BRAZIL Law and Practice Contributed by: Daniel Zugman and Frederico Bastos, BVZ Advogados | Bastos, Bari, Vilela e Zugman
1. Tax 1.1 Tax Regimes For private wealth clients, the principal taxes are as follows. • Income Tax (IRPF) – a federal tax levied on the worldwide income of Brazilian tax residents. Employment income is subject to progressive rates of up to 27.5%, while capital gains and certain financial income are generally taxed at rates rang - ing from 15% to 22.5%. Law No. 14,754/2023 introduced specific rules for offshore assets, controlled foreign entities and foreign trusts, mak - ing international wealth planning significantly more complex and strategic. • Inheritance and Gift Tax (ITCMD) – a state tax levied on gratuitous transfers of assets upon death or by lifetime gift. Rates vary among the states and currently reach up to 8%, with a growing trend towards progressive taxation. 1.2 Exemptions Brazil provides both constitutional tax immunities and statutory exemptions, which vary depending on the relevant tax and the competent taxing authority. In the private wealth context, the principal reliefs are as follows. • Income Tax (IRPF) – as a general rule, inherit - ances and lifetime gifts received by individuals can be recognised at book value and are not subject to income tax, although they may be subject to ITCMD. • Inheritance and Gift Tax (ITCMD) – the Constitution grants immunity for certain transfers to qualifying non-profit entities pursuing public-interest pur - poses. In addition, each state establishes its own exemptions. In São Paulo, for example, lifetime gifts are exempt up to an annual threshold of 2,500 Unidades Fiscais do Estado de São Paulo (UFESP) (approximately BRL96,000 in 2026), with gifts between the same donor and donee aggregated for threshold purposes. • Real Estate Transfer Tax (ITBI) – ITBI generally does not apply to real estate contributed to a company’s share capital or to certain corporate reorganisa -
tions, provided the constitutional requirements are met. Municipal legislation may also provide addi - tional exemptions. 1.3 Income Tax Planning The principal income tax planning opportunities in Brazil include the following. • Tax basis step-up through gifts – Brazilian tax law allows assets to be transferred by gift either at their historical tax basis or at fair market value. In such cases, the donor recognises the corresponding capital gain, while the donee acquires the asset with a tax basis equal to its fair market value. This mechanism is particularly relevant for real estate acquired many years ago, which may benefit from certain reductions in the taxable basis. In this con - text, it is common to assess whether the upfront capital gains tax is offset by the lower tax burden on a future disposal by the donee. • Real estate holding companies – holding real estate through a company taxed under the pre - sumed profits regime ( lucro presumido ) may reduce the tax burden on rental income and, in certain cases, on capital gains, while also facilitating suc - cession planning. This potential opportunity must be weighed with other taxes applicable to legal entities, such as VAT taxes. • Private pension plans – VGBL (Free Life Benefit Generator) plans are taxed only on investment gains upon redemption, while PGBL (Free Benefit Generator) plans allow eligible taxpayers to deduct contributions from their taxable income, subject to statutory limits. In addition, yields of VGBL might benefit of tax rate of 10% if the investment is kept for at least ten years. • International structures – although Law No. 14,754/2023 significantly reduced tax deferral opportunities for offshore assets, international structures continue to play an important role in governance, succession planning and wealth man - agement, being subject to a flat rate of 15% and allowing offset of losses, which is not allowed for onshore financial investments. The principal risks include the application of ITCMD and, in certain cases, ITBI when implementing the structure, the ongoing costs of maintaining holding
118 CHAMBERS.COM
Powered by FlippingBook