The Brazilian Government has several key instruments to help improve certain areas or activities that are significant to the development of our economy, such as tax incentives granted at federal level.
Those incentives encompass a substantial number of industries that drive the domestic economic growth. Particularly for the oil & gas industry, the Federal Government established the Special Customs Regime of Export and Import of Goods destined to Exploration and Production of Oil and Natural Gas (“REPETRO”), which is one of the main incentives applicable to this industry.
REPETRO consists in a special customs regime that aims at reducing the tax burden levied on exploration and production of oil and gas fields, stimulating private investments in these areas by means of the suspension and subsequent exemption of Import Duty ("II"), Excise Tax ("IPI") and Social Contribution on Imports ("PIS/COFINS-Importação").
Such regime is limited to those goods listed in the appendix of the Normative Ruling N. 844/08 (“IN 844/08”), which provides for the general rules to determine of REPETRO. However, taking into consideration the broad terminology adopted by the legislation, it is important to perform a deep analysis on the actual nature of the goods to be imported.
This customs regime allows the use of the following customs mechanisms, provided that some conditions established by IN 844/08 are met: (i) temporary admission: total suspension of payment of the said federal taxes due on import of goods temporarily admitted to Brazil, in order to be used on the activities of research and exploration of oil and gas in the country; (ii) fictitious export of products manufactured locally: allows the Brazilian companies to consider the sale of goods produced in Brazil to foreign companies, to be used locally, as a fictitious export; (iii) Drawback: suspension of the federal taxes levied on the import of raw materials, inputs and parts to be applied on the manufacturing of goods to be fictitious exported and temporarily admitted under the REPETRO.
The imported items have a deadline for remaining in the Brazilian territory – which corresponds to the term of the concession (in case the applicant is the concessionaire) or the term of the services agreement (in case the applicant is a contractor of the concessionaire).
There are several changes under discussion that aim at simplifying REPETRO. They would consist of the simplification of the bureaucratic procedures to obtain the regime (by implementing a more detailed and restricted list of goods allowed to benefit from the regime, for example); a minimum value for the goods to be imported; among others. Notwithstanding, there is no prediction to when such changes will be effectively implemented by the Authorities.
Taking this into account, as well as the important impacts and requirements of the REPETRO system, companies operating in the oil and gas sector must be fully aware of the relevant legislation, in order to structure their businesses in the most adequate way. For this reason, it is advisable the support of authoritative professionals in order to ensure full compliance with all legal requirements.