Everything you need to know about EPZ: Export Processing Zone

The Export Processing Zone (EPZ) is a way of stimulating external sales under a special customs regime, intended to foster benefits for exports in Brazil. It is one of the rules established by the World Trade Organization for this purpose.

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Knowing this process is imperative in order to enjoy its benefits. The major issue here is that even people working in this market have concerns about the operation and advantage of the EPZ.

With that in mind, we decided to elaborate this content. Here, we will show you what the Export Processing Zone is about, how it works, its benefits, among other important benefits. Keep reading!

What is the EPZ?

First of all, it is important to understand what the Export Processing Zone is: it is a free trade area with companies located overseas. Its purpose is to bring benefits to companies working with production and trading of goods sold in the foreign trade.

Thus, it is considered the primary zone for the purposes of controlling export customs clearance. Companies installing a EPZ fall under differentiated tax, administrative and mainly exchange rate rules, without appealing to offshore in order to ensure tax benefits.

Thus, EPZ’s were envisioned to foster growth in less developed regions, providing them with reduced unbalance and strengthen them in foreign trade.

It is also possible to faster balanced payments, as well as technological diffusion and economic development of an emerging nation such as Brazil. Despite not being widely discussed here, this instrument is not new and in fact, it already made roots in other countries decades ago. A fine example of an applied EPZ is the United States and some Asian countries.

Laws regulating EPZ

To work correctly, Export Processing Zones require specific laws that institute and regulate the process in the country. Concerning the creation of such possibility, we have Decree-Law 2452/88. At that time, the legal instrument focused on authorizing the Federal Executive Branch, that is, the President of the Republic was in charge of creating EPZ’s across Brazil.

In this sense, they were created by means of a presidential decree. With the purpose of aligning the course of policies related to Export Processing Zones, some requirements were established to review EPZ opening proposals. The response to that was the creation of the National Council of Export Processing Zones (CZPE).

Following the evolution of this process, in 2007 we were greeted with the aforementioned Decree Law being finally revoked following the promulgation of Act 11508/2007. The legal focus kept the competence of the CEPZ with the purpose of setting several procedures, standards and parameters of this program.

Years later, we followed the publications of new decrees arising to regulate the Act we just mentioned above, such as Act 9993/2019, which focused on regulating standards related to the National Council of Export Processing Zones, who despite its age needed some regulations here and there.

Another law created after Act 11508/07 was 6814/2009. The latter was intended to regulate the tax, exchange and administrative issues related to Export Processing Zones driving the main benefits this program can provide to companies working in this sector.

What are the export process phases?

EPZ’s require a well-structured export procedure. After all, internal issues may impart the enjoyment of benefits, triggering other setbacks impacting the financial health of the company. With that in mind, we will show how the export process works in a company. Keep reading!

Planning

First of all, we have to plan the export process. The decision of trading products to other countries cannot be based on a transitory condition such as, for example, taking advantage of a favorable exchange rate moment or an internal crisis scenario for exploration of this market.

This is because operating in the foreign market demands constant follow-up and knowledge of laws, agreements and every nuance it may has. Also, when companies live extraordinary times, the export activity may cause losses and more difficulties instead of profits. This is way it is so important to think about the planning procedure.

In this sense, this process is intended to assess the capacity the company has to export, as well as to define how it will be done, and mainly, the countries where it will share some sort of relationship. To do so, it is important to review the existing international market conditions for the product that is intended to be traded.

Another point added to planning is the price of products in several countries, costs related to transportation – from the moment of its departure to its arrival at the final client – and possible competitors. Planning must also review characteristics of the product, expansion or consumption stability.

Finally, planning also deals with the engagement of the whole factory or company. This idea is based on the assumption that export cannot be decided by a single manager, but must involve several departments.

If possible, it may be interesting to add the participation of consultancies in the several areas of the export sector, such as chartering, commercial and planning itself.

Commercial Phase

The next step of the export process is the commercial phase. Basically, this is the negotiation moment between exporter and an importer based in a different country. It includes commercial tasks deemed essential for export. This is the time where documents are issued such as invoices.

But this process is not limited to documental issues with regards to negotiation. This is a vital step for the financial health of the export operation. There are countless players, i.e., buyers, sellers, customs brokers, forwarding agents, carriers, traders and the buyer.

Thus, you will have to negotiate payment conditions, freight, liabilities and other elements related to the export and import process. At this point of negotiation, in addition of setting the financial conditions and operational responsibilities, it is also the time to know possible benefits that may be present in the process.

Moreover, this is the where managers asses the use of Export Processing Zones, as well as other special regimes and commercial agreements that may be used in this transaction. This makes the import and export operations more economic and simpler.

