Tax Incentives for Technology Innovation in Brazil
Brazil adopted a new legislation called the Lei do Bem, a law that created fiscal incentives for companies that perform R&D within the country. Here you will find more information about Lei do Bem and it effectiveness in Brazil.
According to Brazilian legislation, innovation is “the conception of a new product or the process of fabrication, as well as the incorporation of new functionality or characteristics to the product or process that develop incremental improvements and the effective gain of quality or productivity, resulting in more competitiveness in the market”.
Since the end of the last decade, Brazil has been promoting legislative reforms to the national system of science and technology, in order to create an institutional environment favorable to the realization of technological innovation by companies in the country. The main purpose of these initiatives is to reduce the cost or the risks associated with R&D. And also promote technological innovation through fiscal benefits and financial incentives.
Lei do Bem Incentives
The Federal Government through the Ministry of Science, Technology and Innovation created the Lei do Bem, a Brazilian law that establishes tax breaks for legal entities that develop technological innovation inside national borders. The legislation intends to benefit companies, universities and research institutes to maximize the results in R&D implanting the following incentives:
- deduction of 20.4% to 34% in the income tax for legal entity and in CSLL charged over R&D expenditures
- reduction of 50% of the IPI in the acquisition of machines and equipment designated for R&D
- accelerated amortization of machines and equipment designated for R&D
- immediate depreciation of machines and equipment designated for R&D
- exemption of the income tax on remittances abroad destined to the registration and maintenance of branches, patents and plant varieties.
Apply for Lei do Bem
The incentives of Lei do Bem can only be acquired if the company meets the prerequisites below:
- be in an actual for profit regime
- have a liquid profit
- present fiscal regularity
- invest in research and development
Companies interested in the incentives must access the Formulário da Lei do Bem, which is the form of Lei do Bem available in the MCTI web page and filled it by July, 31 of 2013. The content of the form of each company will be evaluated by the Ministry of Science, Technology and Innovation in order to permit or deny the incentives.
Struggles with R&D in Brazil
In December, 2012 the Ministry of Science, Technology and Innovation published the results of the fiscal incentives to innovation of 2011. The annual report of the utilization of financial incentives presented by the Ministry shows the difficulties for implementing investments in R&D in Brazil.
The report had demonstrated that from 2006 to 2011, among the 1475 Companies participating in Lei do Bem, only 46 actually demonstrated results in technological innovation, which represents 3% of the companies benefited. From 2008 to 2011 the expenditures on R&D were reduced by a rate of 13% a year.
According to the Ministry, the reduction of R&D in Brazil is connected to the economic global crisis of 2008 and to Brazil’s historical roll of importation. Since the fall of dictatorship in Brazil in the 90s, the number of imported products has increased. Products with greater value added are usually not produced domestically. Other obstacles imposed on R&D incentives that the Lei do Bem does not include are companies that declare income tax returns based on their presumed profit.
The amount of fiscal incentives for innovation represents only 0.03% to 0.05% of the Brazilian GDP,. In countries such as Canada, France, South Korea, Denmark and Austria the value corresponds to 0.1% to 0.2% approximately.