Tax benefits: Incentives to invest
14:49 14 de November de 2022 Por Daniel Oiticica
*By Por Igor Maia Gonçalves, Lucas Ernesto Gomes Cavalcante and Rômulo Alexandre Soares, APSV Advogados
The legal approach addressed in this section aims to present an overview of the legal environment in Ceará for making investments, focusing on tax and regulatory aspects. Thus, we consider that the scope of the material presented does not cover all the legal aspects necessary for a broad and in-depth assessment, so this guide should be interpreted as a useful guide for the initial contact with the legal topics discussed herein.
Additionally, it should be noted that the legislative process in Brazil (and therefore in Ceará) is quite dynamic, so confirmation of the validity of the information indicated in this material must be evaluated when using it. Therefore, the search for specific legal guidance when investing is essential.
Ceará is one of the 26 federal states that make up the Federative Republic of Brazil. Besides the states, the Federation is composed of the Union, the Federal District, and the municipalities. The state function is exercised by dividing it into three harmonious and independent powers: executive, legislative, and judiciary.
Legislative competence is distributed among the Union, States/Federal District and Municipalities. The rules enacted at the federal level are those that deserve the most attention from investors, as they regulate most business activites in any of the 26 states and the Federal District.
Even so, it is important to point out that, despite a relative uniformity of legislation, the legislation of one State or Municipality may be different from that established by another, such as, for example, in the definition of some tax rates associated with commerce and of state competence; taxes on real estate or services, which are municipal jurisdiction; in environmental management, whose competence is concurrent between the Union, States and Municipalities; among other differences. This is relevant for entrepreneurs who want to do business in Ceará and, from there, operate in other states of Brazil.
Additionally, seeking to develop this environment and foster entrepreneurship, we have observed that the process of reducing bureaucracy and facilitating business in Brazil has occupied the Brazilian legislative agenda, for example, the process of starting a business, a major obstacle to investment.
On the road to attracting investments to Ceará, several public policies and benefits have been created, at a federal and state level, as part of the government’s strategy to promote relevant markets for the region. The Guide to Ceará – Land of Opportunities presents information about the Industrial Development Fund, Ceará Credi, the Export Processing Zone, and the different instruments for promoting the development of Sudene (Superintendency for the Development of the Northeast).
INDUSTRIAL DEVELOPMENT FUND (IDF)
The IDF is one of Ceará’s principal public policies aimed at making the region’s economic development feasible, through the concession of tax incentives, in the form of a reduction in the Tax on Operations related to the Circulation of Merchandise and on the Rendering of Interstate and Intercity Transport and Communication Services (ICMS), formalized by means of an agreement between the company and the State Government.
The benefit is granted to industrial companies and industrial cooperatives considered to be of fundamental importance (with priority given to those belonging to labor-intensive industrial sectors) for the economic development of the state, and is destined for the implantation, operation, relocation, expansion, modernization, diversification, or recovery.
The Industrial Policy of the State of Ceará comprises:
-Actions aimed at selectively attracting business investments, targeting the formation and densification of selected production chains and the formation of spatial agglomerations.
-Availability of the necessary infrastructure for the implementation and full development of the production activity.
-Support for inclusion and economic development, aiming at: a) strengthening the network of institutions focused on socioeconomic development and the absorption of new technologies; b) the attraction and strengthening of local technology-based companies; c) generation and increase of production chains with the consequent increase in the number of jobs; d) the development of the tourism industry.
-Training and qualification of manpower.
-Specific programs for granting incentives.
-Share participation of public companies in businesses that wish to establish themselves in the State
-Incentives for the consolidation and implementation of Hubs (connections centers) that generate economic growth and the development of the State.
-Institutional support for companies, together with national and international credit financial institutions, as well as investment funds.
The incentive percentage will be up to 75% of the ICMS deferral generated by industrial production (companies that are part of PROADE can have up to 99% of ICMS deferral)
The company will enjoy the benefit for up to 10 years and can be extended for an equal period.
