The subject of Customs Regulations in Brazil involves the control by the federal government and its competent agencies and bodies of foreign trade, such as import and export operations. The entrance and departure of goods to and from the country is duly examined, inspected and controlled by the government.
Brazil adopts a policy of a severe federal control of cross-border transactions involving goods or currency, imposed by the Federal Government through Trade, Bank and Tax authorities.
For this reason, for custom control purposes, two basic controls exist, one on imports and the other on exports. These controls include the strict examination and inspection of all Import and Export operations by the competent governmental authorities.
Generally speaking, the existing import control is stricter than the export one for it is intended as a mechanism for stabilizing Brazil's payment balance during economic crisis. This control also protects and stimulates the growth of Brazilian industry and helps to encourage foreign investment.
However, this may trigger a decrease in the production of manufactured goods for the local market. With that in mind, the Government has imposed controls which protect the local consumer by avoiding the export of scarce products which could cause problems of domestic supply and demand. Such an avoidance is enforced through the establishment of higher prices for export.
II. Responsible Governmental Agencies
The federal government agencies involved in foreign trade that have power to control imports and exports are:
(i) The Brazilian Monetary Council (CMN), which formulates general financial and monetary policies, including foreign exchange matters.
(ii) The Central Bank of Brazil (BACEN), which is responsible for enforcing such foreign exchange policies.
(iii) The Foreign Trade Office (SECEX), an agency of the Foreign Trade Department (DECEX), now concentrates the duties and authority of the former National Council of Foreign Trade (CONCEX), The Customs Policy Council (CPA), and the former Foreign Trade Department of Banco do Brasil S.A. (CACEX). The import and export rules formally entrusted to the latter three agencies which do not conflict with those of SECEX, continue to be effective. Among its other rules, SECEX establishes foreign trade and customs policy; issues import licenses; monitors drawback activities; verifies whether goods to be imported have domestic counterparts; and establishes customs tariffs.
III. Import Operations
III.1. - Basic Import Procedures
All Brazilian imports are subject to preliminary authorization, i.e., Import Licenses issued before the corresponding merchandise is shipped. The Import License formalizes an import request, identifying the product to be imported, the amount and the parties involved in the intended import, among other data.
Some products (such as books, educational or scientific films, certain pets usually without commercial value, etc.) which are not subject to stringent price controls, do not require Import Licenses for their entry into Brazil. In general, customs clearance of these products is made upon a direct request of the importer to the tax authorities, subject in some cases to preliminary review and/or approval from other governmental bodies.
Import Licenses for products that require a more complex import procedure may be applied for after their shipment. These products can include parts, pieces, components, accessories, raw materials, chemicals, tools and other assets employed in the maintenance and repair of machinery, equipment, apparatus, instruments, aircraft, vehicles, vessels, and locomotives.
Import applicants must be enrolled in the Exporter and Importer Register of the Foreign Trade Department (DECEX). Currently, DECEX's duties regarding imports are assigned to the Foreign Trade Office (SECEX).
III.2. - Examples of Imports Subject to Approval
Additionally, for examples sake, under current Brazilian Law, the following imports are subject to a preliminary approval from government agencies: human blood and its derivatives; human organs, tissue, and substances; psychotropic substances and products capable of causing alterations in the nervous system and higher functions; armaments and munitions, gunpowder, explosives,
Other items subject to approval are: ancillary items; nuclear materials; weedkillers and insecticides known as Agent Orange for the purpose of defoliation; aircraft, components, and parts thereof; some computer related goods; petroleum and its basic derivatives; metallic mercury; skins, hides, objects made from wild animal skins or hides; franking machinery; bovine semen; sugars and alcohol; ecology-threatening products; petrochemical products; and products used in clinical research.
The import of vehicles is constantly under control by DECEX. Currently, only new vehicles are allowed for importation and their prices must be based on a price list disclosed by the foreign manufacturer.
III.3. - Import Duty
The Brazilian taxation system establishes that Import duty ("Imposto de Importao - I.I") is payable on the entry of foreign goods into the country which are destined for internal consumption.
Those foreign goods subject to the payment of duty are listed in the Common Foreign Tariffs (TEC), based on the Mercosur Common Nomenclature (NCM) prepared by the Mercosur member countries which, in turn, is modeled on the Brussels Customs Nomenclature Harmonized System.
Import duty rates are, as a general rule, ad valorem, and vary according to the nature of the products and their degree of indispensability.
The Import Duty is assessed as per the General Agreement on Trade and Tariffs (GATT), the so-called Customs Valuation Agreement.
