On August 26, 2016 Law No. 7,428/2016 was published in Official State Gazette of Rio de Janeiro, thereby implementing ICMS Convention No. 42/2016 and establishing the State Fund of Fiscal Balance – FEEF during two years, with the purpose of to maintaining the balance of public and social security finances in Rio de Janeiro State.

The aforementioned law states that the use of tax benefits or incentives already granted or that may be granted, are subject to a deposit of the amount equivalent to 10% (ten percent) of the difference between the value of the tax calculated with and without the use of the benefit or the tax incentive granted to ICMS taxpayers, according to ICMS Convention No. 42, of May 3, 2016.

Pursuant to section 3 of this Law, taxpayers can use the benefit already granted, only if the revenue of the current quarter, compared to the same quarter of the previous year, has increased in nominal terms, in excess of the amount that would be deposited in the State Fund of Fiscal balance - FEEF for each company. In the absence of this increase, the company will be required to deposit the 10%.

It is important to stress that lack of compliance will lead the taxpayer to lose the tax benefit. If the taxpayer does not make the deposit in the required period, the loss will be automatic and temporary. However, if the taxpayer fails to make the deposit for 3 (three) months - consecutive or otherwise - the loss of the benefit will be definitive.

The procedures to be adopted by the companies, especially regarding bookkeeping and other ancillary obligations shall be regulated by decree. The incentives and tax benefits, financial and fiscal-financial, including those arising from special tax regimes, resulting in reduction of the amount of ICMS to be paid according to the first clause of the ICMS Convention No. 42 of May 3, 2016, will also be regulated by decree.

The following will be excluded from the effects of this Law: (i) benefits or tax incentives for school supplies and basic medicines; (ii) benefits or tax incentives for the alcohol sector; (iii) benefits or tax incentives for micro and small enterprises as defined in Complementary Law No. 123/2006; (iv) benefits for staple foods and other food products (including wheat); (v) RIO-LOG; (vi) bakery and confectionery benefits; (vii) benefits granted to wholesale companies in internal operations with tax substitution; (viii) state law to incentivize culture; (ix) special tax regime for manufacturers of textile products, textile articles and clothing accessories; (xi) special tax regimes for furniture manufacturers; (xii) incentive program for handmade production of beers and draft beers and (xiv) metal mechanic companies in Nova Friburgo Municipality.