Mexico’s R&D Tax Relief Regime R&D Relief factsheet

Key Features of the Mexican R&D Incentive

1. 30% Tax Credit on Incremental R&D Spend
   Taxpayers may deduct 30% of eligible R&D expenses incurred in Mexico, provided those expenses exceed the average spend over the previous three years. Only the incremental portion qualifies for the benefit.
2. Domestic R&D Focus
   To qualify, expenses must be directly and exclusively related to R&D projects conducted within Mexico. These projects must aim to develop new products, materials, or production processes with scientific or technological advancement. Expenditure on behalf of third parties is excluded.
3. Credit Carryforward Period
   If the R&D credit exceeds the taxpayer’s annual income tax liability, the unused credit can be carried forward and applied against income tax for up to 10 years.
4. National Cap and Individual Limit
   The total annual cap for the programme is set at EUR 750 million. No single taxpayer may receive more than EUR 2.5 million in credits within a given fiscal year.

Eligibility Criteria

To qualify, companies must:

• Be subject to Mexican income tax.
• Undertake R&D activities aimed at generating scientific or technological progress.
• Incur eligible R&D expenditures exclusively within Mexico.
• Develop qualifying outputs such as patents, technological products, prototypes, utility models, or scientific publications.

Applications must align with publicly defined criteria and provide documentary evidence including, where applicable, patent filings under Mexican law or the Patent Cooperation Treaty.

Application and Review Process

• Annual Application Window: Submissions are accepted from March to May each year.
• Required Outputs: Applicants must commit to developing one or more of the following: patents, utility models, technological products, pilot plants, devices, scientific publications, or other specified deliverables.
• Committee Oversight: Applications are reviewed by a government-appointed committee, with input from the National Council of Science and Technology and the Mexican tax authority. Projects are assessed for both technical viability and tax compliance.

Compliance and Administrative Considerations

• Technical Feasibility: A formal opinion from the National Council of Science and Technology is required to demonstrate project viability.
• Tax Compliance Review: The committee also assesses whether applicants are current with tax obligations.
• Selection Criteria: Projects with the highest technical ratings are prioritised, and in cases of equal merit, public benefit criteria are used to determine final approval.
• Project Duration: Approved projects must be completed within a maximum of four years, depending on the nature and complexity of the R&D.

Strategic Considerations

• Early Preparation: Due to the competitive nature of the programme and its limited funding, early preparation and thorough documentation are essential.
• Domestic Investment Focus: Companies should ensure that all qualifying R&D activities are based in Mexico, as overseas work is ineligible.
• Long-Term Planning: With the option to carry forward unused credits, companies may consider multi-year R&D strategies to optimise benefits.
• Public Benefit Emphasis: Highlighting how the project will contribute to national innovation or public good can strengthen an application.

Conclusion

Mexico’s R&D tax incentive scheme offers meaningful support for innovation-focused companies operating domestically. With a generous 30% credit on incremental R&D expenditure and a structured, committee-led approval process, the scheme incentivises projects with clear technological value. Businesses considering investment in Mexico should evaluate how this benefit can support long-term research strategies and ensure compliance with technical and tax requirements for successful application.