• INTERVENTION & REGULATION
BRAZIL
“The complexity of wealth management in Brazil is further exacerbated by the country’s political and economic instability.”
Bearing the burden
scale. A comprehensive understanding of tax regulations, family law, and succession rules is imperative. Brazilian regulations concerning marriage, same-sex unions, stable unions, and their implications in cases of separation or succession may not be applicable in destination countries, potentially leading to unexpected challenges. In light of these developments, it is crucial for wealth managers to adopt a proactive approach. This includes conducting thorough due diligence on potential jurisdictions, understanding the implications of local laws on foreign investments, and analysing the potential impact of tax reforms on overall wealth management strategies. Engaging in scenario planning to anticipate future changes in legislation can also provide valuable insights for families navigating this complex landscape. The continual evolution of regulations, driven by political and ideological disputes between conservative and liberal factions, in conjunction with international economic dependencies, necessitates thorough preparedness from wealth managers. They must remain vigilant regarding economic challenges and the various proposed changes that could affect wealth management and succession processes. In such complex circumstances, asset preservation requires ongoing diligence. Therefore, it is recommended to: 1) Consult a qualified professional prior to making decisions; 2) Prepare the family for each jurisdiction; and 3) Regularly review and update advice to ensure compliance with any changes.
succession planning processes. While certain tax incentives aimed at stimulating local investments—such as exemptions from income tax on dividend distributions and incentives for the corporate real estate sector—remain intact, there are proposals to revise these incentives. The complexity of wealth management in Brazil is further exacerbated by the country’s political and economic instability. Frequent changes in government policies, coupled with fluctuating economic conditions, create an environment of uncertainty that complicates long-term financial planning. The potential for abrupt shifts in tax legislation and regulatory frameworks can disrupt established wealth management strategies, necessitating continuous adjustments by wealth managers. High inflation rates, currency volatility, and varying interest rates add layers of complexity to investment decisions, compelling families to remain agile and responsive to changing market conditions. Additionally, political polarisation may result in inconsistent policy enforcement and shifts in economic priorities, making it challenging for families to navigate the landscape effectively. In this dynamic environment, high-net-worth families are exploring alternatives, including jurisdiction changes as a strategy for wealth and succession planning. However, challenges remain significant on a global
investments made in foreign currency— typically by foreigners residing in Brazil or Brazilians living abroad—were not subject to taxation on fluctuations in the value of the Brazilian currency. Capital gains tax was only applicable to foreign assets purchased with Brazilian currency. Effective 2024, all investments made in foreign currency will be subject to taxation based on exchange rate variations. Even if an investor experiences a loss in the investment currency, any gain associated with the devaluation of the Brazilian currency will be taxed at 15%. In addition to consumption and income taxes, inheritance taxes were increased in 2023, allowing states to levy taxes on inheritances at progressive rates of 4% to 8% (up from a previously fixed rate of 4%), including foreign assets within the scope of Brazilian taxation. This legislative change poses significant implications for families with assets abroad, as Brazil does not have international treaties to prevent double taxation on inheritances and lacked prior legislative authority to tax assets received from inheritances processed overseas. As a result, heirs may now face the risk of double taxation. Since the inauguration of the left-wing government on January 1, 2023, numerous changes to Brazilian tax legislation have rendered the taxation of investments held by affluent families more burdensome, both in terms of the investments themselves and the
Marcelo Botelho Pupo Partner BPS
B razil currently ranks as one of the countries with the highest tax burdens globally, leading the tax burden index in Latin America, as reported by the OECD in 2021. The Brazilian tax system is characterised by taxes imposed at federal, state, and municipal levels, creating a complex landscape for stakeholders seeking clarity. This complexity is compounded by extensive tax legislation governed by laws from the Union, 27 states, and 5,570 municipalities, alongside ongoing tax litigation at both administrative and judicial levels. The Supreme Federal Court plays a pivotal role in defining the tax burden, applicable rates, and calculation bases. Approximately 50% of Brazil’s tax revenue is derived from consumption taxes, with combined rates potentially reaching 28% on domestic products and 45% on imports. Consequently, economic stakeholders often utilise interest rates as a mechanism to manage inflation, rather than relying on taxation. This intricate and unpredictable tax environment presents significant challenges for both taxpayers and the government. In response, Brazil has embarked on a comprehensive consumption tax reform initiated in 2023, aimed at streamlining the tax framework by reducing the number of taxes over a five-year period, with a projected unified rate of approximately 27% according to government forecasts. The primary objective of the tax reform is to simplify the tax legal
structure, mitigate high levels of litigation, and foster a more conducive business environment. The true impact of these reforms will be assessed during the implementation of the new value-added tax model. In parallel, the federal government is enacting legislative changes that will affect high- net-worth families, particularly those with international investments and inadequate succession planning. Traditionally, Brazil has imposed taxes on individuals based on a cash basis, including those utilising corporate or trust structures abroad for investment purposes. Until 2023, investments made abroad by Brazilian residents were taxed upon distribution to beneficiaries, whether as dividends or capital distributions. Starting in 2024, Law 14,754 will come into effect, mandating annual taxation on income generated abroad by tax residents who own controlled companies, serve as settlors or beneficiaries of trusts, or hold insurance policies whose principal and income are redeemable by the insured or their beneficiaries, among other significant reforms. Although Brazil lacks specific regulations governing trusts, tax legislation treats them as transparent entities for taxation purposes, requiring that income derived from investments held in trusts be subject to annual income tax in Brazil. Another notable change introduced by this new law pertains to the taxation of foreign exchange transactions involving assets abroad. Prior to 2023,
Marcelo Botelho Pupo, lawyer in Brazil and Portugal, operates in the tax consultancy, family law and inheritance area, possessing the relevant experience in advising families with transnational assets. Specialised in national and international tax planning for individuals in migration to Europe (Portugal, Italia, Germany, Switzerland) and the US, tax compliance, as well as international inheritance procedures, Marcelo was responsible to coordinate migration processes, termination of tax residency in Brazil, regularisation of Brazilian assets for residents in Europe and the United States, conduct inheritances with Brazilian, German, Swiss and Italian assets. Bachelor of Law, specialist and master in Tax Law; enrolled in OAB-SP and OA Lisbon; Member of Brazilian Associations AASP and IASP and International Associations IR Global and STEP; author of book and articles on tax matters. Portuguese speaker and Fluent in English, Italian and German.
About us... en.bpsadv.com Botelho Pupo e Salvador Advogados is a boutique law firm focused on wealth management issues, such as structuring assets, tax planning, succession for HNW families, with international complexities. Focused on structuring, protecting and planning assets located in Brazil and abroad, as well as evaluating Brazilian succession processes and migration procedures, the firm has helped Brazilian and European Families with international complexities comply with different jurisdictional requirements. Incorporated in São Paulo in 2017, Botelho Pupo e Salvador is the union of two experienced lawyers who have worked at major consulting and auditing firms in the world and the most renowned law
firms in São Paulo, with activities developed in Brazil and abroad. Our firm’s service is premised on the confidentiality of information, supported by ethics and legal certainty, in which we believe that the in-depth knowledge of each case and the close and personal relationship with each individual or family members are essential to a service delivered successfully.
+55 11 9 9469 8336 marcelo.pupo@bps.adv.br irglobal.com/advisor/marcelo-botelho-pupo
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