When companies plan to expand their sales to new markets, exporting is the most promising route. However, in foreign trade, it is essential to know the most advantageous customs regimes, and one of them is Drawback. If you’ve never heard of this special customs regime, keep reading this article prepared by Well Cargo. We’ll explain all the important points and how it can benefit your business!

What is Drawback?

Drawback is a special customs regime established in 1966, which works as a mechanism to encourage exports. Through this regime, companies have the possibility of suspending or eliminating taxes and duties on materials intended for the manufacture of products for export. This results in a reduction in the cost of manufacturing products destined for foreign markets and boosts the competitiveness of domestic products in other countries.

Main Drawback Modalities

Here are the three main types of drawback in foreign trade:

1.Exemption

The exemption modality applies when a company has already acquired inputs in previous purchases, and these materials have been used in the production of products for the foreign market. In this situation, any new purchase or restocking of similar inputs (in terms of quality and quantity) is exempt from tax.

2. Suspension

This modality suspends taxes when the raw materials are imported for the industrialization of the products, as long as no exports have yet taken place at this stage. The company must guarantee that the final product will actually be exported, otherwise it will be subject to loss of incentives and possible sanctions.

3. Refund

A refund occurs when the company has imported inputs for industrialization, paid the appropriate taxes but, for various reasons, is no longer interested in restocking. In this case, the company can seek a refund from the tax authorities.

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Benefits offered by Drawback

The Drawback system offers a number of benefits for companies wishing to expand their export activities. Below are some of the main ones:

1. Reduced production costs

One of the most significant advantages of Drawback is the suspension or elimination of taxes and duties on imported inputs intended for the manufacture of products for export. This results in a significant reduction in production costs, making Brazilian products more competitive on the international market.

2. Export Incentives

The Drawback regime acts as a strong incentive for companies to seek to internationalize their business. By reducing production costs, it encourages the production of goods for the foreign market, expanding export opportunities.

3. Increased competitiveness in the international market

By reducing taxes on inputs used in the production of export goods, Brazilian companies can offer their products at more competitive prices on the international market. This helps to win over new customers and markets, contributing to an increase in the volume of exports.

4. More flexibility in stock management

The Drawback regime allows for more flexibility in inventory management, since companies can import inputs with duty suspension even before they have a guaranteed export demand. This facilitates production planning and avoids material shortages when manufacturing products for export.

5. Tax exemption

With the exemption or suspension of the main taxes levied on the import of inputs, companies are relieved of certain tax burdens, which can represent significant savings in their operating costs.

6. Increased participation in the international market

With more competitive products and attractive prices, companies can increase their participation in the international market, winning over new clients and consolidating their global presence.

7. Stimulating Technological and Industrial Development

By encouraging the export of value-added products, Drawback stimulates technological and industrial development in the country. Companies tend to invest more in research and development to improve their products and make them more attractive on the international market.

8. Elimination or Suspension of Taxes

The Drawback regime allows for the elimination or suspension of taxes on raw materials for export products, such as: Import Tax (II), Tax on Industrialized Products (IPI), Tax on the Circulation of Goods and Services (ICMS), Additional on Freight for the Renewal of the Merchant Navy (AFRMM), Social Integration Program (PIS) and Contribution to the Financing of Social Security (COFINS).

Requirements for using the Drawback Regime

In order for companies to take advantage of the Drawback regime, they must meet some specific requirements. The main ones are listed below:

1.Proof of export

The main requirement for a company to use Drawback is proof of the export operation of the industrialized products. The company must demonstrate that the products manufactured with the imported inputs were, in fact, destined for the foreign market.

2. Qualification to operate in foreign trade

The company must be duly qualified to carry out foreign trade operations. This involves being registered with the Federal Revenue Service (Radar).

3. Fitting into one of the Drawback Modalities

The company must fit into one of the Drawback modalities: exemption, suspension or refund. Each modality has specific requirements that must be met, as described in the previous text.

4. Special Industrial Warehouse Regime

If the company opts for the Drawback suspension modality, it must be under the Special Industrial Warehouse Regime (RECOF) or the Special Industrial Warehouse Customs Regime under Computerized Control (RECOF-Sped). These regimes allow the import of raw materials with suspension of taxes, destined for industrialization and subsequent export.

5. Adequate control and documentation

Companies that use Drawback must maintain strict control of all documentation related to import, industrialization and export operations. It is important to ensure that all processes comply with the rules established by customs legislation.

6. Compliance with tax obligations

The company must be up to date with all fiscal and tax obligations related to the Drawback regime. This includes the correct payment of suspended taxes if the products are not exported within the specified period.

It is essential that companies are aware of and attentive to the requirements and procedures of the Drawback regime.

This includes the correct payment of suspended taxes if the products are not exported within the specified period.

It is essential for companies to be aware of and attentive to the requirements and procedures for using the regime, and it is highly recommended to seek specialized advice in order to ensure compliance with all the requirements and avoid possible complications with the IRS and other regulatory bodies.

Drawback is a customs regime that offers a wide range of benefits for Brazilian companies seeking to operate in the international market. It is a crucial strategy for boosting exports, increasing competitiveness and consolidating the presence of Brazilian companies on the global stage.

We hope that this content has provided you with a better understanding of the Drawback system, a valuable mechanism for stimulating exports and increasing the competitiveness of companies in foreign markets. If you would like more information about this regime or to contract related services, our specialized team at Well Cargo is ready to help!

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