BRAZIL Trends and Developments Contributed by: Daniel Zugman and Frederico Bastos, BVZ Advogados | Bastos, Bari, Vilela e Zugman
The ongoing tax reform has significantly altered this landscape. Although its effects will be implemented gradually during the transition period, the new VAT system substantially reduces the tax advantages previously associated with many real estate holding structures, particularly those established primarily to generate tax savings on rental income. This does not mean that real estate holding companies have lost their relevance. On the contrary, they remain valuable instruments for organising family ownership, facilitating intergenerational transfers, centralising asset management and implementing governance mechanisms. What has changed is their principal rationale. Increasingly, these structures are justified by succession, governance and asset management objectives rather than by tax efficiency alone. For families with substantial real estate portfolios, the reform therefore requires a reassessment of existing holding structures. In some situations, they will contin - ue to provide meaningful tax benefits. In others, their value will lie primarily in the legal and organisational advantages they offer. Thus, there is no one-size-fits- all approach to real estate planning. 2 . 2 . Offshore structures Another significant development concerns the taxa - tion of offshore assets. For many years, Brazilian resident individuals were generally taxed on the profits of offshore companies only when those profits were effectively distributed. This deferral mechanism made foreign companies a common feature of international estate planning, par - ticularly for investment portfolios intended to accumu - late returns over the long term. Law No. 14,754/2023 fundamentally altered that framework. As a general rule, the profits generated by controlled offshore entities are now subject to annual taxation in Brazil, irrespective of whether they have been distributed, subject to specific statutory exceptions and elective regimes. The reform repre - sents one of the most significant changes to the Bra - zilian taxation of international wealth in recent dec - ades. Although offshore companies continue to play an important role in international investment struc -
tures, succession planning and asset protection, the tax deferral that historically justified many of these arrangements has been substantially reduced. The legislative changes also introduced rules govern - ing the tax treatment of distributions made by foreign trusts, providing greater legal certainty and predict - ability and, as a result, enhancing the attractiveness and potential use of trusts as a wealth-planning tool. Consequently, advisers increasingly evaluate offshore structures from a broader perspective. Questions relating to governance, jurisdictional stability, invest - ment flexibility, cross-border succession and asset protection have become at least as important as the tax consequences of the structure itself. Tax efficiency therefore remains relevant, but it no longer constitutes the principal justification for many international wealth structures. 3. A new tax landscape for family wealth 3 . 1 . Inheritance and gift taxation : a rapidly evolving landscape Inheritance and gift taxation (ITCMD) has become one of the most dynamic areas of Brazilian private wealth planning. Over the past few years, constitutional reforms, legislative changes and judicial decisions have significantly transformed the legal framework governing the taxation of wealth transfers, increasing both the complexity of succession planning and the importance of periodically reviewing existing struc - tures. A notable feature concerns the valuation of transferred assets. Historically, disputes frequently arose over the appropriate tax base for gifts and inheritances involv - ing closely held companies, family holding companies and other illiquid assets. Different valuation method - ologies – including book value, net asset value and fair market value – often resulted in divergent posi - tions between taxpayers and state tax authorities. For example, succession plans implemented several years ago based on the transfer of shares in family holding companies at book value may now produce significantly different tax consequences under the cur - rent framework.
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