Innovation Funding Incentives: Brazil

Brazil has been actively developing a multifaceted framework of innovation funding incentives to stimulate research, development, and entrepreneurship across its diverse economy. These initiatives, ranging from direct grants and subsidised credit to tax incentives and support for startups, aim to boost competitiveness, create qualified jobs, and foster sustainable growth. This report outlines the key funding mechanisms available in Brazil and their impact on the country’s innovation landscape.

Key Funding Incentives

1 | Tax Incentives for R&D (“Lei do Bem”)

The “Lei do Bem” (Law No. 11.196/05) is Brazil’s most comprehensive tax incentive for innovation, designed to reduce institutional barriers and encourage R&D investment by companies.

Mechanism: It offers a “super deduction” on R&D expenditures. Companies can deduct between 160% and 180% of their R&D expenses from taxable income. An additional 20% deduction is available for costs incurred in developing a patent that is registered (Source 1.2, 3.2).

Accelerated Depreciation: The law also allows for 100% accelerated depreciation in the year of acquisition for new machinery, equipment, and instruments dedicated exclusively to R&D, as well as 100% amortisation for R&D-related intangibles (Source 1.2, 3.2).

IPI Reduction: A 50% reduction in the Industrial Production Tax (IPI) is granted on equipment, machinery, and tools exclusively acquired and dedicated to R&D activities (Source 1.2, 3.2).

Eligibility: These incentives are generally available to companies operating under the “Lucro Real” (actual profit) tax regime and require that R&D activities occur within Brazil (Source 1.2, 3.2).

Impact: While effective in stimulating R&D, the Lei do Bem has primarily benefited sectors already engaged in significant R&D, such as IT and manufacturing, and has seen an increase in utilisation since its inception (Source 2.2, 3.4).

2 | Subsidised Credit and Direct Funding Agencies

Brazil leverages its public financial institutions to provide substantial credit and direct grants for innovation projects.

Finep (Brazilian Innovation Agency): Finep is a crucial federal agency providing reimbursable and non-reimbursable funding across the entire R&D and innovation cycle, from basic research to product development and market entry (Source 4.2). It supports technology-based company incubation, technological parks, and the structuring of R&D for established companies.

- Example: Finep, often in partnership with state research foundations (FAPs), disbursed around US$2 billion in innovation credit contracts in 2018 and has significantly increased its disbursements for innovation since 2010 (Source 2.2). Programs like PAPPE-PIPE III (a collaboration with FAPESP) support innovative product and process R&D by technology-based firms (Source 2.4).

BNDES (National Bank for Economic and Social Development): BNDES offers broad subsidised credit programmes for innovation, often in conjunction with Finep, to promote research, development, and technological innovation projects (Source 2.2, 4.3).

EMBRAPII (Brazilian Company for Industrial Research and Innovation): Inspired by Germany’s Fraunhofer model, EMBRAPII provides non-refundable grants for R&D&I projects carried out by accredited research institutions in partnership with companies. Public subsidies can cover up to a third of total project costs, promoting quick, flexible, and reduced-risk support for industry R&D demands (Source 2.2, 4.4).

- Example: EMBRAPII works through a network of accredited research units, focusing on entrepreneurial demands and pre-competitive innovation projects (Source 4.4).

State Research Support Foundations (FAPs): State-level foundations, such as FAPESP in São Paulo, are vital players in supporting innovation.

- Example: FAPESP’s PIPE Program has funded nearly 2,000 R&D projects at small and medium-sized businesses in São Paulo, providing significant grants and fostering an innovation culture (Source 2.4).

3 | Startup and Sector-Specific Incentives

Brazil also offers incentives tailored for new businesses and strategic industries.

Startup Programmes: Government initiatives like “Start-Up Brasil” and “InovAtiva Brasil” provide funding, training, and mentorship to facilitate startup establishment and growth, including tax incentives and reduced setup times (Source 2.1, 5.3).

Technology Parks: Brazil’s network of technology parks, often supported by state initiatives and ties to universities, provides crucial resources such as lab space, equipment, and commercialisation support for innovators (Source 5.4).

Regulated Sector R&D Obligations: Companies in regulated sectors like oil (ANP) and electricity (ANEEL) have mandatory R&D investment obligations, supervised by their respective regulatory agencies (Source 2.2)

Venture Capital Landscape

Brazil’s venture capital (VC) landscape has transformed into one of Latin America’s most dynamic innovation engines. In 2024, Brazilian startups raised US$4.89 billion across 513 financing rounds, with fintech, cleantech, and agritech being dominant sectors. VC firms like Canary, Astella, and SP Ventures are active investors. This growing private investment complements government funding by providing crucial capital for scaling businesses, especially in sectors with high technological dynamism like AI-powered startups.

Conclusion

Brazil’s commitment to fostering innovation is evident in its diverse and expanding range of funding incentives. From federal tax super deductions and extensive subsidised credit from institutions like Finep and BNDES to regional grants and robust startup support, the country is creating a fertile ground for R&D and entrepreneurship. While challenges remain, the combination of government support and a maturing venture capital market positions Brazil as a significant player in the global innovation landscape.