In practice, however, the basis for import duty assessment is at present the price at which the goods are normally offered for sale on the wholesale market in the exporting country, plus the cost of transport to the port of loading, plus insurance and freight (c.i.f.).
It should be pointed out that as from December 15, 1993, GATT is referred to as the World Trade Organization (WTO) in accordance with latter negotiations between the involved countries, known as the Uruguay Round.
Due to the fact that Import duty is one of the basic mechanisms used by the federal government for controlling imports, increases in import duty are excluded from the application of the rule that no tax may be levied unless the law came into force before the beginning of the relevant tax year (annuity principle).
III.3.1. - Mercosur
The Common Market of the Southern Cone-Mercosur (known as Mercosul in Brazil), caused substantial changes in foreign trade rules effective in Brazil as of March 26, 1991, upon the signing of the Asunci1/2n Treaty entered into between Argentina, Paraguay, Uruguay, and Brazil.
For this reason, nowadays, import procedures and duties must take two distinct situations into account: (a) trades involving MERCOSUR member countries; and (b) trades with non-member countries.
Under the MERCOSUR, the import duty on most merchandise traded within the common market is reduced to zero. Those goods not included under the zero rate initially, eventually will be reduced to zero, by adopting a 20 percent reduction per year, down to zero percent by the year 1999.
In order to qualify for the reduced rates valid within the MERCOSUR, a Statement of Origin declaring the product as coming from a MERCOSUR member country must be issued.
III.3.2. - Trades with Third Countries
Trades with countries outside MERCOSUR are subject to the Common Foreign Tariff (TEC).
In the beginning, MERCOSUR member countries had difficulty in reaching uniform foreign tariffs capable of meeting their individual interests; they were allowed to maintain certain NCM items as an exception to the TEC. These exception items include production goods, computer science and telecommunications products, among others. These products listed as exception to TEC constitute the so-called "lista de excecoes" Therefore, the TEC must always be reviewed jointly with this convergence list.
III.4. SECEX Authority
As above mentioned, SECEX has authority to reduce or increase the rates for products. Such alterations can be motivated by the following factors:
(i) the tariff level of which proving to be insufficient or excessive for the achievement of the objects of the Customs Tariff;
(ii) the domestic production of fundamental importance to stimulate based on government policies in effect;
(iii) the product having obtained registration as being "comparable" to a domestic product;
(iv) the importation of merchandise from any country which imposes restrictions on Brazilian exports to that country; and
(v) that are imported from any country that devalues its currency or grants export subsidies in order to frustrate the objects of the Customs Tariff.
Under Brazilian laws in effect, SECEX is also responsible for calculating, for the purpose of assessing import duty, a minimum value tariff, thereby pre-establishing the normal price of the goods; and for issuing reference prices for the protection of the "comparable" internal production, where there is a marked disparity in prices of imports from different sources and where there has been a general decrease in import prices.
III.5. Comparability Concept
The import of products comparable to locally manufactured products is not usually granted tax or exchange advantages.
SECEX is responsible for ascertaining whether a comparable domestic product exists. For this reason, SECEX normally consults domestic manufacturers and class related entities on the subject. Domestically manufactured goods are considered to be comparable to foreign goods if they are capable of replacing the imported product. Such a replacement implies in the domestic product having an equivalent quality and having specifications adequate for the purpose to which it is required, as well as offering a normal delivery period for that type of product, and not exceeding the cost of the imported product in domestic currency (based on the normal price, plus the duties payable on import and other similar taxes).
In addition to the above mentioned products, machinery, equipment, parts, pieces, components, raw materials, and intermediary products not manufactured in Brazil, as well as their respective accessories, spare parts, and tooling, are exempt from the Tax on Manufactured Products so-called IPI (VAT type tax) until December 31, 1998.
III.6. Import Incentives
The exemption and reduction of import duties and the tax on manufactured products of a general or special nature which benefited goods of foreign provenance, have been revoked.
The only exceptions apply to the following import operations detailed below:
(a) imports of books, newspapers, periodicals, and the paper designed for their reproduction;
(b) samples and international mail without commercial value;
(c) international air mail and orders addressed to individuals;
(d) baggage of travelers from abroad or the Manaus Free Trade Zone;
(e) goods purchased in duty-free shops in Brazil;
(f) goods brought in from abroad in the normal course of business in cities situated in the border area;
(g) essential foodstuffs, fertilizers, pesticides and fungicides for use in agriculture, and raw materials for their production in Brazil, imported under art. 4 of Decree-law No. 63 of November 21, 1966;
(h) computer goods imported under Law No. 7232 of October 29, 1984;
(i) parts, pieces and components for the repair, overhaul and maintenance of aircraft and vessels;
(j) imports of medicines for the treatment of AIDS patients and scientific instruments used in AIDS research, without domestic counterparts, which will also be exempt from internal taxation; and
(k) goods imported through free-trade zones.
