BRAZILIAN SHIPBUILDING, REPAIR AND OFFSHORE
INDUSTRYFINANCING, TAX BREAKS
AND INCENTIVES
Paper prepared for the occasion of the Visit of the Governor
of the State of Rio Grande do Sul, Mr. Tarso Genro, to the
Republic of Korea, 2011
Claudio Köhler- Lawyer and Senior Partner
Vinhas e Pessôa Advogados
Rio de Janeiro- Porto Alegre- São Paulo- Recife
www.vpadv.com.br
ckohler@vpadv.com.br
Table of Contents

A- Brazilian Shipping Finance:
a- REB- Brazilian Special Register (Registro Especial Brasileiro)Law 9.432/97 and Decree 2.256/97;
b- FMM- Merchant Marine Fund (Fundo de Marinha Mercante)Law 10.893/04

B- Selected Federal Tax Breaks and Incentives

C- Selected State and Municipal Tax Breaks and Incentives

D- Market boosters and Local Content
Brazilian Shipping Finance
a- REB- Brazilian Special Ship Registry
 Does not replace the ordinary Ship’s Property Registry. It is a
voluntary and additional form of registration for merchant vessels,
centralized in Rio de Janeiro at the Maritime Tribunal (Tribunal
Marítimo).
 Ship’s registered in the REB are generally granted the following
preferred treatment, if compared to ordinary Brazilian flag vessels:
i- same taxation and financing conditions that apply to vessels
constructed for export purposes (lower international interest rates
and export tax breaks);
ii- access to international insurance coverage; and
iii- Brazilian nationality requirement, limited to the captain and the chief
engineer (others: + 2/3 of Brazilian crew);
Pró- REB
 Legislative proposition made by SYNDARMA- Federation of
Brazilian Shipping Companies, in 2010, for shipping
companies with vessels registered in the REB Registry:
i- modification of the income taxation to an European “tonnage
tax” model;
ii- exemption for shipping companies of social security payments
for their crew; and
iii- exemption of income tax and social security payments for the
crew
Brazilian Shipping Finance
b- FMM- Merchant Marine Fund

The FMM is a fund to provide resources for the development of the Brazilian merchant marine and
the Brazilian shipbuilding and –repair industry.

Resources of the FMM:
i- the participation of the FMM in the AFRMM- Additional Tax on Freights of the Merchant Marine;
ii- contributions made by the Federal Government and financial resources attributed to the FMM by the
Law;
iii- capital gains and repayments of loans granted by the FMM and Merchant Tax;
vi- Loans granted to the FMM;
vii- Fines and Penalties levied by he FMM;
viii- AFRMM funds returned due to failure in the timely use by an EBN- Brazilian Shipping Company and
ix- other resources.
AFRMM- Additional Tax on Freights of
the Merchant Marine
 This tax is levied on any merchant marine disembarkation
in a Brazilian port (National Hydrocarbon Shipments are
exempt). The basis for calculation is the bill of lading and
encompasses all freight related costs.
 AFRMM rates:
i- 25%, in the case of international navigation (longo curso);
ii- 10%, for cabotage navigation (similar to the north american
“Jones Act”, the “cabotagem” shipping in Brazilian waters
is reserved exclusively to EBN’s- Brazilian shipping
companies);
iii- 40% in the case of liquid bulk transportation on rivers or
lakes in the north and northeastern regions of Brazil.
FMM- Merchant Marine FundAFRMM Participation
 The FMM shall be entitled to the following participation resulting
from the AFRMM collection:
i- 100% of the tax generated by foreign shipping companies;
ii- 100% of the tax generated by a Brazilian shipping company operating
a foreign flag vessel;
iii- 41% of the tax generated by a Brazilian shipping company engaged
in international ship transport, with a Brazilian flag ship not
registered with the REB, and
iv- 8% of the tax generated by a Brazilian shipping company engaged in
international ship transport, with a Brazilian flag ship registered
with the REB.
FMM- Merchant Marine Fund
- primary use of funds -1 Loans:
i- to EBN’s- Brazilian shipping companies and other Brazilian
companies, if it is in the interest of the development of the
merchant marine and of the shipbuilding and –repair
industry, up to 90% of the approved projects, for the
construction of new vessels or for the purposes of
jumborization, modernization, conversion or repair of own
vessels, all to be contracted with a Brazilian shipyard;
ii- to EBN’s- Brazilian shipping companies, Brazilian shipyard
or other Brazilian companies or entities for scientific and
technological research projects and education and
specialization of human resources projects in the fields of
the merchant marine, shipbuilding- and repair, up to 90%
of the approved projects;
FMM- Merchant Marine Fund
- primary use of funds -2iii- to a Brazilian shipyard for the construction of a ship for export
purposes or for delivery to an EBN- Brazilian shipping company or
for vessel repair purposes, up to 90% of the approved projects;
iv- to Brazilian shipyards, arsenals and naval bases for the new building,
expansion and modernization of yard installations, up to 90% of the
approved projects; and
other kinds of loans and payments to financial agents.
Guaratees: liens and encumbrances on ship new buildings or existing
fleet and other common bank guarantees or utilization of the FGCNGuarantee Fund for Naval Construction, a private Fund with a legal
5 billion R$ participation allowance by the Federal Government.Law 11.786/08.
EBN- Brazilian Shipping Company
AFRMM Participation -1 The EBN’s- Brazilian shipping companies operating
own and chartered vessels under Brazilian Flag shall
be entitled to the following participation resulting
from the AFRMM collection:
i- 50% of the tax generated in an international ship
transport, with a vessel not registered with REB;
ii- 83% of the tax generated by in an international ship
transport, with a vessel registered with REB; and
iii- 100% of the tax generated in cabotage, river or lake
ship transport.
EBN- Brazilian Shipping Company
AFRMM Participation -2
These funds shall be deposited in the name of the EBN, at Banco
do Brasil S.A., and may mainly be assessed for the following
purposes:
i- purchase of new vessels built in Brazilian shipyards;
ii- for the purposes of jumborization, modernization, conversions or
repair of own vessels, including the purchase of machines and
equipment, all to be contracted with a Brazilian shipyard;
iii- repayment of principal or interests of FMM- Merchant Marine
Fund loans.
These funds shall be used by the EBN within 3 years after deposit to
the above mentioned account. After this period the participation
rights of the EBN will decay and the funds will be granted to the
FMM.
B- Selected Federal Tax Breaks and
Incentives
 Tax on Industrialized Products- IPI

