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INVESTOR’S GUIDE OF MANAUS

FREE TRADE ZONE

Manaus – Amazonas – Brasil

2017

GOVERNO DO ESTADO DO

AMAZONAS

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DAVID ANTÔNIO ABSAI PEREIRA DE ALMEIDA

Governor of the State of Amazonas

JOSÉ JORGE DO NASCIMENTO JÚNIOR

Secretary of State for Planning, Development, Science, Technology and Innovation

ESTEVÃO MONTEIRO DE PAULA

Executive Secretary of Science, Technology and Innovation

GUSTAVO ADOLFO IGREJAS FILGUEIRAS

Executive Secretary of Development

FARID MENDONÇA JÚNIOR

Deputy Executive Secretary for International Policies

Technical team:

Farid Mendonça Júnior - Deputy Executive Secretary for International Policies

Marconde Carvalho de Noronha - Adviser for International Policies

SEPLANCTI - Address:

Rua Major Gabriel, 1870 – Praça 14

Zip Code: 69.020-060 Manaus-Amazonas

www.seplan.am.gov.br - (92) 2126-1211

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SUMMARY

PRESENTATION 04

1) MANAUS FREE TRADE ZONE AND THE NEW ECONOMIC AND ENVIRONMENTAL

MATRIX

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2) TAX INCENTIVES 06

2.1) FEDERAL INCENTIVES 06

2.1.1) IMPORT TAXES (II) 06

2.1.2) MANUFACTURING TAXES (IPI) 07

2.1.3) INCOME TAX (IR) 08

2.1.4) EXPORT TAXES (IE) 08

2.1.5) PIS/COFINS 08

2.2) AMAZONAS STATE’S INCENTIVES 10

2.2.1) ICMS 10

2.3) EXTRA-TAX INCENTIVES 13

3) GENERAL CONDITIONS FOR THE ACCESS OF TAX INCENTIVES 13

3.1) FEDERAL INCENTIVES 13

3.2) AMAZONAS STATE’S INCENTIVES 13

4) FINANCING SOURCES 14

5) COMPARATIVE PAYMENT OF TAX BETWEEN MFTZ AND THE REST OF THE COUNTRY 15

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Presentation

With the purpose of guiding potential domestic and foreign investors interested in

establishing themselves in the State of Amazonas, we have prepared this guide in order to provide

knowledge about the legal instruments for the important model of the Manaus Free Trade Zone,

which supports regional economic development and provides the basis for the expansion of the

Manaus Industrial Hub and that will contribute to leverage the New Economic and Environmental

Matrix, inspired by the premises of Sustainable Development.

We seek to gather in this guide the parameters that conduct and ensure to the investors the

correct ways to contribute and invest in all opportunities that Amazonas can provide. With the

presence of great players, the Manaus Free Trade Zone – MFTZ model continues to produce goods

and services that compete in the world market and serves the national market.

With the prospect of attracting new investments to the State of Amazonas

With the perspective of attraction of new investments in the State of Amazonas, it is

expected a concrete economic leverage with significant amount of investments in the dynamic

industry installed in the Manaus Industrial Hub – PIM, as well as in activities that add value to

natural resources, with environmental conservation, without destroying the Amazonas Biome and

its ecological environment, following the precepts of Sustainable Development.

For the Amazonas State Government, national and foreign investments must also be

applied according to the premise of promoting integrated regional development with focus, through

public policies, on building a path where the priority resources aim to generate positive effects for

the local families.

JOSÉ JORGE DO NASCIMENTO JÚNIOR

Secretary of State for Planning and

Economic Development

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1) MANAUS FREE TRADE ZONE AND THE NEW ECONOMIC AND

ENVIRONMENTAL MATRIX

The state of Amazonas has the third largest industrial hub in the country, in one of the

most preserved environments on the planet, with 97% of its forest cover untouched. More than 500

industries are concentrated in the Manaus Industrial Hub, most of which are transnational

corporations, which use local, national and imported inputs, using federal and state tax incentives

through the legal instruments of the Manaus Free Trade Zone (MFTZ).

Created by the Federal Government and managed by SUFRAMA, the Manaus Free Trade

Zone (MFTZ) is a model of economic development in the Western Amazon to promote productive

and social integration of the region to the country, guaranteeing national sovereignty over its

borders. Extended until 2073 by Constitutional Amendment nº 83/14, it is the only area in Brazil

that has tax incentives guaranteed by the Federal Constitution, including benefits in all spheres,

considered an exception area compared to other regions of the country.

