Brazil approves data center tax breaks: what comes next

Six months after the lower house's approval of the bill, Brazil's Senate passed the special tax regime for data centers, ReData, on Tuesday, with changes that open the door to a wider range of eligible energy sources and to retrofits of existing sites.

Long awaited by the industry, the bill suspends federal taxes (including PIS/Pasep, Cofins, IPI and the import tax) on the purchase and import of machinery, equipment and technology components used to build out data centers, conditioned on environmental and local development commitments.

Companies will also be required to make part of their installed processing capacity available to the domestic market, among other requirements. The bill now heads to President Lula for signature.

The government estimates the resulting tax expenditure at R$5.2bn (US$1.02bn) for 2026 alone, plus about R$1bn in each of the following two years (roughly R$7.2bn-7.5bn over the initial period).

The bill's rapporteur in the Senate was Senator Cid Gomes, of Ceará, the state where China's ByteDance, owner of TikTok, is developing a mega data center together with Omnia.

Major market operators such as Ascenty and Scala Data Centers have billion-dollar projects that, they say, were on hold awaiting the bill's approval.

Chris Torto, CEO and founder of Ascenty, told BNamericas the company already expects to close new projects by year-end following ReData's approval - even with regulation of the policy's technical details still pending.

Torto also welcomed the Senate's approval of ReData without changes that could have derailed the text already agreed with the lower house, especially an equipment amendment that would have replaced the "no domestic equivalent" standard with a "national production capacity" standard.

On that point, he argued that the real value bottleneck in an AI data center lies in chips, which "are not being made in Brazil, and won't be made here in the short term either." For that reason, in his view, it was better to keep the text approved by the lower house and move forward rather than reopen the debate.

On the investment front, Ascenty's founder says the approval should unlock even bigger negotiations with clients. Asked whether Ascenty expects to sign new contracts in 2026 as a result, he answered "Many," noting these would include not just expansions with existing clients but also "new companies, new projects from the current client base." As reported by BNamericas, major offtakers with recent Ascenty projects include Microsoft and Alibaba.

On infrastructure, he acknowledges that operators themselves, including Ascenty, are already funding transmission grid upgrades, but said he favors the idea, still under discussion, of a sector fund modeled on Funttel to finance transmission and distribution expansions.

Lastly, he argues Brazil is well positioned to become a regional AI hub, ahead of competitors such as Malaysia, thanks to a combination of cheap renewable energy, an interconnected grid and, now, more competitive taxation.

But he cautions that the country's biggest gain won't come from hosting the AI models themselves (dominated by a handful of global companies), but rather from fostering a local ecosystem of applications built on top of those models, including open-source ones, as a response to criticism of "digital neocolonialism."

Read also: Brazil: data centers add record 106MW in H1, more 134MW by year-end

Brasscom, Equinix and more

Victor Arnaud, president of Equinix in Brazil, said ReData's approval is a decisive step in making Brazil more competitive in global digital infrastructure investment decisions.

According to him, this is a capital-intensive, long-cycle sector, where projects are planned years in advance and "predictability weighs as much as cost."

"ReData lowers the cost of bringing technology into the country while, at the same time, establishing concrete counterparts. It's not just about attracting more investment, but the kind of investment Brazil wants to receive: the use of renewable or low-emission sources, water-use efficiency, research and development in Brazil, and capacity earmarked for the domestic market," Arnaud said.

Equinix had already been accelerating its investments in Brazil. Over the past 18 months, Arnaud said, the volume invested in the country rose by around 50%, with simultaneous expansions in São Paulo and Rio de Janeiro at the SP4, SP6, SP7 and RJ3 sites.

"ReData doesn't start this cycle, but it can help sustain and accelerate it."

For Brasscom, the Brazilian association of information technology, communications and digital technology companies, the urgency of the bill has never been more evident.

Data compiled by the group show Brazil's trade deficit in computing and information services reached US$7.9bn at the close of 2025.

"This alarming scenario worsens when we see that we already recorded a US$4.8bn deficit in just the first half of 2026, double the US$2.4bn recorded in the same period of 2023. We are importing computing power at an extremely high cost, limiting our capacity to innovate," the group said in a statement, adding that, more than attracting capital, ReData will be a catalyst for the entire domestic supply chain.

For lawyer Ernani Teixeira Ribeiro Jr., founding partner of law firm Atra Advogados, ReData will encourage local investment in infrastructure, reducing the international transfer of data and strengthening the role of Brazil's National Data Protection Authority (ANPD), "which improves cybersecurity and digital governance," he argues.

According to Ribeiro Jr., the legal framework is essential to provide legal certainty for investments and attract capital.

He explains that the next step will be issuing the implementing decree, which will set the criteria for qualifying for the tax benefits. These, the lawyer says, do not amount to an exemption, but a tax suspension for the import of equipment with no domestic equivalent.

Changes to the text

More than 30 substantive amendments were submitted to the bill in the Senate, but none were ultimately accepted by the rapporteur. Had any been accepted, the bill would have had to return to the lower house for a new vote.

On the other hand, four wording amendments, which do not require a new vote in the lower house since they don't involve substantive changes, were submitted and accepted.

