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The Brazilian Government extended the deadline for companies located in the north and northeastern regions of Brazil to apply for tax incentives from December 31, 2018 to December 31, 2023. Companies should evaluate the impact of such benefits and their new rules in order to assess whether they should consider revisiting their current structures.

On January 4, 2019, Brazil enacted Law No. 13.799/2019, which extends the deadline from December 31, 2018 to December 31, 2023, for companies to apply for a 75% reduction in corporate income tax (IRPJ) and additional non-refundable amounts calculated on the basis of the "exploration profit" (operating profit). Had the original deadline (December 31, 2018) not been extended, companies with new projects would not have been able to apply for the incentives, and companies with incentives for existing projects that were about to expire (incentives normally last for up to 10 years) would not have been able to renew them.

The tax incentives apply to companies that are part of specific economic sectors, considered by the Executive Power as priorities for regional development, and located in the regions covered by SUDAM (Superintendence for Development of the Amazon - North Region) and SUDENE (Superintendence for Development of the Northeastern Region), with projects that fall under one or more of the following categories: implementation, expansion, modernization and diversification.

Bill No. 10.160/2018, approved by the Senate on December 11, 2018, was partially vetoed and partially enacted as Law No. 13.799/2019. The original bill, approved by Congress, extended the current benefits applied to the regions under SUDAM and SUDENE administration to the States of Goias and Mato Grosso do Sul under SUDECO (Superintendence of Development of the Center Western Region) administration. The President signed the bill but vetoed the extension of these benefits.

Despite the veto, Law No. 13.799/2019 made investments in the north and northeastern regions of Brazil more attractive by allowing companies to use up to 50% of the amount deposited as reinvestment in working capital. Until December 31, 2018, the total amount deposited as reinvestment could only be used to purchase new machinery or equipment used in the production process.

The Law also incorporated paragraph 4 of Article 19 of Law No. 8.167 of January 6, 1991, which was effective until December 31, 2018. Paragraph 4 states:

Section 4º For companies that have deposits of more than [five] years and have not submitted projects to SUDAM or SUDENE until December 31, 2018, the resources originated from the reinvestment of corporate income tax, excluding the portion of [the companies'] resources, must be reimbursed in favor of the Federal Government.

The President also approved Decree 9,682, dated January 04, 2019, dealing with the approval process for companies to benefit from the tax incentives. Under the decree, the approval of the tax incentive is conditioned on the revenue waiver limit established in the Statement of Tax Expenses (DGT) by the Federal Revenue Services and included in 2019's Budget Directive Law (LDO). Currently, the revenue waiver is 4.12% of GDP and, according to the commitment in the recently approved LDO, the waiver will be reduced to 2% in 10 years.

Considering that the tax incentives granted by SUDAM and SUDENE are to be considered when evaluating the percentage of waiver amounts, the granting or renewing of SUDAM and SUDENE incentives may become more difficult due to the Government's need to reduce revenue waivers. Accordingly, companies with projects in these regions should evaluate the need to apply for or renew their incentives and properly prepare their case files, in order to secure a more speedy and steady approval process.

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