Domestic and foreign sea carriers: attention to the new freight rules
As the shipping market and industry are well aware, the federal tax known as Additional Freight for the Renovation of the Merchant Marine (AFRMM) was established in 1987 to foster the development of the Brazilian merchant navy and the repair and shipbuilding industry.
Except for legislative exemptions, this tax is levied on the freight charged by Brazilian and foreign shipping companies for unloading cargo of any nature in Brazilian ports. The revenue obtained through AFRMM constitutes the resources that make up the Merchant Marine Fund ("FMM"), which is managed by the Ministry of Transport and annually supports various naval projects.
Until recently, the rules regarding the calculation basis of this tax were established by the original wording of Law No. 10893 of July 13, 2004, and the applicable rates ranged from 25% for long haul navigation, 10% for cabotage navigation, and 40% for inland and river navigation in the North and Northeast Regions, only in the case of transportation of liquid bulk.
In January 2022, when the Incentive Program to Transport by Cabotage was instituted (Law No. 14.301 – known as “BR do Mar”), the rates mentioned above were reduced to 8% for long haul navigation and 8% for cabotage navigation, remaining the same for inland and river navigation in the North and Northeast Regions, the rates of 40% for transportation of liquid bulk and 8% for transportation of solid bulk and other cargoes.
As recently reported in one of ours Tax Law newsletters, by means of a Decree issued on the last business day of 2022, the former Government established a discount of 50% for the AFRMM rates. On January 2, 2023, the new Government issued a new Decree fully revoking said reduction, arguing that such reduction would have a substantial financial impact on the government budget.
However, in practice, and as already ruled by the Supreme Court in similar cases, the reestablishment of the previous rates may only produce effects after 90 days have elapsed from its issuance. In other words, the 50% reduction in AFRMM rates, as established by the former Government, will possibly be valid until early April 2023, when those rates will return to their former levels.
It is, therefore, important that national and, above all, foreign shipowners/carriers be aware of these new conditions and their validity period, so that they can organize themselves financially and accountably beforehand.
Considering that the current Government has estimated that in these 90 days, the loss of revenues will have a significant impact on their earnings, the possibility of their questioning the immediate suspension of this discount before the Supreme Court is already being studied. We should wait and see what the next steps will be.
Law No. 10.893 is available here, and Law No. 14.301 here, both in Portuguese.
The Maritime team is available in case of doubts.