Special Tax Regime for National Defence Industry introduced

 

Brazil

 

 

Report from Vanessa Arruda, IBFD Senior Research Associate

 

 

Special Tax Regime for National Defence Industry introduced

 

 

Provisional Measure 544/2011 (PM 544/2011), published in the Official Gazette of 30 September 2011 and in force as of that date, introduced the Special Tax Regime for the National Defence Industry (Regime Especial Tributário para a Indústria de Defesa – RETID) for legal entities conducting activities related to products considered to be of strategic interest for the national defence.

 

To qualify for the RETID, legal entities must meet the following conditions:

 

 

–    have in Brazil their headquarters, place of management and industrial establishment;

–    dispose of know-how for carrying out technical and scientific research, development of the technology, product or process related to the activity; and

–    assure that the voting power of foreign partners or shareholders does not exceed two thirds of the total votes exercised by Brazilian partners or shareholders.

 

The RETID is available to legal entities that conduct the following activities, provided that they are for use in the maintenance, preservation, modernization, revision or manufacturing of products of strategic interest for the national defence:

 

–    in the case of qualifying legal entities:

–    production of parts, pieces, tools, components, equipment, systems, inputs and raw materials; or

–   provision or import of services of technology, development, innovation, technical assistance or transfer of technology; and

–    in the case of any legal entity, the production of goods or provision of services used as inputs in the production of goods by a qualifying legal entity.

 

The tax benefits granted under the RETID, which are valid for the period of 5 years, are as follows:

 

–    in the case of sale to the internal market or import of goods, the following taxes and contributions are suspended:

–    contribution to the employee's profit participation program (Contribuição para o Programa de Integração Social – PIS), contribution for the financing of social security (Contribuição para o Financiamento da Seguridade Social – COFINS) and tax on manufactured products (Imposto sobre Produtos Industrializados – IPI) on the sale of goods to the internal market, provided that the acquisition is made by a legal entity qualified for the RETID; and

–    PIS, COFINS and IPI on the import made by a legal entity qualified for the RETID; and

–    in the case of provision or import of service of technology, development, innovation, technical assistance or transfer of technology, the following contributions are suspended:

–    PIS and COFINS on the provision of services by any resident legal entity to a qualifying legal entity; and

–    PIS and COFINS on the import of services by a qualifying legal entity.

 

The suspension of taxes and contributions are eventually converted into a zero-rate benefit, provided that certain conditions are met. In case such conditions are not met, the benefits of the RETID are revoked and all taxes and contributions previously suspended, as well as their related interest and penalties, become due.

 

Note. A PM is issued by the President without the intervention of the legislative power. It is valid for a 60 calendar-day period, which may be extended for another 60 days. After this period, the PM loses its effect, unless it is approved and converted into law by the Congress.

 

 

Reference: CTS:BR:1.7.; CTA:BR:1.9.8.

 

www.ifdb.org  14/10/2011