IT IS THE ONLY BRAZILIAN AREA THAT

HAS TAX INCENTIVES GUARANTEED BY

THE FEDERAL CONSTITUTION

It is a free trade area for importation and exportation and with special tax incentives,

established with the purpose of promoting an industrial, commercial and agricultural center within

the Amazon region, with economic conditions that allow local development and the countryside

too. The distance from the consumer centers of its products was one of the factors to establish this

model, according to art. 1 of Decree-Law No. 288 of February 28th, 1967, which regulates this

model of development.

It benefits and encourages large and small enterprises in an area of 10.000 km², which

covers the entire city of Manaus and part of the counties of Rio Preto da Eva and Itacoatiara. Due to

the wide range of tax incentives, MFTZ has several segments, especially electronics, naval and

nautical, computer, two wheels, chemical, thermoplastic, watchmaker, disposable lighters and pens,

packaging, among others.

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The extension of MFTZ provided the opportunity to aggregate proactive management

strategies capable of promoting its regional potential, demonstrating the absolute advantages of

natural and human resources, as well as the competitive advantages of its legal framework for

socioeconomic growth and, besides that, constituting a New Economic and Environmental Matrix

of Amazonas, rich in opportunities for good business throughout the State, providing a combination

of biodiversity and development of technology, innovation and intellectual capital.

2) TAX INCENTIVES

Basically, the tax incentives granted in the MFTZ are:

2.1) FEDERAL INCENTIVES

2.1.1) IMPORT TAXES (II)

a) Exemption in the entrance of foreign goods into MFTZ;

a.1) Intended for domestic consumption;

a.2) Destined for assembly, including improvement, agribusiness and fishing, installation and

industrial and service operation of any nature;

a.3) Storing for re-export.

Excluded from such benefit:

- Weapons and ammunition;

- Tabacco;

- Alcoholic beverages;

- Passengers vehicles;

- Perfume products, prepared and raw material for cosmetics, except for the ones classified in the

positions between 3303 and 3307, from the Mercosul´s Common Naming – NCM, exclusively

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intended for the internal usage at MFTZ or when made with regional flora and fauna raw material,

according to the basic productive process – PPB.

b) Reduction in the output of MFTZ´s manufactured products (to any part of the national territory).

b.1) In the manufacture of computer goods under the application of a reduction coefficient

proportional to the participation of skilled labor and national input;

b.2) Reduction of up to 88% (eighty eight percent) of inputs for industrialization;

b.3) Cars, tractors and other ground vehicles - reduction coefficient increased by five percentage

points (5%);

2.1.2) MANUFACTURING TAXES (IPI)

a) Tax Exemption on Industrialized Products:

a.1) For all goods produced at MFTZ for domestic consumption or for the commercialization

anywhere in the country, except weapons, ammunition, tobacco, alcoholic beverages, passenger

vehicles, prepared cosmetics or cosmetic raw material, except for those produced using regional

fauna and flora raw materials.

a.2) At the entrance of foreign goods for consumption and local market sales, fish processing,

mineral resources and forestry raw materials, agriculture and aquaculture, tourism and storage for

export, construction and ship repair and internment with accompanied baggage.

a.3) For all goods produced in the MFTZ whether they are intended for domestic consumption or

for marketing in any part of the national territory.

Exception: weapons and ammunition, tobacco, alcoholic beverages, passenger vehicles, products of

perfumery and cosmetics.

a.4) For products elaborated with agricultural and livestock raw materials and plant extracts,

regionally produced, having this benefit valid only for places in the Western Amazon;

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a.5) IPI credit calculated, as if it would be paid, for the purchase of products elaborated with

agricultural and livestock raw material and plant extracts, regionally produced, whenever such

products are used as raw materials, intermediary products or packaging materials in

industrialization at any part of the national territory, of products effectively subject to the payment

of this tax.

2.1.3) INCOME TAX (IR)

Reduction of 75% in Income Tax and Additional Nonrefundable, exclusively for reinvestments.

Common throughout the Legal Amazon.

2.1.4) EXPORT TAXES (IE)

For the export of products produced in the Manaus Free Trade Zone, tax rate is reduced to 0% (zero

percent).

