Godofredo Mendes Vianna September 25 2019 Ministry of Infrastructure announces programme to encourage maritime cabotage Kincaid | Mendes Vianna Advogados | Shipping & Transport - Brazil Godofredo Mendes Vianna Shipping & Transport IntroductionIncreased chartering of foreign vesselsImport of new vesselsIncentives for shipbuilding industryReduced operating costsOther measuresIntroductionThe Ministry of Infrastructure has announced a new programme to encourage maritime cabotage known as BR do Mar. The programme aims to:increase the volume of goods transported by cabotage;increase the number of cabotage vessels;increase the competitiveness of Brazilian shipping companies; anddevelop Brazil's shipbuilding industry.To achieve these aims, the Ministry of Infrastructure has announced the following measures.Increased chartering of foreign vesselsThe programme aims to increase the chartering of foreign vessels as follows:Charter bareboat vessels will be authorised without the need for circularisation (ie, the availability or unavailability of Brazilian vessels) or flag suspension. Such authorisation will be limited to 50% of the tonnage of fleets owned or chartered by Brazilian shipping companies. Vessels chartered under this rule will be subject to the same rules and rights as vessels with the Brazilian flag, including the Freight Surcharge for the Renovation of the Merchant Marine Fleet (AFRMM). The only exception is that chartered vessels cannot be used to block circularisation processes.Charter bareboat vessels will be authorised to replace a vessel under construction without the need for circularisation. If a vessel is under construction in a Brazilian shipyard, Brazilian shipping companies will be able to charter, without flag suspension, up to 200% of the fleet capacity under construction. Conversely, if the vessel is built in a foreign shipyard, the charter should be limited to 100% of the fleet's capacity under construction. Such charters should are limited to 36 months.Charter bareboat vessels will be authorised for a period of time or a voyage (without the need for circularisation) to replace a vessel under repair, maintenance or docking. Such charters will enjoy tax-free automatic temporary admission. In this case, the charter right will be limited to 100% of the capacity of the fleet under repair, maintenance or docking.Import of new vesselsThe programme aims to facilitate the import of new vessels by:suspending import taxes (II, PIS, COFINS, ICMS), provided that an equal amount of tax is paid through Brazilian shipbuilding activity in the next seven years; andallowing new imported vessels to carry shipments on their maiden voyage to Brazil.Incentives for shipbuilding industryThe BR do Mar programme includes the following incentives for the shipbuilding industry:linked resources can be used for five rather than three years;foreign companies can use Merchant Marine Fund resources to finance construction carried out in Brazilian shipyards;foreign companies can use Merchant Marine Fund resources to finance the docking of chartered vessels in Brazilian shipyards;100% of the linked account's resources can be used for any purpose;the deadline for payment of dockage financing has been extended;linked account credits can be sold;$1 billion from the Merchant Marine Fund has been transferred to the Infrastructure Guarantee Fund for investment in shipbuilding; andlinked account resources have been made unenforceable.Reduced operating costsThe programme aims to reduce operating costs through:a tax exemption for the sale of bunker cabotage, equating such sales to export;the creation of a special pricing policy for the sale of low sulphur cabotage fuel;the ratification of the Maritime Labour Convention 2006;authorising the use of linked accounts for crew training;a compensation waiver under the National Fund for Scientific and Technological Development for crew training;an obligation to use Brazilian practitioners on chartered vessels, favouring the faster completion of training courses;a feasibility test to revise the Safety Crew Card criteria;a feasibility test to ensure the supply of officers;the exclusion of navigation revenues from the PIS/PASEP and COFINS (social security taxes) tax base;the exclusion of contracted crew salaries from income tax;the accelerated depreciation of a vessel in four years, making it equivalent to that applied to trucks;an exemption from the merchant utilisation fee when the AFRMM does not apply; andadvertising the cost of pilotage services.Other measuresThe BR do Mar will also introduce the following measures:Brazilian shipping companies will receive AFRMM credits in cabotage, even if the vessels employed have a foreign flag;the AFRMM will not be applied on freight to and from northern and northeastern regions;the AFRMM tax rate will be reduced to 10%;actions that facilitate multimodality will be adopted (eg, using electronic tax documents); andinformation systems in the sector will be consolidated.The Ministry of Infrastructure has been gathering information from the various sectors involved; however, the proposed changes to legislation under the BR do Mar programme have not yet been made available to the public.For further information on this topic please contact Godofredo Mendes Vianna at Kincaid | Mendes Vianna Advogados by telephone (+55 21 2276 6200) or email ([email protected]). The Kincaid | Mendes Vianna Advogados website can be accessed at www.kincaid.com.br.