduction in the calculation basis – Reduce the basis of calculation for ICMS levied on goods imported or acquired locally under Repetro-Sped for use in E&P activities. The total ICMS burden in such a case would be equivalent to 3% (without the possibility of recording ICMS credits);

  • Exemption on temporary importations under Repetro-Sped – Exempt the ICMS levied on goods imported on a temporary basis under Repetro-Sped for E&P activities;

  • Exemption on transactions carried out by local industry under Repetro-Sped – Exempt from ICMS: (i) fictitious exportations or local sales of listed items manufactured in Brazil that will be acquired or admitted (respectively) under Repetro-Sped; and (ii) transactions occurred prior to fictitious exportations or local sales mentioned above, covering all chain of supply of goods manufactured by suppliers and sub-suppliers of the national manufacturer of goods for E&P activities; and

  • ICMS exemption on transfer of Repetro to Repetro-Sped – Exempt from ICMS the importation of goods that are admitted prior to December 31 2017 relating to the transfer of Repetro to Repetro-Sped.



Please note that several states have regulated in their local legislation the tax incentives authorised by ICMS Agreement No. 3, such as the states of Amazonas, Bahia, Ceará, Espírito Santo, Paraná, Rio Grande do Norte, São Paulo, Sergipe and Rio de Janeiro.

This article was prepared by Leonardo Homsy and Isaque Brasil, partner and associate with law firm Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados.

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