2.1.5) PIS AND COFINS

a.1) Zero-Rated for sale of goods intended for consumption or industrialization in MFTZ by a legal

entity established by another Brazilian State.

a.2) Zero-Rated in case of commercialization of raw material, intermediary products and packaging

materials produced at MFTZ and employed in the industrialization process by any industrial

establishment settled in Manaus, according to the Project approved by SUFRAMA.

a.3) Suspension of PIS-import and COFINS-Import: Import levied on goods destined for

incorporation into new fixed assets of legal entities established at the MFTZ. This benefit is

converted into zero-rated after 18 (eighteen) months from the merger of the assets into fixed assets.

a.4) Suspension of PIS/PASEP-import and COFINS import in case of importations made by

company installed at MFTZ, related to raw materials, intermediary products and packaging

materials, used on the industrialization process for industrial establishments settled here, according

to projects approved by SUFRAMA.

a.5) In the acquisition of products that were industrialized at MFTZ, according to Project approved

by SUFRAMA, the legal entity subject to the incidence of non-cumulative contribution to PIS and

COFINS credits may deduct credits calculated over the acquisition value, with rates of 1% and

4,6%, respectively.

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a.6) This rule does not apply, however, in relation to cases involving products taxed at different

rates (fuel, auto parts, beverages, medicines, among others), specified in §§ 1 and 3 of article 2 of

Law # 10.637/2002 and Law # 10.833/2003. A company settled outside MFTZ, which accounts its

Income Tax with the “real profit regime” and holds it revenue, total or partially, excluded from the

system of non-cumulative incidence of contributions, shall the credited of 1,65% from PIS and

7,6% from COFINS.

a.7) The rate of PIS / PASEP and COFINS will not be levied on exports and can use them as a

credit on domestic operations.

SUMMARY TABLE – PIS AND COFINS

RECIPIENT PIS

(RATES)

COFINS

(RATES)

1) Sales of goods to a company settled at MFTZ. 0,65% 3%

2) Sale to a company outside MFTZ, which assesses PIS

through non-cumulative system.

0,65% 3%

3) Sales to entity company settled outside MFTZ, which

assesses the income tax on an assumed profit basis.

1,3% 6%

4) Sales to a company settled outside MFTZ, which

assesses the income tax on a real profit basis and holds

it’s total or partial revenue excluded from PIS non-

cumulative system.

1,3% 6%

5) Sales to a company settled outside MFTZ, adjusted to

the SIMPLES system. 1,3% 6%

6) Sales to federal, state, district and municipal

Administration Agency. 1,3% 6%

2.2) AMAZONAS STATE’S INCENTIVES

2.2.1) TAX ON OPERATIONS RELATED TO THE MOVEMENT OF GOODS AND ON

SERVICES OF INTERSTATE, INTERMUNICIPAL AND COMMUNICATION SERVICES

(ICMS)

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The State Tax Incentive Policy is regulated by Law # 2.829/03 and regulated by Decree # 23.

994/03 and its subsequent amendments.

a) Stimulus Credit: It is a tax return normally determined by the difference between debits and

credits arising from transactions in the period. The credit stimulus represents a percentage of the

outstanding balance due, which can vary from 55% (fifty five percent) to 100% (one hundred

percent). Operationally, in each month of calculation, the taxpayer collects only the difference

between the outstanding balance and the value of the credit stimulus.

a.1) 100% (one hundred percent) for the following products:

a.1.1) Agribusiness products and others products alike, forestry and wildlife products, medicines,

cosmetic and perfumery preparations that use, among others, raw materials produced in and / or

arising from the regional flora and fauna, industrial fish products and forest-based industry;

a.1.2) Printed circuit board mounted for use with computers;

It also applies the stimulus credit level corresponding to 100%, until they are restored the

competitiveness, in the following products:

• Boats;

• Mobile phones;

• Information, technology and automation products;

• Car stereos;

• Clothing and footwear;

• Utility Vehicles;

• Toys;

• Industrial Sewing machines;

• Air conditioners - window or wall type and "split";

• Stoves;

• Washing and dishwasher machines;

• Freezers and refrigerators;

• Cathode ray tubes;

• Balls and other Christmas ornaments, lights, Christmas lights for decoration and Christmas

trees.

• Speakers;

• Jute or malva wires, screens and bags, industrialized Brazilnut, peeled or not peeled;

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• Fitness equipment;

• Bicycles;

• Tires ans inner tubes;

• Aluminum containers and semi-trailers;

• Odorizers and repellents;

• Products intended for occupational safety;

a.2) 90.25% (ninety point twenty-five percent) for the products listed in Items I, IV and VII; LAW #

2.826/03:

• Intermediary goods;

• Brewed and ground coffee, vinegar, crackers and cookies, macaroni and other food pastries;

• Recorded or blank media.

a.3) 75% (seventy five percent) for the products listed in sections II, III, V and VI; LAW #

2.826/03:

• Circuit boards assembled in audio and video appliances, except those intended for mobile

telephones, information, technology and automation goods.

