Brazil

R&D Deduction, Accelerated depreciation and Funding Authority for Studies and Projects

R&D activities in various segments within Brazil has been supported by the Brazilian Government. Commencing in 2006, the Government introduced a tax incentive for R&D, with the current offering consisting of super deductions for taxpayers with eligible R&D expenses, financial support for new R&D investments and accelerated depreciation on qualified R&D assets.

The governments key objectives for providing incentives for R&D are to achieve technological innovation, product innovation and enhanced R&D activities.

Activities that are classified as technological innovation refers to design of new products or processes, new functionalities or characteristic leading to incremental improvements and an effective quality or productivity gain. Improving new or existing products classifies as product innovation for the Brazilian government, and finally enhanced R&D activities encompasses research, experimental development and basic industry technology and technical support services.

Description of Incentives

R&D Deduction

When a taxpayer has eligible expenses that are available to claim a super deduction of 160% to 200%. Where additional researchers are hired compared to the previous year, the extra deduction may apply to companies. The deduction for R&D is applicable for expenses incurred by Brazilian entities and contract research or greenfield investments are not normally eligible. Unused credits may not be carried forward or back. Tax Clearance Certificates are required to be presented to tax authorities although no pre-approval process is required for R&D deductions.

Taxpayers are also eligible to receive a reduction on their IPI, Imposto sobre Productos Industrializados (federal excise tax) where there are eligible R&D activities. A 50% reduction is available on the IPI levied on equipment, machinery, tools etc imported by Brazilian companies for use in dedicated R&D activities.

The deduction is available for current year investments, it is claimed on the income tax return and should be claimed on the relevant tax return delivered to the Brazilian IRS.

Accelerated Depreciation

Depreciation may be accelerated on R&D assets for tax purposes only under R&D legislation. Eligible R&D assets are available for depreciation at a rate of 100% in the year of their acquisition.

Accelerated depreciation is only applicable for current investments, and is claimed on the income tax return.

Funding Authority for Studies and Projects

Brazilian companies may benefit from financial support from reduced interested rates for new R&D investments. Government funding can cover costs for up to 90% of the total project costs, however the incentive requires that a pre-approval process must be followed.

The funding is available to current and future investments, and claimants must follow the strict procedure set out by the Government.

Eligibility Requirements

Any industry within Brazil may apply for R&D incentives, as long as the description of technological innovation is met. According to Law No. 11.196/2005 “technological innovation is the conception of a new product or production process, as well as in the inclusion of new functionalities or characteristics in the product of process resulting in additional improvements, effective quality or productivity increase, as well as competitiveness increase in the market.”

Other Considerations

Companies must have a tax clearance certificate that covers the whole calendar year in which the incentive is taken in order to qualify for the super deduction.

Services

Swanson Reed offers the following services:

• Advice on tax preparation relevant to claiming the R&D tax credits incentive
• Preparation of documents relating to filing and substantiating a R&D taxation claim
• R&D tax advice and consultations
• R&D tax claim planning and preparation

For a full range of services in relation to the credit, please click here.