1. October 2015 IPT Insider 7
Continued on page 8
CREDITS AND INCENTIVES
Public Incentives In Latin America:
A Review of Considerations and
Opportunities
Juan Gallardo, LL.M
Hickey & Associates, LLC
Miami, FL
Phone: (945) 319-4391
E-mail: juan.gallardo@hickeyandassociates.com
I. Introduction.
In our modern era – characterized as it is by prevailing
commercial norms with respect to the free flow of
transnational capital, investment,
and trade – it is foundational
that businesses may (and do)
go anywhere in the world that
present strategic and financial
advantages. Whether in the
pursuit of supply chain efficiency,
labor cost advantages, favorable
currency dynamics and tax
treatment, or access to new and
growing markets, multi-national
businesses (and even those that
may have historically been merely
domestic or regional in character)
now, more then ever before, must
consider global opportunities as
an essential part of their business-
related decision-making.
In this context then, it should not be at all surprising to
learn that comparative, data-based site selection and
the pursuit of related economic development incentives
keyed to capital investment and job creation are front-
burner considerations for enterprises of all sizes, across
the full range of economic and business endeavors. More
specifically, as labor costs and market uncertainty have
increased in other parts of the globe, the attention of many
American corporations (and indeed that of businesses
originating from Europe and Asia, as well) has begun to
focus even more intently on Latin America as a preferred
location for investment.
II. Broad Latin American Market
Considerations and Incentive Issues.
A. Positive General Business Characteristics
and Opportunities.
At the outset, we should acknowledge that Latin
America, despite its manifestly optimistic future,
still struggles with historical challenges that are
well-known tropes – a negative safety perception;
economic and political volatility; lack of reliable
demographic, labor and pricing information;
problems with scalability and sustainability; prone
to natural disasters; challenged on intellectual
protection and commercial legal protections; and
still in the process of maturation. Although many
of the foregoing descriptions still have enough
truth in them to remain viable clichés, almost all
of them are fading in the face of modernization,
growth and the cross-pollination of the global
economy.
Latin America understandably receives a lot of
attention fromAmerican businesses and investors
because of its geographic proximity to markets
in the United States and Canada
– a proximity which implies less
travel and shorter supply lines,
and a close time zone alignment
facilitating conference calls and
convenient business intercourse
– as well as favorable tax
regimes, investment incentives,
increasingly attractive business
climates, and cost effectiveness.
And it is these very positive
general business characteristics
and opportunities that we want to
emphasize here.
Consider the following:
• Size, Population, and Economic Criti-
cal Mass. As a region, measured by both
landmass and population (now in excess of
600,000,000), Latin America is roughly twice
the size of the United States – with vast
natural resources and a large, reasonably
well-educated workforce. And even leaving
international trade aside for the moment, with
a gross domestic product of roughly 9.2 trillion
dollars, Latin America has reached a critical
mass that makes it a strong and diversified
market in its own right. In turn, Latin Ameri-
ca’s new business maturity means that many
countries in the region have reliable and
competitive professional and service provid-
ers, an abundance of workers, domestic and
international business culture and increasing
economic stability, offering cultural affinity
and support in Spanish and Portuguese.
“More specifically, as labor
costs and market uncertainty
have increased in other parts
of the globe, the attention of
many American corporations
(and indeed that of business-
es originating from Europe
and Asia, as well) has begun
to focus even more intently on
Latin America as a preferred
location for investment.”

2. October 2015 IPT Insider 8
Continued on page 9
• Language. Although not English-speaking,
of course, and therefore still subject to a
modest linguistic barrier, when compared to
the Asia-Pacific region or Europe, the Middle
East, and Africa, Latin America is compara-
tively easy to manage with only two official
languages – Spanish and the closely related
Portuguese. In addition, as the United States
itself becomes increasingly English-Span-
ish bilingual, American businesses and ex-
ecutives are increasingly comfortable with
Spanish as a peer business language, which
makes Latin America easier to navigate.
• Communications and Efficiency. Although
Latin America has six time zones, they close-
ly align with those in the United States that
aids communication and efficiency, not only
with respect to front-end decision-making
but for on-going operational management as
well.