Therefore, the exporter manages to obtain information, delivery conditions and values from its suppliers, as well as from consenting bodies and other authorities, by providing them with specific information on the goods. Examples of such information are origin, destination, volume, sizes, weight and some national operations codes, such the MERCOSUR Common Nomenclature (NCM).

Pre-shipping

Another export step is pre-shipping. After the whole negotiation process and commercial definition area established by the parties this is the time to plan the logistic process of this operation.

The focus of this task is to search for elements such as:

• The choice of companies that will make the total transportation process of the operation;
• Identification of the terminal where the container that is to be removed empty;
• Scheduling process of container loading, i.e., the stuffing or storage of goods in the container with maximum optimization of spaces;
• Contact the customs broker that will start the whole process;
• Determine the draft model for the shipowner or agent;
• Customs clearance;
• Confirm the stuffing process;
• Request to port the scheduling and confirmation of the shipment.

In some cases, the company delays the issuance of export tax documents at this point of pre-shipping, although it can also be done right after negotiation and execution of the contract.

Customs Phase

Next, we have the customs phase. At this point, we proceed to the issuance of the Single Export Statement, issued by the exporter of customs broker. This document is bound to the tax export document. After generating this element, the customs broker will follow up the whole cargo parameterization.

Thus, this professional must assess some points, such as the good cleared for boarding, the need to check documents, check of the need for physical inspection of products, etc.

Post-shipping

The post-boarding period is the perfect time to ensure traded items reach their destination without damages. Despite some uncertainties, when steps are followed correctly, it is possible to have a certain level of assurance that the product will reach the client.

For that to happen, the customs broker must access specialized websites and gather documents and certificates to be delivered to the final client. And this delivery may be performed by courier or even by digital means.

Collection

This step is fundamental for the process to be properly finished. Collection must be carried out by different ways. It is important to understand that receiving amounts from other countries undergoes a bureaucratic process demanding a few procedures, such pre-register.

Thus, it is important to stay aware of the terms of this process and pay attention to exchange and tax issues of each country. Transfer of resources between countries can be a very delicate subject and the laws of different paces of the world must be taken into account.

For example, Brazil is an example of a country with complex laws about resources coming it/out. Thus, the company deciding to export must know such regulations, and the failure to comply with them may result in the payment of fines and other penalties.

What is the export flowchart?

Now, we will demonstrate how the export flowchart works. It always starts with planning, as mentioned before, followed by the next detailed steps. Keep reading!

Knowledge of the laws and international agreements

Still in the planning phase, it is important to check tariff and non-tariff barriers of the laws related to export. It concerns not only local laws, but also those from other countries to where the products will be shipped. Most standards on export are consolidated by SECEX Ordinance 23/2011.

It is also very important to seek data in international agreements and pay attention to International Commercial Terms as they set rights and obligations of importer and exporter. From that point on, it is possible to know the importunate elements of the operation.

For example, who is in charge of paying freight, insurances, risk liabilities of each party, price formation etc.

Setting prices and logistics

After the internal assessment and definition of the production capacity, followed by study of the market and alignment of products to their packages, it is important to set prices. This process must eliminate items related to internal market, such as specific taxes for consumption in Brazil, adding those intended to form the price abroad.

An example of the above are costs with logistic processes. In this case, it is important to consider the profile of the cargo, definition of the transportation mode and Incoterms. Thus, such elements will impact directly on the price of products traded and must be well measured in order to prevent losses to the exporter.

Issuing documents and obtaining licenses

Export requires a series of documents that must be used in the sales offer, finishing the financial customs procedures in the country of destination. For that reason, it is fundamental to pay attention to this criterion and check with the importer if everything is in accordance with the laws of the country to where the sold products are to be shipped.

In addition to all customs and administrative formalities imposed by the Internal Revenue Service, we have some products requiring specific licenses. We cannot forget the international agreements, after all, they may affect this documentation issue.

Among the documents involved in export we have:

• Licenses, Certificates, Permits etc.;
• Documents required by the Siscomex Portal;
• Single Export Statement (DU-e);
• Export electronic tax invoice etc. 

It is worth to highlight an important point about the Single Export Statement (DU-e), it concerns an electronic document intended to encompass commercial information in line with administrative, tax, logistic and customs areas.

Exchange and shipping operations

Once documentation is in perfect compliance, we have the next step of this export flowchart: exchange operations. These operations foster payment or reception of amounts from the exported goods.

In some cases, this step may occur in a future moment. This will depend on the payment terms agreed between the importing and exporting parties.

Execution of follow-up after shipping

The last step of this flowchart is the execution of a follow-up, which is set to happen after shipping. Follow-up ensures the product will reach its correct destination and the whole work performed until the time of shipping was concluded.

