On July 19, 2019, Normative Instruction No. 1901 was published, establishing a special regime for the manufacturing of goods destined to be used for the exploration and production of oil, natural gas and other fluid hydrocarbons (the "Repetro-Industrialização" regulation).
We summarize below the main aspects of the Repetro-Industrialização rule:
- Federal taxes will be suspended on the importation or local purchase of raw materials, intermediate products and packaging materials to be used to manufacture goods later destined to entities legally qualified in Repetro and Repetro-SPED (Article 2).
- The following entities can be legally qualified to the regime: (i) The manufacturers of final goods to be directly supplied to other companies qualified in the Repetro and Repetro-SPED regimes (Article 2, sole paragraph) and (ii) intermediate manufacturers, whose goods will be used in the final manufacturing (Article 2, paragraph II).
- The concession of the regime will be granted to the company's head office and extend to all its branches (Article 5, §3).
- To carry out imports under Repetro-Industrialização, the manufacturer of the final product must be qualified in the "unlimited" modality of Siscomex (Article 4, § 3).
- The qualification request must be sent to the Judgment Delegacies of the Brazilian IRS ("DRF") or to the Tax Administration Special Judgment Delegacies of Brazilian IRS ("Derat") with jurisdiction over the applicant's head office (Article 5, caput).
- The concession of the regime will be granted by means of an Executive Declaratory Act (ADE) and will be valid throughout the national territory until 12/31/2040 (Article 6).
- If the qualified company goes through a merger, spin-off or incorporation process, the successor legal entity must request a new concession. However, provisional authorization will be granted for a 60-day term, which may be extended for an equal period (Article 8, main section and §1).
- The levies of the Social Contributions on Revenue ("PIS/Pasep" and COFINS), the Excise Tax ("IPI"), the Import Duty ("II"), and the Social Contributions on Revenue on the imports ("PIS-Import" and "Cofins-Import") are suspended. This suspension applies to the imports or local acquisition by the manufacturer of the final product or intermediate product (Article 9, caput and §1).
- However, the tax benefit will not apply for imports made on behalf of third parties or by order (Article 9, §2).
- The qualified company that does not manufacture or supply the good within the regime's term will be obliged to collect the taxes suspended in the acquisition (Article 9, §4).
- The sale of the final product to a company qualifying as a beneficiary of Repetro or Repetro-Sped will be carried out with suspension of PIS/Pasep, Cofins and IPI (Article 10);
- However, if that company does not destine the good acquired to Repetro or Repetro-Sped activities within 3 years, it will be obliged to collect the suspended taxes due by the manufacturer. This term may be extended for up to 12 months in exceptional cases (Article 10, §1 and 2).
- Goods transferred from other customs or special regimes may be admitted to Repetro-Industrialização (Article 12, sole paragraph).
- The regime will be valid for a term of 1 year, counted from the customs clearance or the issuance of the invoice, and an extension may be requested for an additional 1-year term (Article 20, main section).
- However, in the case of qualifying products to be used in the production of goods that require a long time to manufacture, the term of validity will be an appropriately longer period, limited to 5 years but extendable in exceptional cases (Article 20, §2, and Article 21).
- Goods will enter, be inventoried and exit from establishments operating under the regime according to the procedures of EFD-ICMS/IPI and EFD-Contribuições, NF-e, Siscomex Portal and Siscomex, as well as those of the beneficiary legal entity (Article 22).
- For the goods traded under the regime, the beneficiary shall control their entry, inventory and exit and the registration and determination of taxes due, extinct or with suspended payment. Segregated inventory control is not required (Article 23).
- For the purposes of monitoring the companies' fulfillment of the commitment to industrialization, the IRS shall take into account operations carried out under the regime according to the "first in, first out" accounting criteria (FIFO) (Article 24).
- A company whose application to qualify for Repetro-Industrialização is rejected can challenge the decision within 10 days (Article 25).
Originally published July 24 2019
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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.