• Labor Pool, Costs and Quality. Given that
labor cost typically dominates the net value
of many international operations, weighing
far more than real estate, utilities or taxes,
corporations should carefully look at this
component, not only from the availability per-
spective, but also in consideration of cost,
skills, attrition, absenteeism, commute time,
pipeline, unionization and many other fac-
tors. Latin America, in general, offers a large
labor pool at very reasonable costs when
compared with the United States. Availability
and cost remain primary factors, but all the
other elements listed above are also relevant
and need to be considered when choosing a
location. Although you may find that minimum
wage in Latin America is a tiny fraction of that
in the United States, there may also be addi-
tional fringe costs, benefits and productivity
equivalents that need to be factored in. With
regards to qualifications, though educational
attainment in Latin America is continuing to
rise, additional training is typically required to
bring the region’s workers up to speed with
international standards. To that end, training
grants come in handy of course, and most
governments in the Latin American region
now offer specific training-related incentives
to corporations looking to establish or expand
their presence in the region.
• Tax Matters. Historically, import/export tax-
es have been a usually heavy burden in the
region, as national economies have been in-
clined to try to protect their respective local
industries. Nevertheless, some Latin Ameri-
can countries are now realizing that in order
to attract investment, they need to adopt the
right formulas to become and remain inter-
nationally competitive. Mexico for example,
over and above NAFTA, offers a number of
programs created to facilitate import/export
with the United States. Those offerings have
in turn attracted companies from all over the
world looking to manufacture in Mexico and
then export mainly to the United States. Such
programs, therefore, allow businesses to
take advantage of cheap and qualified labor,
while getting access to the largest market in
the world. Similarly, Colombia has been big in
the creation of foreign trade zones and Brazil
has created a special regime in Manaus to
attract these industries.
• Diversification of Business Risk. Finally,
as China, India and Russia all experience
significant economic, market and political un-
certainty, Latin America also provides clear
opportunities for diversification that allow
transnational business to spread its geopo-
litical risk and smooth potential disruptions in
a way that a concentration of operations in
Asia, for example, does not allow.
In light of these considerations, multinational
corporations evaluating expansion in Latin
America must incorporate these factors as
they think about the free movement of capital,
infrastructure, sustainable labor, inventory of real
estate, and the availability and value of public
incentives.
B. Latin American Incentives Generally.
Public incentives may not be the ultimate factor
when companies are considering expansion or
relocation, but in similar circumstances, they
are relevant and important elements – and may
ultimately prove to be the “icing on the cake”
for many projects that may tip the decision one
way or another. For that reason, it is worth
evaluating the opportunities for public incentives
in Latin America not only when a company is
establishing or expanding its presence there,
but also when there are merger and acquisition
transactions, consolidations, lease renewals
or process improvements, and when adopting
energy efficiency measures. A company may be

3. October 2015 IPT Insider 9
able to benefit from incentives for job creation
and capital investment, but also for job retention
and rights’ grandfathering.
(i) Process Recommendations.
In this regard, public incentives in Latin
America are typically granted to businesses
by federal and municipal governments and
less frequently by other jurisdictions. In order
to avoid transparency issues and leaks of
information that may create labor problems, it
is advisable for companies to consider looking
at public incentives early in the process,
researching potential statutory incentives
that may be granted in the countries and
states being considered. Once a short list
of potential locations are selected, and
before disclosing the project to the economic
development organizations and authorities,
companies need to let
them know they are
competing with other
locations, have them
sign non-disclosure
agreements, and make
clear that the project
needs to remain
confidential until the
company decides
to make a public
announcement on the
winner.
Keeping this competitive edge throughout
the process ensures enough leverage to get
the best possible incentives package. It is
advisable to always have at least two different
countries competing. Once the company
makes a final decision, it should try to sign an
incentives agreement, which is unfortunately
not necessarily typical in the region. This is
important documentation not only because
experienced American companies will expect
it, but also because authorities do change,
and the next government may not otherwise
view the offered public incentives as a
continuing obligation unless they are clearly
spelled in an agreement.
Perhaps it goes without saying, but one
thing to avoid at all costs is the shadow of
corruption. This is true not only for domestic
purposes and avoiding liability under the
FCPA, but processes also need to be fully
transparent in a region that has struggled
(but is working hard) to overcome a historical
pattern of political corruption.