To enjoy the benefits, companies must present/fulfill specific goals for: production, job generation, investment volume, and freight costs for the contract or agreement term.
Besides the other requirements mentioned in the Decree, the companies that qualify for IDF benefits must
-Present an economic-financial project to the Development Agency of the State of Ceará (Adece) that will submit it to the IDF financial agent, whose analysis must demonstrate the economic-financial viability of the enterprise.
-In the case of a new company, it must prove, through a technical report issued by IDF’s financial agent, that the start of production occurred less than 180 (one hundred and eighty) days after the presentation of the project to IDF’s financial agent.
-In the case of an expanded, diversified, modernized industry, prove, by means of a technical report issued by the IDF’s financial agent, that the process of expansion, diversification or modernization has started less than 180 (one hundred and eighty) days as of the date of the request of the Protocol of Intentions to the Operating Agent.
PROVIN – Incentive Program for Industrial Development
Incentives will be granted to companies and cooperatives, of an industrial nature, incentives for the implementation, expansion, recovery, diversification and modernization of industrial establishments, as defined in Decree No. 34,508 of January 4th, 2022, in the following modalities.
Implantation – an undertaking which provides the entrance of a new productive unit.
Diversification – an undertaking that adds new production lines or incorporates a new economic activity, without excluding the existing lines, to produce new products.
Modernization – a venture that introduces new technologies, new methods and rational means of production, partially or completely modernizing the production process of a company, in one or more lines of production.
Extension – a venture that expands the real installed capacity of the enterprise, in one or more lines of production.
Recovery – a venture that makes new investments capable of restoring its economic viability, with the use of the installed capacity, promoting job generation.
The incentives granted are guaranteed for a period of up to 10 years, renewable for an equal period. The main benefit is deferral/postponement of up to 75% of the ICMS amount due, with return on principal limited to up to 25%.
PCDM – Incentive Program for Merchandise Distribution Centers
Incentives will be granted to companies in relation to the entry of merchandise from abroad or from states in the south and southeast regions, the entry of merchandise from any of the regions of the country, provided that the exit has been promoted directly from the establishment of the manufacturer, the internal acquisition of scrap, whatever its nature, and the internal acquisition of goods in accordance with Decree 24.569/1997.
The incentives granted are guaranteed for a period of up to 120 months, with a reduction of up to 75% in ICMS generated on interstate departures of goods.
In addition, the deferral of ICMS levied on the importation of goods, without a similar product in this State, on the importation from abroad as well as on the entry of other units of the Federation, of goods to integrate the fixed assets is still granted.
Finally, the waiver of the advance payment of ICMS levied on interstate entry of goods from industrial establishments is guaranteed, in cases of contracts signed up to December 2017.
PIER – Incentive Program for the Production Chain Generating Renewable Energies
This will be awarded to companies that manufacture equipment used for the generation of renewable energy from biofuels, biomass, wind, solar energy, hydrogen, tidal, among others.
Companies supported by the PIER will be assured that:
The incentives granted are guaranteed for a period of up to 120 months; deferral equivalent to 75% of the amount of ICMS generated monthly within the legal term; and return of deferred ICMS in the percentage of 1%, duly corrected by the application of the Long-Term Interest Rate (TJLP) or another index to be defined.
PROADE – Program for Attracting Strategic Enterprises
Incentives will be granted for the implementation of undertakings economically located in the territory of the State and considered strategic for the development of Ceará.
Companies supported by PROADE are guaranteed incentives for a period of up to 10 years, renewable for an equal period. The incentives may be up to 99% of the ICMS related to the company’s own production operations, with a return of up to 1%.
The sectors considered strategic are the following:
I) Extraction of metallic minerals.
II) Manufacturing of non-metallic mineral products.
III) Manufacturing of pharma chemical and pharmaceutical products.
IV) Manufacturing of automobiles, vans, SUVs, trucks and buses.
V) Manufacturing of chemical products.
VI) Textile industry
VII) Manufacture of footwear.
VIII) Manufacturing of petroleum refining products and petrochemical products.
IX) Steel industry.
X) Manufacture of locomotives, wagons and other rolling stock.
