Investments and other subsidies
Taxes over revenue and imports (PIS and COFINS)
- A special tax regime is applicable in Brazil for producers and importers of biodiesel,36 which includes two programs: the Social Integration Program (Programa de Integração Social or PIS) and the Contribution to the Social Security Fund (Contribuição para o Financiamento da Seguridade Social or COFINS). The PIS and COFINS taxes due are definitive, meaning that the resale of biodiesel by wholesalers, distributors and retailers is not subject to PIS and COFINS. Under this tax regime, the producers and importers can opt for:
- a 6.15 percent PIS rate and a 28.32 percent COFINS rate levied on gross revenues derived from biodiesel sales; or
- a fixed value of PIS and COFINS by cubic meter of commercialized biodiesel Brazilian real (BRL) 26.41 and BRL121.59, respectively.
Producers opting for the fixed value can obtain certain reductions and exemptions of the amounts due, depending on the supplier of raw material or input applicable to the production (for example, acquisition from castor bean producers or from family farmers).
Moreover, producers of biodiesel under a non-cumulative regime of PIS and COFINS are able to offset 4.625 percent of presumed credit on acquisition of inputs from individuals or legal entities that supply agribusinesses or agribusiness cooperatives.
- The sugarcane sales for ethanol production are exempt from PIS and COFINS, provided that the tax payer is under the non-cumulative regime.
- There is a special tax regime for producers, importers and distributors of ethanol. The producers and importers may opt for:
- a 1.5 percent PIS rate and a 6.9 percent COFINS rate levied on gross revenue of ethanol sales;
- a fixed value of PIS and COFINS by cubic meter of commercialized ethanol – BRL8.57 and BRL39.43, respectively, up to 31 August 2013.
Recently, the Brazilian government edited Decree 7.997/13, which sets forth that, from 1 September 2013, the fixed value of PIS and COFINS by cubic meter of commercialized ethanol shall be increased to BRL21.43 and BRL98.57, respectively.
Despite this, the Brazilian government enacted Provisional Measure 613 that grants to the producers and importers a presumed credit in the same values, which leads to a practical effect of zero rate of PIS and COFINS. Also, the taxpayers may opt for this new fixed value and the presumed credit in advance (from 8 May 2013).
When it comes to distributors of ethanol, the options are (depending on the option of the producer or importer).
- a 3.75 percent PIS rate and a 17.25 percent COFINS rate levied on gross revenue of ethanol sales;
- a zero rate for the fixed PIS and COFINS.
- Ethanol sales carried out by retailers and sales negotiated through the Future & Commodities Exchange (Bolsa de Mercadorias e Futuros or BM&F) are not subject to PIS and COFINS.
Federal and state VAT (IPI and ICMS)
- Biodiesel and ethanol sales are not subject to the Industrialized Products tax (Imposto Sobre Produtos Industrializados or IPI).
- Equipment used in the renewable energy generation process is generally exempted from the IPI.
- The State Value-Added Tax on Sales and Services (Imposto Sobre a Circulação de Mercadorias e Serviços or ICMS) can possibly be exempted for some products used for biodiesel or ethanol production. In addition, the ICMS calculation basis may be reduced for interstate operations related to ethanol and biodiesel production and distribution. This reduction depends on individual state law.
- In the same way, operations involving equipment used in the generation of wind and solar energy can possibly be ICMS tax-exempt until 31 December 2015.
Contribution for Intervention in the Economic Domain (CIDE)
- Ethanol sales are not subject to Contribution for Intervention in the Economic Domain (Contribuição de Intervenção no Domínio Econômico or CIDE).
- Wind: N/A
- Biomass: N/A
- Hydro: N/A
Brazil currently has no feed-in tariff policy.
Brazil is considered the world’s sixth largest investor in renewable energy. Nationwide, 44.1 percent of the Internal Energy Supply (Oferta Interna de Energia or OIE) is renewable, whereas the world’s average is 20.3 percent.
Furthermore, the National Bank for Economic and Social Development (Banco Nacional do Desenvolvimento Econômico Social or BNDES) provides a variety of financial programs to stimulate the production of renewable energy. The development of the renewable energies in Brazil is increasing, and almost half of the energy consumed in Brazil is now generated by renewable sources.
The actual scenario is very advantageous for renewable energy. The government expectations are that renewable energy may be responsible for 18 GW out of a total increase of 63 GW in the total installed capacity of the segment over the next 10 years.
According to the Ministry of Mines and Energy, Brazil is especially well situated for becoming a major producer of biodiesel. The country contains a vast amount of arable land, much of which has the right soil and climate for growing a variety of oilseeds.
The growth of biodiesel as an alternative energy source in Brazil is supported by Federal Law 11.097/05, which mandates a minimum of five percent of biodiesel to be mixed with diesel and the monitoring of this mixture in the marketplace. This law also supports the funding of R&D for biodiesel and other energy sources, as well as all phases of production, including the acquisition of equipment and technology.
In a related matter, Brazil is one of the most promising countries for wind energy. The first wind energy auction was held at the end of 2009, in which the government bought 1805 MW of wind energy at a price of BRL148.39/ MWh. Encouraged by the success of this auction, the government continues to hold auctions on an annual basis.
Additional benefits not yet in force
Several other incentives being discussed in the Brazilian scenario are also worth mentioning:
The Brazilian Commission of Infrastructure Services (CI) approved PLS 311/09, a federal project law that establishes the Special Regime of Taxation to encourage the development and generation of electric power from alternative sources (Regime Especial de Tributação para o Incentivo ao Desenvolvimento e à Produção de Fontes Alternativas de Energia or REINFA). This project foresees several tax benefits such as exemptions of PIS and COFINS, import taxes and IPI for companies operating under the regime. It is important to emphasize that this is not a law in force, yet. At the present time, it is still awaiting internal procedures in the Federal Senate.
After COP-15, Brazil formalized its commitment to reduce carbon emissions and increased its goal by 2.8 percent. Under the National Policy on Climate Change (law 12.187/09), Brazil has pledged to reduce carbon emissions 38.9 percent by 2020. According to this law, Brazil could grant several tax benefits to encourage the use of renewable energy. At this point in time, these benefits have not yet been implemented.
Recently, the government announced the creation of a program of incentives to the ethanol sector. This program involves several benefits to this market that will be implemented soon:
- Creation of a line of credit of BRL6 billion for the production and storage of sugarcane and ethanol with reduced interests.
- Increasing of the percentage of ethanol to be mixed with gasoline from 20 percent to 25 percent.
- Reduction of chemical input costs, by diminishing the chemical industry costs with the increasing of its PIS and COFINS credits.
Finally, other general benefits that are not specific to renewables may apply, such as the Special Incentives Program for Infrastructure Development (Regime Especial de Incentivos para o Desenvolvimento da Infra-Estrutura or REIDI), SUDAM/SUDENE incentives, and technology innovation. Each one has its requirements for application and, in some cases, depends on government approval.