How a Small Town in the Brazilian Countryside Became the E-commerce Capital After a Series of Incentives and Strategic Location

Extrema, in southern Minas Gerais, has transformed into a key logistics hub, thanks to tax incentives, a prime location, and continued government policies that expedite construction projects

Ronaldo Paschoaloni, Director and Founder of General Dock Consultoria Ltda

By: SiiLA News

09/10/2024

Did you know that currently, one out of every four products sold through e-commerce in Brazil comes from the city of Extrema, in southern Minas Gerais? By offering tax benefits, investing in infrastructure, and attracting primarily logistics companies, the municipality has seen a boom in retailers setting up operations there.

Read more: Rising Demand for Climate-Controlled and Refrigerated Logistics; Costs Could Be Up to 200% Higher

Among the main reasons companies choose Extrema are tax incentives, its strategic and privileged location—110 kilometers from São Paulo, the largest consumer market in Latin America—and a continued government policy that ensures faster approval of construction projects.

According to economic development consultant, former Secretary of Development for Extrema, and former Director of Investment Attraction for the Minas Gerais government, Adriano Carvalho, large-scale construction projects can be approved in as little as 90 days in the city, provided there are no other issues. This period is much shorter compared to other Brazilian municipalities, where the approval process for similar projects can take up to 10 years.

"Logistics and industrial developers need these processes to move quickly, or they risk losing business. Extrema understood this and worked to streamline these processes, contributing to the location’s appeal," he explains.

The continuous growth in demand from e-commerce consumers has led developers to view Extrema as an opportune hub, envisioning rapid approval for the construction of warehouses and, of course, its proximity to São Paulo, just an hour and 15 minutes away on average.

Another contributing factor to Extrema’s attractiveness for logistics operators was tax incentives. The state of Minas Gerais charges lower taxes compared to São Paulo, for example. While São Paulo imposes an 18% tax on the circulation of goods and services (ICMS), in Extrema, internal sales taxes range from 2% to 6%. For interstate sales, the tax rate is even more attractive, reaching just 1.3%. Additionally, the city waives the requirement to withhold and collect ICMS on incoming goods.

These incentives, combined with the strategic location and increased demand for logistics space, particularly from e-commerce giants, have attracted developers to build warehouses in the region.

Industrial Property Stock in Extrema Surpasses 1 Million m²

According to data from Market Analytics by SiiLA, the total stock in industrial properties located in Extrema has grown by over 700% since 2017, jumping from 139,800 square meters available in 2017 to 1.1 million square meters in the second quarter of 2024. This figure represents 41.6% of the total stock in Minas Gerais.

The segment that occupies the most warehouse space in the city is Consumer Goods, accounting for 51.2% of the total occupied area. Following are the transportation and logistics sectors with 31.9%, food, beverage, and tobacco with 8.7%, and manufactured products with 3.2%.

See below the graph showing the companies that occupy the most industrial assets in Extrema:

Source: Market Analytics

For the Director and Founder of General Dock Consultoria Ltda, a logistics consultancy, Ronaldo Paschoaloni, since one of the main focuses for online retailers is the São Paulo market, the cost of occupying Class A+, A, and B warehouses in Extrema also contributes to operators choosing the city.

"It's not just São Paulo's proximity that attracts players, but also the ease of access to other major markets such as Campinas, Greater ABC, Vale do Paraíba, and Southern Minas Gerais, as well as the issue of mobility, as Extrema offers quick connections to important highways like Fernão Dias, Presidente Dutra, and Dom Pedro I," says Paschoaloni.

Advantages for the E-commerce Sector

For retailers choosing to establish operations in the city, there are opportunities to optimize tax burdens and reduce fiscal costs. Some of the advantages include:

Possibility of deferring ICMS on the importation of inputs and goods intended for resale, allowing the tax payment to be postponed to a more suitable time;
Option to defer ICMS on internal purchases of goods and inputs, providing temporary relief to the company’s cash flow;
Benefit of deferring ICMS on the acquisition of fixed assets, facilitating investment in capital goods;
Potential to defer DIFAL on the acquisition of fixed assets from other states, expanding acquisition opportunities with tax advantages;
Waiver of the application of ICMS for tax substitution on goods purchases, simplifying the acquisition process and reducing associated bureaucracy;
Access to presumed ICMS credit, directly reducing the amount of tax due.

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