When importing goods into Brazil, businesses are often faced with high import taxes that can significantly increase the cost of the products. However, there are ways to reduce the burden of these taxes and save money. Here are nine strategies that can help businesses minimize import taxes on products into Brazil:
Use Preferential Tariff Agreements (PTAs):
Brazil has signed several preferential tariff agreements with different countries, which can reduce the import taxes on goods originating from these countries. It is important to research and understand which agreements are applicable to your business and products.
Here are some of the main PTAs that Brazil currently has in place:
- Mercosur: Brazil is a member of the Southern Common Market (Mercosur) along with Argentina, Paraguay, and Uruguay. Mercosur is a customs union that aims to promote free trade among its members by eliminating tariffs and non-tariff barriers to trade. Brazil enjoys preferential access to the markets of other Mercosur countries, and vice versa.
- Latin American Integration Association (ALADI): Brazil is also a member of ALADI, a regional integration bloc that includes most countries in Latin America and the Caribbean. Brazil has several PTAs in place with ALADI member countries, which provide for reduced or eliminated tariffs on certain products.
- Economic Commission for Latin America and the Caribbean (ECLAC): Brazil is a member of ECLAC, a UN agency that promotes economic and social development in the region. ECLAC has established a Framework Agreement on Cooperation and Integration between Latin America and the Caribbean and the European Union, which includes provisions for PTAs between Brazil and several European countries.
- Brazil-Mexico Economic Complementation Agreement (ACE-53): Brazil has a bilateral PTA with Mexico, which provides for reduced tariffs on certain products traded between the two countries such as:
- Brazil-India Preferential Trade Agreement (PTA): Brazil has a bilateral PTA with India, which provides for reduced tariffs on certain products traded between the two countries.
- Global System of Trade Preferences (GSTP): Brazil is a member of the GSTP, a preferential trade arrangement among developing countries that aims to promote South-South trade. The GSTP provides for reduced tariffs on certain products traded between member countries.
It’s worth noting that these PTAs may be subject to change over time, as countries renegotiate or terminate agreements, or as new agreements are established.
Apply for Ex-Tarifário – temporarily import tax exemption for products with no equivalence in Brazil.
This program offers a temporary exemption of the import tax on goods that are not produced in Brazil depending on the product and can be valid for up to two years, renewable.
Ex-tarifário is a customs regime in Brazil that allows companies to temporarily being exempted from the import tax (also known as the “II” tax) on certain goods and machinery that are not produced locally. The goal of the ex-tarifário regime is to encourage investment and modernization of Brazilian industries by making it more affordable for companies to import capital goods, such as machinery and equipment, that are necessary for production but not available locally.
The Ex-tarifário regime is managed by the Brazilian Ministry of Economy, which evaluates and approves or denies the applications for reduced import taxes. The regime is subject to periodic review and revision, based on changes in the domestic industry and the global market conditions.
The Ex-tarifário regime is an important tool for companies operating in Brazil, particularly in the manufacturing and industrial sectors, as it allows them to import necessary machinery and equipment at a lower cost, which can help improve their competitiveness and profitability.
Reduce CIF Value prior to import
There are five taxes and fees your company has to pay when importing to Brazil. You should become familiar with the following:
- Import Duties also referred to as II
- IPI – Tax for Industrialized Products
- PIS – Contribution for Social Security and Integrity
- COFINS – Contribution for Social Security and Integrity
- ICMS – Value Added Sales Tax.
The majority of these taxes are also applied for Brazilian products. The only one who is specific to imported products is Import Duties (II).
And how do you calculate all of them? The following is the basis for calculating each tax:
Cost, Insurance and Freight better known as CIF value * %II
(CIF * (1 + II)) * %IPI
- PIS and COFINS
(CIF * (%PIS + %COFINS))
(CIF + Cost IPI + Cost PIS + Cost COFINS) / (1-%ICMS) * %ICMS
It is important to know that, the lower the CIF value of the product, the lower the import duties and taxes are going to be.
Drawback is a regime that allows for the suspension or exemption of taxes on imported goods that are used for production and subsequent exportation. This can help businesses avoid paying import taxes altogether, as long as they export the final product.
