What Is Drawback and How Does It Work?

Drawback is a special customs regime that allows taxes on domestic purchases or imports to be suspended or waived, such as the Import Tax (II), the Tax on Industrialized Products (IPI), PIS, COFINS, AFRMM and ICMS on imports. It applies to intermediate products supplied directly to industrial exporters for use or consumption in the manufacture of a final product intended for export.

Once an item is placed under the regime, it benefits from tax advantages. In practice, Drawback can lower the tax cost of producing goods destined for foreign markets, helping them become more competitive internationally.

For a product, raw material or input to be included in the Drawback regime, it must go through an industrialization process. The material must be transformed, processed, reconditioned, packaged, assembled or renewed.

The export commitment must also be fulfilled. To prove it, the date the export declaration (DUE) was shipped and the date the sales invoice was issued to the exporter or industrial exporting company are taken into account.

The Drawback regime is granted through a Concession Act (Ato Concessório, AC) issued by the Secretariat of Foreign Trade (SECEX), valid for one year and extendable for one more year, for a total of up to two years to fulfill the exports.

To understand how Drawback works, it helps to know its three modalities:

Suspension: taxes are suspended at the time of import, for inputs used to manufacture goods. In this modality the company has not yet exported anything, so it must prove that the product will be exported. Otherwise, it may lose the benefits and face penalties;

Exemption: here the company has already imported inputs, used them to make its products and later exported them. Inputs of similar quantity and quality bought to replenish stock may be exempt from taxes;

Refund: a rarely used modality, so today the Drawback regime is basically made up of the suspension and exemption modalities.

Besides these, the exemption and suspension modalities have subtypes:

– Special customs regime to replenish raw materials, involving exemption;

– Drawback for vessels, involving suspension and exemption;

– Intermediate Drawback, also involving suspension and exemption.

A closer look at Intermediate Drawback: it consists of importing goods, with suspension or exemption of taxes, by companies called intermediate manufacturers, to produce an intermediate product that is supplied directly to industrial exporters, including agribusiness, for use or consumption in the manufacture and packaging of a final product intended for export.

An example in 5 steps of using the Intermediate Drawback regime:

A packaging manufacturer imports cardboard sheets to make packaging;
With confirmed sales for export, it can apply for a Drawback Concession Act (AC) and enter it in the Import Declaration (DI), with the taxes suspended;
It supplies the finished packaging to a fruit producer, for packing goods bound for export;
The fruit producer enters the Drawback AC number in the Single Export Declaration (DUE), sending the final product abroad;
The export commitment is fulfilled and the corresponding quantity tied to the AC at the time of import is written off.

It is very important to track the export and import balance for each item of your Drawback Concession Acts, so as not to default on the commitment, lose the tax suspension and, as a result, face interest and penalties.

Talk to our specialists to check whether Drawback fits your operation.

To read more about the new Ordinance No. 44/2020 (in Portuguese), visit the link below:

https://www.in.gov.br/en/web/dou/-/portaria-n-44-de-24-de-julho-de-2020-268684638