On December 21, 2023, the National Congress enacted the important constitutional tax reform, Constitutional Amendment 132, which drew a lot of attention for the profound transformation of the indirect tax system, also called consumption taxation.
However, this reform is also profound with respect to the taxation of donations and inheritances. The Tax on Causa Mortis Transmission and Donation – ITCMD, is a tax under the jurisdiction of the States, whose rates have always been very low and uniform, compared to the vast majority of countries of the Organization for Economic Cooperation and Development – OECD.
With regard to inheritances, assets located abroad also escaped taxation due to the lack of legal provision on this matter, despite repeated attempts by the States for their taxation. Now, states can tax the value of overseas assets in the inheritance.
The tax reform came to change this panorama. In its desire to get closer to the legislation of OECD member countries, Brazil decided to take the path of a more consistent taxation on inheritances and donations, adopting the principle of progressivity (greater the wealth, the higher the tax rate) and increasing the rates, currently set between 2% and 8%.
2024 is a year of transition on the establishment of the new ITCMD tax rules, given that the implementation of the provisions set out in the tax reform must be carried out by state laws. 2024 is the year of change in state legislations.
Thus, since the enactment of Constitutional Amendment 132, there has been a rush on the part of Brazilian families towards more sophisticated wealth planning strategies. These strategies include:
- Family Holding Structuring: Use of patrimonial holdings to centralize the management of family assets and rights, facilitating succession and reducing the ITCMD calculation basis.
- Lifetime Donations with Usufruct: Making lifetime donations of assets, keeping the donor as the usufructuary, which can result in a reduced tax burden at the time of transfer.
- Use of Life Insurance: Investing in life insurance that, in the event of death, pays an amount to beneficiaries exempt from ITCMD.
- International Planning: Re-evaluating the ownership structures of assets abroad, considering the new rules for the taxation of international donations and inheritances.
The tax reform, therefore, not only changed the rules of the game for family estate planning, but also reinforced the need for careful and advance planning.
Seeking legal assistance/consultation in Brazil or more clarifications about estate planning? Solere Advogados Associados can help. We are a law firm specialized in Brazilian business law, with practice in tax, corporate, commercial, labor, civil, specially on M&A, transactions, business partnership negotiations and any other form of foreign business implantation. You can reach us directly at 55 21 981-01-61-51 or sending us a WhatsApp message (click this link to open the app) or e-mail.