Brazil: Tax breaks for investments in data centers

Brazil wants to promote itself as a location for data centers to attract billions in investment. Finance Minister Fernando Haddad will promote Brazil as a sustainable location for US tech companies during his visit to Silicon Valley this week. As an incentive, he has tax exemptions for IT-related investment expenditure in Brazil in his luggage. This was reported on Monday by the news agency Reuters, citing four sources familiar with the matter.

According to the report, Haddad is traveling to California on Friday. On May 6, he will host a breakfast with tech executives in Palo Alto, where he will promote Brazil as a sustainable IT investment location that relies on its abundant renewable energy resources. Brazil could use its clean energy potential to attract investment and build data centers, Haddad said ahead of the trip. According to the minister, according to Brazilian media, the new tax policy for data centers should significantly boost private investment in the country by strengthening the digital infrastructure and creating more favorable conditions for innovation.

Tax exemptions for IT-related investments

According to two of the Reuters sources, the Brazilian government will exempt IT-related capital expenditures for data centers from the main federal taxes. The main cost of such investments is not the electricity, which in Brazil comes largely from renewable energy sources such as water, solar and wind, but the depreciation of the hardware, according to one of the sources. Due to Brazil's complex tax system, these costs represent a considerable financial burden. Non-IT investments, such as the construction of buildings, are not to be exempt from taxes according to the government's plans. As a result, the construction of new data centers in the overall package could therefore even flush more money into the state coffers.

Last year, Brazil passed a major tax reform that provides for tax exemptions for investments, although these are not due to come into force until 2033. The current initiative, led by the Ministry of Development and the Ministry of Finance, aims to bring forward certain tax benefits to encourage investment in data centers. To qualify for the tax benefits, projects must meet certain sustainability criteria, including the use of 100% renewable energy. In addition, a significant portion of the computing power of the centers to be built must be reserved for domestic use. Investors are also expected to pay money into a fund that supports Brazil's AI ecosystem.

According to Reuters, the Brazilian Ministry of Finance estimates that the new tax incentives could free up around two trillion reais (310 billion euros) in investment over the next ten years. This includes effects on the construction industry, telecommunications and AI-related services.

ByteDance considers major investments

According to Reuters sources, Brazil is underpinning its investment offensive with the argument of the country's diplomatic openness in the face of increasing global trade conflicts, particularly the punitive global tariffs imposed by the US administration of Donald Trump and currently paused, and the tensions between Washington and Beijing. Brasilia has not clearly taken sides in either the Ukraine war or the trade dispute between the USA and China, but has instead acted as a mediator.

The same sources spoke about considerations by ByteDance, the Chinese parent company of TikTok, about a planned investment in data centers in Brazil, using the abundant wind energy on the country's northeast coast. The company is in talks with Brazil's leading renewable energy producer, Casa dos Ventos, to develop a facility in the port complex of Pecém in the northeastern state of Ceará, Reuters writes, citing two unnamed sources. One of the sources said that initial talks are focusing on a 300-megawatt (MW) data center. However, the project could be expanded to 900 MW in a second phase.

If the project is realized, Brazil would become one of the most important locations for ByteDance's activities in the hemisphere. The talks come at a time when the Chinese group is under pressure in the United States to divest its TikTok US business, while Brazil is trying to position itself as a global hub for the fast-growing data center industry.

(akn)