House of Representatives approves bill to stimulate transportation by cabotage
The bill now awaits presidential approval after being amended by the Senate
On December 15, 2021, the Brazilian House of Representatives approved Bill No. 4.199/2020, instituting the Program to Stimulate Transportation by Cabotage (BR do Mar in Portuguese). First approved by the House of Representatives in December 2020, the bill received many new amendments in the Senate, and was therefore returned to the House of Representatives for further deliberation.
Following bill rapporteur João Carlos Soares Gurgel’s report, the House approved 18 of the Senate’s 26 amendments, with the new version now subject to presidential approval. The main changes to the bill are outlined below:
Foreign-flagged vessel chartering
The approved bill allows for bareboat chartering of foreign-flagged vessels – as long as the respective country’s flag is suspended – while measuring the tonnage of the vessel’s cargo-carrying capacity is no longer required. In other words, Brazilian Shipping Companies (EBNs) will not need to have their own fleet to charter a vessel, as is currently required by law. Thus, once the bill becomes law, an EBN will be able to charter one foreign vessel regardless of minimum tonnage requirements.
After the law has been in effect for twelve months, it will be possible to charter two foreign-flagged vessels, with the possibility of chartering an additional vessel every twelve months. Forty-eight months after the law has taken effect, the limits on the number of foreign vessels will be removed. Although the Senate had passed amendments to extend the opening period for foreign-flagged vessels, the House of Representatives rejected these amendments.
This is the key point for incentivizing cabotage, as it removes the requirement that only Brazilian-flagged vessels may carry out waterway transport between Brazilian ports. With these measures, the federal government intends to quickly increase the availability of vessels, reducing costs for end customers.
Brazilian shipping companies without fleets
Another important change in the bill regards the possibility of EBNs operating without an owned fleet. These companies are now only allowed to perform cabotage navigation with bareboat chartered vessels, provided they are chartered under the terms and conditions established by the BR do Mar program. The federal government understands that these measures are essential to increase competitiveness and guarantee regular, stable, and price-predictable internal transport services.
Reporto Tax Regime
At the end of 2020, the Tax Regime for Modernization and Expansion Incentives of Port Structures (Reporto) was terminated. Brazilian ports complained about the termination, as it allowed for building and modernizing ports by importing machinery, equipment, and other necessary goods. The approved bill provides for Reporto to return for two years, from January 1, 2022, until December 31, 2023.
Port and waterway infrastructure
The bill also includes an important proposal to boost the ports sector. It authorizes ports to access funding from the Merchant Navy Fund (FMM) to finance port and waterway infrastructure works, up to 90% of the total value.
New possibilities for using the FMM
The new possibilities of using the FMM enable funds to be used for docking and maintenance (including preventive maintenance) in addition to vessel jumboization, conversion, modernization, or repair, which are already provided for.
Moreover, the use of FMM funding for carrying out services on chartered vessels will be permitted, which currently can only be used for owned vessels. Companies will also be able to hire specialized companies to carry out the services, and it is no longer necessary for services to be provided exclusively by shipyards.
Finally, the bill’s current form extends the possibility of using FMM funding to foreign companies when a Brazilian company or shipyard performs services. However, foreign companies are limited to accessing a maximum of 80% of the project value in funding.
Minimum Brazilian crew percentage
Another issue addressed in the proposed bill concerns the minimum percentage of Brazilian crew in time-chartered vessels. Under the terms of the BR do Mar program, two-thirds of the crew within each hierarchical rank must be Brazilian. Notably, the Senate proposed reducing this number to one-third, though the House of Representatives decided to maintain the original proposal.
Initially, the federal government had proposed that the laws of each vessel’s respective flag state should be applied in full to the crew’s employment contracts. However, the Brazilian Congress complemented this issue by providing that the Brazilian Constitution will also apply in these cases.
As part of the bill, the House of Representatives had proposed an 8% reduction of the Tax on Freight for Maintaining the Merchant Navy (AFRMM) for all types of navigation in maritime transport. Due to the importance of the current tax rate to inland navigation of liquid bulk in Brazil’s North and Northeast regions, this proposal led to significant debate.
As a result, the bill’s final version provides for the return of the 40% AFRMM tax rate for inland navigation when transporting liquid bulk cargo in the North and Northeast regions. The proposed 8% reduction has been maintained for navigation in other areas.
For further information, please contact Mattos Filho’s Shipping and Ports practice area.