Brazil

Find legal, tax and practice information for Brazil, and search for branches and members in the jurisdiction. If you have any comments on the report please contact [email protected]

*Updated July 2020*

Editorial Board

Alessandro Amadeu da Fonseca TEP, Mattos Filho Advogados, São Paulo, Brazil
Norberto Martins TEP, The Corpag Group, São Paulo, Brazil

Important new developments

Following the trend seen in other countries, Brazil is implementing strategies to minimise corruption and money-laundering practices through new legislation and police enforcement. The anti-crime bill presented by Justice and Public Safety Minister Sergio Moro to the Brazilian Congress has been approved by Congress and sanctioned by President Jair Bolsonaro, which proposes a series of changes to the penal code.
Pension system reform was one of the most anticipated legislative measures from the new government, led by Economy Minister Paulo Guedes. The main change is the creation of a retirement age: 65 for men and 62 for women. Other changes include an increase to workers' pension contributions and the mechanism to calculate benefits. The changes are expected to result in savings of approximately BRL800 billion (USD190 billion; GBP145 billion) over the next ten years.
Wealth and inheritance transfers are also part of the legislative agenda. There are Bills on both increasing the current tax burden assessed on inheritance transfer and on wealth taxation. Some states have already increased the tax burden assessed on inheritance and gifts transactions, up to a rate of 8 per cent.
In the context of a potential tax reform, there might be, among others, a federal-level value-added tax (VAT), taxation of dividends, reductions to corporate income taxes and changes in the taxation regime of closed-end investment funds: withholding tax (WHT) would be levied every May and November (or, if before such dates, on the amortisation or redemption of the quotas) at regressive rates ranging from 22.5 per cent to 15 per cent (if the relevant investment fund is characterised as a long-term fund) or from 22.5 per cent to 20 per cent (if characterised as a short-term fund) based on the investment duration.
The government has published Decree 9,580/2018, which replaces the income tax regulations established by Decree 3,000 in 1999. According to the new legislation, amounts donated to an individual or a company domiciled abroad are now subject to WHT at a 15 per cent or 25 per cent rate, if the beneficiary is located in a low-tax jurisdiction or one with a privileged tax regime (as defined by Brazilian tax authorities).
Brazil faces hard discussions about substance over form. There have been important decisions in administrative and judicial courts about the matter, which needs detailed analysis in order to mitigate potential adverse outcomes for individuals and companies.
The adoption of international accounting standards in 2007, and the extension of its effects to tax accounting, as of 2015, has been raising important questions as to the tax consequences of some of the modified accounting procedures. Because of new legislation, fully in place since January 2015, the corporate taxation rules were completely changed, requiring the Brazilian entities and holding companies to review their tax procedures and corporate structures.

Legal system

Brazil has a civil-law legal system, which is based on codified law. The laws are issued by the federal, state and municipal governments and respect the competence established by the Constitution of Brazil. The main rules are provided by codes enacted as federal laws, such as the Civil Code, the Tax Code, the Penal Code and the Commercial Code.

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Inheritance and succession

Succession

Brazil uses the forced-heirship system. Accordingly, heirship rights are mandatory in determining the disposition of the assets upon death and the percentages of probate. However, a percentage of the assets can be freely disposed by will (described below). As a planning strategy, gift anticipation is permitted, provided that the forced portion is respected.

Family law and defined inheritance rules

For purposes of succession, the properties of an individual are divided in two equal parts: the ‘legitimate’ part, which must be distributed to the forced heirs (descendants, ascendants and surviving spouses); and the ‘available’ part, which can be freely disposed by will. Nevertheless, if the deceased does not leave a will, the total amount of assets will be distributed only between the forced heirs.

Probate process

Probate procedure is mandatory in the case of either individuals domiciled in Brazil or properties located in Brazil. In order to finalise the probate procedure, the taxes related to the assets transferred must be paid. Gift and inheritance tax (Imposto sobre Transmissão Causa Mortis e Doação, ITCMD) is a state tax, currently levied at a maximum rate of 8 per cent. A Bill on the increase of tax burden assessed over the inheritance transfer is to be voted upon.

There are two manners to distribute the assets of a deceased person that are located in Brazil: proceedings in a court of law or a simpler procedure with a notary public.

The procedure with a notary public is permitted where

all heirs are present or represented by proxy;
all heirs agree with the apportionment of assets;
all heirs have legal capacity; and
the existing will, if any, has been validated by the appropriate court.

Mental capacity

Brazilian law differentiates between semi-capable individuals, who are allowed some responsibilities, and incapable individuals, who are unable to make decisions related to their wellbeing. The determination of these conditions is made through judicial procedure, with the assistance of medical professionals.