COFINS and PIS/ PASEP
 Fictitious Draw Back (draw back “embarcação”)
 Import Duty Reduction (Ex- Tarifários)
 REPETRO
Tax on Industrialized Products- IPI
 Ships pre- registered (when under construction) or registered in
the REB will benefit of a total suspension and subsequent 0
tax regime in what regards the IPI Tax, this treatment is
granted to:
the acquisition by a Brazilian shipyards of materials and
equipment, including parts, spare- parts and components to be
used in shipbuilding and -repair
Article 10, of the Law Nr. 9.493/97 and Decree Nr. 6.704/08
COFINS and PIS/ PASEP
 Ships pre- registered (when under construction) or registered in
the REB will benefit of a 0 tax regime in what regards the
COFINS (seller) and COFINS- Importação and PIS/ PASEP
(seller) and PIS/ PASEP- Importação, this treatment is granted
to:
the sale or import of materials and equipment, including parts,
spare- parts and components to be used in shipbuilding and repair
Law Nr. 11.774/08
Fictitious Draw Back (draw back
“embarcação”)
 Since 1992, the internal/ national sale or repair of a vessel is
deemed to be an export operation (fiction), for the purposes of
the Brazilian draw back legislation, with the suspension of
import duties for any materials, equipments, including parts,
spare- parts and components incorporated in a vessel under
construction, modernization, jumborization or repair in Brazil.
Article 1, Paragraph 2, of the Law Nr. 8.402/92, articles 59
and following, of the Administrative Order Nr. 10/10
Import Duty Reduction (Ex- Tarifários)
 Showing proof that there is no “similar national” product
available on the market there is the possibility to have an
import duty reduction granted by the Ministry of Industry
and Commerce.
These procedures are governed by CAMEX Resolution Nr.
35/06.
REPETRO
 This is a special customs regime that allows a suspension of federal
taxes like II- Import Tax, IPI, PIS/ PASEP, COFINS and AFRMM,
for the temporary importation of certain equipments to be used in
the exploration and production of oil and gas.
 This customs regime is admissible for the equipments to be used in
the exploration and production of oil and gas, as listed in the
Normative Instruction RF 844/08, such as:
- machines, equipment, instruments, tools and
- exploration and production, storage and supply vessels as well as
drill and production platforms, etc.
C- Selected State and Municipal Tax
Breaks and Incentives

ICMS- Tax on the Circulation of Goods and Services
- The main discussions regarding this tax which is of the competence of the
Brazilian States, is to follow the lead of the tax reliefs granted on the Federal
Level to the supply chain of the shipbuilding and –repair industry.
The main benefit normally consists in an exemption of the ICMS Tax in the
case of internal sales or importation of goods for shipbuilding and –repair
purposes, including the construction of the shipyard itself.
Selected State legislation: Exemption valid in the State of Pernambuco- PRODINPE, Law Nr.
12.710/04. Rio de Janeiro had such a kind of tax relief- Decree Nr. 25.403/99, not in effect
anymore. In 2008 the State of Rio de Janeiro exempted imported steel for shipbuilding
purposes from the ICMS tax. Rio Grande do Sul is granting an ICMS tax relief program on a
case by case basis.
C- Selected State and Municipal Tax
Breaks and Incentives
 Industrial Districts: Many States offer industrial infrastructure
within Industrial Districts. The prices for the real estate
acquisition are extremely favorable for the investors. In Rio
Grande do Sul, among others, there is the Industrial District
of Rio Grande- DIRG, a suitable location for industries
engaged in shipbuilding and –repair.
 The local Municipalities may , among others, grant tax reliefs
regarding the yearly Real Estate Tax- IPTU.
D- Market Boosters and Local Content

The Brazilian shipbuilding and offshore construction markets have recently benefited
from large new- building programs mainly established by Transpetro and Petrobrás.
These programs impose a large amount of local content in the building process. The
main programs are:

PROMEF I and II- Local content requirements: PROMEF I- 26 SUEZMAX,
AFRAMAX, PANAMAX and liquid bulker ships: 65% and PROMEF II- 23
SUEZMAX, AFRAMAX, PANAMAX, liquid bulkers and gas ships: 70%;

EBN I and II- Local content requirements: EBN I- 19 liquid bulkers and gas ships:
50%; EBN II- 20 liquid bulkers and gas ships: 60% future EBN programs over 65%;

PROREFAM- 2nd phase: 25 supply vessels- 4 AHTS, 1 OSRV AND 20 PSV’s. Local
content requirement: 80% for the PSV’s and 75% for the other.

Petrobrás is contracting 28 drill ships, also with large efforts to create local content.

All national or international private companies which participated in the Oil Field
Concession Biddings promoted by the Brazilian Oil and Gas Agency- ANP have
contractual “local content” obligations, normally over 65%, for the purchase of
equipment and services to be used in the E&P activities.