Finally, companies need to pay a lot of
attention to the aftercare of the public
incentives. It is typical for projects to span out
several years, because of hiring and capital
investment timelines. It may happen that the
incentives the company was granted do not
kick in for months, or even years. Taking
care of the management and compliance is
therefore essential not only to capture the full
value of the incentives granted, but also to
avoid “claw-backs” and bad press.
(ii) Significant Distinctions.
Bear in mind too that the incentives
process in Latin America is often subject to
fundamental structural differences vis-a-vis
the United States. While incentives in the
United States typically do not have
formal federal oversight and there is
a strong competition among states
and counties (with a large number
of mature economic development
organizations aggressively
competing to attract investment to
their own cities or counties), in Latin
America public incentives do have
strong federal and state oversight
and cities do not routinely compete
against each other.
In addition, in the United States, a lot
of attention today is paid to the return
on investment spawned by the granted
public incentives, whereas that type of raw
economic pragmatism is unusual in Latin
America. Rather, up until now, the incentive
decision-making process for governments
and economic development organizations
in Latin America is more typically a political
decision. Nevertheless, if the incentives
granted do not correspond with the promised
investment and jobs promised by the
companies, authorities may come back and
create substantial problems, particularly if
there is a change of political party.
Thus, following a correct process allows
companies to obtain attractive incentives in Latin
America established to attract and retain job
creators and capital investment. Not only do such
incentives help the bottom line with tax rebates,
Continued on page 10
“In addition, in the United
States, a lot of attention to-
day is paid to the return on
investment spawned by the
granted public incentives,
whereas that type of raw
economic pragmatism is
unusual in Latin America.”

4. October 2015 IPT Insider 10
exemptions and training grants, but they also help
by expediting licenses and permits in a region
where bureaucracy can be a very heavy burden.
III. Market-Specific Opportunities, Issues, &
Considerations.
Although many of the macro considerations discussed
above are largely and broadly relevant across Latin
America as a whole, it is also important to understand the
unique context represented by each national jurisdiction.
With that in mind, some salient points on the principal
Latin American countries follow below.
A. Brazil
With a population of 200,000,000, and econom-
ic production equal to almost one-third of the re-
gional gross domestic product, Brazil has been
a dynamic economic engine for more than a de-
cade and remains instrumental in attracting pos-
itive investment attention to the region. Its vast
natural resources have made it a commodities
powerhouse that has helped feed the impressive
growth of China for many years, while simulta-
neously consolidating an internal market that has
lifted tens of millions of people out of poverty and
into the middle class.
Yet from an incentives perspective, Brazil’s im-
pressive growth - even during the financial crisis
- largely discouraged the country from aggres-
sively implementing incentive policies because
the objective need to offer many public incentives
to attract investment and job creation was ob-
scured. But that is now changing.
Following China’s deceleration and the concom-
itant global commodity price depression, Brazil
has dipped into recession. In addition, a major
corruption scandal at the national oil and gas
corporation has compounded the crisis, result-
ing in currency devaluation and other economic
ailments. In response, the sitting government
and recently reelected are now taking important
strategic measures to regain the trust of the in-
vestment world, and Brazil is increasingly open
to offering substantial public incentives in order
to attract and retain investment and to spur job
creation.
More specifically, incentives granted based on in-
vestment value, job creation and other relevant
matters are now available in Brazil at all levels of
government, and are particularly valuable at the
municipal and federal levels.
(i) Municipal Incentives. Municipal incentives
typically relate to reductions in Service (“ISS”)
and Property (“IPTU”) Taxes that may be
granted as part of negotiated incentive pack-
ages. In addition, some municipalities may
be willing to make grants of land to invest-
ing businesses, particularly in consideration
of more valuable and strategically important
projects.
(ii) State Incentives. At the state level, the gov-
ernments typically grant incentives on the ba-
sis of Value Added Tax (“ICMS”).
(iii) Federal Incentives. Federal incentives en-
courage focused R&D in electronics (such
as “PADIS” – a program for the development
of the semiconductor and display industries;
“PADTV” – a program for the development of
the technology industry for equipment relat-
ed to digital television) that may exempt the
investing company from certain otherwise
obligatory federal tax contributions, such as
“PIS” (contribution to Brazil’s social integra-
tion program) and “CONFINS” (contribution
to Brazil’s social security financing). Other
incentives are available as well as on the
acquisition of raw materials, goods and soft-
ware used in the manufacturing and research
activities. Further federal exemptions may
apply to sale of manufactured products.
