A Window of Opportunity: donations from Norway to Brazilian tax residents are free of taxes until the end of 2023
By Celma Regina Hellebust (Brazilian Lawyer in Norway and Board member of the Brazilian Norwegian Chamber of Commerce) & Michel Siqueira Batista (Tax Lawyer in Brazil at Vieira Rezende Advogados and Full Member of the Society of Trust and Estate Practitioners – STEP
Talking about succession might be challenging for some families for many reasons. Indeed, most of us were not instructed to think about the final part of our lives and much less about planning the destination of our assets to the next generation.
Such reality is, however, part of our fate, thus we must deal with it.
Therefore, given that we cannot avoid this fact, the solution is to face it as soon as possible, so that we are able to manage all the issues arising from it in the best manner, by anticipating problems (such as costly and time-consuming procedures to transfer the inheritance) and capturing eventual opportunities.
One of the undesired (and mostly unavoidable) consequences is the inheritance tax, which in some countries such as the United States can reach up to 40% of the estate transferred, depending on the circumstances. In general, similar tax treatment applies to donations.
Although inheritance tax rate in Brazil is relatively lower (it varies up to 8% depending on the State eligible to charge this tax), it is still relevant, in particular taking into consideration that inheritance tax is levied on the market value of the assets transferred.
Besides, it is worth noting that the tax shall be paid by the heirs in principle with their own money (because as a general rule, they are not allowed to manage the assets to be inherited to pay the tax). The scenario becomes even worse when a relevant part of the inheritance is composed of illiquid assets, or the heirs do not have financial conditions to liquidate the tax.
The Brazilian Supreme Court (STF), however, has recently decided that the inheritance received abroad is not subject to taxation in Brazil. The same treatment applies to the donations from a non-resident to a Brazilian resident. For that reason, some individuals living abroad with children and/or relatives in Brazil are anticipating part of the succession, donating a portion of their assets.
This opportunity, however, is available for a short period of time, since it is expected that Congress changes the law so as to allow the charge of inheritance/donation tax under such circumstances as of 2024. In addition, it is also expected that the tax rate in some states, such as São Paulo and Minas Gerais, be raised to 8% (the rates currently applied in these states are 4% and 5% respectively).
From a practical perspective, nonetheless, the proceedings to benefit from the possibility of receiving an inheritance or donation free of tax are not clear, since tax authorities did not publish any sort of guidance or instructions. This uncertainty is a concern, particularly regarding situations involving high amounts.
It is important to highlight that from a legal standpoint, the situation is clear. After the decision of the Supreme Court, there is no doubt about the tax treatment applicable.
In view of the above, for those who intend to anticipate the inheritance, we remark that the opportunity is likely to cease at the end of 2023. Hence, we recommend starting as soon as possible to check, with the assistance of an attorney, if the situation qualifies for the benefits, as well as to take all necessary measures to mitigate eventual risks.
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