On October 17, 2013, Decree no. 8,122 was published regulating the Special Tax Regime for the Defense Industry (RETID). This regime was initially established by Provisional Measure no. 544 in September, 2012.
According to the statement of justification of this last norm, which was converted into Law nr. 12.598 in March, 2012, RETID was included in the National Defense Strategy program and "aims to establish special provisions for the procurement and contracting of the national defense industry's concerns, beyond providing for the special tax regime and financing able to allow for the empowerment of the base of the defense industry, stimulating it to acquire the technologies indispensable to the country".
Within this context, the benefits of the program include suspension of the Tax on Manufactured Products (IPI) and Social Insurance Contributions (PIS/COFINS) due on domestic sales for companies benefitting from the RETID. The RETID also allows beneficiaries to import goods into Brazil with the suspension of the IPI, PIS and COFINS-Importação taxes.
It is important to mention that, according to said regulation, these tax benefits may be enjoyed up to five years after the publication of Law nr. 12.598 in the Official Gazette (March 23, 2012).
It is also worth pointing out that the Brazilian Minister of Defense will list the defense-related goods which will be benefited. Such definition may be published by the end of the month.
For enjoyment of the benefits of RETID, the suppliers to those companies accredited under the program (named "Empresa Estratégica de Defesa" or simply "EDDs") will have to prove a percentage of revenues of at least 70% in the sale of goods and in provision of services during the previous calendar year to: (i) EDDs; (ii) manufacturers of national defense goods (to be listed by the Ministry of Defense); (iii) abroad; and/or (iv) to the Ministry of Defense. Those companies which are in the process of starting their activities or which do not qualify as a primary exporter may assume a commitment to achieve this minimum percentage up to the end of the calendar year after their registration.
RETID will not be granted to companies which pay federal taxes under the SIMPLES NACIONAL system or under the presumed profit regime.
Finally, it is also worth mentioning that the regulation of RETID relates to federal taxes, meaning that the Brazilian IRS will regulate the regime. The extension of the RETID benefits to the state value-added-tax (ICMS) will depend upon the deliberation of all states.
The Tax Department of Felsberg e Associados is available for any further clarification on this matter that anyone should feel necessary.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.