tax upon foreign inherited assets: a brazilian … · law n. 9.532/1997, art. 23 - option of...
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TAX UPON FOREIGN INHERITED ASSETS: A
BRAZILIAN PERSPECTIVE
Income, Gift and Estate Tax
SUCCESSION IN BRAZIL
SUCCESSION IN BRAZIL APPLICATION OF BRAZILIAN LAW
Decree-Law n. 4.657/1942 (Act of Introduction to the Norms of Brazilian Law)
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LAW OF DOMICILE (art. 7) - Beginning and end of personality - Name - Capacity - FAMILY RIGHTS - SUCCESSION (regardless of the nature and situation of the property)
FOREIGNERS IN BRAZIL (art. 10) - Assets located in Brazil – benefit of Brazilian spouse / children: Brazilian legislation or personal law of deceased if more favorable - Capacity to succeed: law of domicile of the heir
BRAZIL’S JURISDICTION (art. 12) - Defendant domiciled in Brazil
- Obligation to be fulfilled in Brazil
- Exclusive jurisdiction over actions related to real estate situated in Brazil
FEDERAL CONSTITUTION (art. 5, subsection XXXI)
Succession to the estate of foreigners which is located in Brazil shall be regulated by the Brazilian law in favour of the Brazilian spouse or children, whenever the personal law of the deceased is not more favourable to them
SUCCESSION IN BRAZIL JURISDICTION OF BRAZILIAN JUDGE
New Brazilian Code of Civil Procedure (Law n. 13.105/2015)
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BRAZIL’S EXCLUSIVE JURISDICTION OVER SUCCESSION MATTERS (art. 23)
- Confirmation of private will;
- Probate proceedings and partition of assets located in Brazil (regardless the nature of the asset), even if the deceased was a foreign and / or had his last domicile abroad
RESOLUTION CNJ n. 35/2007 (art. 29)
The drafting of a public deed of inventory and partition of assets located abroad is prohibited
BRAZIL’S EXCLUSIVE JURISDICTION OVER GENERAL MATTERS (art. 23)
- Any litigation related to real estate assets located in Brazil;
- Partition of assets located in Brazil (regardless the nature of the asset) in case of divorce, separation or dissolution of stable fact union, even if the owner is foreign and / or has his domicile abroad
PROBATE PROCEEDINGS (art. 610 and 1st parag.)
- Judicial (before the Court / Judge) – mandatory when there are minor heirs
- Extrajudicial (public deed before the Notary Public)
SUCCESSION IN BRAZIL
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50% Disposable portion
50% Legitimate portion
RESERVED TO THE FORCEABLE HEIRS
Deceased’s estate
This part of the estate can be disposed by its owner in life (gift) or after death (public or
private will)
This part of the estate cannot be disposed by any means whenever its owner has forceable heirs
WHO ARE THE FORCEABLE HEIRS?
CIVIL CODE – art. 1.829
I - the descendants, in competition with the surviving spouse, unless married to the deceased in the regime of universal communion, or in the compulsory separation of assets; or, in the regime of partial communion, if the deceased has not left private assets;
II - the ascendants, in competition with the spouse;
III - the spouse;
IV - the collaterals.
Because of the trial of the Extraordinary Appeal n. 878.694 (Supreme Court) the partner in a stable fact union has been equated to a spouse for succession / inheritance purposes
TAXES APPLIED TO THE SUCCESSION
GIFT AND ESTATE TAX
GIFT AND ESTATE TAX Transfer of assets related to death (causa mortis) or gift / endowment
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ASSETS LOCATED ABROAD – FEDERAL CONSTITUTION (art. 155, subsection I and 1st parag., subsection III, “b”)
- Need for a Supplementary Law to regulate the incidence of the gift / estate tax over offshore assets - After this regulation, the States of the Federation will have competence to legislate on this subject - The Supplementary Law does not yet exist
ASSETS LOCATED ABROAD – STATE LAWS Despite the need for a Supplementary Law, the majority of the States of the Federation establishes the levy of this tax on assets located abroad, in cases where the heir / grantee or the deceased / donor is domiciled in the respective State.
GIFT AND ESTATE TAX
STATE OF THE FEDERATION TAX RATE (UP TO 8% - SENATE RESOLUTION) INCIDENCE ON ASSETS OFFSHORE
SP 4% Yes
RJ 4,5% to 5% Yes
PR 4% Yes
DF 4% to 6% Yes
MG 5% Yes
GO 2% to 8% Yes
MT 0% to 4% Yes
MS I – causa mortis: 6%
II – gift: 3% No
SC 1% to 8% Yes
RS I – causa mortis: 0% to 6%
II – gift: 3% and 4% Yes
BA I – causa mortis: 4% to 8%
II – gift: 3,5% Yes
PE 2% to 8% Yes
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GIFT AND ESTATE TAX
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JURISPRUDENCE ON ASSETS OFFSHORE (STATE OF SÃO PAULO – 2013 TO 2016)
GIFT CAUSA MORTIS
The Extraordinary Appeal n. 851.108-SP (Supreme Court) discusses whether or not the States have jurisdiction to legislate about the levy of the gift / estate tax on offshore assets. The Federal Public Prosecutor opined for the unconstitutionality of the various state laws that determine the levy of the tax on foreign assets. The process is not yet complete.
GIFT AND ESTATE TAX
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JURISPRUDENCE ON DEDUCTIBILITY OF DEBTS FROM THE TAX CALCULATION BASIS
We reached 15 Court decisions in the State of São Paulo from the year 2013 to 2016 related to this subject. All of them determine the deduction of the debts from the gift / estate tax calculation basis:
THE INHERITANCE MUST CORRESPOND TO THE VALUE OF THE NET WORTH OF THE DECEASED
The heirs are not liable for charges greater than
the value of the inheritance
Brazilian Civil Code
arts. 1.792 and 1.997
INCOME TAX
INCOME TAX In general, the assets received by inheritance are exempt of Income Tax
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CAPITAL GAIN (Succession or Gift with anticipation of legitimate portion)
Law n. 9.532/1997, art. 23 - Option of valuation: market value x cost basis
- Choice of cost basis: exemption of income tax
- Choice of market value: income tax on the capital gain of the difference between cost and market
- Inquiry Proceeding (Solução de Consulta COSIT) n. 383/2014: income tax on the redemption of fixed income investment due to transfer causa mortis
CAPITAL GAIN – TAX RATES Law n. 13.259/2016
- Until 12/31/2016: 15% rate
- As of 01/01/2017: 15% to 22,5% (progressive rates)
CAPITAL GAIN – NON RESIDENCE Income Tax exemption on the first capital gain over
assets acquired during non-residence - Provisory Act 2.158-35/2001, art. 24, parag. 6, subsection I;
- Normative Instruction SRF n. 118/00, art. 14, subsection I
CAPITAL GAIN – OTHER EXEMPTIONS / REDUCTIONS (Old properties / real estate)
Law n. 7.713/1988, art. 18 Real estate acquired until 1969: 100% reduction on the capital gain
Real estate acquired between 1970 - 1988: regressive rates of reduction each year (1970: 95%; 1971: 90% and so on until 1988: 5%)
PLANNING TOOLS
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LOCAL WILL (IN EACH JURISDICTION)
JOINT TENANCY CLAUSE
GIFTS WITH PROTECTIVE CLAUSES:
- LIFETIME FRUITION
- UNSEIZABILITY (restraint of mortgage)
- INCOMMUNICABILITY
TRUST
FOUNDATION
