Innovation Funding Incentives: Mexico

Mexico is actively working to cultivate a dynamic innovation ecosystem, implementing various funding incentives to bolster research and development (R&D) and support the growth of startups and high-tech industries. These initiatives aim to attract domestic and foreign investment, enhance technological competitiveness, and drive economic growth, particularly in strategic sectors. This report will detail the primary innovation funding mechanisms available in Mexico and their collective impact on the nation’s drive for innovation.

Key Funding Incentives

1 | R&D Tax Credit

Mexico offers an R&D tax credit designed to incentivise companies to invest in technological R&D activities carried out within the country.

Mechanism: The tax credit amounts to 30% of expenses and investments for technological R&D. Crucially, this credit is applicable only on the incremental amount of qualifying expenses and investments that exceeds the average R&D expenditure incurred in the prior three fiscal years. The maximum credit is capped at MXN 50 million per taxpayer per financial year.

Eligibility: To qualify, projects must demonstrate a scientific or technological advancement through the resolution of uncertainty. Eligible expenses include fees for external researchers, experimental testing, fieldwork, technical training essential to the project, specialised lab equipment, prototypes, materials for experimental designs, and collaboration services from Mexican higher education institutions and public research centres.

Impact: This incentive encourages companies to continuously increase their R&D investments in Mexico, supporting scientific and technological breakthroughs. The program is managed by the National Council of Science and Technology (CONACYT), which assesses projects based on specific objectives and criteria.

2 | “Plan Mexico” Tax Incentives (Investment and Innovation)

The recently published “Plan Mexico” introduces a series of tax incentives aimed at boosting investment and innovation through 2030.

• Immediate Deduction of Investments: This scheme allows companies to immediately deduct specified percentages of fixed asset investments acquired between January 2025 and September 2030. These benefits are generally restricted to new investments or those used for the first time in Mexico, and companies must maintain active financing in Mexico for at least two years. The depreciation rates vary by asset type and industry.

• Additional Deductions for Training and Innovation: The plan also provides an additional deduction equivalent to 25% of the increase in training costs for employees registered with Social Security (IMSS) for innovation-related activities. This additional deduction is calculated based on the positive difference between the current year’s training/innovation expense and the average expense from the three prior fiscal years.

• Eligibility & Conditions: Companies must meet specific tax compliance requirements, including not having valid tax credits, not being in liquidation, and not being on blacklists of companies.

• Impact: These incentives aim to attract and retain domestic and foreign capital, particularly in strategic sectors, fostering economic growth, job creation, and industrial modernization.

3 | National Council of Science and Technology (CONACYT) Programs

CONACYT is the primary governmental body responsible for promoting scientific research and technological development in Mexico.

Grants and Scholarships: CONACYT offers grants, scholarships, and direct funding for R&D initiatives across various scientific and technological fields. While the R&D budget is growing, it is still a fraction compared to more developed nations, indicating a continuous need for increased investment.

Project-Based Funding: CONACYT annually announces public calls for proposals, inviting individuals and companies to apply for financial support or tax credits for projects that meet specific objectives.

Impact: CONACYT plays a pivotal role in strengthening Mexico’s scientific and technological capabilities, fostering research collaborations, and nurturing human capital in R&D.

4 | Support for Startups and Entrepreneurship

Mexico has implemented initiatives to facilitate the establishment and growth of startups.

National Institute of Entrepreneurship (INADEM): Although its structure and programs may evolve, INADEM has historically provided financial support to micro, small, and medium-sized enterprises (MSMEs) and startups, often through public calls and matching grants. These grants typically support early-stage ventures and scale-up efforts, requiring co-financing from the entrepreneur.

Incubators and Accelerators: A growing network of incubators and accelerators, including university-linked programs and corporate accelerators, provides mentorship, training, networking opportunities, and often initial funding to early-stage companies.

Impact: These programs aim to bridge the finance gap for new businesses, promote high-impact entrepreneurship, and create a supportive ecosystem for innovative ideas to flourish.

5 | Venture Capital Landscape

Mexico’s venture capital (VC) landscape has been expanding significantly, driven by factors like nearshoring and a growing demand for technological solutions.

• Growth and Focus: The VC market is experiencing a surge in investment, particularly in sectors like AI, fintech, healthtech, renewable energy, and sustainability. Nearshoring, the relocation of supply chains to Mexico, is also attracting VC attention for innovative solutions in logistics and manufacturing.

• Key Hubs: Mexico City, Monterrey, and Guadalajara have emerged as major hubs for startup activities and VC investments, attracting both local and international funds.

• Impact: The increasing flow of venture capital is crucial for enabling Mexican startups to scale, develop advanced technological solutions, and compete in global markets.

Conclusion

Mexico’s innovation funding incentives represent a dynamic and evolving framework designed to stimulate R&D and support entrepreneurship. The combination of R&D tax credits, strategic tax incentives from “Plan Mexico,” and direct funding from government agencies like CONACYT provides essential support for businesses. Furthermore, a growing network of incubators, accelerators, and a rapidly expanding venture capital landscape are collectively fostering a more robust and attractive environment for innovation, contributing significantly to Mexico’s economic development and technological advancement.