This content is from: Brazil

São Paulo increases ICMS tax benefits to boost the local industry

Carolina Romanini Miguel and Gabriel Caldiron Rezende of Machado Associados discuss how the local government is taking active steps to incentivise agriculture and food production in Brazil.

The state of São Paulo has reduced the state VAT (ICMS) impact on some acquisitions of fixed assets, in a move which aims at increasing local industrial activity. 

The reductions include those from the following sectors: pectin manufacturing; production of dehydrated but not crystallised dried fruits and obtaining citrus peels; cookies and crackers manufacturing; pasta manufacturing; certain toys and recreational games manufacturing; firearms, other weapons and ammunition manufacturing; dairy manufacturing; milk preparation; and milling and manufacturing of certain plant products.

The ICMS is levied on imports and domestic transactions with goods, as well as on the acquisitions of fixed assets. As the ICMS is a non-cumulative tax, the acquisition of fixed assets used on activities subject to this tax grants its acquirer credits to be offset against its ICMS debts. However, the credits on the acquisitions of fixed assets must be booked in 48 monthly installments (1/48 per month), and such installments are not subject to any interest or monetary update.

Although the acquisitions of fixed assets usually entitle the purchaser to book credits, which would reduce the financial impact of the transaction, the fragmentation of the credits in four years tend to burden companies.

Furthermore, such negative impact is even worse on imports, as in this case, the ICMS must be paid in cash by the importer upon customs clearance, and it is only afterwards that the relevant credits may begin to be booked monthly.

To this effect, Article 29 of the Transitional Provisions of the state of São Paulo ICMS Regulation sets forth the following special ICMS rules related to the acquisition of fixed assets for certain economical activities, in order to reduce the tax impact on such transactions:
  • On imports of fixed assets, without a national similar, the ICMS levied is not charged upon customs clearance but rather paid in 48 monthly instalments. In practical terms, as the relevant ICMS credits are also booked in 48 monthly instalments, the ICMS levied on such imports is neutralised;
  • If the industrial establishment is in pre-operational phase, a special regime may be granted so that the imports of fixed assets are carried out with the suspension of the ICMS, postponing its payment until the moment that the product resulting from the manufacturing is shipped;
  • The possibility of booking, fully and at once, the ICMS credit related to the acquisition of fixed assets acquired directly from a manufacturer located in the state of São Paulo; and
  • If the acquiring establishment does not have enough ICMS debts to absorb the full and immediate tax credit, a special regime may be granted to authorise the manufacturer of the asset to sell it with suspension of the ICMS, postponing its payment to when the purchaser of the asset ships the product resulting from manufacturing.
Article 29 provides a list of more than 200 economic activities that are eligible to receive the ICMS tax benefits as mentioned above. 

With the aim of boosting the local industry, the state of São Paulo issued Decree 64687/2019 on December 20 2019, which adds the nine economic activities indicated above to the Article 29 list. This decree comes as positive news because it expands very important ICMS tax benefits especially to the agribusiness sector, providing it with significant cashflow gains on the acquisition of fixed assets, and allows the sector to grow and become modernised.


Carolina Romanini Miguel
T: +55 11 3093 4810

Gabriel Caldiron Rezende
T: +55 11 3093 4692

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