XI) Manufacture of aircraft, their parts and components.
XII) Wheat milling.
XIII) Manufacture of electric motors, their parts and accessories.
XIV) Other industrial activities that do not have similar production in the national territory.
XV) Implantation of companies in polygons to be defined by a specific act of the Executive Power, located, necessarily, in regions that have prison units and/or houses of provisional deprivation of freedom, administered by the Secretary of Justice and Citizenship of the State of Ceará – SEJUS, or any other that replaces it, guaranteeing a minimum percentage of 90% of the job openings to the inmates of the Penitentiary Complexes of the State of Ceará.
Other incentives within the scope of the IDF
IMEMPI – Imports of Machinery and Equipment and Raw Material and Supplies
Besides the programs already highlighted, the IDF provides some other incentives, such as the deferment of the ICMS levied on the importation of:
a) machines, equipment and metallic structures to compose the fixed assets of the business company.
b) raw materials and inputs for use in the industrial process, purchased by importing establishment qualified in the IDF/PIER.
c) machinery, equipment and structures, formalized through a leasing contract with a predetermined term, monthly prepayments and with an option to buy at the end of the contact.
The legislation also foresees the deferment of the ICMS due resulting from the difference between the rates of the ICMS levied in the internal and interstate operations, related to the acquisitions of goods destined to the Fixed Assets of the company.
Legislation and Consultations
Law no. 10.367, of December 7, 1979, which provides for the Ceará Industrial Development Fund (IDFI);
Decree no. 33.429 of January 10, 2020
Decree no. 34.508 of January 04, 2022
See here for more information about the IDF
The Productive Microcredit Program (Ceará Credi) is an initiative of the Government of Ceará aimed at expanding work and income opportunities for micro-entrepreneurs, self-employed, formal and informal workers, and family farmers, through the provision of productive oriented credit, entrepreneurship training and financial education. Launched in April 2021, the program was developed by the Development Agency of the State of Ceará (Adece), Instituto E-Dinheiro and the Labor Development Institute (IDT)
By May 2022, more than 36,000 people had already been served by 110 agents, 11 administrative assistants and 11 credit supervisors spread across 184 municipalities in Ceará.
Basic credit access requirements
-Being of legal age or emancipated.
-Having their own activity or interest in setting up a productive activity.
-Having identification document, CPF and proof of address.
-Going through all the steps of the methodological process.
-Obtaining annual revenue of a maximum of 81 thousand Reals (about 15 thousand dollars) for Individual Micro-entrepreneurs (MEI) and informal ones; and 360 thousand Reals (about 67.9 thousand dollars) for Collective Productive Groups.
See here for more information about the Ceará Credi program.
CEARÁ EXPORT PROCESSING ZONE (ZPE Ceará)
ZPE’s are characterized as areas of free trade with foreign countries, intended for the installation of companies aimed at the production of goods to be traded abroad, the provision of services linked to the industrialization of the goods to be exported or the provision of services to be marketed or destined exclusively abroad, considered primary zones for the purpose of customs control.
ZPE Ceará is the only one currently operating in Brazil and provides services to companies located in the free zone area and promotes facilities, structure and equipment necessary for the activities of customs authorities. A subsidiary of the Pecém Complex, also formed by the Port of Pecém and the industrial area, ZPE Ceará has established itself as an important instrument for promoting growth and consolidating the economy of Ceará and Brazil in line with the best international practices.
The imports or the acquisitions in the domestic market of machines, devices, instruments and equipment by a company authorized to operate in ZPE will have the requirement of the following taxes and contributions suspended:
-Tax on Industrialized Products – IPI
-Contribution for Social Security Financing (Cofins)
-Contribution for Social Security Financing due by the Importer of Foreign Goods or Services from Abroad – Cofins-Import
-Contribution to the Programs for Social Integration and Formation of Public Servants’ Equity -Contribution to PIS/Pasep
-Contribution to the Programs of Social Integration and Formation of Public Servants’ Wealth that are levied on the Importation of Foreign Products or Services – Contribution to PIS/Pasep-Import
-Additional Freight for the Renovation of the Merchant Marine – AFRMM
The raw materials, intermediate products and packaging materials will be imported or purchased in the domestic market by a company authorized to operate in an EPZ, with the suspension of the requirement of the same taxes mentioned above.
