Tax & Accounting Blog

Brazil FTZ Extended to 2073

Blog, Global Tax Compliance, Global Tax Planning, Indirect Tax, News, Sales and Use Tax, VAT Tax Rates August 19, 2014

On Tuesday of last week, the camera of deputies of the Brazilian federal senate enacted Emenda Constitucional 83, which extends the constitutional term allowed to the Zona Franca de Manaus (Free Trade Zone of Manaus) until the year 2073. This program has operated since before the federal constitution of 1988 with the intent to develop key areas of the Amazon basin. Under its authority, the Superintendence of the Zona Franca de Manaus has granted a list of fiscal incentives to manufacturers and importers of the region, including exemption from the IPI, II, IE, several social contributions taxes, and a conditional credit against ICMS liability in the state of Amazonas.

Tuesday’s act extended the date of expiration of the Zona Franca by fifty years, from 2023 to 2073. This extension represents a greater length of time than the constitution’s initial grant of 25 years, and the most recent extension of 10 years enacted in 2013. After some doubt surrounding the 2013 extension, last week’s act guarantees the Zona Franca de Manaus as an essentially permanent fixture of the Brazilian indirect tax system.

The constitutional grant of power is particularly important in light of the Brazilian constitutional principle of “segurança juridical” (legal certainty). This principle requires that government benefits be treated as rights, and as such, may not be revoked unilaterally by the government body that issued the benefits. The result is that any fiscal benefits issued by the Superintendence of the Zona Franca de Manaus may be limited in term or altered only by modifying the constitution. Historically when reforming policy, the Superintendence has granted new, greater benefits to entice businesses away from a previous regime, rather than revoking it. Because the expiration of constitutional authority can be seen as the only means of rescinding the benefits entirely, businesses can accurately forecast long term investment plans in the region without needing to account for any risk that fiscal benefits will lapse.