BR do Mar: New Brazilian Law Aims to Encourage Cabotage
On January 7, 2022, Law No. 14,301/2022 was published, instituting the Cabotage Transport Stimulation Program, also known as BR do Mar. The law, resulting from Bill No. 4,199/2020, aims to increase competition in the provision of transportation services, expand the fleet for water transportation and develop the naval industry, as well as encourage training of national seafarers.
Qualification for BR do Mar
The new law establishes that qualification for BR do Mar will be granted to interested companies pursuant to an act of the Minister of State for Infrastructure. To qualify, a company must (i) be authorized to operate as a Brazilian Shipping Company (“EBN”) in the transport of cargo by cabotage; (ii) prove that it is up-to-date on paying its federal taxes; and (iii) submit information related to its operation in Brazil in a form and at a frequency to be established in specific regulations.
New possibilities for chartering vessels and creation of EBN-i
An EBN that qualifies for the BR do Mar will be entitled to charter vessels from its foreign wholly owned subsidiary or from a foreign wholly owned subsidiary of another EBN to operate in cabotage provided that these vessels are under (i) the ownership of the subsidiary or (ii) the subsidiary’s possession, use and control under a bareboat charter contract.
The time charter by EBNs qualified for the BR do Mar may be carried out in the following cases: (i) the increase in the deadweight tonnage of vessels they own that are effectively operating, registered in the name of the economic group to which the chartering company belongs, in accordance with a percentage to be defined in an act of the Federal Executive Branch; (ii) the replacement of a similar type of vessel under construction in Brazil, in a percentage of up to 200% of the deadweight tonnage of the vessel under construction, for a period of 6 months, which could be extended for an equal period, up to the limit of 36 months; (iii) the replacement of a similar type of vessel under construction abroad, in a percentage of up to 100% of the deadweight tonnage of the vessel under construction, for a period of 6 months, which could be extended for an equal period, up to the limit of 36 months; (iv) the exclusive use in long-term transport contracts, pursuant to an act of the Federal Executive Branch; and (v) the exclusive provision of special cabotage operations, for a period of 36 months, renewable for up to 12 months, pursuant to an act of the Federal Executive Branch.
In addition to expanding the possibilities for the time charter of vessels, Law No. 14.301/2022 amends art. 10 of Law No. 9,432/1997 to allow the bareboat charter of foreign vessels, with flag suspension, for cabotage, regardless of a construction contract being in effect or ownership of a Brazilian vessel.
The limit will be increased each year, up to a maximum of 4 vessels, after 36 months of effectiveness of the new law. Upon 48 months of the law’s effectiveness, the bareboat charter of a foreign vessel, with flag suspension, to operate in the cabotage, will be fully allowed so that EBNs will be able to operate in cabotage with chartered vessels without the need to have their own fleet or to have contracted the construction of vessels.
The new law also creates the Brazilian Shipping Investment Company, which, during the discussions in Congress, became known as “EBN-i.” The purpose of this new EBN type is the charter of vessels to Brazilian or foreign shipping companies, sparing these companies from having to invest in their own fleet.
The EBN-i will be entitled to time charter a foreign vessel, in a percentage of up to 200% of the deadweight tonnage of a vessel under construction in a Brazilian shipyard, during the construction period. In addition, the tonnage rights arising from vessels under construction contracted by the EBN-i may be transferred at cost to EBNs.
Labor aspects
Pursuant to Law No. 14,301/2022, the vessels chartered under the BR do Mar will be required to reserve to Brazilians the positions of captain, cabotage master, chief engineer and engine driver.
In that regard, it is worth noting President Jair Bolsonaro’s veto of item II, of paragraph 1, of art. 5 of the new law, which would have established that at least 2/3 of the crew should be composed of Brazilians at each technical level and in each branch of activity on a continuous basis.
According to the presidential veto, the proposal would have been contrary to the public interest, considering that, by maintaining the proportion of an at least 2/3 Brazilian crew, there would be an increase in costs for the vessels, which would have ended up reducing the attractiveness for a larger number of low-cost foreign vessels to join the program and operate in Brazil.
Crew members aboard vessels qualified for BR do Mar will be considered crew members on long-haul voyages. Hence, a temporary work visa for entering in Brazil will no longer be required; instead, it will be sufficient to present the international maritime card, as provided in paragraph 7, of art. 14, of Law No. 13,445/2017.
The international rules established by duly recognized international bodies, referring to the protection of working conditions, safety and the environment on board vessels, in addition to the Brazilian Federal Constitution, will apply to the employment contracts of seafarers who operate on a foreign vessel chartered by an EBN qualified for the BR do Mar. Notwithstanding that, the provisions of an agreement or collective bargaining agreement will supersede other rules governing labor relations on board such vessels.
Moreover, the new law promoted the inclusion of article 4-A in Law No. 9,432/1997, establishing the mandatory availability of positions for on-board internships to graduating students from courses in the maritime professional education system on Brazilian and foreign bareboat chartered vessels, with or without flag suspension, and on time chartered vessels. In this respect, we note that an act of the Federal Executive Branch may provide for minimum numbers of positions for interns for each type of vessel and operation, after considering the technical distinctions and economic impacts of these positions.
Temporary admission
Chartered vessels authorized to operate in cabotage transport will be automatically submitted to the temporary admission tax regime, without the need to register an import declaration, with total suspension of the following federal taxes: (i) Import Tax; (ii) Tax on Industrialized Products levied on imports; (iii) Contributions to the Programs for Social Integration and Formation of Public Servant Assets Levied on Imports of Foreign Products or Services (“PIS/Pasep-Importação”) or social contributions or tax levied on subsequent imports; (iv) Social Contribution for the Financing of Social Security Due by the Importer of Foreign Goods or Services Derived From Abroad (“Cofins-Importação”); (v) Contribution for Intervention in the Economic Domain levied on the import and sale of oil and its derivatives, natural gas and its derivatives, and ethanol fuel (“Cide-Combustíveis”); and (vi) the Additional Tax to Freight for Renewal of Merchant Navy (“AFRMM”).
Reporto
The new law was published with a presidential veto to the article that would renew the Tax Regime for Incentives to the Modernization and Expansion of the Port Structure (“Reporto”), originally established by Law No. 11.033/2004, which was in force until December 2020.
Bill No. 4,199/2020 proposed to renew the regime from January 1, 2022, until December 31, 2023, but the president opted for the veto based on a recommendation from the Ministry of Economy and on the grounds that the legislative proposal would be unconstitutional, as it would represent a waiver of revenue.
Law No. 14.301/2022 entered into force on the date of its publication in the Federal Official Gazette. The presidential vetoes will be analyzed by the Congress, which will have a 30-day period to confirm or reject them in a joint session of the House of Representatives and the Senate.
