In Brazil, taxation over international donations may vary significantly depending on the specific facts, but mostly on the preventive strategy adopted:
1. Donation from foreigners to Brazilian individuals and companies: there is a possibility of tax planning for people who are somehow linked to foreign countries, but have possible beneficiaries in Brazil. The Brazilian donation tax is not levied if the assets (rights or goods) are donated on behalf of Brazilian individuals and companies by foreign companies and individuals resident or domiciled abroad.
The current rule may benefit whoever already is, is about to become or has the possibility to become resident or domiciled abroad. In addition, it may also benefit who has or has the possibility to set up a company overseas. Nevertheless, there is a time sensitive question: even though the donation tax is currently not due in such cases, it can change from 2022 on, if the law changes.
In Brazil, the donation tax is levied by states, at rates that can reach 8% of the equity. The tax covers transfers of virtually any goods and rights, such as real state, movables, money, social quotas, credit rights and assets in general. It is known as “ITCMD” and covers transfers not only by donation but also by inheritance.
2. Donation for foreign residentes and companies: the opposite situation, where the donor is resident or domicilied in Brazil and the beneficiary is abroad also deserves special attention. The “Brazilian IRS” (Receita Federal) has a new directive setting that income tax must be withhold over international money transfers even if the remittance is due to donation by a Brazilian resident to a non-resident. Nevertheless, there are strong arguments to challenge it and discuss if the tax is due or not.
The discussion is extremely important: in such cases, the income tax over international remittances is levied at a 15% rate in general. If the country of destination is considered a tax haven by Brazilian authorities, it can reach 25%.
In such context, long-term strategy of wealth and succession planning by family offices, corporate investors, private investors, and even wealth holders deserve a second look.
When it comes to donation from foreigners to Brazil, the tax aspect is time sensitive and it is important to act quickly, considering December 2021 as the deadline initially. When is comes to donation on behalf of non Brazilian residents, it is important to find the best strategy, considering filing a lawsuit to avoid undue tax charges.