THE BENEFITS FOR INFORMATION TECHNOLOGY (IT) MANUFACTURING IN BRAZILIAN REGULATIONS

1. THE BENEFITS FOR INFORMATION TECHNOLOGY (IT) MANUFACTURING IN BRAZILIAN REGULATIONS - PPB -

2. THE BRAZILIAN IT REGULATIONS: Main Regulations: • Law No. 8.248/1991 • Law No. 10.176/2001 • Law No. 11.077/2004 • Decree No. 5.906/2006 Other Applicable Regulations: • Decrees (Decretos) • Ordinances (Portarias) • Normative Rullings (Instruções Normativas) • Resolutions (Resoluções) • ICMS State Regulations

3. BENEFICIARY COMPANIES BY BRASILIAN IT REGULATIONS: • Companies headquartered in Brazil; • Companies that invest in IT Research and Development (R&D) in Brazil; • Companies that perform the manufacturing of IT, automation and telecommunication goods according to PPB.

4. THE BENEFITS FOR IT MANUFACTURING IN BRAZILIAN REGULATIONS: • IPI reduction when selling the benefitted goods; • Preference in the acquisition of benefitted goods by agencies and entities of the direct or indirect Federal Public Administration; • IPI suspension when importing and locally purchasing inputs; • ICMS benefits: • ICMS reduction to 12% in the operations inside the SP State; • ICMS suspension (diferimento) when importing and locally purchasing inputs, inside the SP State; • Special ICMS Regime in the taxation of several IT goods (Granted Credit).

5. IPI REDUCTION IPI reduction for IT goods which are manufactured in Brazil according to PPB rules:

6. IPI REDUCTION IPI reduction for IT goods which are eitherdevelopedandmanufactured in Brazil according to PPB rules:

7. DUTIES FOR BENEFICIARIES OF IT MANUFACTURING: • Compliance to PPB rules when manufacturing the beneficiated IT goods; • Investment in R&D in Brazil; • ISO 9000 Quality System certification implementation; • Program for Workers Participation in the company´s profits or results implementation; • Annual presentation of the following reports: • PPB Compliance Report for the manufacturers of desktops, notebooks and mobiles; and • Annual Demonstration Report.

8. DESTINATION OF INVESTMENTS IN R&D: • Quarterly withdrawal in FNDCT - Fundo Nacional de Desenvolvimento Científico Tecnológico (National Fund for Technological Scientific Development); • Agreement with Northern, Northeasternand Central Western R&D Entities: R&D project/programs accomplished, together with research and teaching institutions with main headquarters located in the Northern, Northeastern or Central Western regions: • Official Entities: universities, colleges, teaching entities and/or researches centers and institutes maintained by the Federal, State or Municipal governments. • Free choice: public (officials) or private research and teaching institutions. • Free choice R&D entities at any region: R&D projects/programs accomplished in agreement with research and teaching institutions of free choice, of public or private right, at any area in Brazil; • Internal projects/programs: own or outsourced R&D projects/programs.

9. REQUIRED INVESTMENTS IN R&D FOR PPB BENEFICIARIES

10. NATURE OF THE R&D PROGRAMS AND PROJECTS IN IT • Basic or applied research; • Systematic work to develop new materials, products, devices or computer programs, to implement new processes, systems and services or to improve the already produced or implanted, incorporating innovative characteristics; • Scientific and technological advisory services, consultancy, studies, tests, metrology, normalization, technological management, foment to invention and innovation, administration and control of intellectual property; • Formation and professional training for medium and superior levels.

11. NATURE OF EXPENSES IN R&D PROJECTS • Depreciation or rental of hardware and software; • Implantation, enlargement or modernization of research and development laboratories; • Human resources; • Acquisitions of books and technical publications; • Consumption materials; • Trips; • Training; • Technical services rendered by third parties; and • Other related expenses.

12. GENERAL ASPECTS OF THE OBLIGATORY APPLICATIONS IN R&D • It is not considered as activity of R&D, the donation of goods and computer science services. • In the event of production by third parties, the contracting company may assume the obligation of application of resources in R&D activities, corresponding to the revenue due on the commercialization of benefitted products, obtained by the contracted with the contracting party (Contracts of Assumption). • It will be considered as application in R&D of the calendar year: • expenditures corresponding to the execution of R&D activities accomplished until March 31st. of the subsequent year; • deposits made in the FNDCT, until the last week-day of January subsequent to the calendar year closing; and • eventual advance payment to third parties for execution of R&D activities, considering that its value be not superior to 20% of the correspondent obligation of the calendar year.

13. BASIC MANUFACTURING PROCESS – PPB The PPB or Processo Produtivo Básico (Basic Manufacturing Process) is the minimum required steps in manufacturing so it can be considered as “local”: • Assembling and welding all printed circuit plates components; • Assembling all the electric and mechanical disaggregated parts, in basic components level; • Integrating the printed circuit plates and the electric and mechanical parts for the final manufactured product’s conclusion; • Quality and Productivity Processes and Final Product Management.

14. GENERAL ASPECTS OF THE PPB RULES • The Basic Productive Processes are established for the ministries MDIC and MCT, by means of joint ordinances. • The request of a company interested in the establishment of a specific PPB for a product type shall be duly appreciated, by MDIC and MCT, in a maximum period of 120 days. • PPB's can be altered whenever its technical and/or economical factors may indicate so. • The alteration of a PPB involves in its execution all manufacturing companies of the product(s). • There are ordinances, which liberate some modules of local assembly, sub-sets and special components, and/or establish specific conditions for certain types of products. • Activities and productive operations can be performed by third parties, however, the stages of final integration and quality management should be executed by the company itself. • MCT and MDIC can promote, at any time, inspections in the companies for verification of the regular observance of PPB.

15. PPB APPLICATION • The benefits for IT goods manufacturing are granted through Internet, via “MCT Sigplani System” – Module “Benefits for IT Goods Application” • Those are the basic required information for such PPB Application: • Identification of the products/models to be manufactured; • Research and Development Plan; • Indication that the PPB will be attended in the manufacturing; • Presentation of the certificates of debits clearances before: FGTS/CEF, Social Security/INSS and Federal Tributes and Public Debts of the Union/SRF; • Indication of the ISO 9000 Quality System, implanted and certificated, or implantation chronogram and certification; • Indication of the Program for Workers Participation in company profits or results, already implanted or its implementation chronogram.

16. For further information on the Computer Science Law, please assess our site: www.geosync.com.br orthe MCT home-page: www.mct.gov.br