Brazil's new dual VAT swept away most of the country's industrial incentives. The one it left standing — and quietly strengthened — is the one a first-time manufacturer should be examining most closely.
Ask a multinational where to locate its first Brazilian factory, and until recently the answer often began with a sigh: a patchwork of state incentives, each with its own expiration date and its own legal uncertainty. Then Constitutional Amendment No. 132/2023 swept much of that landscape away, replacing Brazil's tangled consumption-tax system with a dual VAT composed of the federal CBS and the subnational IBS, both based on full non-cumulativity.
The easy conclusion — and one welcomed by some long-time critics of the Manaus Free Trade Zone — was that the reform had effectively eliminated the Amazon industrial hub created by Decree-Law No. 288/1967. After all, if everything is creditable under a modern VAT, what role is left for a tax-advantaged zone?
It was a reasonable question, and one that led many observers to conclude that the Manaus Free Trade Zone had become obsolete. But that conclusion overlooked a crucial point: the reform did not simply replace the old taxes with a neutral VAT. It deliberately preserved and rebuilt the Zone's advantages within the architecture of the new system.
Far from leveling Manaus, the reform made it more distinctive. Understanding why may be the most important lesson for companies considering manufacturing in Brazil today.
If the VAT credits everything, why build in Manaus?
Because lawmakers deliberately chose not to pursue strict neutrality.
A fully creditable VAT, by itself, would have gradually eroded the traditional advantages of the Free Trade Zone, whose appeal historically relied on ICMS incentives and special PIS/COFINS treatment. Instead, Complementary Law No. 214/2025 — subsequently refined by additional legislation — rebuilt those advantages within the architecture of the new tax system, layering targeted incentives on top of the ordinary credits available to all taxpayers.
Three mechanisms are particularly important.
First, imports.
IBS and CBS are suspended on goods imported by qualifying industries within the Free Trade Zone. That suspension becomes a definitive exemption once the imported inputs are incorporated into production or, in the case of capital goods, after depreciation or forty-eight months of ownership.
Put simply, a manufacturer in Manaus does not have to finance these taxes on imported machinery or inputs. Elsewhere in Brazil, it would.
Second, domestic acquisitions.
Industrialized goods produced elsewhere in Brazil and shipped to Manaus are subject to a zero rate, while suppliers outside the region retain the credits associated with their own purchases. The benefit therefore flows throughout the chain instead of breaking it. Certain foreign products that enjoy equal treatment under international agreements receive the same treatment.
Third, and most importantly, sales.
Qualifying industries receive presumed IBS credits calculated on their net tax position: 55% for consumer goods, 75% for capital goods, 90.25% for intermediate goods and 100% for computer products. In addition, they receive a presumed CBS credit of 6% on qualifying production.
These presumed credits do not replace ordinary credits. They are added on top of them.
In practical terms, the system effectively returns a defined portion of the tax burden generated by the value added in Manaus. This is not a deferral that reverses later. It is a permanent reduction in the effective tax burden.
Why new entrants stand to benefit the most
These incentives particularly favor companies that are still deciding whether — and where — to establish manufacturing operations in Brazil.
An incumbent manufacturer with an existing plant in São Paulo, for example, must weigh these benefits against the costs of relocating operations. A first-time entrant has no legacy footprint to reconsider. It starts with a blank sheet.
Such a company can capitalize its operations without carrying IBS and CBS costs on imported machinery and inputs, sell into the Brazilian market with a structurally lighter tax burden and establish itself in the only region where the tax reform concentrated federal support rather than dismantling it.
One additional feature deserves special attention
Beginning in 2027, the federal excise tax on industrialized products (IPI) falls to zero across Brazil. One exception was deliberately preserved. Products manufactured in Manaus that have no equivalent domestic production retain their exemption, while identical products manufactured elsewhere in the country are subject to a minimum excise rate of 6.5%.
For manufacturers producing goods that Brazil does not yet make, this creates a competitive advantage embedded in federal law — one available in Manaus and effectively nowhere else.
Perhaps most importantly, the time horizon is unusually long.
The preferential treatment of the Free Trade Zone is protected by the Constitution itself, and the reform expressly preserved that framework. The incentives are guaranteed until October 5, 2073, providing nearly half a century of planning certainty.
Important conditions and practical considerations
None of these benefits are automatic, and companies are better served understanding the requirements upfront.
Industrial incentives depend on the approval of a technical-economic project and compliance with the Basic Productive Process (PPB). The category that determines the applicable presumed-credit rate is defined by SUFRAMA's Administrative Council when the project is approved, not afterward.
Presumed credits offset IBS and CBS liabilities rather than generating cash refunds, and they must generally be used within five years. As a result, they are particularly valuable for businesses with sufficient domestic sales to absorb them.
Beginning in 2033, qualifying industries will also contribute 1.5% of revenue, with a gradual phase-in. Certain sectors — including weapons, tobacco, alcoholic beverages, passenger vehicles and most cosmetics — remain excluded from the regime.
Timing matters as well
Many of the operational details are still being finalized. Regulations governing the IBS continue to evolve, and several of the digital compliance mechanisms on which the system depends are still under development.
The legal framework is largely settled. The administrative plumbing is not.
For companies designing a project from scratch, this is not a reason to wait. It is an opportunity to structure investments while the regulatory framework is still taking shape.
Brazil redrew the map — and Manaus emerged stronger
The reform accomplished something its critics rarely acknowledge: it modernized one of the world's most complex tax systems while simultaneously reinforcing Manaus's competitive advantages.
For manufacturers entering Brazil for the first time, the Free Trade Zone now offers exempt importation of machinery and inputs, a permanent reduction in the tax burden on production, a federally protected competitive advantage for products not yet manufactured elsewhere in Brazil and constitutional guarantees extending to 2073.
No other region in the country offers that combination.
For decades, Manaus was often treated as a legacy policy — a line item of forgone revenue in someone else's spreadsheet. The reform quietly settled that debate in the opposite direction.
For manufacturers looking at Brazil with a blank map and a long-term perspective, the brightest point on that map lies in the Amazon. The question is no longer whether the Free Trade Zone will survive the reform.
It is whether your competitors will arrive there first.