When the final product is exported, the suspension will be converted into a 0% (zero percent) rate, in the case of the contribution to the PIS/Pasep, Cofins, contribution to the PIS/Pasep-Import, Cofins-Import and IPI, and exemption, in the case of Import Tax and AFRMM.
The benefits for services, inputs and assets are for 20 years, extendable for an equal period.
ICMS Exemption (State Decree 33.251/2019):
-On goods and merchandise for use in the industrialization process of products to be exported.
-On inter-municipal and interstate transport services.
-On the difference in rates in interstate acquisitions of goods for fixed assets.
See here for more information about the ZPE Ceará.
SUPERINTENDENCY FOR THE DEVELOPMENT OF THE NORTHEAST REGION (Sudene)
Sudene depends on differentiated instruments to promote development in its area of operation, which encompasses the nine Northeastern States and the North of Minas Gerais and Espírito Santo.
The incentives are aimed at companies located and operating in SUDENE’s area, opting for taxable income with projects for implementation, diversification, expansion and partial or total modernization of enterprises and belonging to the sectors considered priorities defined by Decree No. 4,213/02 and cover most of the manufacturing industries.
75% reduction in IRPJ (Corporate Income Tax)
Benefit for projects that will implant, expand, modernize or diversify their production line in the area where Sudene operates. The benefit period is 10 years. The reduction is calculated based on the profits from the activity’s exploitation.
Reinvestment of 30% of the IRPJ
It benefits owners of enterprises in operation in the area where SUDENE operates. These companies can reinvest, in the modernization or complementation of equipment, including assembly and installation costs, a portion corresponding to 30% of the tax owed, calculated exclusively on the exploration profit, during the calculation periods and until December 31st, 2023, plus a 50% portion of own resources.
Accelerated depreciation and PIS/PASEP and COFINS discounts
It benefits owners of enterprises that already enjoy the 75% reduction. The accelerated depreciation is the full depreciation in the year of the acquisition itself, or until the 4th (fourth) year after the acquisition for goods purchased by legal entities located in less developed micro-regions in the area of activity of SUDENE framed in priority sectors for regional development.
IRPJ exemption (only for sectors based on digital technology and focused on digital inclusion)
Benefit exclusively for legal entities that manufacture machines, equipment, instruments and devices based on digital technology, aimed at the Digital Inclusion Program, dealt with in Law No. 12,546, of December 14th, 2011, calculated on the exploitation profit.
Priority for the purposes of Sudene’s benefits are projects in the following sectors:
INFRASTRUCTURE: represented by energy, telecommunications, transport, pipeline installation, gas production, water supply and sanitary sewage projects.
TOURISM: considering hotel developments, convention centers and other projects integrated or not with tourist complexes located in priority areas for regional development.
AGRO-INDÚSTRY: linked to irrigated agriculture, fish farming, and aquaculture, fruit growing, in projects located in Agricultural and Agro-industrial Hubs, aiming at the production of food and agro-industrial raw materials for the external and internal markets.
TRANSFORMATION INDUSTRY: food and beverages, textile, leather goods, leather shoes, pharmaceuticals, machinery and equipment, non-metallic minerals, metallurgy, steel, chemicals and petrochemicals, pulp and paper, transport material, wood, furniture, and wooden artifacts.
EXTRACTIVE INDUSTRY OF METALLIC MINERALS: represented by productive complexes for the utilization of the region’s mineral resources.
ELECTROELECTRONICS: mechatronics, information technology, biotechnology, vehicles, components and auto parts and components industry (microelectronics).
Live: Luis Eduardo Barros, growth director at Adece, and Alessandra Rodrigues, managing partner at Capta Consultoria
Podcast: Luis Eduardo Barros, Director of Development of the Development Agency of Ceará