Brazil Cuts Data Center Taxes as U.S. Backlash Pushes Hyperscalers South

Brazilians send 215 million messages to ChatGPT every day, making Brazil OpenAI's third-largest market for weekly users after the U.S. and India, according to the company. While American communities push back against data centers, Brazil is rolling out tax breaks and cheap power to pull them in.

The investments are already substantial. Google said it plans to double its cloud infrastructure in Brazil by 2030 and signed a sponsorship deal with the Brazilian Football Confederation in March to put Gemini across the men's, women's, and youth national teams. Amazon Web Services has spent more than $3.8 billion on data center infrastructure there since 2011 and pledged another $1.8 billion through 2034. Microsoft committed $2.7 billion to cloud and AI infrastructure over three years, Reuters reported.

Local demand, not American companies relocating, has driven most of Latin America's data center growth. That could shift, said Carlos Barrera, CEO of Atlas Renewable Energy.

"We do see the region as actually an attractive release valve for some of the U.S. capacity constraints that you see now," Barrera told Fortune.

Why hyperscalers are courting Brazil

Brazil has almost 214 million people spread across an area larger than the contiguous 48 U.S. states. Its electricity costs less than half what it does in the U.S. The country generates nearly 87% of its power from renewable sources, according to its Ministry of Mines and Energy, and rapid growth in wind and solar has produced a surplus.

"U.S. backlash isn't pushing hyperscalers out of the country so much as pushing them toward wherever power shows up first," James Mercer, a principal at data center advisory firm Metro Colo Advisory, told Fortune.

The cheap power may not stay cheap. Barrera said Brazil needs more transmission lines to connect large data centers to the grid, and government officials are split on whether electric bills will rise, Valor International reported.

The tax code was the other barrier. High federal import taxes made building big data centers in Brazil more expensive than in neighboring countries. President Luiz Inácio Lula da Silva fixed that on Sept. 15, signing a law that cuts taxes on qualifying data center equipment. The move cuts against some U.S. lawmakers, who have proposed taxing data centers' electricity use and output.

"If Brazil wanted to be a player in the data center space, it had to do this tax law change," Christopher Torto, CEO of Ascenty, Latin America's largest data center and connectivity service provider, told Fortune.

What does the REDATA law require?

Lula's government expects the tax break to bring more computing capacity onshore and help Brazilian businesses build AI products with less reliance on foreign services. Right now, 60% of Brazilian digital data is processed abroad, according to the country's Ministry of Development.

The legislation, called REDATA, sets two conditions for the tax benefits:

• Companies must offer at least 10% of qualifying computing services to Brazilian customers.
• They must invest 2% of the value of tax-benefitted equipment into Brazilian research and development.

"It's to improve the data sovereignty of Brazil, so we won't rely so much on foreign services, especially in a time with Trump," Ana Carolina de Assis Nunes, a Brazilian anthropologist and data center researcher at the nonprofit Data & Society, told Fortune.

Nunes flagged the contradiction: Brazil wants to depend less on foreign technology while handing tax breaks to the same foreign companies that dominate the industry.

Torto admitted Brazil is unlikely to develop its own Google or Microsoft. Local data centers still improve latency and keep more data in the country. "It's not just the model or the data center themselves; it's everything that goes around them that will be really the larger investment long term," he said.

Could Brazil see its own backlash?

Resistance is already surfacing. Days before REDATA became law, Brazilian federal prosecutors went to court over a TikTok-linked data center project, demanding an environmental impact study and consultation with the Indigenous Anacé people before it operates.

Nunes said opposition in Brazil lacks the political unity of the U.S., where data centers have drawn criticism from both left and right. Foreign investment still carries prestige in parts of the country, especially where people see it as a ticket into the global economy.

"For people who are so marginalized and pushed away from global systems, it's just like 'oh, Google is coming here, that's great," she said.

She grew up in Goiânia in central Brazil, near a Unilever factory that made tomato paste. Her mother took pride in the connection to a global company even as others worried about the factory's use of local resources.

"It felt like we were part of something big because we lived close to that company," Nunes said.

Whether Brazil's welcome lasts may depend on the same arithmetic now souring U.S. communities: who pays the power bills, and who collects the benefits.