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Brazil: Tax benefits of Manaus Free Trade Zone extended until 2073

Ricardo M Debatin Silveira and Gabriel Caldiron Rezende of Machado Associados have good news for investors in the state of Amazonas in the north of Brazil.

Constitutional Amendment 83/2014, published on August 6, added article 92-A to the Transitory Constitutional Provision Acts (ADCT) to extend until 2073 the tax benefits granted to companies established in the Manaus Free Trade Zone (ZFM).

The ZFM is a free trade zone created by Decree Law 288/1967, aimed at the development of the industrial, commercial and agricultural activities within the State of Amazonas, located in the north of Brazil. In this way, special tax treatment is granted to operations from/to, as well as within, this free trade zone. Granting tax benefits was necessary to bring investments to the State of Amazonas that, because of its distance from the consumer market (mostly concentrated in the south and southeast of Brazil), needed to offer special conditions for companies to be set up there.

To this effect, the Brazilian legislation grants significant tax benefits applicable to the Corporate Income Tax (IRPJ), the PIS and COFINS Contributions, the Excise Tax (IPI) and the State Value-Added Tax (ICMS), for sales from industries in the ZFM to consumers or distributors of their products. Imports from companies in the ZFM and the sale of raw materials to industries established there — to be used in their industrial processes — are also entitled to relevant tax benefits.

When the Brazilian Federal Constitution was enacted in 1988, article 40 of the ADCT outlined that the beneficial tax treatment of the ZFM was to be maintained for 25 more years (up to 2013), which was later extended to 2023 by Constitutional Amendment 42/2003 and now to 2073 by Constitutional Amendment 83/2014.

This last extension comes as very good news for companies that benefit (or may benefit) from such special treatment and also for the region and its about-1.9 million inhabitants, because it will continue to boost investment and economic development, especially considering that many companies have established their plants there precisely because of such tax benefits.

Despite the logistical issues involved, companies established there obtain a significant production cost reduction, which has brought more than 600 companies from various segments, such as cleaning products (detergent, disinfectant, wax), non-alcoholic beverages, electronics, chemical, pharmaceutical, motorcycles, metallurgical, mechanical and disposable goods (lighters, pens, razors). Official data provided by the Superintendence of the Manaus Free Trade Zone (SUFRAMA), which can be found on its website at http://www.suframa.gov.br/download/indicadores/RelIndDes_5_2014.pdf - page 27), states that the industries established in the ZFM generated total revenues of about €27.8 billion in 2013, and about € 11.9 billion from January to May 2014.

It is important to stress that the extension of the ZFM tax incentives also benefits foreign exporters, because, SUFRAMA data also states that imports of raw materials have grown significantly in that region, from about € 4.1 billion in 2009 to €8.9 billion in 2013, and have already reached €4.2 billion from January to May 2014 (http://www.suframa.gov.br/download/indicadores/RelIndDes_5_2014.pdf - page 14).

Ricardo M Debatin da Silveira (rsilveira@machadoassociados.com.br) and

Gabriel Caldiron Rezende (grezende@machadoassociados.com.br) are members of Machado Associados’ indirect tax team

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