The effort to regulate Brazil’s data center market took an important step forward this week, with the government sending to Congress a Provisional Measure (PM) that opens the debate – a long-awaited move by investors.
Brazil has favourable natural and infrastructure conditions to become a global powerhouse in this fast-growing market, driven by artificial intelligence. But that alone is not enough. Legal certainty and regulatory stability are still lacking, which makes sound regulation both urgent and strategic.
The question is how to achieve it. If we get it wrong, Brazil risks missing this window of opportunity in the global market and restricting itself to domestic demand.
The newly submitted PM, which establishes the Special Taxation Regime for Data Center Services (REDATA), secures the most crucial element: tax incentives on federal taxes applicable to the acquisition of equipment used in the implementation and operation of data centers.
The burden of investment in such equipment is enormous, reaching up to 70% of the total project value – or even more in specific cases. Easing part of this tax burden makes perfect sense and enhances Brazil’s competitiveness.
The REDATA PM joins another PM addressing Export Processing Zones (ZPEs) for data centers (PM 1,307/2025). Both will be discussed in Congress in the coming months before – hopefully – being converted into law.
Congress’s role will be to shape an optimal regulatory framework for the sector’s development. First, it will need to consider how to reconcile ZPEs with REDATA.
Restricting the development of hyperscale data center campuses exclusively to ZPE areas could unnecessarily limit supply.
It could also generate regional inequalities and asymmetries within Brazil, reigniting conflicts such as the “fiscal war” once waged between certain states.
An alternative path could be fostering, in partnership with the private sector, the expansion of submarine fibre optic cable networks that connect Brazil to major global markets like North America and Europe. A good example is the extension of the Malbec submarine cable to Porto Alegre, which placed that region on Brazil’s data center map.
Second, Congress will need to review and weigh the requirements set forth by the REDATA PM itself.
Some criteria have already been outlined, pending further detail in subsequent regulations, and include mandatory sustainability measures (such as the use of 100% clean and renewable energy and water efficiency), as well as the requirement that at least 10% of processing and storage capacity be allocated to the domestic market.
The latter obligation may not be problematic, given the potential for “nearshoring” national data currently stored in foreign data centers.
The REDATA PM also requires that 2% of the total value of products acquired under the program’s tax incentives be invested in research, development, and innovation projects within the digital economy ecosystem.
This is essentially a form of mandatory cashback, channelled back into investment. Whether this is a fair or efficient trade-off or not, it represents a cost that lawmakers will need to weigh carefully.
Finally, it is important to acknowledge that the debate on data centers will inevitably intersect with parallel issues such as data protection and sovereignty, electricity sector planning, and infrastructure distribution, among others.
There is also a risk that the regulation of artificial intelligence could become entangled – albeit incorrectly – with data center regulation, complicating the process.
This is not, or at least should not be, a competition among Brazilian states. It is a competition among countries from different regions of the world for an astronomical volume of investment. For generative AI in particular, geographical location is less relevant. What truly matters are the conditions for installation, connectivity, operation – and, above all, the game rules.
To seize the investment momentum, it will be crucial to separate data center regulation from broader or more complex debates, such as the regulation of generative AI.
Regulating such a promising and complex market will present no shortage of challenges.
Richard Posner, the renowned University of Chicago Law School professor (often regarded as the father of the Law and Economics movement), argued as far back as 1973 that the role of regulation is not merely to “control” a market but to create the conditions for efficiency and the optimal allocation of resources for its development.
Historically, Brazil has had a tendency to over-regulate or regulate poorly. There are many potential sources of interference.
Perhaps the right approach now is to focus on the essentials. As the old saying goes: sometimes, less is more.
Bruno Amatuzzi
brunoa@amatuzzi.com
