Brazil sets tax breaks for data centres

Brazil's Congress has approved a bill establishing a special tax regime designed to attract new data centre investments. The Senate backed the measure after an earlier vote in the lower house, sending the text to President Luiz Inacio Lula da Silva for sanction. The regime targets capital expenditures on infrastructure used in cloud computing, high-performance computing and artificial intelligence training.

Under the new framework, often referred to as Redata or PL 278/2026, qualifying projects gain access to significant federal tax relief. The measure is structured to lower upfront costs for building and expanding data centres, an area that requires large investments in hardware and supporting systems.

The approved text suspends or reduces to zero a group of federal levies on eligible purchases. Covered taxes include PIS/Pasep, Cofins, PIS/Cofins-Importação, the industrialized products tax IPI and Import Duty. These incentives apply to information-technology capital goods essential to data centre operations.

Items eligible under the regime include servers, refrigeration equipment and other components needed to support data processing and storage. By targeting these cost-intensive inputs, the policy aims to lower the financial barrier for projects focused on cloud services, high-performance computing workloads and AI-related activities.

Companies seeking to use the regime must be formally habilitated by Receita Federal, Brazil's federal tax authority. This requirement introduces a gatekeeping mechanism intended to ensure that only projects meeting the legal criteria can benefit from the tax suspensions or reductions.

Firms that are part of the Simples Nacional tax regime are explicitly barred from joining Redata. This limitation narrows the programme to companies operating under other tax frameworks, typically larger or more complex corporate structures common in large-scale data centre projects.

Participation in Redata is contingent on a series of contrapartidas, or counterpart obligations. Beneficiaries must dedicate at least 10% of their processing and storage capacity to the domestic market. As an alternative, they may provide an equivalent amount of additional investment to fulfil this requirement.

In addition, companies must allocate a minimum of 2% of the value of goods acquired under the regime to research and innovation activities. The rules state that these resources should prioritise projects in Brazil's North, Northeast and Centre-West regions, steering part of the innovation spending to less developed areas.

Technical conditions on sustainability form another pillar of the regime. Projects are subject to rules on energy sourcing, encouraging more efficient and responsible use of power in facilities that are typically energy-intensive.

The law also establishes a water usage effectiveness threshold, requiring an annual WUE of no more than 0.05 litres per kilowatt-hour. This constraint is intended to limit water consumption by cooling and other systems within eligible data centres.

Different published estimates present varying figures for the fiscal impact of the tax incentives. Some projections cite a three-year tax renunciation of about 7.5 billion reais, while others indicate 5.2 billion reais in 2026 followed by around 1 billion reais in subsequent years.

With congressional approval completed, the measure now depends on presidential sanction to enter into force. Once sanctioned and regulated, Redata would provide a long-term tax framework for companies planning data centre investments in Brazil.