Mkhitar Hayrapetyan, Minister of High-Tech Industry of the Republic of Armenia.
The global race for AI is not only being developed in labs and boardrooms, but it is also being shaped in parliaments and ministries of finance. Tech-related policies and tax incentives have become some of the most powerful tools governments wield to decide whether their countries will emerge as true hubs for AI and advanced research or remain on the sidelines.
Private companies are naturally constrained by how much they invest in R&D, known as the “knowledge spillover problem.” While a company may capture a 20% return on its R&D spending, society as a whole reaps benefits closer to 50% as innovation diffuses across industries.
Left to its own devices, the market will underinvest. That’s where smart government policy comes in.
In this context, R&D tax incentives and credits have emerged as a proven, fast-impact mechanism to correct this imbalance. The National Bureau of Economic Research (NBER) has shown that these policies are effective at stimulating R&D expenditure, fostering entrepreneurial activity and boosting firm resilience against economic downturns.
In the age of AI, these policies are a strategic necessity. Here are several approaches governments have taken to attract talent and stimulate innovation.
Armenia’s Focus On High Tech
Starting in 2025, the government is rolling out tax incentives and a seven-year state support program to boost the high-tech sector.
Armenia has a record of a fast-growing high-tech sector, and being a country of just three million people, it has an ambition to become a regional technology hub.
In 2025, a new package of incentives comes into force, fundamentally reshaping the tax landscape for high-tech and R&D:
• Talent Attraction: Companies hiring skilled migrant workers are reimbursed 60% of income tax paid on those salaries. From 2026, the support will flow directly to employees themselves, cutting their effective tax rate to just 8%. Also starting in 2025, companies hiring new professional workers are reimbursed 60% of their income tax.
• Upskilling: Employers that invest in professional training receive 50% reimbursement of income tax tied to those salaries, encouraging continuous workforce development.
• Tax Incentives For Small High-Tech Businesses: Turnover tax for small tech firms drops from 5% to 1%.
• R&D Incentives: Income tax for R&D personnel is halved from 20% to 10%. Salaries paid to R&D teams are deductible at 200% of their value, and capital assets for R&D can be depreciated in just one year.
In August 2025, the U.S. and Armenia signed a memorandum of understanding regarding an AI and semiconductor innovation partnership, signaling a critical step toward boosting Armenia’s AI potential.
Armenia’s tech policy addresses multisided challenges and not only rewards large companies but also supports startups, scale-ups and global talent pipelines simultaneously. It is, in effect, a national aim for how smaller economies can punch far above their weight in tech.
Brazil: Scaling Industrial Innovation
Brazil’s long-running Lei do Bem (Law of Good) shows the staying power of R&D incentives. It allows companies to deduct 160% to 180% of qualifying R&D expenses, accelerate depreciation and secure additional patent-related deductions.
From fintech to industrial automation, Brazil has leveraged tax code flexibility to stimulate private-sector research in sectors that matter for its long-term competitiveness.
Indonesia: A Super-Deduction Strategy
Indonesia has positioned itself as one of the most generous R&D tax regimes worldwide. Under its 300% “super-deduction” program, every $1 spent on eligible R&D translates into $3 of deductible expenses.
By dramatically lowering effective R&D costs, Indonesia has turned itself into an attractive base for AI and deep-tech development in Southeast Asia.
South Africa And Chile: The Power Of Certainty
Two other emerging economies illustrate another key dimension: policy stability.
South Africa has extended its 150% R&D super-deduction until 2033, giving companies a decade-long planning horizon. Business R&D spend has already started to recover, with nearly a billion rand added in the most recent year.
Chile extended its 35% R&D tax credit until 2035 while simplifying administration. That long-term certainty is particularly appealing for foreign firms considering partnerships with local universities and research centers.
Both examples underscore that predictability is just as critical for companies making decade-long investment decisions.
Why Governments Should Act Now
Across all of these cases, one can observe several shared patterns.
• Talent is the main bottleneck. Armenia’s payroll reimbursements and Indonesia’s talent-friendly deductions highlight that subsidizing human capital is the fastest way to accelerate R&D.
• Make R&D deductible. All the mentioned countries’ policies prove that once companies can write off 150% to 300% of costs, research spending rises.
• Lock in duration. Chile and South Africa show that long-dated policy horizons attract sustained, multiyear commitments.
• Align with strategy. Each country has tailored incentives to its strengths: Armenia for startups and global talent attraction, Brazil for industrial R&D and Indonesia for cost-sensitive multinationals.
The Road Ahead
The 21st-century economic race will be won by those that design the most fertile environments for innovation to thrive. In this new reality, tax codes and incentive frameworks are no longer technical details of fiscal policy but, rather, front-line instruments of industrial strategy.
The lesson from countries like Armenia, Brazil, Indonesia, Chile and South Africa is clear: Governments need to lower barriers for those willing to pursue the next breakthrough. When policy makes risk-taking easier, capital flows faster, talent gathers and entire ecosystems accelerate.
For nations serious about shaping the future of AI and advanced R&D, the imperative is simple—build a tax system that rewards builders. The rest will follow.
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