As a rule, a curator will be assigned to represent such individuals in legal and contractual acts.

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Estate planning

Use of trusts in estate planning

Brazil does not have trust laws or regulations. However, trusts incorporated abroad are often recognised in Brazil and treated as private foreign agreements. As such, their enforceability is subject to the general rules for the validity of contracts, set forth in the Civil Code: the parties’ legal capacity to execute agreements; lawful purpose of the agreement; and form defined by law or not prohibited thereby. Trust structures created abroad are recognised in Brazil due to the fact that a trust is treated as an enforceable foreign private agreement. The applicable tax consequences on funding, income accumulation and distributions depend on the characteristics of the trust, and the way the assets were transferred to the structure. In any case, offshore trusts should not violate forced inheritance rights.

Use of foundations in estate planning

Foundations in Brazil are charitable vehicles, and thus are not regarded as an alternative to trusts.

Types of entities

There are different types of entities set forth by Brazilian law, and the most common ones are corporations (SA) and limited liability companies (Sociedade Limitada or LTDA).

The main characteristics of a SA are:

Share capital is divided in shares, which can be classified as common and/or preferred shares;
Share can be private or publicly traded (registered before the stock exchange, regulated and inspected by the Brazilian Securities and Exchange Commission);
Authorised to issue securities such as bonds;
Shareholders' liability is limited to the shares issue price; in addition to its by-laws, shareholders can sign a shareholders’ agreement;
More sophisticated managing bodies, including a board of directors and corporate governance structure; and
Profits are distributed proportionally to the percentage of equity interest held by each shareholder.

The LTDA is a simpler type of entity, with fewer bureaucratic requirements:

The capital is divided in quotas;
It is regulated by its articles of association and the Brazilian Civil Code (Law No. 10.406/02). In addition, the LTDA can adopt as its supplementary law the Corporation Law (Law No. 6,404 of December 15, 1976), allowing the adoption of a more sophisticated corporate governance structure, which may include a quotaholders' agreement;
It is normally managed by company officers;
The liability of partners is limited to the value of their quotas, but all quotaholders have joint liability for the full payment of the share capital;
It is always a private entity; and
Profits can be distributed disproportionally to the percentage of equity interest held by each shareholder.

A recent change in Brazilian law, which came into force through the Economic Freedom Act (Law no. 13.874/19), created the possibility of a LTDA being held by a single shareholder (Sociedade Limitada Unipessoal). Another entity that allows a single shareholder is the individual limited liability company (EIRELI), which has certain limitations imposed by law:

minimum amount of the share capital, which must be at least 100 times the Brazilian minimum wage in force, and fully paid at the time of the EIRELI's constitution; and
a natural person can be holder of only one EIRELI.

These limitations do not apply to the individually owned LTDA.

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Taxation

Income tax system

Brazilian income tax is a federal tax based on a worldwide system. Individuals residing in Brazil and companies domiciled in the country must pay taxes on their worldwide income and gains.

Regarding non-residents, income tax is levied on all Brazilian-source income and on all gains derived from assets located in Brazil.

Personal income tax rates

Individuals residing in Brazil are subject to tax on income and capital gains earned from domestic or foreign sources. As a general rule, income is subject to progressive rates varying from 15 per cent up to 22.5 per cent.

Corporate income tax rates

Companies incorporated in Brazil are subject to corporate income tax, levied on profits, at the combined tax rate of 34 per cent, which incorporates a corporate income tax with a basic rate of 15 per cent, a surtax of 10 per cent on annual taxable profits exceeding BRL240,000 (USD57,000; GBP44,000), as well as a social contribution net on profits of 9 per cent (or currently 15 per cent for credit unions and 20 per cent for some companies of the financial sector). Dividends paid by Brazilian corporations are generally tax exempt.

Capital gains tax

Capital gains attained by individuals are taxed at progressive rates varying from 15 per cent up to 22.5 per cent, while Brazilian companies are taxed at 34 per cent. Capital gains are the positive difference between the sales price and the acquisition cost of the asset disposed, generally determined in BRL.

Non-residents taxable on

Income paid by Brazilian source and capital gains on disposal of assets located in Brazil.

Withholding tax rate (non-treaty)

The rates of WHT for non-residents vary according to the nature of the income and the location of the beneficiary. As a general rule, the rates are 15 per cent (e.g. technical services, rent, interest and capital gains) or 25 per cent (e.g. general services). The legislation also provides some exemptions (i.e. dividends, interest on export financing). Additionally, if the beneficiary is located in a low-tax jurisdiction or one with a privileged tax regime (as defined by Brazilian tax authorities), the rates are generally increased to 25 per cent.