Drawback is a mechanism used by many countries to incentivize exports by reducing or eliminating import taxes on imported goods that will be used in the production of exported goods. In Brazil, the drawback system allows companies to import raw materials and other inputs without paying import taxes, as long as those goods will be used to produce goods that will be exported.
To apply for drawback, companies must submit a request to the Brazilian Federal Revenue Service, outlining the details of the planned importation and exportation. Once approved, the company can import the necessary goods without paying import taxes. When the exported goods are shipped, the company can then apply for a refund of any taxes that were paid on the imported goods.
There are three types of drawback in Brazil:
Integrated: when the imported inputs are used to produce exported goods by the same company
Suspended: when the imported inputs are used to produce exported goods by a different company
Export: when the exported goods are entirely or partially manufactured using imported goods
Overall, the drawback system in Brazil is designed to support companies that produce and export goods, by reducing their costs and increasing their competitiveness in global markets.
Take Advantage of Temporary Admission:
This regime allows businesses to import goods temporarily, without paying import taxes, as long as they are returned to the country of origin within a certain period of time.
Temporary admission is a customs regime that allows companies to temporarily import goods into Brazil for a specific purpose, without paying import taxes. This can include goods that will be used for exhibitions, fairs, or other events, as well as goods that will be used for repairs or maintenance, or that will be re-exported.
To apply for temporary admission, companies must submit a request to the Brazilian Federal Revenue Service, outlining the details of the planned importation and the intended use of the goods. Once approved, the company can import the necessary goods without paying import taxes, but must follow certain rules and regulations regarding the use and eventual disposition of the goods.
For example, goods that are imported for temporary admission must be re-exported within a specified time period, typically six months to one year, depending on the type of goods and the purpose of the importation. If the goods are not re-exported within the specified time period, the company may be required to pay import taxes, or may face other penalties.
Temporary admission can be a useful option for companies that need to import goods for a specific purpose, but do not want to pay import taxes or go through the full customs clearance process. However, it is important to carefully follow the rules and regulations of the temporary admission regime, to avoid any potential issues or penalties.
There are several types of temporary admission for importation in Brazil. Here are some of the main categories:
- Exhibition or fair: Goods that are imported for use in exhibitions or fairs, such as machinery, equipment, or products that will be displayed for promotional purposes. The goods must be re-exported within the specified time period, and may be subject to certain restrictions on their use and disposal.
- Repairs or maintenance: Goods that are imported for repairs or maintenance, such as equipment or machinery that will be serviced or upgraded before being re-exported. The goods must be re-exported after the repairs or maintenance are complete, and may be subject to certain restrictions on their use and disposal.
- Processing or transformation: Goods that are imported for processing or transformation, such as raw materials that will be used to manufacture products that will be re-exported. The processed or transformed goods must be re-exported within the specified time period, and may be subject to certain restrictions on their use and disposal.
- Scientific or cultural: Goods that are imported for scientific or cultural purposes, such as specimens or artifacts that will be used for research or display. These goods must be re-exported within the specified time period, and may be subject to certain restrictions on their use and disposal.
- Humanitarian or emergency: Goods that are imported for humanitarian or emergency purposes, such as medical supplies or disaster relief equipment. These goods must be used for the specified purpose and may be subject to certain restrictions on their use and disposal.
- Economic use: temporary import for economic use in Brazil allows for the importation of goods for a specific economic purpose, such as production, testing, or research and development, for a limited period of time
Not all temporary imports are exempt from taxes. However, certain types of temporary admission may be eligible for tax exemptions or reductions, depending on the specific circumstances and purpose of the importation.
Opt for Special Customs Regimes:
Brazil offers several special customs regimes that allow for the suspension or reduction of import taxes on certain goods. These include the Bonded Warehouse regime, the Customs Transit regime, and the Repetro regime.
1. Bonded Warehouse Regime:
The Bonded Warehouse regime is a customs procedure that allows importers to store imported goods in a designated warehouse, without paying import duties and other taxes, until they are ready to be sold or exported. The goods stored in a bonded warehouse may be subject to certain restrictions and requirements, such as time limits for storage and the obligation to maintain accurate records of inventory and movements. The Bonded Warehouse regime is often used by businesses that need to defer the payment of import taxes or that want to perform value-added activities, such as packaging or labeling, before selling the goods in the domestic market.
