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Brazil publishes regulations for “Route 2030,” the new regime applicable to the automotive industry

On 9 November 2018, Brazil’s Executive Branch published Decree 9,557/2018, containing the regulations to implement Provisional Measure 843/2018, which sets forth the requirements for the sale of vehicles in Brazil and creates the “Route 2030” Regime.

The Route 2030 Regime replaces the former Inovar-Auto Regime, which was eliminated on 31 December 2017. The new regime focuses on creating incentives for the automotive industry by granting tax credits to companies that invest in research and development (R&D). Unlike Inovar-Auto, which also focused on incentives for R&D, Route 2030 encompasses manufacturers of automotive parts.

The main goals of the Decree are to: (i) increase investment in energy-efficient resources, structural performance of vehicles, and the availability of autonomous vehicle technology in the domestic market; (ii) increase investments in R&D in Brazil; (iii) foster production of new technologies that are aligned with global trends; (iv) automate manufacturing and increase industry productivity; (v) promote the use of biofuels and alternative means of propulsion, while valuing Brazilian energy sources; and (vi) integrate the Brazilian automotive industry into global value chains.

The Route 2030 Regime will benefit companies that: (i) produce vehicles and car parts, or strategic systems for production of such vehicles and auto parts, with tariff classifications matching those listed in the Decree; (ii) sell (even without local production) products mentioned under (i); and (iii) have projects in Brazil focused on improvement and technological processes that will be applied in the production of the products (and new models of such products) mentioned under (i), or new strategic solutions applicable to mobility and logistics.

As a result, Brazilian companies that comply with the requirements of the regime will be allowed to deduct from the corporate income tax and social security on net profits a credit calculated as a percentage of the R&D expenses incurred in Brazil.

To benefit from the incentives, the companies must meet the following requirements:

  • The company should comply with federal tax rules.
  • The company must spend on R&D.
  • The company must be subject to the corporate income tax and must use the actual profit method (Lucro Real).
  • The company must have a separate cost center for R&D.

Like the Inovar-Auto Regime, the Route 2030 Regime will require companies to produce a significant amount of information to obtain approval for R&D projects.

EYG no. 011952-18Gbl

Download this Tax Alert as a PDF file.

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