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1 - Consumption tax reform
On December 21, 2023, the National Congress enacted the major constitutional tax reform, Constitutional Amendment 132, which drew a lot of attention due to the profound transformation of the indirect tax system, also called consumption taxation.
However, this reform is also profound with regard to the taxation of donations and inheritances. The Causa Mortis and Donation Transmission Tax – ITCMD, is a tax under the jurisdiction of States whose rates have always been very low and uniform, compared to the vast majority of countries in the Organization for Economic Cooperation and Development – OECD.
2 - About inheritances
In relation to inheritances, assets located abroad also escaped taxation due to the lack of legal provision in this regard, despite repeated attempts by States to tax them. Now, States can tax the value of inheritance assets located abroad.
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 more consistent taxation on inheritances and donations, adopting the principle of progressivity (the greater the assets, the higher the tax rate) and increasing the rates, currently set between 2% and 8%.
2024 is a year of transition regarding the establishment of new ITCMD tax rules, considering that the implementation of the provisions set out in the tax reform must be carried out by state law. 2024 is the year of changes to state legislation.
Thus, since the promulgation of Constitutional Amendment 132, there has been a rush by Brazilian families towards more sophisticated estate planning strategies. These strategies include:
1 – Family Holding Structure: Use of asset holdings to centralize the management of family assets and rights, facilitating succession and reducing the ITCMD calculation base.
2 – Lifetime Donations with Usufruct: Making donations during lifetime of the assets, keeping the donor as usufructuary, which may result in a reduced tax burden at the time of transfer.
3- Use of Life Insurance: Investment in life insurance that, in the event of death, pays an amount to the beneficiaries exempt from ITCMD.
4 – Planification internationale : Réévaluation des structures de propriété du patrimoine à l’étranger, compte tenu des nouvelles règles de fiscalité des donations et successions internationales.
Tax reform, therefore, not only changed the rules of the game for family estate planning, but also reinforced the need for careful, advance planning.