A valuable tip is to check the simplified drawing of the export flowchart made available by the Federal Government. Also, the Foreign Trade Secretariat has several manuals that aid companies wishing to expand their business in the external market.

Where EPZ can be found in Brazil?

Since the creation of the first EPZ in Brazil, 14 others were created over the years. This process can be found in the following Brazilian cities and states (in parenthesis):

• Acre (AC);
• Açu (RJ);
• Araguaína (TO);
• Bataguassú (MS);
• Boa Vista (RR);
• Cáceres (MT);
• Ilhéus (BA);
• Imbituba (SC);
• Macaíba (RN);
• Parnaíba (PI);
• Pecém (CE);
• Suape (PE);
• Teófilo Otoni (MG);
• Uberaba (MG);

What are the benefits provided by an EPZ?

Export Processing Zones leads to some interest benefits to the exporter. According to Article 6 of Act 11508/2007, acquisitions occurred in the internal market, as well as exports, may enjoy benefits related to tax exemption, as well as contributions. For example, Import Tax, IPI, COFINS, PIS, PIS-Import, COFINS-Import, among other taxes.

Obviously, for those benefits to be enjoyed, it is important that companies observe all legal standards required by laws governing this process.

Also, the Additional to the Freight for Renewal of the Merchant Navy is also affected:

• Acquisitions in the internal market exempt IPI, PIS/Pasep and COFINS;
• For imports, we have the suspension of the Import Tax, Tax on Industrialized Products, COFINS-Import, PIS/Pasep, AFRMM.

Another important thing is the matter of tax exemption. In cases where this acquisition includes machinery, instruments, apparatus and equipment, this exemption may apply to new or used goods, even if the good is incorporated by the fixed assets of the company that is authorized to operate in an EPZ.

Thus, this is an interesting differential of this process. After all, tax benefits offered in Brazil tend to levy only on new goods and those intended to be traded. In this case, even used or acquired goods for immobilization may benefit from these tax exemptions.

Exchange freedom

Exchange freedom is a very interesting process for companies installed in Brazilian Export Processing Zones. They are capable of keeping 100% of its currency permanently overseas in their exports. Those out of EPZ’s are unable to enjoy this possibility secured by the law. Thus, they depend on internal agreements or resolutions of the National Monetary Council.

Also, the exchange freedom provided by EPZ allows the execution of investments, financial applications, payment of obligations and other transactions using resources kept abroad reducing costs with cash repatriation.

Finally, we have reduction of the exchange rate variation impact that occurs in operations performed with companies located overseas.

Tax treatment different from ICMS

When we analyze this scenario at the state level, companies located in EPZ’s also have a different tax treatment in relation to the Tax on Circulation of Goods and Provision of Transportation and Communications Services (ICMS).

It happens by means of tax exemption concessions in imports, as well as purchases of the internal market. It shows that tax benefits are not limited only to federal taxes related to import, resulting in advantages in the state tax scope, which makes a huge difference in the profitability of a company.

Also, it is important to emphasize that the application of the following tax incentives is allowed, according to the conditions set out by the applicable laws:

• Customs regimes with exemptions set out in regulations;
• Predictions for the SUDAM area, which are regulated by Complementary Act 124/07;
• Tax incentives related to SUDENE, which is regulated by Complementary Act 125/07, as well as to programs and development funds for the central-west region.

Exemption of licenses

Another interesting benefit brought by an EPZ is the exemption of licenses, as well as of authorizations from federal bodies regulating foreign trade operations. However, products associated with sanitary controls do require licenses and thus, no such benefit is enjoyed.

The reason is that these are products of national security interest, and a strict eye on them is imperative in order to ensure the health of the population and the protection of the environment.

How can a maritime agency be helpful?

A maritime agency is present in ports and works directly on behalf of shipowners and charterers in the provision of ship services and in commercial representation. They offer interesting advantages to companies willing to operate with Export Processing Zones.

This is because they aid the exporter in the logistic operation of equipment, as well as in the whole issue related to shipping documents, operational schedule of ships, regular and non-regular fleets.

Additionally, this service provider may help with the whole documentation related to maritime transportation, and with the logistic management of containers and control the return time of such items. Thus, the maritime agency works as a facilitator in the export process, preventing managers form making mistakes with potential to hider deliveries and cause issues related to national or international laws.

Finally, we can conclude EPZ is an evolutionary step for companies working in the foreign market. Its benefits generate positive impacts directly on finances and profitability of the company. For that reason, it is important to study about the subject and know how it works.

If you enjoy reading about export, some contents of the Wilson Sons blog may catch your eyes. We recommend two articles: one about export of furniture and another about iron ore.