14.7Regional Parameters

In addition to the sizing parameters discussed above, there are specific regional parameters that must also be considered. Depreciation rates, taxes, and financing options vary from country to country and, depending on the country, their parameters may impact profitability significantly.

Depreciation is a method for allocating the cost of the “use” of a fixed asset over the course of its useful life. Depreciation is thus an accounting principle, since no monetary transactions occur, and it is used as a tax shield to reduce the basis for tax calculations.

Usually, the depreciation rates should be such so as to match the asset’s useful life. However, specific regulations determine standard maximum rates (the maximum rate equals minimum useful life) that should be used per category. That being said, one may choose to depreciate an item over a longer period of time if that better reflects the item’s useful life (less tax shield benefit). Generally speaking, a vehicle operating company should have the following depreciation categories:

  • Vehicles: four years (Brazil);
  • Building/edifications: twenty-five years (Brazil);
  • Installations: ten years (Brazil);
  • Equipment: five years (Brazil);
  • Computers/furniture/others: three years (Brazil).

Financing options may vary depending on country risk, industry risk, and company/government liability. These issues mentioned above may affect the interest rate, financing period, grace period, and financing type: constant amortization system or constant payment system.

For this item, it is best to refer to considerations made in other chapters of this guide.

Lastly, the tax system may also vary from country to country. The general taxing structure is similar in most countries, but the rates and fiscal credit limits are usually different. One may break down the taxing system in the following categories/moments:

  • Profit taxes—applied upon company’s profit;

    • The profit basis for taxation may be subject to tax shields originated from depreciation, fiscal credits, and losses brought forward;
    • Regarding losses brought forward, some countries limit the number of years the losses may be brought forward and the percent that it may deduce forms the profit basis.

  • Face value taxes—applied upon company’s gross revenue;

    • The basis value for face value taxes may be reduced due to fiscal credits.
  • Tax shields—may vary per country;
  • Fiscal credits—may vary per country;
  • City taxes—not all face value taxes; for instance, some may be country taxes. Certain taxes may be defined at a municipal level and vary city to city.