Among them, the wording for eligible equipment changed from "product with no domestic equivalent" to "product with no equivalent domestic production."

"This is the most appropriate term. The [Portuguese] language evolves," Senator Cid Gomes argued during the voting session.

An earlier amendment proposal referred to "national production capacity," which sparked major controversy in the data center sector, as it was seen as an attempt to shield companies that already manufacture certain equipment in Brazil, though not necessarily the equipment current projects require.

Another approved wording amendment establishes that companies that applied for another regime, such as Repes, keep that benefit until they apply for ReData. Repes, the Special Taxation Regime for the IT Services Export Platform, is a Brazilian federal tax incentive created by Law 11,196/2005 that suspends taxes on export revenue and on the purchase of goods used in IT activities.

A wording amendment was also approved changing the concept of "clean energy" - whose use and investment is one of the counterparts required to grant benefits to data centers - to "renewable or low-emission energy."

Although it still requires further regulation, the change aims to accommodate lobbying from sectors such as gas-fired thermal power generators. The provision was classified as a wording change, not a substantive one.

Senator Esperidião Amin, of Santa Catarina, said he will introduce a separate bill to bring coal mining into ReData. An amendment to that effect submitted by the senator, classified as a substantive change, was not accepted.

The new ReData text also makes clear that data center projects are eligible not only when new (greenfield), but also when they involve expansion (brownfield) and modernization (retrofit).

Domestic production

The ReData vote exposed a rift between the data center sector and the electrical-electronics sector, represented by Abinee, the association of companies with local server and rack manufacturing such as Dell, Lenovo, HPE and Positivo.

At the heart of the tug-of-war is a debate over "deindustrialization" and the development of domestic production capacity.

The rift, which already existed, deepened with the amendment - ultimately not approved - that would have changed the "no domestic equivalent" concept to "no domestic production capacity." Data center companies believe the move was aimed at restricting the benefits and protecting local manufacturers.

Data center operators and big tech firms such as Scala, Ascenty and Elea, along with associations such as ABDC and Brasscom, argue that the tax benefits (federal exemption from PIS/Cofins/IPI/import tax, plus a cut of up to 90% in the ICMS state tax under discussion at Confaz) should apply to all equipment with "no domestic equivalent."

They argue Brazil pays 20% to 30% more than competitors such as Chile, Colombia and Argentina to build a data center, that this is driving away US$100bn in potential investment, and that restricting the benefit does not shift demand to Brazilian factories - it shifts the entire project to another country, which then buys zero domestic equipment.

Domestic electronics manufacturers, on the other hand, argue they already produce servers, storage and switches locally, that they could scale up production, and that incentives should therefore be more limited and tied to local content. Dell, which manufactures several server families in the country, went so far as to call the bill "digital extractivism."

Abinee's position backed an increase in import tariffs via Gecex Resolution 852/2026 and pushed state finance departments to oppose a broad ICMS cut for data center equipment.

On the attempt to change the ReData text, Marcos Peigo, CEO of Scala, called it a "major trap created by the position defended by Abinee."

"'Domestic equivalent' is tangible, measurable, comparable, and very different from the vague concept of 'national production capacity,'" he said.

"The logic is simple: we first need to bring demand to Brazil," Peigo says. "If data centers, AI workloads and investment come here, the whole Brazilian industrial ecosystem grows with them."

"To my friends who are CEOs of Abinee member companies, I leave here a very sincere appeal: get to know this debate in depth and intervene."

Asked for comment by BNamericas, Abinee had not responded by the time this report was published.

"I am convinced that the path being defended today is not the best one for their companies, is not the best one for Brazilian industry, and, above all, is not the best one for the Brazil we want to leave to our children and their children," Peigo said.

Civil society

Another front of resistance comes from civil society organizations.

The Rights on the Network Coalition (CDR) went as far as requesting the suspension of the ReData vote and says the approved text retains weaknesses and loosens environmental safeguards.

For the group, by replacing the requirement for energy from "clean or renewable" sources with "renewable or low-emission" sources, the text opens the door to a more permissive definition, dependent on future regulation.

The coalition also says the Brazilian state is granting billions in tax breaks to finance strategic infrastructure, but requires only a minimal share of its capacity to be made available to the domestic market, with an even lower percentage in the North, Northeast and Center-West regions.

"Nor does the text adequately address territorial impacts, absolute water and energy consumption, or create robust mechanisms for transparency, social participation, or the assessment of environmental and human rights impacts," says the group, which brings together some 40 civil society organizations.

Next steps

For the data center industry, ReData alone does not resolve every issue for the sector.

"Most of the tax burden is still the ICMS, and Confaz needs to approve the cut at this Friday's meeting. They had said they hadn't approved it because ReData had not been approved, but that argument no longer holds," Affonso Nina, president of Brasscom, told BNamericas.

Confaz meets again on April 4 to discuss the matter.

Beyond Confaz, the sector's other "battles" still include the bill that would amend the federal budget to accommodate the ReData tax expenditure, the reversal of the import tax hike via Gecex, and the regulation of the regime itself through a decree.

(The original version of this content was written in Portuguese)