(l) Imports performed for or by:
(i) the Federal Government, States, Federal District, Territories, Municipalities, and their autonomous agencies;
(ii) political parties and educational or social assistance institutions;
(iii) permanent diplomatic missions, and consulates and their staff;
(iv) permanent representatives, including regional representatives, of international organizations of which Brazil is a member, and their staff; and
(v) scientific and technological institutions;
IV. Export Operations
Brazil instituted the so-called SISCOMEX system, known as the Integrated Foreign Trade System (SISCOMEX). This system was established in order to monitor and follow up on all foreign trade activities, putting the Foreign Trade Office, the Internal Revenue Service ("Receita Federal"), and BACEN data together within one single administrative system.
Under the SISCOMEX system, all information concerning exports, exchange, transports, is centralized permitting the issuing of a single document for each operation in a consolidated manner (i.e., the export license). Currently, SISCOMEX deals only with export transactions, but it will soon cover import operations as well.
Exports may be subject to the following controls, depending on the case:
(i) total or partial prohibition;
(ii) the fixing of annual quotas for the export of certain products; above these limits, exports are suspended;
(iii) the temporary suspension of the export of certain products;
(iv) contribution quotas: the setting of a percentage of the price in foreign currency which the exporter must pay to the federal government before exporting specified products; and
(v) prior sale, i.e., the specification of a certain quantity of goods to be sold to SECEX or to Brazilian firms, at a prefixed price, before the exporter may export such goods.
IV.1. - Export Incentives
IV.1.1 - Tax Incentives
(a) ICMS and IPI
Exporters of goods are granted the following tax incentives for exports made directly by the manufacturer, the supplier or through trading companies, in relation to the manufacturer:
- IPI immunity on manufactured goods;
- ICMS immunity exemptions;
- maintenance of ICMS and IPI credits;
- Social Security Contribution exemption for the sale of foreign goods and services;
- PIS exemption.
The IPI and ICMS credits referred to above on raw materials used in manufacturing the goods exported may be used by the beneficiaries.
(b) Income Tax
No special rule for export companies is established for Income Tax purposes, therefore the general rules under Law No. 9249 of December 26, 1995 will apply. Such law provides that profits on exports of domestic manufactured products and services are subject to income tax at the rate of 15% (fifteen) percent. Apart from this, profits on exports of manufactured products and services will also be subject to additional income tax, at 10% (ten percent), on any amount in excess of R$ 240.000,00 of the actual profits.
Additionally, any remittances abroad for the payment of promotional, advertising and market research expenses, the renting of stands, maintenance of offices, warehouses, depositories, etc., commissions paid to agents abroad, interest and banking commissions relating to the discount abroad of export bills of exchange, interest and commissions relating to export finance authorized by the Central Bank, are exempt from income tax.
(c) Drawback
Under the drawback system, benefits such as those described below are available.
Authorization may be granted for the suspension of payment of import duty, IPI and ICMS on the import of goods to be exported after improvement or imported for the manufacture, completion, or packing of other goods for export.
Under the drawback mechanism, exemption from payment may also be granted in relation to import duty, IPI and ICMS payable on the import of goods equivalent in quantity and quality to those used for the improvement, manufacture, completion, or packing of the exported product.
These benefits can include the full or partial repayment of the taxes paid on the import of goods exported or re-exported after improvement or used in the manufacture of other goods for export.
(d) Domestic Trading Operations
Certain domestic trading operations are, or may be, treated as exports for the purpose of entitlement to tax incentives. Included in such operations is the supply by local manufacturers of machinery, equipment, vehicles, apparatus, instruments, parts, accessories and components to Brazilian engineering firms, to be exported in connection with work contracted abroad.
IV.1.2. - Financial Incentives
Due to Brazil's economic policy of encouraging export operations in order to control the country's export and import balance, export manufacturing companies and trading companies are also entitled to export incentives.
Through the Export Financing Fund (FINEX), SECEX may finance exports and related operations including: direct export finance by means of refinancing of documents representing sales overseas on payment terms exceeding 180 days; loans to foreign importers of Brazilian manufactured products for cash payments in Brazil; finance for feasibility studies and market research; and for promotion and sales overseas.
Furthermore, SECEX will give technical support to businessmen, class entities and any other interested parties, to assist on the development of such entities and to promote Brazilian trade exchange.
Depending on the nature of the products, 20% (twenty percent) to 40% (forty percent) of the goods exported during the immediately preceding year may be eligible for incentive.
The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.
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