Projects classified under PADIS get an added boost—a 100% reduction in income tax and additional rates applied to operating profit! (It should be noted that the amount of tax not paid cannot be distributed to the partners. Instead, it will constitute a capital reserve for the legal entity to be used only to absorb losses or increase capital.)
There are also ICMS (Tax on operations related to the circulation of goods and services of interstate and intermunicipal transport and communications) incentives for photovoltaic modules and cells, provided that there is a 0% IPI (Tax on industrialized products) rate or exemption. (Law No. 11,488 of June 15, 2007 / The Special Incentive Plan for the Development of Infrastructure (REIDI) / Agreement CONFAZ 101/97)
The use of accelerated depreciation should only be for tax purposes, different from accounting depreciation (which takes into account the expected useful life of the assets of the entity). I.e., it is up to the company to analyze how long the asset will generate economic benefits, without the need for an expert report to define such rates. Companies can enjoy total depreciation in the month of acquisition. (Law No. 11,196 / 2005, Article 17, item III, and RIR / 2018, Article 326.)
Another benefit is the exclusion of net profit in the calculation of the actual profit, and the basis of calculation of the CSLL (Social contribution on profits) being the difference between the amount of the charge resulting from the annual depreciation rates (established by the Federal Revenue in Regulatory Instruction No. 162/98, with the inclusions determined according to Regulatory Instruction SRF 130/99), and the amount of the charge recorded. The difference between the amount of recorded charges and those allowed by the Federal Income Regulation Law will be controlled in the book for the calculation of the taxable income. Total accumulated depreciation, including accounting and tax depreciation, may not exceed the cost of the depreciated asset.
There is also a possible total exemption or reduction of VAT paid! According to the CONFAZ 101/97 agreement, ICMS incentives are available for photovoltaic modules and cells, valid for domestic and imported products, provided always that there is a 0% IPI rate or exemption for the product.
Therefore, if your company PADIS classified and imports photovoltaic cells (NCM 8541.40.16) and photovoltaic modules (NCM 8541.40.32) reductions of 0% are granted in the rates of Import Tax (II), Tax on Industrialized Products (IPI), however it is necessary to verify the legislation for other NCM.
These laws and regulations clearly offer great incentives to companies looking to invest in Brazil’s renewables sector, and will surely lead to Brazil being confirmed as industry leader in LATAM.
We at Auxadi are expert in providing value added services in accounting, finance, tax, payroll management and technology—providing local expertise to global business, and being your strategic business partner. Just get in touch if you’d like more information on Brazil’s tax benefits for the renewable energy sector, or any of our services.