Tax & Accounting Blog

Brazil’s Special Customs Regime for Exportation and Manufacturing Incentives

Blog, Global Trade, ONESOURCE September 22, 2017

What does the Company in Brazil need to know about competition?

In order for Brazilian Companies to be competitive at this current moment in time they should be exploring all of the countries’ benefits in terms of localization, culture and technology.

However, this only would be possible if companies can surpass high Brazilian costs and the national policy industries’ fluctuating changes.

Is it possible?

It is very possible for companies to reduce their Brazilian costs and by exploring the government´s benefits in terms of tax exemptions, reduced logistics costs, and maintaining a high performance company in terms of compliance.

A company’s recognition by the Brazilian Government of compliantly participating in available programs helps reduce all the normal bureaucracy faced by companies when doing business in Brazil.

How is this possible?

Let’s take a look at a few programs available to companies in Brazil.  The Special Regime RECOF and RECOF-SPED, encourages the improvement of tax regimes and provides mechanisms to support exports and increase the use of Brazilian manpower. With that goal, this Special Regime offers tax free incentives for the export of raw materials that were previously imported, cash flow to support the company’s Brazilian and International Market operations, reduced logistics costs and qualifies the company with the Brazilian Government in terms of demonstrating high compliance performance in these operations. RECOF, RECOF-SPED has laws that clearly outline how a company can follow “step by step” guidelines to meet the legal norms.

In summary, this Special Regime allows the import of raw materials with a tax suspension: if the company exports the raw material within the built-up product, the associated taxes will be free. If the Company sells this raw material inside the Brazilian market, the taxes will be paid after billing.

Which industry segments can join this Special Regime (RECOF, RECOF-SPED)?

All industry segments can join this Special Regime as long as they are committed to obeying the product´s manufacturing process in Brazil.

Are there companies that use this Special Regime at this moment?

26 companies use Special Regime RECOF and RECOF-SPED with 9 other companies initiating programs for Special Regime. Recently Dynapac / Atlas Copco started using RECOF-SPED in Brazil.

According to a May 3, 2017, interview in “Valor Econômico” of the Brazilian CFO of Dynapac / Atlas Copco, the main point to encourage companies to use a Special Regime in Brazil is to simplify processes and reduce Brazilian Tax Suspension costs, increase cash flow when buying raw material, and reducing taxes’ accumulation as well as logistical costs. With this Special Regime Dynapac / Atlas Copco expect to grow 10% in Brazil  over the next 12 months.

Within the same interview, AER´s Director (Brazilian Special Regime Private Association) stated that about 100 companies in 2018 will use RECOF, RECOF-SPED and the Brazilian Government has flagged 1000 more companies that are potentially ready to take advantage of the benefits of RECOF, RECOF-SPED.

Gustavo Felizardo, specialist in Special Regimes for Thomson Reuters ONESOURCE Global Trade Management in Brazil, shared his analysis that 553 out of 1000 companies mentioned by AER, Brazilian Companies not participating lose an average of 280 million dollars in cash flow, exportation process tax exemption benefits and no available savings in logistical costs. This number was obtained as a result of a calculation of import values for 553 companies of CIF (Cost, Insurance and Freight) multiplied by 3% representing a conservative index (variables of 3% to 9% depending on industry segment).

These amounts, though estimated, are compelling enough for more companies operating in Brazil to seriously evaluate their operations and pursue RECOF, RECOF-SPED to bring money back to the company.