REDUCTION OF 75% OF IRPJ FOR NEW ENTERPRISES

One of the most well-known federal tax incentives is Sudene, specifically that which establishes a 75% (seventy-five percent) reduction in Corporate Income Tax. And the state of Espírito Santo has 28 of its municipalities in the area of operation of Sudene, allowing companies located in such locations to be able of enjoying it.

And, despite being one of the most important fiscal incentives for the development of Brazil, especially since it is a benefit aimed at fomenting productive activities in the Northeast, including ES (for the time being only partially), it still raises a great deal of questions.

As the title itself says, the incentive to reduce IRPJ (Corporate Income Tax) is for new enterprises, made by legal entities, reaching the implantation, modernization, expansion or diversification of these companies (the current legal basis benefits projects whose protocols are made up to 31/12/2018) and establishes a reduction of 75% (seventy-five percent) of Corporate Income Tax (IRPJ), including non-refundable additional, calculated by operating profit and its term of enjoyment is 10 (ten years).

The beneficiary companies must be industries (this is not an incentive aimed at promoting the commercial segment), with IRPJ taxation for Real Profit (it can neither be an offsetting of Presumed Profit nor of the National Simple) and must be in Sudene operation areas.

List of municipalities covered by Sudene in the ES:

This incentive provides a tributary economy of 75% (seventy-five percent) on Corporate Income Tax and additional once that, effectively the beneficiary will recall such taxes after its application, that is, from 100% of the tax due only 25% (twenty-five percent) shall be collected. It’s a tax incentive that materializes itself in a disbursement much smaller than what is practiced by most of the brazilian companies, positively impacting the cash flow.

Those that can benefit projects considered as priorities for the economic development of the Sudene region, as it is stablished on the

Decree nº 4,213 of April 26, 2002 and that fits into implementation, diversification, modernization or ampliation, in a way very similar to the one stablished on the Invest Industry (tax incentive on ICMS-ES) legislation, whose objective is to foster the economic development in our state.

(see most recent text https://www.oliricacunha.com.br/en/invest-updated-importation/)

Highlighting the fact that, an industry when stablishing in the ES can enjoy, concomitantly of both incentives, the Sudene and Invest Industry, significantly reducing the Corporate Income Tax payment and Additional non-refundable and the ICMS, that could become a very big competitive differential against other industries, your competitors, stablished in other states. A big amount of the tributary cost becomes profitability with the combination of these two benefits. Both the company and the State wins with generation of employment and income.

Also, must be considered that, unite with the tax gains from those benefits, the excellent geographic location of Espírito Santo added to reductions on road freights inherent to the utilization of Compete Transport, incentive to the conveyors which have implanted units here. https://www.oliricacunha.com.br/en/compete-transports .

For the Project of implementation, will only be liable to be granted when the industry is, effectively with a production superior of 20% (twenty percent) of its real installed capacity.

The ideal is to plead this benefit based on the accounting statements of the company and in its economic\financial planning, once the fruition is of 10 (ten) years and starts to count from the year of the Constitutional Report emission.

Even when the company is showing negative results (tax losses, for IRPJ purposes), which is normal during a first period (one, two years or even a little more, depending of the business peculiarities – each case is different) one should not start counting the fruition of this incentive because, the 10 years, I reaffirm that starts counting from the moment of expedition of the Constitutional Report already said, regardless from the result gotten, profit or loss.

And obviously, if the contributor already has its Constitutional Report, even if it’s not showing taxable Real Income, the counting starts and that will cause loss of precious years of taxation which won´t be benefited with this tax incentive.

Exemplifying:

WAMF Industry has started their operations in 30\09\2013;

According to the projected results this industry will only present taxable Real Income (tax profit) from 31\01\2018.

The litigation must occur in accordance with these projections, in a way that the emission of the Constitutional Report be dispatched in 2018, year which will begin the counting of its fruition (ten years, ending in 2027).

On the illustration above the beneficiary will enjoy this legal time in its totality (at least theoretically – unfortunately not always our projects become reality seeing the economic oscillations in our country).

However, if the benefit is successfully obtained within a year of tax loss, the fruition would start counting and, in the end the incentive would reach a smaller amount of time.

One more observation: when the Constitutional Report is emitted in the same year of entrance of venture operation, the counting of its fruition will start immediately from the following year.

And yet, when obtained the Constitutional Report the beneficiary must come to a Unit of Federal Revenue of its jurisdiction, with the original document, special form already filled and request the incentive to be recognized.

Procedures, forms and documentation required are discriminated in the Instruction Manual for elaboration of Incentive and Tax Benefits lawsuits administered by Sudene.

The contemplated companies must account for the tributary gains resulted from this incentive as capital reserve. And those reserves will only be utilized to absorb accounting losses or to engorge its social capital, not being allowed the distributions between partners, under penalty of losing this incentive, collection of values that are no longer paid during its fruition and other suitable penalties.

The calculation will only contemplate the production activity and only from its industries localized in the Sudene area, not being allowed the extension for other units from the same contributor (when there is beneficiated matrix, for example and at the same time branches out of the Sudene area). Does not include total billing of the beneficiary contributor.

Therefore, those companies must possess control and specifics accounting registries, so that they can highlight the incentivized activities, from the ones not incentivized, demonstrating with total clarity, the composition of its costs, revenues and results, observing what determines the legislation regarding exploration profit.

For entrepreneurs and managers interested on the utilization of both incentives, Sudene and Invest Industry, I assure that our office has vast experience for obtaining and operability of those benefits.