Companies’ Innovation in Brazil: Law of Good

Investments in Research, Development and Innovation are never easy to obtain. There are currently some laws in Brazil to give incentives to investment in these areas. One of them is known as the Law of Good or Law 11.196 / 05. Since 2005, it has granted tax incentives to companies conducting research and development of technological innovation. The possibility of reinvesting in research and development the values deducted helps to increase competitiveness and foster innovation within the companies. The Law of Good supports development of new products or new production processes, as well as adaptations and modifications to existing products and processes.

According to a study by the Center for Management and Strategic Studies (CGEE), the number of companies that benefit from this legislation has been growing, on average, by 8 percent per year.

What are the incentives?

The law provides tax incentives to companies doing research and development of technological innovation, either in the process of manufacturing and / or aggregation of new functionalities, or in the design of products.

The tax incentives are: deductions of 20.4 percent up to 34 percent of Corporate Income Tax (IRPJ) or Social Contribution on Net Profit (CSLL) of R & D expenditures, reduction of up to 50 percent on Tax on Industrialized Products (IPI) for the purchase of machinery and equipment for R & D, accelerated depreciation and amortization of these assets; reduction of withholding income tax levied on remittances abroad resulting from technology transfer contracts and exemption from withholding income tax on remittances made abroad for the registration and maintenance of trademarks, patents and cultivars.

What are the requirements?

There are some prerequisites for obtaining the tax incentives in the Law of Good. They are: companies under Actual Profit method, companies with Fiscal Profit, companies with fiscal regularity and companies that invest in activities of Research and Development.

Photo: Simon Paulin. Imagebank Sweden.

What are the activities under the Law?

Some activities can be carried out, they are: basic research; applied research; experimental development; basic industrial technology activities and technical support services.

Startups & Research Institutes

The Law of Good is a legal way for startups to obtain financial resources to develop their own projects. Startups can build partnerships with companies meeting the requirements of the Law of Good. They can provide support services and will be financially rewarded for the service provided, but it’s the partner company that receiving the startup support the one who gets the benefits. A large company hiring a scientific institution to carry out a research project can also benefit from the Law of Good.