The recent study published by the Tax Foundation[i] comparing R&D tax incentives across Europe offers an excellent overview of how countries use tax policy to foster innovation. As governments increasingly compete to attract high value investment, R&D incentives have become a central element of economic policy.
Although the report focuses on Europe, it also invites a broader question: how does Brazil compare?
Brazil is not typically among the jurisdictions highlighted in discussions about innovation incentives. Yet, for companies that meet the eligibility requirements, the Brazilian R&D tax incentive regime, commonly known as the Lei do Bem, offers a mature, predictable and economically meaningful benefit.
The discussion, therefore, should not be whether Brazil has an attractive incentive, but rather how its design differs from many European models.
A super deduction model
Unlike refundable tax credits adopted in several European jurisdictions, Brazil operates through an enhanced tax deduction.
R&D expenses are already fully deductible as ordinary business expenses. The incentive grants companies an additional deduction ranging from 60% to 80% of qualifying R&D expenditures, depending on the statutory requirements.
Considering Brazil's combined corporate income tax rate of 34%, the effective tax benefit ranges from approximately 20.4% to 27.2% of eligible expenditures.
For profitable companies, this represents a meaningful reduction in the cost of innovation while preserving a relatively straightforward tax mechanism.
A policy built around investment in innovation
One of the strengths of the Brazilian system is that it rewards investment in research and development itself, rather than only successful outcomes.
Companies are encouraged to pursue technological innovation regardless of whether a project ultimately results in a patent, a commercial product or immediate financial returns. Innovation naturally involves uncertainty, and Brazil's incentive acknowledges this by supporting the investment phase where technological and economic risks are highest.
This policy objective is expressly recognized by the Ministry of Science, Technology and Innovation, which describes the Lei do Bem as the country's primary instrument to encourage corporate R&D activities and reduce the cost of innovation during its most uncertain stages[ii].
A mature and increasingly relevant incentive
Perhaps the greatest strength of the Brazilian regime is not simply the size of the tax benefit, but its maturity.
The Lei do Bem has been in force since 2005 and has become one of the most established innovation tax incentives in Latin America. Over two decades, it has been reviewed by the Ministry of Science, Technology and Innovation, audited by the Brazilian Federal Revenue Service and interpreted through a significant body of administrative precedents.
The latest figures released by the MCTI illustrate how relevant the incentive has become. In the 2024 fiscal year, 4,252 companies claimed the benefit, investing approximately BRL51.6 billion in research and development activities. The corresponding tax expenditure was estimated at BRL12 billion[iii].
These numbers demonstrate that the incentive is no longer a niche program. It has become an important public policy supporting innovation across multiple industries and all regions of Brazil.
Equally important, the regime has remained in force through different political administrations, reinforcing its position as a stable and well-established component of Brazil's innovation policy.
A broad and sector-neutral framework
Another positive aspect of the Brazilian model is its broad scope.
The incentive is available regardless of the company's industry or geographic location. Manufacturing companies, software developers, agribusinesses, pharmaceutical companies and many other sectors may qualify, provided they conduct eligible technological research and development activities.
Likewise, the regime is available to both Brazilian and foreign-owned companies operating in Brazil. This sector-neutral approach reflects internationally recognized principles for innovation policy and avoids favoring specific industries.
Innovation goes beyond new products
One aspect of Brazil's R&D tax incentive that deserves particular attention is the breadth of activities it covers.
Unlike the common perception that innovation is limited to the development of new products, the Lei do Bem also encourages technological advances in manufacturing and business processes. Companies may qualify for the incentive when they develop new production methods, improve existing industrial processes, increase efficiency, reduce environmental impacts or create technological solutions that generate measurable technical advances, even if no new product reaches the market.
This broader concept of innovation is particularly relevant in sectors such as manufacturing, agribusiness, mining and industrial services, where competitiveness often depends as much on process innovation as on product development.
A relatively simple compliance process
Compared with several international R&D regimes, Brazil's system is operationally straightforward.
There is no requirement for prior governmental approval before claiming the incentive. Companies perform their R&D activities, calculate the qualifying expenditures, claim the deduction in their corporate income tax return and subsequently submit technical information to the MCTI.
Although companies remain subject to review by both the tax authorities and the MCTI, the absence of a pre-approval process reduces administrative burdens while allowing businesses to incorporate the incentive naturally into their annual tax compliance process.
Where Brazil still has room to improve
The main limitation of the Brazilian model is not the generosity of the incentive, but its accessibility.
Only companies subject to the Actual Profit Tax Regime (Lucro Real) may claim the benefit. In practice, this generally limits access to larger businesses, typically those with annual revenues above approximately EUR 13.5 million.
Furthermore, companies reporting tax losses cannot benefit from the additional deduction because there is no taxable income against which it can be applied.
This contrasts with several European jurisdictions that have adopted refundable tax credits, carry-forward mechanisms or enhanced incentives specifically designed for startups and small and medium-sized enterprises.
As a result, many innovative Brazilian companies only become eligible once they have reached a more mature and profitable stage of development.
Looking ahead
The Tax Foundation's report rightly highlights the growing international competition to attract investment through R&D incentives. From that perspective, Brazil deserves greater attention than it often receives.
Its R&D tax incentive combines a meaningful economic benefit with legal certainty, operational simplicity and more than twenty years of consistent application. For established companies investing in technological innovation, it represents a competitive and reliable instrument.
The next step in the evolution of the Brazilian framework may not necessarily be increasing the generosity of the incentive. Rather, it may be expanding access so that startups, SMEs and companies still in their investment phase can also benefit from a policy that has already demonstrated its value.
As countries continue to compete for innovation driven investment, Brazil already has a solid foundation. The challenge now is ensuring that more innovative businesses are able to build upon it.
[i] Available at: https://taxfoundation.org/data/all/eu/rd-tax-incentives-europe/. Last accessed: July 28, 2026.
[ii] Available at: https://www.gov.br/mcti/pt-br/acompanhe-o-mcti/lei-do-bem/paginas/o-que-e-a-lei-do-bem. Last accessed: July 28, 2026.
[iii] Available at: https://www.gov.br/mcti/pt-br/acompanhe-o-mcti/lei-do-bem. Last accessed: July 28, 2026.
