Rio de Janeiro approves Service Tax incentives for the carbon credit chain

In brief

On June 12, 2023, the Rio de Janeiro Municipality enacted Law # 7,907/2023 (“Neutral ISS Law”) to promote the development of carbon credits market in the Municipality of Rio de Janeiro and encourage the reduction of greenhouse gas emissions.

More details

Aiming at attracting companies engaged in the development, certification and trading of carbon credits to the Rio de Janeiro Municipality, the new law reduces the Service Tax (ISS) rates from 5% to 2% for the following services: 

• Development and audit of carbon credit projects;
• Registration and certification of carbon credits;
• Availability of carbon credit transaction platforms;
• Inventory of greenhouse gas emissions and audit of greenhouse gas emissions inventories.

In addition, the new law introduced the Neutral ISS Program to encourage carbon credits’ acquisition by Rio de Janeiro ISS taxpayers, which shall generate ISS credits, through the electronic invoicing system,  for amortization with the taxpayer’s own ISS outstanding liabilities. This program still depends on the enactment of further regulation by the Rio de Janeiro Municipality.
 
In our view, with the enactment of this law the Rio de Janeiro implicitly recognizes that environmental credits/assets, such as carbon credits, should not be deemed as “services”.
 
Finally, the ISS Neutral Program, once regulated, shall be in force and effect until December 31, 2030 or the achievement of GEE reduction targets, as provided by regulation, which occurs first. The law also provides that the efficiency and effectiveness of the benefits granted must be evaluated annually, according to annual performance criteria and targets.