It also enable to reduce the CIF value – base of import taxes – by optimizing the international logistics costs and reduce the tax burden at clearance.
2. Customs Transit Regime:
The Customs Transit regime is a customs procedure that allows the transportation of goods under customs control from one point to another within Brazilian territory or between Brazil and other countries, without paying import duties and other taxes. The goods transported under the Customs Transit regime must be accompanied by a customs declaration and a transit document, and they may be subject to inspection and other customs formalities along the way. The Customs Transit regime is often used by businesses that need to move goods from one location to another, such as in the case of international trade, or that want to perform value-added activities in a different location before selling the goods.
3. Repetro Regime:
The Repetro regime is a customs and tax incentive regime that applies to goods and equipment used in offshore oil and gas exploration and production activities in Brazil. Under the Repetro regime, importers may temporarily import goods and equipment without paying import duties, IPI, PIS, and COFINS taxes, and they may also benefit from certain exemptions and reductions of other taxes and fees. The Repetro regime aims to promote investments in the Brazilian offshore oil and gas industry and to reduce the costs and bureaucratic burdens associated with the importation of specialized equipment and materials. The Repetro regime is subject to certain conditions and requirements, such as the need to register with the Brazilian tax authorities and to comply with specific rules on the use and disposal of the imported goods and equipment.
It is important to note that each of these regimes has its own specific rules and requirements, and their application may depend on the type of goods and the intended use of the imported goods. Businesses that plan to use any of these regimes should consult with a local customs broker or a specialized law firm to ensure compliance with all relevant regulations and to optimize the benefits of the chosen regime.
Review the Classification of Products:
Import taxes are determined based on the classification of products under the NCM (Common Nomenclature of Mercosur) which is the equivalent of Harmonized System (HS) code. Businesses can review the classification of their products to ensure they are properly categorized, which can help them avoid paying higher import taxes.
Reduce the Brazilian import taxes by local assembly for imported spare parts
One way to potentially reduce import taxes on spare parts in Brazil is by using the process of local assembly or manufacturing. This involves importing the spare parts and assembling or manufacturing them locally in Brazil.
When importing the spare parts, businesses will need to pay the applicable import taxes. However, if the imported parts are used to manufacture a product locally in Brazil, the final product may be subject to lower import taxes or even exempt from import taxes. This is because the final product may qualify as being locally produced, and therefore, may be eligible for preferential tariff rates under Brazil’s tariff agreements.
To take advantage of this strategy, businesses should consider setting up a local manufacturing or assembly operation in Brazil. They should also research the local laws and regulations related to importing and manufacturing, as well as the specific rules regarding tariff rates for locally produced goods.
It is important to note that setting up a local manufacturing operation may require significant upfront investment and ongoing costs, including labor, equipment, and infrastructure. Therefore, businesses should carefully consider the potential benefits and costs before pursuing this strategy.
Choose a strategic location:
Different Brazilian states and municipalities are in constant competition to offer tax exemptions and compensations, which can make navigating the tax landscape challenging.
One of the key taxes to consider for imports is ICMS, which can vary depending on the industry and location. For instance:
- Bahia charges lower ICMS rates for certain goods produced within the state, such as vehicles, shoes, and furniture.
- Pernambuco offers ICMS benefits to encourage more operations involving imported goods.
- Goiás grants ICMS benefits to companies that manufacture airplanes, parts, and components.
However, tax exemptions specific to each state are subject to change, and relying solely on tax incentives may not be a viable long-term strategy.
Some states like Espírito Santo and Santa Catarina provided ICMS exemptions for operations involving foreign products, resulting in a 0% rate in those states compared to a 18% rate in other states like São Paulo.
it is also important to note that some states offer additional tax incentives and benefits to attract foreign investment and businesses. For instance, the Northeast region of Brazil has created the Northeast Fiscal Fund (FNE) which provides funding for regional development projects and offers tax benefits to companies investing in the region.
In addition, some states have created special economic zones such as Manaus Free Trade Zone (ZFM), which offers tax exemptions and reductions for companies operating in the region. The ZFM has been successful in attracting companies in the electronics and automotive industries due to the tax benefits offered.
It is important to note that while these tax benefits can be attractive for businesses, they should also carefully consider other factors such as logistics, infrastructure, and labor costs when deciding on a location to operate in Brazil.