Recycling projects may result in income tax deduction

New tax incentives to the recycling industry were established by Law No. 14,260/2021, also known as the “Recycling Law”, responsible for creating the Investment Funds for Recycling Projects (ProRecicle).

Through this amendment, in the five (5) years following the effective date of such law, in order to incentive companies and entities that reuse, treat and/or recycle solid waste generated in Brazil, individuals and also legal entities taxed under the Actual Profit regime may deduct from the Income Tax due the amount effectively spent on the direct support to projects previously approved by the Ministry of Environment that meet the following scopes:

I. qualification, training, and technical assistance, including the promotion of national and international exchange programs, for scholar/academic fields, business, community associations, and social organizations’ areas that have as their objective the promotion, development, execution, or fostering activities of recycling or reuse of materials;

II. incubation of micro and small companies, cooperatives, and social enterprises related to recycling activities;

III. research and studies to subsidize actions involving shared liability for products’ life cycle;

IV. implementation and adaptation of physical infrastructure of micro and small companies, industries, cooperatives, and associations of scavengers of reusable and recyclable materials;

V. acquisition of equipment and vehicles for selective collection, reuse, processing, treatment, and recycling of materials by industries, micro and small companies, cooperatives, and associations of scavengers of reusable and recyclable materials;

VI. organization and support of commercial networks and productive chains, integrated by micro and small companies, cooperatives, and associations of scavengers of reusable and recyclable materials;

VII. strengthening the participation of scavengers of reusable and recyclable materials in recycling chains; or

VIII. development of new technologies to add value to the work of collecting reusable and recyclable materials.

For individuals, the deduction of the amount effectively spent on the direct support to these projects will be limited to six percent (6%) of the Income Tax due, calculated in the Annual Adjustment Statement, jointly with other deductions provided for in the tax legislation.

As for legal entities, the deduction of the disbursed amount will obey the limit of one percent (1%) of the Income Tax due in each calculation period (quarterly or annual), equally with other deductions provided for in the tax legislation.

On the other hand, it is important to note that it will not be possible to deduct the expenses incurred with the direct support to the aforementioned projects, as an operational expense, in the determination of the real profit and the Social Contribution on Net Profit calculation basis.

Demarest’s ESG, Environmental and Tax teams are available to clarify any doubts regarding the matter and also provide more information on the incentives to the recycling industry and other demands related to the subject, including the development of sustainable business, recycling activities, among others.

Sources:

Recycling may generate Income Tax Discounts;
Support for recycling projects may be deducted from Tax Income;
Law No. 14,260/2021