From Brazil: R&D Tax Incentives
Felipe Pozebon and Rodrigo La Rosa - Andersen Tax in Brazil, a member firm of Andersen Global
In the last few years, The Government of Brazil has been working on some laws to raise Brazilian investment in R&D such as Lei do Bem. This legislation has been the most popular and advantageous in terms of incentives, which includes the following:
- Benefit from 20% to 34% for income tax calculated based on expenses in R&D projects realized in Brazil
- Full depreciation of R&D assets in the year of acquisition
- Accelerated amortization of R&D intangibles
- 50% reduction of company's industrialized products tax on the purchase of machinery for R&D
- Zero withholding income tax-WHT (IRRF) on remittances to register and keep intellectual property rights abroad
This law has been granted almost 3.5 Billion USD on R&D projects since 2006 and could be granted more once it is available only for Brazilian companies taxed by the real profit system (Lucro Real taxation arrangement), since the major benefit is the tax allowance and exclusion (in case the company is profitable) on the calendar year, but with no carryover.
Based on the actual Brazilian economic scenario, the local authorities have studied alternatives to improve this mechanism mainly allowing deferment for the following years of the tax exemption not used during the fiscal year, which makes it possible for a loss-making company to invest in research, development, and innovation, and to be able to benefit from tax benefits in subsequent years. Another important change required is the permission to use the expenditures, up to 10% of the value of the project with university or research institution, recognized and unrelated to the applicant located abroad.