09/16/2024 – 6:00
From 2025 onwards, the Brazilian tax scenario could undergo a major transformation with the new rules for the Inheritance and Donation Tax (ITCMD), also known as inheritance tax. This tax, which is levied on the transfer of assets and rights in cases of inheritance or donation, will undergo significant changes in its rates, which will vary from 2% to 8%, depending on the size of the estate.
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Today, each state sets its own percentage. In the case of São Paulo, the rate is 4%. In other words, for those who leave a few million (the amounts are yet to be defined) to their heirs, the tax could double. For low-income individuals, the cost could be halved.
“The tax reform standardizes the application of progressivity in all states, eliminating the practice of changing tax addresses to states with lower tax rates,” said Pedro Persichetti, succession planning specialist at Sail Capital.
Paying up to double the inheritance tax may be a concern today, but it could get even worse. There are proposals in Congress that advocate raising the tax rates to up to 20%, bringing Brazil closer to developed countries.
- In the United States, the percentage for large fortunes is 40%.
- In Germany, it varies from 7% to 50%.
- In other words, when comparing Brazil with other countries, paying 8% seems like a good deal.
“Even in the 8% scenario, we will be one of the countries with the most generous tax treatment in the world, making it a good place to die,” said Carlos Eduardo Andrade, a tax law specialist and partner at Giovanetti & Andrade Associados.
“In the coming years, with a greater need for revenue, inheritance tax could be raised to a level close to 15% or even higher,” he said.
There are two main alternatives to avoid the new taxation. The first is a donation during life, which must remain at a fixed rate of 4%.
- The other is the creation of family holdings, one of the modalities that are increasingly being discussed to mitigate the fiscal impact.
A family holding company is basically a company created to manage the assets and wealth of a family, allowing its members to hold equity interests, rather than directly owning the assets.
One of the main benefits of a family holding company is the simplification of the inheritance process. When the family assets are managed by a holding company, it is possible to distribute the company’s shares among the heirs during their lifetime, avoiding the payment of ITCMD on the assets at the time of the inheritance.
In other words, instead of directly transferring the properties or shares to the heirs, the shareholding is transferred, which can significantly reduce the tax burden. This structure also facilitates the transfer of control of family businesses to future generations, ensuring greater stability in the management of assets, avoiding conflicts between heirs and ensuring business continuity.
The family holding company also offers asset protection, as it isolates the family assets from the individual. In this way, the assets become the property of the company and are protected from any financial or personal problems of the partners, such as divorce or legal proceedings.
Furthermore, creating a holding company allows greater control over the fate of assets, since it is possible to establish clear rules on how assets should be managed and distributed. This is especially useful in families with a large number of members or in more complex inheritance situations.
In terms of taxation, family holding companies offer a number of advantages. In Brazil, taxation on corporate income is usually more favorable than taxation on individuals. This means that, by centralizing assets in the holding company, it is possible to benefit from more advantageous tax regimes, such as Simples Nacional, Lucro Presumido or even Lucro Real, depending on the holding company’s activities.
With a well-planned structure, the family can avoid paying ITCMD in some situations, especially in the case of donation of shares in the holding company with a usufruct clause. This means that the patriarch or matriarch of the family can donate the shares to the heirs, but maintain the usufruct of the assets, that is, the right to use the assets and receive their fruits (such as dividends), while alive. Thus, ITCMD will only be due on the shares whose value is lower than the total value of the assets.
Another relevant point is the centralization of asset management.
• The family holding company allows all assets and investments to be managed in a unified manner, which facilitates the administration of assets and strategic decision-making, especially in families with diversified assets.
• With a centralized structure, it is possible to professionalize the management of family businesses, hiring specialized managers to manage the assets, which increases efficiency and reduces the risk of mismanagement.
Inheritance in dollars
For families with assets abroad, an international holding company is an option. This type of structure allows assets located outside Brazil to be managed by an international holding company, which can bring tax advantages in some jurisdictions, as well as greater protection against legal risks in Brazil.
However, it is essential to have specialized advice to structure the holding company appropriately, respecting current legislation and optimizing tax advantages.
“With increased oversight and the simplification of collection processes, the search for legal and intelligent solutions for succession planning should become even more relevant in the coming years, ensuring that family assets are passed on efficiently and safely to future generations,” said Andrade.
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