Taxation in a world amidst energy transition

Tax breaks, programs and other initiatives benefit companies of the energy industry with activities focused on renewable energy production

By Marluci Azevedo

The world experiences a moment of transformation and diversification of the generation of energy, a scenario that takes a prominent place in Brazil because of the availability of clean energy sources.

The country also has potential to take a leading role in the green hydrogen market, a promising alternative in energy transition international strategies.

In a global level, there is an effort to reduce oil and other fossil fuels dependence. Around here, there is no doubt that promotion policies play an important role on the conduction of this transition process.

Tax breaks for the renewable energy sector

According to information released by the Ministry of Mines and Energy in August 2021, almost half of the energy produced in the country comes from renewable resources. And in the direction of this movement, initiatives increasingly come up to encourage energy transition.

Stimulating its growth is done through tax breaks that grant deductions in the tax burden of sector companies.

Get to know some of the tax breaks available for renewable energy below:

Corporate Income Tax (Imposto de Renda da Pessoa Jurídica, or IRPJ)

In the country’s North and Northeast, there are breaks offered to implementation, expansion, diversification, and improvement projects that are presented to regional agencies up to December 31, 2023.

This measure benefits economy sectors that are a priority to these regions, such as the energy industry. Taxes and non-refundable surcharges payable on the operating income are reduced in 75% for a period no greater than ten years.

Social Integration Program (Programa de Integração Social, or PIS) and Social Security-Financing Contribution (Contribuição para Financiamento da Seguridade Social, or Cofins)

Throughout the country, energy infrastructure projects count on the PIS and Cofins suspension on the acquisition of machines, equipment and services intended for the fixed assets.

Another measure related to these contributions, and valid throughout the national territory, is the zero-tax rate on the import of parts and pieces used in wind turbines (except for wind shovels).

Tax on the Circulation of Good and Services (Imposto sobre Circulação de Mercadorias e Serviços, or ICMS)

States such as São Paulo, Rio Grande do Sul, Rio Grande do Norte, Pernambuco, Minas Gerais, Piauí and Bahia offer deductions on the tax base, ICMS deferment exemption for many operations related to wind, solar, biomass or biofuel energy. Some agreements are even applicable to the entirety of the Brazilian territory.

Green IPTU

Taxpayers who adopt sustainable practices in their real estate can get deductions that may vary between 0.3% and 100% on their Urban Real Estate Tax (Imposto sobre a Propriedade Predial e Territorial Urbana, or IPTU).

Capital cities such as Curitiba/PR, Goiânia/GO, Rio de Janeiro/RJ, Salvador/BA e Florianópolis/SC are some of the cities that offer that benefit.

Import Encouragement

Amongst the current benefits offered by the federal government, there is the removal of import taxes on solar energy equipment as a tool to contribute to the increase in competitiveness of solar energy in Brazil.

Other encouragement programs and actions

Alternative Eletric Power Sources Incentive Program (Programa de Incentivo às Fontes Alternativas de Energia Elétrica, or Proinfa)

The Brazilian energy mix is too dependent on hydropower plants. Proinfa was created to promote the development of other sources, diversifying the country’s power generation.

Biofuel National Policy (Política Nacional de Biocombustíveis, or RenovaBio)

One of the goals of the RenovaBio policy is to contribute to the compliance with commitments nationally determined by Brazil within the Paris Agreement, and to promote the expansion of biofuel (ethanol, biodiesel, biomethane, biokerosene, second generation ethanol, amongst others) in the energy mix.

Ceará’s Green Hydrogen HUB

Last year, Ceará launched the Green Hydrogen HUB project, a partnership between the state government, the Industry Federation of Ceará, the Federal University of Ceará (UFC), and the Industry and Port Complex of Pecém, which will harbor the HUB. The joint action aims at attracting investors and supporting the projects’ technological development.

“Neutral ISS” in Rio de Janeiro

The city of Rio de Janeiro is organized to create a voluntary market of carbon credits. Policies to promote the creation of a green ecosystem and investments are anticipated. These anticipated policies want to promote the creation of a green investment ecosystem, made of certifying companies, sustainable projects developers and environmental consultants.

The City Hall has also been studying a reduction in ISS tax rate from 5% to 2% for certifying companies or platforms, but also for those willing to neutralize carbon gas emissions.

Tax-related intelligence to deal with an everchanging world

The energy sector has been experiencing some changes that severely impact corporate strategy. Amongst many ramifications, we must consider the consequences in accounting and tax-related fields.

Having the support of partners who keep up to date with this panorama’s evolution represents an important differentiator. DPC’s specialists support the management of taxes in this new scenario, contributing for businesses to optimize their corporate results.