Brazilian government updates tax relief program for tech companies

The updates meet the requirements from the World Trade Organization and follow complaints from the EU and Japan.

The legal framework around fiscal incentives for the information technology sector has been updated just after Christmas 2019.

The Lei da Informática (Informatics Law) grants tax relief to companies operating in Brazil in the high tech sector including hardware, software and services, in return for investments in research and development.

An update to the existing framework has been sanctioned by president Jair Bolsonaro on Friday (27) to accommodate the demands from the World Trade Organization (WTO) around the tax incentives model that can be provided to technology companies.

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The changes were made after Japan and the European Union contested, at the WTO, about the tax exemptions given to Brazilian companies across several sectors including technology. The complainants disagree with the current tax arrangements as a mechanism to stimulate research and development investment and argue there is a discrepancy between the provisions for local firms and international businesses operating in the country.

According to a statement released by the presidential office, the changes, to be presented to the WTO today (31), will see the replacement of the current tax relief structure by a points-based system relating to each of the stages for the production of goods and services in the country.

The adjustments of the framework will also see greater demands for use of national components, as well as more investment in R&D in exchange for the tax credits. In place since 1991, the current law provides for tax relief until 2029 to companies that have successfully passed the scrutiny of the Ministry of Science, Technology, Innovation and Communications.