In addition, other federal incentives apply for
modernizing of infrastructure (“REIDI” – a
special incentive regime for the development
of infrastructure; “REPORTO” – tax rebates to
incentive modernizing and amplifying Brazil’s
port structure and encourage exporting; and
“REMICEX” – a special tax regime for export
packaging).
Brazil also offers incentives targeting specific
industries such as oil and gas (“REPENC” – a
special incentive regime for the development
of oil industry infrastructure in Brazil’s north,
northeast and central-west); IT services
(“REPES” – a special tax regime for the
export of information technology services);
aeronautics (“RETAERO” – a special regime
for the Brazilian aeronautics industry); and
others for targeting specific regions such
as the Amazon Region (“SUDAM”) and
Northeastern Brazil (“SUDENE”).
Continued on page 11

5. October 2015 IPT Insider 11
In the aggregate, these incentives are persuasive in
helping to offset the perception that Brazil was over-
priced and not a business friendly economy.
B. Chile
In Chile, although not as broadly crafted and far
reaching as the Brazilian incentives, tax incen-
tives for research and development do allow up to
a thirty-five percent (35%) write off of the invest-
ment in R&D contracts entered into with research
centers accredited by the Chilean Economic De-
velopment Agency, with the remaining sixty-five
percent (65%) being tax deductible.
In addition, investment and venture capital fund-
ing are available at certain Opportunity Zones,
which are located in more remote or low income
regions of the country. Chile also offers certain
training rebates and subsidized worker training
for three months for laid off employees.
C. Colombia
Colombia offers a Free Trade Zone regime that
provides such benefits as a single fifteen percent
(15%) income tax rate, with no customs taxes,
and VAT exemptions for raw materials, inputs and
finished goods, and more. In addition, Colombia
also offers tax exemptions in specific sectors that
allow companies to pay 0% instead of the gener-
al 25% tax. These sectors include hotel services
provided in new, remodeled or expanded hotels,
ecotourism, publishing companies, sawmills,
software development and more. Investment
from income taxpayers in qualified technological
research and development projects are eligible to
deduct one hundred seventy-five percent (175%)
of the amount invested from their net income, for
up to forty percent (40%) of taxable income.
D. Peru
Peru refunds the VAT that has been paid in the
import and/or local acquisition, transactions of
capital goods, services and construction con-
tracts during pre-operative stages of projects,
investing in infrastructure and public services.
Similar incentives are offered for projects in the
Amazon region and those dealing with mining,
hydropower, agriculture and aquaculture.
Peru also provides incentives that allow produc-
er-exporter companies to recover all or part of
customs duties that have affected the import of
raw materials, inputs, intermediate products and
more. And as in other nations, special designat-
ed geographical areas (“CETICOs” - exportation
centers, transformation, industry, commercial-
ization and services) qualify as primary customs
areas of special treatment that are exempt from
income tax, general sales tax, and any tax rate
input or contribution from both the local and na-
tional governments. CETICOs may manufacture,
produce, assemble, store, distribute, repair, or
provide services such as packaging, labeling and
classification of goods inside the zone.
E. Mexico
Mexico is the second largest economy in Latin
America. With 120,000,000 people and a GDP
larger than that of either Canada or Spain, Mex-
ico has been developing incentive programs for
decades, attracting first investment and job cre-
ation from the United States and now from the
rest of the world. Mexico offers:
• Important federal incentives for research and
development, and importing and exporting
certain goods;
• Aggressive programs to incentivize software
industries; and
• Since the recent reforms in energy and com-
munications, companies can look at investing
in these industries as well.
Mexicanstatesmayalsooffertheirownincentives,
such as temporary exemption of state taxes and
duties, payroll tax exemptions, special incentives
for research and development projects, and
temporary reductions of public lighting fees.
IV. Conclusion.
Reasonable economic assumptions suggest that Latin
America will continue growing for the foreseeable
decades, and the region will continue to serve as a
primary destination for inbound global investment.
Consequently, knowing how to successfully navigate
the incentives processes and avoiding corruption and
bureaucracy, provides a competitive edge to corporations
looking at establishing or growing their presence in this
exciting region.