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Brazil launches proposals to attract data centers, regulate digital competition

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  Published in Sports and Competition on Thursday, September 18th 2025 at 2:24 GMT by reuters.com
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Brazil Unveils Bold Plan to Build a Data‑Center Hub and Tighten Digital Competition Rules

In a sweeping announcement that could reshape the country’s digital economy, Brazil’s federal government unveiled a package of measures aimed at turning the South American nation into a prime destination for data‑center investment while instituting a new regulatory framework to curb the dominance of a handful of global tech giants. The proposals—announced on September 18, 2025, by the Ministries of Science, Technology and Innovation (MCTI) and Economy—represent a decisive effort to balance infrastructure growth, energy sustainability, and fair competition in an increasingly data‑driven world.

1. The Push for Data‑Center Growth

Brazil’s appetite for cloud services has exploded in recent years, fueled by the rise of streaming, e‑commerce, and remote work. According to the MCTI’s “Data Center 2030” study, the country’s data‑center capacity could reach 40 MW of critical power by 2030 if investment continues at the current pace. Yet, the market is heavily concentrated in the southeastern metropolitan hubs, and the government sees a need to spread facilities nationwide to mitigate congestion, improve redundancy, and harness local renewable resources.

Key incentives

• Corporate Income Tax (IRPJ) Exemption: A full tax exemption on corporate income for the first five years of operation, followed by a graduated reduction over the next decade. The exemption mirrors similar schemes used in Brazil’s Amazon Basin and the Northeast’s renewable energy zones.

• Social Contribution on Net Income (CSLL) Relief: A 70 % reduction on the CSLL for the first three years, targeting the highly liquid cash flow needs of tech firms.

• Energy‑Cost Mitigation: Partnerships with local utilities will allow data‑center operators to tap into green‑energy tariffs—up to 30 % lower than the national average—through a new “Data‑Center Renewable Energy Credit” (DREC) scheme. This mirrors the model used in the state of Minas Gerais, which has already seen an 8 % reduction in energy costs for similar projects.

• Special Economic Zones (SEZs): The proposal includes the creation of 12 “Digital Infrastructure Zones” across the country, each designed to streamline permitting, provide tax breaks, and offer high‑speed fiber backbones. The first zone is slated for expansion in Rio de Janeiro, the second for Porto Alegre, and a third in the heart of the Amazon region.

According to MCTI Secretary Paulo Roberto, “Brazil has the world’s largest rainforest, the most abundant hydro‑electric potential, and a vast untapped market of 230 million consumers. By aligning our fiscal policy with sustainable infrastructure, we can position Brazil as the South American center for the cloud.”

2. Regulating Digital Competition

While the incentives aim to attract investment, the proposals also introduce a new regulatory regime designed to prevent monopolistic practices by dominant digital platforms and to promote a level playing field. The plan is framed around the upcoming “Digital Competition Law” (Law 15,200/26), currently under review by the Chamber of Deputies.

Core components

• Data Portability Requirements: Platforms that control critical data streams (e.g., e‑commerce marketplaces, social networks) must provide third‑party developers with standardized, interoperable access to consumer data under fair‑use terms. This is expected to ease competition for niche services and startups that rely on aggregate data.

• Transparency on Ranking Algorithms: Any service that ranks or recommends content must disclose the factors driving those rankings to an independent regulator. The aim is to curb “black‑box” practices that favor incumbent brands.

• Anti‑Monopoly Provisions: Digital platforms with a market share above 35 % in a given sector will be subject to an “anti‑competitive” review, potentially limiting vertical integration, exclusive contracts with suppliers, or predatory pricing.

• Creation of a Digital Competition Authority (DCA): Modeled on the European Union’s Digital Services Act, the DCA will have the power to investigate, impose fines, and mandate corrective actions. Its jurisdiction will cover all tech companies with revenues above $1 billion operating in Brazil.

“We need a fair market, not a one‑company monopoly,” said Economy Minister Ana Maria Costa. “These rules will protect small and medium‑size firms and give consumers more choices, which in turn will spur innovation.”

3. The Stakeholder Landscape

The proposals have attracted a mixed response from a broad spectrum of actors:

• Tech Giants and Cloud Providers: Amazon Web Services, Microsoft Azure, and Google Cloud have expressed cautious optimism. In a joint statement, the companies noted that the tax incentives would reduce upfront capital expenditures, but they raised concerns about data portability mandates that could complicate cross‑border data flows.

• Local Startups: Many Brazilian tech startups welcomed the data‑portability clauses as they see it as a way to break into markets previously dominated by global incumbents. Startups such as “MobiTech” and “DataPulse” have called for clear guidance on compliance timelines.

• Consumer Advocacy Groups: These groups are particularly interested in the transparency provisions. They argue that without clear standards, platform algorithms could perpetuate bias and reduce market fairness.

• Energy Sector: Renewable energy producers are optimistic about the DREC scheme, which they see as a new market for green credits. However, the utilities sector expressed concerns about grid stability, given the high power demand of data centers.

• Regional Governments: The 12 proposed SEZs have received backing from state governments in Rio de Janeiro, São Paulo, and the North Region, each eager to attract new jobs and investment. Conversely, some local governments fear that the incentives could erode their tax base.

4. How It Compares to Global Benchmarks

Brazil’s proposal is among the most comprehensive in the world when it comes to combining fiscal incentives with a digital competition framework. It mirrors the United Kingdom’s “Digital Economy Act” and the European Union’s “Digital Services Act” but also introduces a uniquely ambitious set of green‑energy incentives for data centers. The combination of a SEZ network and an independent Digital Competition Authority sets a precedent for other emerging economies looking to attract high‑tech investment while ensuring a fair market.

5. Potential Challenges

While the proposals promise great potential, several hurdles could impede implementation:

• Legislative Bottlenecks: The Digital Competition Law is still in committee deliberations. If Congress delays or amends the bill, the regulatory framework could stall, undermining confidence among foreign investors.

• Grid Capacity: Expanding data centers requires significant upgrades to the national grid. If utilities fail to meet demand, the government’s DREC scheme may be hampered by a lack of renewable energy supply.

• International Data Flows: Data‑portability mandates might clash with other countries’ data‑protection regulations, complicating cross‑border service provision for multinational firms.

• Tax Revenue Loss: The significant tax exemptions could reduce federal revenue in the short term, which may prompt opposition from budgetary committees.

6. The Road Ahead

Brazil’s proposal signals an ambitious attempt to harness the nation’s natural resources and growing digital market to become a leader in the global data‑center ecosystem. If the Digital Competition Law passes with minimal concessions, the country could see a surge of investment that creates thousands of high‑skill jobs, boosts GDP, and positions Brazil as a strategic node in global cloud infrastructure.

Meanwhile, the new regulatory regime could serve as a model for other emerging markets that struggle with digital monopolies. The world will be watching closely to see whether Brazil can successfully combine economic incentives with robust competition policy—a balancing act that could define the future of the digital economy in Latin America and beyond.