Brazil to offer tax breaks to lure data center investments

Brazilian Finance Minister Fernando Haddad will begin a trip to Silicon Valley this week with a plan to lure data centers to his country by exempting the related technology investments from federal taxes, four sources familiar with the matter told Reuters. Haddad’s trip to California on Friday includes a May 6 breakfast with tech executives in Palo Alto, where he will pitch Brazil as a sustainable infrastructure hub, leveraging the country’s abundant supply of renewable energy.

The Finance Ministry estimates the new policy could unlock some 2 trillion reais ($352 billion) in investments over the next decade, including the spillover into construction, telecoms and AI-related services, according to two of the sources, who requested anonymity in order to discuss the private plans.

The Finance Ministry did not respond to a request for comment.

The same sources said the planned data center investment by ByteDance, the Chinese parent company of TikTok, would also be a beneficiary of the plan, an executive order that will require congressional approval to be made permanent.

The policy will exempt key federal taxes – PIS, Cofins, IPI, and import duties – on IT-related capital expenditures for data centers, the two sources said.

One of them stressed that the main cost for such ventures is not electricity – which in Brazil is largely sourced from renewable energy, with more than 80% coming from hydro, solar, and wind power – but rather hardware depreciation, a significant burden due to the country’s complex and costly tax system. Non-IT investments, such as building construction, will not be exempt under the measure. As a result, the policy is expected to yield fiscal gains that will support, rather than strain, Brazil’s federal budget from next year.

Amid rising global trade tensions, including U.S. tariffs and tensions with China, the plan aims to capitalize on Brazil’s diplomatic openness as a selling point for foreign investments.

“We don’t pick fights. We’re friends with everyone. That means Brazil can serve the world without major hurdles,” one of the sources said.

A landmark tax reform approved under President Luiz Inacio Lula da Silva last year provides for exemptions on capital spending, but they are set to take effect only in 2033.

The new measure, led by the ministries of development and finance, aims to fast-track these benefits to encourage green data center investments.

To qualify, projects must meet sustainability criteria, including using 100% renewable energy. Additional conditions will require projects to reserve a significant portion of capacity for domestic use, even if intended for export, and contribute to a fund supporting Brazil’s AI ecosystem.