Brazilian tax incentives to auto and auto parts makers today are ruled by the Program Route 2030 (“Route 2030”).
The incentives might represent more than three hundred million US dollars per year thereafter until 2030 to be granted to profitable local automotive industries actually investing in R&D, especially those developing technologies that boost energy efficiency throughout the automotive chain within Brazil.
The requirements to the selling of cars locally produced or to the importation of vehicles are related to corporate goals of vehicular labeling of energy efficiency that will imply in the reduction of fuel consumption of new vehicles, as well as of structural performance that will imply in greater availability of items of vehicle safety.
In practical terms, the program’s guidelines are: to establish mandatory requirements for the sale of vehicles in Brazil; increase energy efficiency, structural performance and availability of technologies; increase investments in R&D in the country; stimulate the production of new technologies and innovations; automate the manufacturing process; increase productivity; promote the use of biofuels and alternative forms of propulsion, valuing the main Brazilian energy sources; ensure technical training and professional qualification in the sector; and ensure the maintenance and expansion of its workforce.
The local production of auto and auto parts that meet such corporate goals and requirements of vehicular labeling will be entitled to a reduction in the Federal excise tax (“Imposto sobre Produtos Industralizados”) rate as of next year.
It should be noted that companies eligible for the Program must make minimum expenditures on R&D in the country, whose minimum percentages range from 0.25% to 1.20% of gross revenue from sales of automotive products, excluding taxes levied on sales operations.
So that upon reaching such a level of investments in R&D, companies in the sector may be entitled to the deduction of corporate income taxes (“Imposto de Renda Pessoa Jurídica” and “Contribuição Social sobre Lucro Líquido”) due by them, in proportion to the volume of expenditures made, so that the corresponding tax benefit may vary from 10.2% to 12.5% of the value of these expenses.
In addition, with regard to auto parts not produced locally, the Program exempts from the Federal import duty (“Imposto de Importação”) the import of auto parts without national similar, provided that importers make expenditures corresponding to 2% of their customs value, in R&D projects related to local production chain.
Dozens of companies in the automotive sector are already qualified in this Program. Among the car makers we highlight Peugeot Citroën, Volkswagen, Fiat Chrysler, Renault, Mercedes-Benz, General Motors, Volvo, Honda, BMW etc.; and, among the auto part makers, Valeo, Delphi, Pirelli, Magneti Marelli, Bosch, Weg, Cooper-Standard, Continental, Faurecia, Denso etc.
In order to apply for such a Program, in spite of the minimum investment in R&D, the local company has to be subject to the Actual Profit System, to control such activities performed at a specific cost center, and to be in good standing before the Brazilian Internal Revenue Service (“Receita Federal do Brasil”).
Application to the aforementioned Program is carried out through the preparation and presentation of a Declaration of Commitment and related legal and technical documentation with the General Coordination of the Automotive Complex Industries at the Bureau of Industry of the Brazilian Department of Commerce (“Secretaria de Desenvolvimento, Industrial e Competitividade” of the “Ministério do Desenvolvimento, Indústria e Comércio Exterior”).