Brazil

Foreign tax credit

Brazilian resident companies are taxed on worldwide income, but they may offset the income tax paid in the country of domicile of the branch, controlled, or associated company, and the tax paid on earnings and capital gains, against the corporate income tax due in Brazil. The amount of tax effectively paid abroad, to be offset, may not exceed the amount of income tax and surtax due in Brazil on the amount of profits, earnings, and capital gains included in the calculation of taxable income.

Please refer to Controlled foreign companies (CFCs) in the Group taxation section for a description of the use of foreign tax credits.

Investment project incentives

Total or partial exemption from duty, excise tax, and social contributions on imported equipment is granted on certain approved investment projects.

Approved investment projects are also granted accelerated depreciation on nationally produced equipment and access to low-cost financing. Sales of some capital equipment are exempt from state sales tax.

Brazilian corporate taxpayers can recover a portion of their income tax and social contributions taxes on revenues (PIS/COFINS) based on investment in their own approved investment projects. These approved investment projects are normally granted total or partial income tax exemption. As of December 2023, MP 1,185/23  was converted into Law 14,789/23, effective as of January 2024, and it changes the means and limits for such tax relief.

The Brazilian legislation also provides tax incentives for projects focusing on technological innovation.

Program for Investment Partnerships

The Program for Investment Partnerships (Programa de Parcerias de Investimentos or PPI) intends to amplify and strengthen the interaction between the Brazilian state and private sector through partnership agreements to carry out public infrastructure projects.

PPIs can be used for (i) public infrastructure projects that are already under way or to be performed through partnership agreements to be signed by the direct or indirect bodies of the Brazilian federal government; (ii) public infrastructure projects to be performed through partnerships signed by the government of states or municipalities directly or indirectly, but delegated or fomented by the federal government; and (iii) other measures established by the National Privatization Plan, per law 9,491/97.

The Brazilian National Development Bank (BNDES) is authorised to support the PPIs through the Partnership Structuring Support Fund (Fundo de Apoio à Estruturação de Parcerias or FAEP), created specifically for such partnerships. The fund will be responsible for providing technical services to structure the aforementioned PPIs and the necessary privatisation measures, and shall have a ten-year period, renewable for an additional ten-year period if necessary.

Regional incentives

Income tax exemptions or reductions are also available for companies set up in specified regions within Brazil, primarily the north and northeast regions. These incentives are designed to accelerate the development of certain less-developed regions and industries considered to be of importance to the economy.

ICMS tax incentives - State tax incentives / benefits

According to the Federal legislation (Complementary Law 24/1975), the ICMS tax incentives or similar tax benefits granted by an individual state should be approved by all states through an agreement with the National Council of Fiscal Policy (CONFAZ). However, such tax incentives were usually granted by the states without this formal acceptance. As a result, ICMS tax incentives, granted in such terms, were or could be challenged by the other states, claiming the unconstitutionality of the incentive.

In 2017, the Brazilian Congress approved the validation of all ICMS tax incentives currently granted by the Brazilian states to taxpayers. In practical terms, such validation will sort out the so-called 'tax war' in which any state would not be able to challenge going forward the unconstitutionality of any ICMS tax incentive already granted at the Supreme Court level. It is worth mentioning that, if the VAT reform currently under discussion is approved, such incentives will remain in force until the end of the transition period (i.e. December 2032), being gradually reduced over the years.

In this sense, all states have listed their ICMS tax incentives in order to be valid as per the applicable tax legislation (Complementary Law 160/2017 and CONFAZ Agreement 190/2017). Until each of such incentives is valid, other states may grant similar tax incentives of any other state to their taxpayers in order to achieve tax equality.

Under the new VAT tax system, the "Compensation Fund for Tax or Financial-Tax Benefits of ICMS" will be established to compensate, by December 31, 2032, the legal entities benefiting from exemptions, incentives, and tax or financial benefits related to ICMS, granted for a certain period and under defined conditions. The criteria will be established by Complementary Law.

Other incentives

In addition, certain excise and sales tax exemptions are granted to exporters of manufactured goods.