Oil & Gas: tax-efficient strategies for seizing opportunities in Brazil

Relying on local specialized support is key for tax optimization and identification of opportunities

By Marluci Azevedo

Oil plays a central role in the global energy mix; however, the decarbonization movement suggests a shift over the coming decades. Along the path towards energy transition, Brazil stands out as a country that, despite holding plenty of opportunities for the oil & gas sector, keeps pushing ahead with efforts towards clean energy sources, such as green hydrogen production.

According to the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP), Brazil:

• is a global leader in deepwater and ultra-deepwater exploration and production (E&P), which accounts for more than 90% of the country's production.
• is among the world’s top 10 oil producers, averaging 3 million BOE of oil production and 134 million cubic meters of gas per day.
• has one of the cleanest energy mixes in the world: 48.4% of its primary energy comes from renewable sources, in contrast to a world average of 13%.

In terms of business environment, the country has sought to cut red tape and streamline the rules in place, making itself highly appealing to investors. Tax breaks and special regimes have also been put in place and have played a significant role in fostering the sector.

Impact of legislative developments on business planning

Companies in the oil and gas sector should be constantly up to date with the norms and regulations in order to remain in good standing and reduce risks that might otherwise hinder their competitiveness.

Recently, Complementary Law No 192/2022 implemented, nationwide, the single-phase taxation regime on fossil fuels and biofuels. Providing for a fixed and uniform rate per product, the statute helped reduce the complexity of the sector's tax system.

The country also seeks to push forward with regulating carbon trading. In this respect, Decree No 11,075/2022 spells a positive outcome for such trades in Brazil.

A well-designed strategy that takes into account a business’s needs, goals, and traits will certainly help a company achieve tax optimization and cut down on operating costs.

All this calls for a careful tax planning, an analysis of applicable tax breaks, an assessment to identify the most favorable business location, and a well-integrated process management.

Opportunities for business and tax optimization

The New Gas Market

In 2021, the government launched the New Gas Market, a program aimed at fomenting an open, dynamic, and competitive market. In essence, Brazil is keen to attract investors and increase the number of companies operating in this segment to achieve these goals.

Read more: New Gas Law: opportunities and challenges for the businesses in this sector

National Hydrogen Program

In August 2022, the federal government took an important step by implementing the National Hydrogen Program (PNH2).

Meanwhile, efforts have been undertaken in several states to push this market forward. In Rio de Janeiro, companies have outlined a plan for developing a pilot plant for green hydrogen generation. Meanwhile in Bahia, a private project to build the world's largest green hydrogen plant is underway.

In Pernambuco and Ceará, green hydrogen hubs are being set up to attract investors interested in this energy source.

ANP's Auctions

On December 16 of this year, the government will host an auction of pre-salt areas, in which 11 areas for oil E&P in the Campos and Santos Basins will be up for bidding.

This will be the first auction in the production-sharing regime to be held under the permanent offer bidding model. In addition to this one, other rounds should be carried out in the future to boost investments in the oil and gas industry.

Opportunity mapping

ApexBrasil put together the “Portfolio of Investment – Opportunities in Brazil – OIL & GAS”, which contains information about the dynamics of the oil and gas industry in the country and lays out potential projects to be developed at the national level.

The manual lists 61 opportunities across onshore and offshore oil and gas exploration concessions; open acreage of exploration blocks; construction of fertilizer factories, lubricant units and natural gas plants; sale of refineries; building of tank farms and development of oil and gas pipelines. Click here to see.

Special tax regimes

On a more specific note, companies should take into account the tax regimes that benefit them the most. To perform this assessment, it is crucial to rely on specialized support to check the requirements for eligibility and the feasibility of accreditation. A few tax regimes that oil and gas companies may benefit from are the Repetro-Sped, the Recof-Sped, the Repex, and the Drawback.

Business site

Before setting up a business in Brazil, companies should carry out an in-depth study to choose their business site. Apart from aspects related to infrastructure and logistics, each state has agreements and tax breaks in place to benefit the oil and gas industry and foment alternative energy sources.

Read more:

• Taxation in a world amidst energy transition
• Wind power in Brazil: milestones, developments, and tax breaks for the sector

Strategic partnership for the energy industry

With a highly qualified team, DPC closely monitors the oil and gas market and the new developments in this stage of energy transition to instruct its clients and assist them in their challenges and demands.

DPC is an associate member of the Brazilian Oil, Gas and Biofuels Institute (IBP), an effort that keeps the company always in close ties with this industry, one which is highly relevant to its customer base. As of today, around 120 national and multinational O&G businesses rely on DPC's BPO services in accounting, tax, and labor matters.

The company is a confirmed exhibitor at Rio Oil & Gas 2022, the largest fair of this segment in Latin America (read more here). Come visit DPC's space at the event:

• Boulevard Olímpico - Píer Mauá – Rio de Janeiro
• September 26th to 29th | 12 p.m. to 20 p.m.
• Venue: Warehouse 5 | Booth G9 (German Pavilion)

For more information on the schedule or on how to purchase a visitor’s ticket, please visit:  www.riooilgas.com.br.