Brazil Offers Data Center Tax Relief and Cheap Power, but Rystad Cuts Its Pipeline Estimate by Two-Thirds

Brazil is courting data centers while communities across the U.S. push back on them. The pitch is cheap electricity, a huge domestic market and, since Sept. 15, a tax break.

Whether that turns into steel in the ground is another question.

What Lula signed

President Luiz Inácio Lula da Silva signed Law No. 15,504 on Sept. 15, creating a tax regime called REDATA. It suspends specified taxes on information and communications technology equipment used as fixed assets at qualifying data centers. Covered projects include cloud computing, high-performance computing, and AI training and inference.

The incentives run five years. But the suspensions of PIS/Pasep, Cofins and the industrial-products tax (IPI) run only through Dec. 31, 2026. Import-duty relief is separate and limited to eligible equipment with no domestic equivalent.

The strings are real:

• At least 10% of covered capacity must be offered to Brazil's domestic market.
• Electricity demand must be met with renewable or low-emission sources.
• Water use is capped at 0.05 liter per kilowatt-hour a year.
• Companies must invest 2% of covered equipment value in Brazilian research and development.

A company can swap the domestic-capacity requirement for an extra 10% of covered equipment value in R&D. The eligible-product list and other details are left to federal regulation.

Christopher Torto, CEO of Ascenty, Latin America's largest data center and connectivity provider, said Brazil had to make the change if it wanted to be a player. High federal import taxes had made big facilities costlier to build than elsewhere in the region. Lula's government hopes the break will bring computing capacity in-country and help Brazilian businesses develop AI.

Power is the draw

Brazilian electricity costs less than half what it does in the U.S., according to Fortune's reporting. Brazil's Ministry of Mines and Energy reports the country generates nearly 87% of its power from renewable sources, and fast wind and solar growth has produced a surplus.

Demand is not hypothetical. OpenAI says Brazilians send 215 million messages a day to ChatGPT, making Brazil its third-largest market by weekly users behind the U.S. and India.

Google Cloud said Sept. 24 it expects to double its technical infrastructure in Brazil by 2030. Amazon Web Services says it has spent more than $3.8 billion on Brazilian data center infrastructure since 2011 and has pledged another $1.8 billion through 2034. Microsoft has committed billions of dollars to cloud and AI infrastructure in Brazil over three years; sources differ on the exact figure, reporting roughly $2.6 billion to $2.7 billion.

Google Cloud, Microsoft and AWS have not said those investments involve shifting data center capacity out of the U.S.

The "release valve" argument

Carlos Barrera, CEO of Atlas Renewable Energy, sees Latin America as "an attractive release valve for some of the U.S. capacity constraints that you see now." James Mercer, a principal at Metro Colo Advisory, put it differently: U.S. backlash "isn't pushing hyperscalers out of the country so much as pushing them toward wherever power shows up first."

The reporting notes that local demand, not American companies relocating, has driven much of Latin America's data center growth so far. Barrera's claim is about what could change.

The gap between announced and buildable

Rystad Energy's Marina Domingues argues the hard part starts now. With the election settled and a new Congress taking office in February, Rystad says Brazil's data center policy hinges on execution. Congress and the executive branch must align statutory tax incentive deadlines with regulatory definitions that are still to be written.

Rystad describes the tax exemptions as neither automatic nor permanent: they are time-bound and contingent on meeting strict operational criteria. It has cut Brazil's announced data center pipeline by roughly two-thirds, from 21 GW to about 7 GW. Its risk modeling also factors in severe grid congestion and limited access to reliable power. Still pending are the executive branch's decision on whether natural gas generation qualifies as low-emission power, plus details on energy-efficiency metrics, local-content requirements and compliance verification.

The grid is the sharper problem. Wärtsilä, a power-systems company, says Brazil's projected 2030 data center load on the transmission grid was revised up 60%, from 18.9 TWh to 30.3 TWh a year, just three months after the country's Annual Energy Operation Planning for 2026–2030 was published. Risto Paldanius, Wärtsilä's VP for the Americas, warns of a "speed to powerless" gap in which projects are built faster than they can be reliably powered. Wärtsilä adds that centrally planned transmission expansion means delivery capacity to data center corridors may lag by years.

Barrera said Brazil will need more transmission lines to connect large data centers, and government officials are split on whether electric bills will go up as a result. Cheap power is the main selling point, and it is not settled that it stays cheap under heavy new load.

The U.S. side

The U.S. has the same bottleneck. Wärtsilä's analysis, drawing on Lawrence Berkeley National Laboratory and International Energy Agency data, counts roughly 2,600 GW of generation and storage seeking grid interconnection as of the end of 2025, a queue that creates serious timing uncertainty for developers.

The politics are also contested at home. Some U.S. lawmakers have proposed taxing data centers' electricity use and output, while Brazil is cutting equipment taxes. Organized labor is split. At the June AFL-CIO convention, delegates approved a resolution acknowledging AI's threats to workers while maintaining that "responsible data center growth" was possible with union labor. Don Slaiman of IBEW Local 26 argued in a New York Times op-ed that electrical workers love data centers for the union construction jobs they bring. One labor organizer writing in In These Times calls that promise a possible "dangerous mirage" and wants unions to join the fight against the buildout.

What comes next

Two items matter. Congress is fast-tracking PL 3716/2026 to reallocate battery storage integration costs from generators across all system users before ANEEL, Brazil's electricity regulator, conducts its inaugural capacity auction in December. Then the PIS/Pasep, Cofins and IPI suspensions run out on Dec. 31, 2026.

If the implementing rules are not written and the statutory deadlines not aligned by then, the tax break that headlines the policy will have a gap in it.