Foreign subsidiary scheme for time chartering foreign flag
Tax impact of foreign domiciles


Despite Brazil's size, its transport and logistics activities are still primarily concentrated on land, which has led the government to adopt measures to diversify and improve logistics activities in the country.

Against this background, on 7 January 2022, Congress enacted Law 14,301/2022, which amends the rules applicable to cabotage transportation (ie, maritime transportation between Brazilian ports) and creates the so-called "BR do mar" regime.


For decades, the use of foreign flag vessels in Brazil in domestic trade was only admitted where:

  • Brazilian flag vessels were not available; or
  • the shipping company owned Brazilian tonnage.

Further, to be able to qualify as a Brazilian shipping company authorised to perform cabotage, it was required to:

  • evidence the ownership of at least one Brazilian flag vessel, built by a Brazilian shipyard or built abroad and imported into Brazil;
  • bareboat charter a Brazilian flag vessel; or
  • order the construction of a vessel in a Brazilian yard.

This regime has been substantially changed by the new law, which now allows foreign flag vessels to trade within Brazilian cabotage.

Foreign subsidiary scheme for time chartering foreign flag vessels

One of the main changes is the possibility for Brazilian shipping companies to time charter vessels from foreign wholly owned subsidiaries (or from a foreign wholly owned subsidiary of another Brazilian shipping company) in the following cases:

  • fleet expansion;
  • the replacement of vessels being constructed in Brazil or abroad;
  • vessels under repair;
  • for engagement in long-term contracts; and
  • use in so-called "special cabotage operations" (ie, those intended to transport cargo of a type, route or market that does not yet exist or that has not yet been consolidated).

In principle, under time charter contracts, the overall operational expenditure of nautical management tends to be lower abroad, compared with that incurred in Brazil. For example, crew costs tend to be lower in certain jurisdictions, as is the taxation in jurisdictions that offer tonnage tax regimes.

However, these costs could significantly vary, depending on the foreign jurisdiction considered by Brazilian shipping companies for incorporation of the wholly owned subsidiary.

Tax impact of foreign domiciles

In this sense, the domicile to be elected for the subsidiary can occasionally affect the overall tax burden of cabotage transport in Brazil.

This is because, under Brazilian domestic tax rules,(1) companies are required to reflect at year-end the profits or losses of foreign controlled companies for Brazilian corporate income tax purposes, regardless of the location of the foreign controlled company or whether the profits have been effectively distributed.

As such, any relevant optimisation abroad could potentially be reduced or neutralised by taxation in Brazil, unless the Brazilian shipping company is able to incorporate the company in a jurisdiction with adequate protection given by a treaty to avoid double taxation (DTT).


An adequate cross-border corporate and tax plan regarding the location for incorporation of the wholly owned subsidiary may improve the ability to effectively reduce the cabotage costs under the BR do mar regime.

For further information on this topic please contact Godofredo Mendes Vianna, Juliana Pizzolato Furtado Senna or Patricia de Albuquerque de Azevedo at Kincaid | Mendes Vianna Advogados by telephone (+55 21 2276 6200) or email ([email protected], [email protected] or [email protected]). The Kincaid | Mendes Vianna Advogados website can be accessed at


(1) Articles 76 and 77 of Law 12,973/2014.