PM 1,318: The Special Tax Regime for Data Centers (REDATA) from Tax, Environmental, and Energy Perspectives
In September, Provisional Measure No. 1,318 was published, establishing the Special Tax Regime for Data Center Services (REDATA). The Federal Government had outlined the main features of the program earlier this year, and the measure is overall consistent with market expectations for greenfield projects and the expansion of data centers in Brazil.
Legal entities implementing projects for the installation or expansion of data center services in the country may apply for REDATA. Authorization will be granted upon request to the Brazilian Federal Revenue Service (RFB), with proof of compliance with the applicable requirements (outlined below), and will not be automatic. The measure also provides for co-authorization and extends incentives to suppliers of goods and services linked to the beneficiary’s project, exclusively in operations and contracts directly related to the authorized scope.
Although provisional measures produce immediate effects, in the case of REDATA, the mechanism for granting tax incentives and verifying compliance is subject to regulation by the RFB and prior authorization of the applicant. Until such regulation is issued and authorization granted, no benefits apply to acquisitions. As with any provisional measure, there is also the possibility that the project will not be converted into law, or may be amended by Congress.
Tax benefits
Tax exemptions on the acquisition, whether domestic or imported, of electronic components and other information and communication technology products destined for the project’s fixed assets are to be listed in an act of the Federal Executive Branch. These include:
- PIS/COFINS and PIS/COFINS-Importation;
- Excise Tax (IPI); and/or
- Import Tax (II), subject to the absence of a national equivalent, to be verified under criteria and lists to be defined by the competent authority.
Environmental aspects
The Provisional Measure acknowledges that the installation and operation of data centers involve significant environmental costs, particularly regarding energy and water consumption. For this reason, participation in REDATA is conditional on meeting environmental and sustainability requirements to be defined in regulation, as well as using energy from clean and renewable sources (through supply contracts or self-production) and providing proof of efficient water use.
The installation and operation of data centers may require prior environmental licensing, depending on case-by-case criteria such as the size of the project, its degree of impact, and its location. In addition, regardless of licensing, the granting of Water Use Rights must also be considered in cases where the water supply does not come from public utility concessionaires.
Requirements
To benefit from the regime, authorized companies must meet several requirements, as follows:
| Sustainability Indicators | Comply with sustainability criteria and indicators to be defined in regulation. |
|---|---|
| Clean Energy (100% renewable) | Meet the entirety of electricity demand through supply contracts or self-production from clean or renewable sources, as provided in regulation. The method of verification (e.g., guarantees of origin, certifications, and frequency) will be detailed in regulation. |
| Water Efficiency | Demonstrate a Water Usage Effectiveness (WUE) equal to or less than 0.05 L/kWh, with annual measurement. The methodology for measurement and verification, site-specific limits, and operational tolerances will be established in technical regulations. |
| R&D Investment |
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| Provision of Capacity to the Brazilian Market |
|
Interaction with incentives under Provisional Measure No. 1,307
The tax incentives provided under REDATA (PM No. 1,318) coexist with those established under PM No.1,307, specifically for projects located in Export Processing Zones (ZPEs). While the ZPE regime may offer broader incentives, it also imposes stricter operational requirements and conditions.
The decision to opt for REDATA or the ZPE regime must be based on a detailed analysis of the project’s profile, location, and business model, taking into account the requirements, benefits, and limitations of each regime.
Electricity consumption by Data Centers under REDATA
Unlike the provisions of PMs No. 1,300/25 and No. 1,307/25, PM No.1,318/25 does not require data centers to be supplied by new power generation projects. Such a requirement had been included in PM 1,300/25 for any new self-production arrangements, and in PM 1,307/25 for new projects, including data centers, located in Export Processing Zones (ZPEs).
Nevertheless, REDATA requires that electricity consumed must come from clean or renewable sources, an obligation that will be further detailed in the implementing decree.
Considering the need for near 100% availability of energy supply, the intermittency of renewable sources (solar, wind, and hydro—particularly for existing projects) presents a technical challenge that project developers will need to address.
The market expects that new rules for self-production, which were not approved in the conversion of PM 1,300/25, will be considered in the conversion of PM 1,304/25, which set limits for the budget of the Energy Development Account (CDE).
