Brazil: Tax Breaks for Oil and Gas

In order to explore, develope and produce oil, natural gas and other fluid hydrocarbons, certain industrialized goods are needed. The process of acquiring and using them is called Repetro-industrialization. As of July 17, 2019, there is new regime in place in Brazil which regulates this process in terms of taxation.

The Normative Instruction No. 1.901/2019 allows companies to import or buy raw materials, intermediate products and packaging materials used for Repetro-industrialization in the domestic market without the payment of federal taxes.

 

How to profit from the Tax Exemption?

In order to profit from the tax breaks, companies have to:

 

  1. manufacturers that fall under the special tax and customs regime for the economic use of goods destined for the exploration, development and production of oil and natural gas (Repetro-Sped) by the Special Secretariat of the Federal Revenue of Brazil (RFB)

or

  1. intermediary manufacturer of goods to be directly supplied to manufacturers under 1.

 

Also according to the norm, in order to be qualified, the interested company must submit an application and comply with the following terms and conditions:

  • prove that it falls into one of the above listed scenarios
  • to comply with the requirements of fiscal regularity before the National Treasury to obtain a joint certificate with information about the company`s situation regarding the taxes administered by the RFB and the Active Debt of the Union (DAU) and by the Attorney General of the National Treasury (PGFN)
  • to verify the regularity of the payment to the Fund of Guarantee of the Time of Service (FGTS)
  • be in compliance with the obligations of delivery of the Digital Tax Bookkeeping (EFD) ICMS / IPI (EFD-ICMS / IPI) and EFD-Contributions, under the terms of the specific legislation
  • issue an electronic Invoice (NF-e) regarding the movement of goods between establishments, warehouses and places of use
  • have not been submitted to the special inspection regime referred to in art. 33 of Law No. 9,430, of December 27, 1996, in the last 3 (three) years
  • opted for the Electronic Tax Domicile (DTE), pursuant to Normative Instruction SRF No. 664, dated July 21, 2006
  • not to opt for the Unified Special Regime for the Collection of Taxes and Contributions owed by Micro-enterprises and Small Enterprises (National Simple)
  • not be taxed by income tax on the basis of arbitrated profit

 

How to enroll?

The application for authorization to operate the scheme must be submitted to the Federal Revenue Office of Brazil (DRF) or to the Special Revenue Service of Brazil’s Tax Administration (Derat) with jurisdiction over the parent company’s legal establishment.

In order to qualify for the program, the company has to request the creation of a digital service dossier or a digital process with the RFB.

 

How long is the Tax Break valid?

The standard period for the new tax regime is one year and can be extended automatically, counted from the date of the respective customs clearance or the issue of the NF-e (if purchased in the domestic market).

 

These regulatory changes could affect your business with view to customizing or support of your ERP/SAP system. Please contact us to learn about possible necessary reactions to the changes – we are happy to assist you!