BRAZIL Law and Practice Contributed by: Daniel Zugman and Frederico Bastos, BVZ Advogados | Bastos, Bari, Vilela e Zugman
the historical tax deferral advantages of some off - shore structures have been reduced, and planning has increasingly shifted towards family governance, asset protection and orderly succession rather than tax deferral alone. 3.2 Recognition of Trusts Brazil has no domestic trust regime. As a civil law jurisdiction, trusts are not recognised as a legal insti - tution under the Brazilian Civil Code and cannot be created under Brazilian law. Foreign trusts may nevertheless be recognised for tax and private international law purposes in cross-border situations, although they are not treated as the equiva - lent of a domestic legal vehicle. Their tax, succession and proprietary effects must therefore be assessed under Brazilian law on a case-by-case basis. Law No. 14,754/2023 expressly introduced tax rules for foreign trusts, adopting a transparent approach under which assets and income are generally attrib - uted to the settlor or the beneficiaries, depending on whether the trust is revocable or irrevocable. Despite this statutory tax framework, practical uncer - tainties remain because Brazilian civil law does not regulate trusts. As a result, succession effects, asset protection and the interaction between the foreign trust and Brazilian mandatory succession rules con - tinue to require careful legal analysis. In the cases where Brazilian families settle trust struc - tures, in general the trust deed contemplates only assets located overseas, as Brazilian laws do not recognise this legal structure for purposes other than taxes. 3.3 Taxation of Trusts, Foundations and Similar Entities Located in Other Jurisdictions Since Law No. 14,754/2023 came into effect on 1 January 2024, Brazilian tax residents who are sett - lors, beneficiaries or owners of foreign trusts, founda - tions or similar arrangements may be subject to Bra - zil’s transparency and controlled foreign entity rules. Depending on the structure, income and gains may be subject to annual taxation in Brazil, regardless of actual distributions.
In revocable trusts, assets and income are generally attributed to the settlor until distribution. In irrevocable trusts, attribution generally shifts to the beneficiaries when the trust is created or becomes irrevocable. Gra - tuitous transfers of assets may also trigger inheritance and gift tax (ITCMD), subject to the applicable state legislation. Merely acting as a trustee or other fiduciary does not generally give rise to Brazilian taxation, unless the individual receives taxable remuneration or acquires beneficial ownership of the assets. As a result of these rules, international planning has shifted away from tax deferral and increasingly focus - es on governance, asset protection, succession plan - ning and coordinating Brazilian and foreign tax report - ing obligations. 3.4 Tax Consequences of Fiduciary and Beneficiary Roles Brazilian law does not impose specific tax conse - quences solely because a settlor or beneficiary also acts as a trustee, protector or other fiduciary. For Bra - zilian tax purposes, the key issue is how the foreign structure is characterised under Law No. 14,754/2023 and who is regarded as the beneficial owner of the assets and income. Accordingly, the accumulation of fiduciary and ben - eficial functions does not, by itself, alter the tax treat - ment of the structure. The analysis instead focuses on the effective ownership of the assets, the degree of control exercised over them and the application of Brazil’s tax transparency rules. In practice, international structures commonly appoint independent fiduciaries and maintain clear govern - ance documentation to demonstrate the separation between fiduciary functions and economic interests, thereby reducing uncertainty and potential challenges by the Brazilian tax authorities.
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