PRODEPE: THE TAX INCENTIVE PROGRAMME DRIVING THE
ECONOMY OF PERNAMBUCO FORWARD

Daniela Braga Guimarães *

It is widely known that taxes are one of the highest costs companies have to face. With the aim of attracting new investments and supporting growth, state governments have put forward incentives that reduce this burden and thus make the business environment more attractive.

In general, fiscal incentives are offered in the form of a reduction in the tax base, the rate and the extension of deadlines for payment (in other words, a legal permission allowing the payment to be made in a later stage) or even by way of a presumed credit, which can be considered a discount.
 
The Government of the State of Pernambuco, targeting investments in   industrial and retail activities, has offered fiscal incentives to attract entrepreneurs. Among others, the Government makes available the Pernambuco Development Programme, known as “PRODEPE”.

PRODEPE was created by Law n.º 11.675/1999, and consists of a joint action between three State bodies: the Economic Development Department, the Science, Technology and Environment Department and the Treasury Department. Funds are released provided a previous requirement has been presented to the Pernambuco Economic Development Agency (AD DIPER), an institution linked to the State Government.

PRODEPE is currently undergoing a transition period given that Law n.º 13.280/2007 has made some alterations in the Programme. However, up to the present moment the new law has been waiting for the due regulatory Decree. Nonetheless, in the following lines we will give you an overview based on the changes introduced by this new Law.

Incentives from PRODEPE are given to three distinct economic ativities: industries, distribution centres and ports. As for industrial activities, incentives are offered by way of a presumed credit on ICMS (tax on the circulation of goods and services) – in other words, a reduction of up to 95% in the due amount.

Funds are given taking into consideration the classification of the industry. If it is considered a “priority”¹, as is the case of the electro-electronic, agribusiness², metal-mecanic and metal transport, non-metallic³, plastics and furniture industries, the presumed credit is of 75% of the due tax amount. In the case of the pharmaceutical industry, the credit reaches 95%, irrespective of the location of the business in the State of Pernambuco. It is worth highlighting that the length of the benefit is 12 years and that it can be extended for up to the same length of time.

As for the “relevant industries”, in the cases of installation, expansion or performance-enhancing actions for existing businesses, they may be encouraged through a presumed credit on ICMS reaching an amount equivalent to 47.5% or 75% for businesses operating outside Recife’s metropolitan region. The length of the benefit is 8 years and it can also be extended for up to the same length of time.

It is important to stress that fiscal benefits can be offered to industries already established in Pernambuco wishing to expand their production. In this situation, the amount of the benefit will be based on the additional due tax (taking the average tax payed by the company over the last 12 months as a reference).

The second target area of PRODEPE are the distribution centres. Incentives are given only to products bought directly from the manufacturer or producer and the credit and length of the benefits are dependent on the competitive capacity of the industries located in Pernambuco.

In operations where goods are distributed from Pernambuco to other states, distribution centres are given a presumed credit corresponding to 3% of the operation, whereas in in-coming operations – where goods are transferred from another State – the presumed credit amounts to 3% of the total value of the target products being transported. In the case of motor vehicles, the percentage may be of 4% provided that the amount corresponds to less than 30% of the original outstanding balance. The length of the benefit is 15 years and it can also be extended for up to the same length of time.

The third focus of the Programme are the incentives directed at port activities. The benefits include: extension of the deadline for ICMS on import operations to the subsequent dispatch of the goods by the importer; and presumed credit given to the subsequent dispatch. The length of the benefit is seven years and it can be extended for up to the same length of time.

Finally, we would like to underline that this article does not cover all the benefits offered by PRODEPE, as we presented only the general information about each of the situations where credits are given. For further information on the aforementioned benefits, an in-depth study is required taking into consideration the kind of business of the applicant for the incentives offered by the State of Pernambuco.

Recife, March 2008

* Carlos Rosemberg is a lawyer at TRIGUEIRO FONTES  Advogados.

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