• Capital goods;

• Industrialized consumer food products;

• Agriculture-based industrialized products and others alike, forest and fauna products,

medicine, cosmetics and perfumes that, among others, are produced with raw materials from the

State countryside and/or originated from the regional fauna and flora, industrialized fish and

products from Forest-based industry, if these are produced in the State´s countryside, the credit

stimulus shall be of 100%;

a.4) Until 55%:

• All the other industrialized consumer goods not included in the previous items.

b) Deferral: It is the transferring of the payment of ICMS due, to the time of withdrawal of the

goods. Applied in the following cases:

• In the import of raw and secondary materials, intended for the industrialization of

intermediary goods;

• Production of the products with stimulus credit at the rate of 100%;

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• In the outflow of intermediary goods, when they are intended for the integration of industrial

establishment that receives incentive as well;

• In the outflow of “in natura” regional raw material coming from Amazonas´s countryside,

intended for industrial establishments which receive incentives, for the assembly of threads, fabrics,

“juta” and/or “malva” fiber bags; processed or peeled Brazilian nut and also for the production of

products with stimulus credit at the rate of 100%.

c) Exemption:

c.1) In the entry of machines or equipment, intended for the MFTZ industry permanent asset, for

direct and exclusive use in its productive process; this benefit includes parts and pieces. In order to

take advantage of this benefit, the asset must remain at the company´s facilities for the minimum

period of 5 years under the penalty of paying a proportional rate, each full year the asset stays in the

industrial establishment, the taxpayer gets 20% of the exemption. Tax is not required as a result

from the output of the asset before completing the five (5) years when:

I) The asset is intended for export;

II) It is destined to another taxpayer for the industry in the State of Amazonas;

III) Use in training institution accredited by SEFAZ.

c.2) In the internal outflow of raw materials produced in the State of Amazonas or imported from

abroad, since it is covered by the support of the Western Amazon Exportation Program – PEXPAM,

of the Superintendence of the Manaus Free Trade Zone - SUFRAMA, having observed the forms

and conditions set forth in the joint resolution of the Secretariat for Planning and Economic

Development – SEPLAN and the Secretariat of Finance - SEFAZ.

d) The Calculation Basis Reduction:

d.1) 55% percent, when importing from abroad raw and secondary material, intended for the

productive process of assembled printed circuit board. For the enjoyment of this tax benefit, the

company must have specific registration in the Register of Taxpayers of the State of Amazonas,

exclusive for these operations.

d.2) 64,5% when importing from abroad raw and secondary material for use in the productive

process of capital assets;

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2.3) EXTRA-TAX INCENTIVES

Possibility of acquisition of land (if available) in the Industrial District of the Superintendence of

the Manaus Free Trade Zone (SUFRAMA) at the symbolic price of 1 (one) Real per square meter,

provided that the counterparts required by the legislation are met. These lands are provided with

infrastructure for water collection and treatment, water supply network, telecommunications

network, sewage network, storm drainage and road system.

3) GENERAL CONDITIONS FOR THE ACCESS OF TAX INCENTIVES:

3.1) FEDERAL INCENTIVES:

a) Approval of a technical-economic project with the Board of Directors of SUFRAMA (CAS) in

cases related to the II, IPI and PIS / COFINS incentives. In these cases it is imperative that the

product to be manufactured by the company has a Basic Production Process (PPB) - a minimum set

of manufacturing operations that characterizes the effective industrialization of a given product -

established through Interministerial Ordinances, signed by the Ministers of Development, Industry

and Foreign Trade (MDIC) and Science, Technology and Innovation (MCTI).

b) Approval of technical-economic project with the Deliberative Council of the Superintendency of

the Amazonian Development (CONDEL), in cases related to the IR incentives.

3.2) STATE’S INCENTIVES:

a) Approval of a technical-economic project with the State Council of Development of the State of

Amazonas (CODAM), in cases related to ICMS incentives.

b) Collection of contributions to funds:

b.1) Fund for Support to Micro and Small Enterprises and Social Development of the State of

Amazonas (FMPES);

b.2) Fund for the Promotion of Tourism, Infrastructure, Services and Interiorization of the

Development of Amazonas (FTI); and

b.3) University of Amazonas’ State (UEA).

