Government Reduces Income Tax for Brazilian Companies Operating Abroad

09/16/2014 - 09h10

The Brazilian finance minister, Guido Mantega, has announced that the government is extending an income tax reduction to all Brazilian industry.

Speaking on Monday (15), Mantega said that income tax on profits made abroad would fall from 34% to 25% for Brazilian companies.

The change is part of the government's strategy to re-ingratiate itself with the business community, and reduce opposition to Dilma Rousseff's re-election campaign.

Income tax had already been cut for three sectors: construction, food and beverages. At the time, business leaders complained that this established a two-tier tax system for Brazilian companies operating abroad.

Business leaders also criticized the decision to tax at 34% revenues made abroad, arguing that it made Brazilian companies less competitive.

For Mantega, the extension of the tax reduction will help to maintain the competitiveness of Brazilian industry against international rivals, who have financing with lower interest rates.

"In practice, this means a level playing field for Brazilian companies competing with foreign rivals," said Mantega.

The reduction is being granted in the form of credit, to the value of nine percentage points, which will be deducted from the income tax rate of 34%.

The government established the 34% rate to increase tax revenues, but the move received much criticism from Brazilian industry.

Mantega also confirmed that next year, Reintegra, the government's program of stimulus for the export sector, will have a rate of 3%. This scheme provides exporters with a percentage of their sales abroad.

The aim is to make Brazilian exports more competitive and compensate for eventual revalorization of the real.

Translated by TOM GATEHOUSE

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