Brazilian Government extends the REPETRO until 2040 and changes tax rules pertinent to the taxation of the oil and gas industry

Decree No. 9,128/2017, published today, extended the REPETRO (Special Customs Regime for the Oil and Gas Industry) until 2040.

The referred Decree also provided that, from January 2018 to July 2022, REPETRO will benefit not only temporary imports but also permanent imports with the suspension of federal taxes (Import Duty, IPI and PIS/COFINS-importation). This new kind of benefit, which still needs to be regulated by the Brazilian Federal Revenue Secretariat, is based on the Provisional Measure No. 795/2017, issued today by the President, which will need to be confirmed by the Brazilian Congress.

Provisional Measure No. 795/2017 also provided that, from January 2018 to July 2022, purchases of inputs used to manufacture products intended for the exploration, development or production of oil and gas will benefit from a suspension of federal taxes.

The tax suspensions mentioned above will be converted into exemption if the goods imported or manufactured with these tax benefits are duly applied on the incentivized activities of the oil and gas industry. The conditions for such conversion will be the subject of further regulation.

The referred provisional measure also creates an accelerated exhaustion quota for the assets formed with the expenses incurred on the development of oil and gas fields.

Furthermore, the provisional measure changed the rules regarding the application of the 0% rate of the Withholding Income Tax on payments to foreign companies for the lease of vessels used in the exploration and production of oil and gas. In case there are simultaneous execution of lease and service contracts and lessor and the provider are considered related parties, the provisional measure:

  • changed the thresholds that must be observed for the purpose of calculating the value of the lease which will be subjected to the 0% rate, with effect from 01/01/2018;
  • when dealing with the  compliance concerning  the referred thresholds, established that, if the lessor is located in a tax haven or benefits from a privileged tax regime, the totality of the lease fees will be subject to the Withholding Income Tax at a 25% rate;
  • created new situations in which the lessor and the service provider will be treated as related parties.

The Provisional measure also granted benefits to companies that voluntarily pay the Withholding Income Tax related to transactions made before December, 2014, because of the noncompliance with the thresholds that must be observed to determine whether the lease fees will be subject to the 0% rate.

Finally, the provisional measure provides that the Federal Revenue Secretariat will regulate all the rules mentioned above.

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