4) FINANCING SOURCES

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The entrepreneurs may consider two important long term financing sources: Fundo

Constitucional de Financiamento do Norte (FNO) (Constitutional Fund for Northern Financing) and

Fundo de Desenvolvimento da Amazônia (FDA) (Fund for Development of the Amazon):

a) Fundo Constitucional de Financiamento do Norte (FNO) (Constitutional Fund for Northern

Financing): The FNO is the main source of stable financial resources for credit promotion, directed

to meet production activities with low environmental impact, whose objective is the sustainable

development of the Northern Region. Created by the 1988 Federal Constitution, which established

the obligation of the Federal Government to set aside 3% from the IR (income tax) collection and

IPI (Tax on Industrialized Products) to be applied to financing programs to productive sectors of the

North, Northeast and Mid-West regions, through their regional financial institutions for the Amazon

region.

b) Fundo de Desenvolvimento da Amazônia (FDA) (Fund for the Development of the Amazon): the

Fund is managed by the Superintendence for the development of the Amazon (SUDAM), having as

operating agent Banco da Amazônia, with the objective to enable private investments in the

Amazon. Implementation, expansion, diversification and modernization of private enterprises

located in the Amazon, according to the guidelines and priorities approved by the Executive

Council for the Development of Amazonia, limited to 60% of total investment and 80% of fixed

investment of the project.

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5) COMPARATIVE PAYMENT OF TAX BETWEEN MFTZ AND THE REST OF THE COUNTRY:

FEDERAL TAXES BRAZIL MIH (PIM) Import Taxes (II) Variable Reduced by 88%

Tax on Exports of Domestic Products (E) Variable Doesn’t exist

Income Taxes (IR) - Legal Entity 25 to 34% Reduced by 75%

Income Taxes (IR) - Individuals Until 27,5% Until 27,5%

Manufacturing Taxes (IPI) Variable Doesn’t exist

Tax on Credit, Foreign Exchange and Insurance or Securities Transactions (IOF)

0,0041+0,38% 0,0041+0,38%

Rural Territorial Tax (ITR) Variable Variable

Taxes – Single Tax Doesn’t exist Doesn’t exist

Value Added Tax (VAT) Doesn’t exist Doesn’t exist

STATE’s TAXES BRAZIL MIH (PIM) Tax Operations on Movement of Goods and Services of Interstate, Intermunicipal and Communication Services (ICMS)

17%

Reduced from 55 to

100% (Stimulus

Credit)

Property Tax on Motor Vehicles (IPVA) 1 to 3% 1 to 3%

Tax on Transmissions of Properties due to the death of someone and Donation of Any Nature (ITCD)

2 to 4% 2 to 4%

Taxes (In the case of the PIM, in general: FMPES - 6%, UEA - 1,5% and FTI - 2%)

Variable

9,5% of Stimulus

Credit

MUNICIPAL TAXES BRAZIL MIH (PIM) Urban Property Tax (IPTU) 0,5 to 4% Variable

Real Estate Tax and Real-Estate Transfer Tax (ITBI) 2% 2%

Service Tax of Any Kind (ISS) 2 to 5% 5%

Taxes Variable Variable

CONTRIBUTIONS BRAZIL MIH (PIM) Labor Contributions or over the Payroll (INSS) 20% + 8% 20% + 8%

Contributions over Revenues (PIS and COFINS) 3% and 1,65% Entry: Exempt

Exit: 3% and 1,65%

Contributions over the Net Income (CSLL) 9% 9%

Contributions on Imports 7,6 and 1,65% Doesn’t exist

Contributions to the "S" System 1% 1%

a) The general rule on the reduction of Import Tax (II) is the Rate of Reduction of Aliquot (CRA). The 88%, in fact, is an exception, however that

covers more than 99% of the products. Some products may not fit in into the 88% rule, but it is rare, since the universe of products and respective tariff positions approved before Law No. 8387/1991, is extremely unusual.

b) the credit incentive of the Tax on Operations Related to the Circulation of Goods and on Provision of Transportation and Communication Services

(ICMS) may be 55%, 75%, 90.25% or up to 100%, depending on the product. c) State’s contributions have some specific rules:

c.1) For final goods manufacturers that do not have 100% Stimulus Credit, there is no FTI in the sale and there is no FTI on the Stimulus Credit value.

There is the FTI of 2% on the FOB value of imported inputs and FTI of 1% on the value of the Tax Invoice of national inputs.

c.2) For Manufacturers of Intermediate Goods, there is no incidence of FTI in the acquisition of inputs, regardless of their origin. However, there is

FTI on sale (1% on gross sales), there is UEA on sale (1.3% on gross sales) and there is no incidence of FMPES.