Withholding tax rate (treaty)

As a general rule, the treaties signed by Brazil do not provide lower rates than the ones already stated by the Brazilian domestic legislation. In some specific situations the treaty can grant a better tax regime (e.g. Brazil-Japan treaty: capital gains by a resident in Japan are exempt from taxation in Brazil).

Taxation on gifts and inheritance

The Brazilian states impose ITCMD. This tax is generally levied on the market value of the assets and rights transferred, at a rate to be determined by each state up to 8 per cent, generally due by the beneficiary/heir. It is essential to analyse in detail the domicile of the individuals involved in order to verify if there is any conflict of rules in each state. A Bill on the increase of the tax burden assessed over the inheritance transfer is to be voted upon. ITCMD on donations and inheritance received abroad can be challenged in court due to lack of specific legislation.

Other taxes

As shown above, ITCMD is also imposed on gifts. Currently, Brazil does not have wealth tax, but a Bill on the assessment of wealth tax is to be voted upon.

Tax treaties

Brazil has 33 tax treaties in force: Argentina, Austria, Belgium, Canada, Chile, China, the Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands, Norway, Peru, the Philippines, Portugal, Russia, the Slovak Republic, South Africa, South Korea, Spain, Sweden, Trinidad and Tobago, Turkey, the Ukraine and Venezuela.

There are currently three treaties pending approval of Brazil's congress: Brazil-United Arab Emirates, Brazil-Singapore and Brazil-Switzerland.

Tax information exchange agreements (TIEAs)

Brazil has signed TIEAs with Switzerland, the UK, and the US, among others. The Brazil-US and Brazil-Switzerland TIEA are already in force. Others are waiting for Brazilian congress approval.

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Residence and domicile

Special rules on becoming resident

All Brazilian individuals are treated as tax residents, except if they leave Brazil on a definitive basis or if they leave on a temporary basis for more than 12 months.

Foreign individuals become residents of Brazil for tax purposes on the date of their arrival in Brazil, if they hold a permanent visa or a temporary working visa issued based on an employment relationship with a Brazilian company; or 183 days after their arrival (whether consecutively or not, within a 12-month period), if they hold any other type of visa (e.g. business or tourism visa). Brazilians re-acquire tax resident status once they return to the country on a definitive basis, on the date of their arrival in Brazil.

Special rules on ceasing residence

The process to cease residence in Brazil for tax purposes by any individual is based on the fulfilment of a special income tax return, known as an exit return, among other measures.

Domicile concept for gifts and inheritance

As a general rule, the concept follows the residency rules, as described above.

Taxation of holdings by non-residents on death and of gifts

Gifts: based on the location of asset; only pertinent to assets located in Brazil, at the same rates as applicable to domestic residents.
Death: based on the location of asset; only pertinent to assets located in Brazil, at the same rates as applicable to domestic residents.

Reporting/auditing requirements

Corporate legislation details auditing and publication requirements, which vary according to the size of the company. Additionally, there are several tax reporting obligations through different types of tax returns. In Brazil, such returns are made electronically.

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Other relevant information

Asset protection laws

Brazilian law protects the real estate property where a debtor lives, known as family property. Except in very few cases, the home where a debtor lives will not be repossessed to pay for an individual’s debts

Foreign currency restrictions

Brazil adopts a controlled foreign exchange system, under which it is necessary to identify the nature of the funds in order to conduct the foreign exchange transaction. Despite such control, there are few restrictions to proceed with inflow and remittances of funds in and out of Brazil, provided that the transactions are legal and valid.

Foreign ownership restrictions

There are some restrictions for foreigners to acquire rural lands directly or indirectly. Additionally, in very few cases, foreigners have limitations to invest in certain type of business (e.g. media).

AML/due diligence and other requirements and regulatory procedures for advisors

To establish a trust: not applicable.
For incorporation.
To open a bank account.

Brazil has several rules and regulations that must be observed by certain advisors. In the financial sector, such rules and regulations are more detailed and extensive. Additionally, because of criminal consequences, some advisors have their own guides and requirements in order to mitigate the potential exposures.

Key resources for further information

WEBSITES

Brazilian Internal Revenue Service: www.receita.fazenda.gov.br
Brazilian Central Bank: www.bcb.gov.br
Lawfirms Study Centre: www.cesa.org.br

Brazil is part of the Caribbean and Latin America region for STEP electoral purposes.

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