Tax | Brazilian Tax Reform: 3 Key Changes in Asset and Succession Planning for Business Families

Estate and succession planning stands out amongst other changes brought about by the recently approved Brazilian tax reform, due to taxation changes related to the donation and inheritance tax (Imposto de Transmissão Causa Mortis e Doação – ITMCD).

Estate and succession frameworks optimize the management of assets during life and safeguard their transmission to heirs, avoiding tax costs and protecting family estates. 

We highlight below 3 points of attention regarding the changes to the ITCMD brought about by the Brazilian tax reform:

1. Progressive Taxation: With the reform, the ITCMD will be applied at a progressive rate varying between a minimum of 1% and a maximum of 8%, based on the assets being transferred. Before the change, each State had the power to set the tax rate, although the minimum and maximum values fluctuated between the same levels;

2. Competence for Collection: Based on the new rule, the ITCMD must be paid to the State where the deceased was domiciled, which favors estate and succession planning projects, whereas the current rule provides that the collection of the tax is the responsibility of the State before which the inventory is processed. The rule, though, remains unchanged regarding real estate assets, where the collection of the ITCMD is to be made before the State where the property is located; and

3. Tax Enforcement Abroad: The current rule does not address assets outside Brazil and the tax authorities end up neglecting inheritances and donations made in foreign jurisdictions. With the new legislation, States will resume begin enforcing ITCMD taxation over assets and inheritances abroad. 

The scenario surrounding the reform is still uncertain and volatile, depending on legislative discussion on various topics. Precisely for this reason, it is possible to claim that an estate planning project, with special attention to succession organization, can be the most efficient and safe solution to protect family assets, reduce expenses and avoid the lengthy process of conventional inventory, in addition to avoiding possible uncertainties arising from tax policy.


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