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Rota 2030 Program is approved by Brazil's National Congress

14Nov2018Nov14,2018
Tax

On July 7th, 2018, the National Congress approved Provisional Measure No. 843/2018, issued by the Executive, establishing the Rota 2030 and Logistics Route Program (“Rota 2030 Program”) and a regime for auto parts which are not produced in Brazil (“New Regime”).

Furthermore, last Friday, November 9th, 2018, Decree No. 9,557/2018 was published in the Federal Official Gazette, establishing requirements for the marketing of new vehicles in the country and establishing, among other provisions, that the Rota 2030 Program will remain in effect from December 1, 2018 to November 30, 2023. 

The New Regime contemplates the following tax incentives:

For automakers:

  • Regarding the marketing in Brazil and importation of new vehicles, eligible companies that satisfy the requirements established in Decree No. 9,557/2018 may benefit from a reduction of IPI (Tax on Manufactured Products), depending on the type of vehicle and subject to meeting all of the legal requirements established in such Decree, with the same treatment being applied to both domestic and imported products;

  • Companies that qualify for the Rota 2030 Program may deduct from the Corporate Income Tax – IRPJ and Social Contribution on Net Income – CSLL the result of the IRPJ and CSLL (having a combined tax rate of 34%) up to 30% of operational expenses incurred in Brazil relating to investment in research and development. Such deduction may only be made in respect of the same fiscal year in which the corresponding expenses are incurred. 

When importing auto parts with no national equivalent, companies may be:

  • Exempt from the Import Tax — II, when the parts are used in the manufacturing of automotive products within 3 years from the date of the tax triggering event.

Companies that have an R&D project which has been approved by the Ministry of Industry, Foreign Trade and Services, for the manufacture of new products, new models of existing products or new strategic solutions for mobility and logistics may also qualify for the Rota 2030 Program.

To claim the above incentives, companies must provide a detailed report on strategic R&D expenditure and meet all of the marketing requirements for new vehicles in the country, including vehicle labeling, energy efficiency and associated structural performance relating to navigation technologies. Such requirements may be further described in new regulations. The Ministry of Industry, Foreign Trade and Services is responsible for defining the terms and deadlines for verification of compliance with the requirements.

Failure to comply with the requirements established in the legislation will result in administrative sanctions. Among such penalties, we would highlight the fine for failure to provide the annual proof of investments made, in which case the taxpayer will be fined an amount equivalent to the difference between the reported amount and the amount actually invested.

The Ministry of Industry, Foreign Trade and Services shall have 3 years from the date a company uses its tax credits to analyze whether or not the requirements established in the Rota 2030 Program have been met and submit the result of its analysis to the Brazilian Internal Revenue Service.

Provisional Measure No. 843/2 will be submitted to the President, who will have 15 business days to approve the proposal, with or without vetoes.

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