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BR Donations and inheritances received abroad: how to tax and declare?
We are constantly dealing with clients who receive donations or inheritances from assets located abroad. There are doubts about the taxes due in Brazil on the value of these donations and inheritances received abroad, as well as the obligation to report them to the Federal Revenue Service (RFB) through the income tax return (DIRPF) and to the Central Bank through the Statement of Brazilian Capital Abroad (CBE).
Therefore, the aim of this text on Donations and inheritances received abroad is to describe in general what taxation is due and what must be declared. In particular, it is important to describe the discussion of the incidence of ITCMD (transfer tax). cause of death and donation) on donations and inheritances received from abroad.
Taxation of donations and inheritances received abroad: general rule
In summary, for donations and inheritances received abroad there are two taxes to consider: ITCMD and personal income tax (IRPF). The ITCMD is a state tax, payable as a rule by the recipient of the property or right transferred (the donee or successor, as the case may be). The IRPF is not levied on the value of the donation or inheritance, but on any capital gain earned by the donor or the estate of the deceased person. The table below summarizes the main differences between the two taxes:
| Aspect | ITCMD | IRPF |
| Taxpayer | beneficiary of the gift or inheritance (or the donor, in exceptional cases) | the owner of the asset or right transferred (donor or estate) |
| Generating event | Donation or opening of succession (inheritance) | Transfer of ownership of goods and rights to the beneficiary |
| Calculation basis | venal value of the property or right transferred | capital gain |
| Calculation basis considered: | the whole transferred to the same beneficiary | each asset or right transferred separately (option to transfer at acquisition cost, without gain, or at market value) |
| Rate | up to 8%, allowing for progressivity (each state sets its own rate) | 15%-22.5%, due to the capital gain |
On the differences between ITCMD and IRPF
To explain the differences between ITCMD and IRPF, assume that properties in Brazil 1 and 2 are donated to two beneficiaries called A and B, in equal shares (A receives 50% from property 1 and 50% from property 2, as does B). For both properties, the acquisition cost of each is R$100,000 and the market value is R$1,100,000, equivalent to the market value:
- for ITCMD purposes, the calculation basis will be R$1,100,000 for each donee (50% of the sum of the venal value of the two properties), and the tax due will have to be paid by each of them;
- for IRPF purposes, the donor may choose to transfer each property for a different amount. Thus, the donor may decide to transfer property 1 for the acquisition cost of R$100,000 (R$50,000 for A and R$50,000 for B), without paying IRPF on the transfer. Meanwhile, property 2 can be transferred for R$1,100,000 (R$550,000 for each beneficiary), taxing the capital gain corresponding to the positive difference of R$1,000,000 (R$1,100,000 minus R$100,000). In addition, the IRPF will be payable by the donor and beneficiaries A and B are exempt, each having to report their share of the property at the value attributed by the donor.
It is worth noting that the value of the assets, as well as the rights transferred, is different for each tax. Therefore, the value assumed for ITCMD purposes is irrelevant for calculating the IRPF, and vice versa. The value attributed for IRPF purposes must be informed in the DIRPF of the owner of the asset or right transferred (and, if applicable, the calculation of the capital gain) and in the DIRPF of the beneficiary of the donation or inheritance, by the value attributed by the former owner.
The ITCMD rate is up to 8%, the limit set by the Federal Senate.
Each state is competent to set its own ITCMD rate within this limit. Therefore, taxation in each state can vary. The table below shows the current ITCMD rates in the states of São Paulo, Rio de Janeiro and Minas Gerais:
| State | Rate | Observations |
| SP | 4% | Donation exemption of up to 2,500 UFESPs (R$ 69,025.00 in 2020) for the same donor and donee in the same calendar year. |
| RJ | 4%-8% | Exemption for donations of up to 11,250 UFIRs-RJ to the same donor in the same calendar year (R$ 39,993.75 in 2020). Rate of 4% for amounts of up to 70,000 UFIRs-RJ (R$ 248,850.00 in 2020). Intermediate rates of 4.5%, 5%, 6% and 7%. Maximum rate from 400,000 UFIRs-RJ (R$ 1,422,000.00 in 2020). |
| MG | 5% | Exemption for donations of up to 10,000 UFEMGs (R$ 37,116.00 in 2020), or a discount of 50% of the amount of tax due on donations of up to 90,000 UFEMGs (R$ 334,044.00 in 2020) for the same donor and donee, considering 3 calendar years. |
The above comments apply, in general, to donations and inheritances relating to assets and rights located in Brazil or abroad. In the case of ITCMD, however, there is the possibility of challenging its requirement for donations and inheritances received from abroad.
Legal discussion on donations and inheritances received from abroad for ITCMD
For situations in which (a). the donor was domiciled or resident abroad or (b). the deceased person had assets, was resident or domiciled abroad or had their inventory processed abroad, the Federal Constitution required a complementary law to define the competent state. However, this complementary law was never approved.
Although the requirement demanded by the Federal Constitution has not been met, the states and the Federal District have started to demand ITCMD in their respective legislation. Although each taxing entity may have different rules, the ITCMD is usually required by the state where the beneficiary of the donation or inheritance is domiciled. The tax authorities' main argument is that the Federal Constitution, as well as the Transitional Constitutional Provisions Act, authorize states to exercise full legislative competence, including in relation to the national tax system, in the absence of a federal law laying down general rules.
This has led to a number of questions from taxpayers.
The Special Body of the São Paulo Court of Justice, for example, recognized that the provision of the São Paulo legislation is unconstitutional, and that ITCMD cannot be demanded in the cases where a complementary law is required (ArgInconst 0004604-24.2011.8.26.0000, rel. Guerrieri Rezende, j. 30.03.2011). Likewise, in Rio de Janeiro, there is a similar discussion, judged in favor of the tax authorities (ArgInconst 0189188-24.2011.8.19.0001, rel. Nagib Slaibi Filho, j. 01.02.2016, not yet res judicata).
Current state of the discussion
The Federal Supreme Court (STF) recognized the general repercussion of the issue (Topic 825). As a result, pending judgments in the lower courts should be suspended until the STF rules, and the decision made by the STF should be followed in other judgments. Furthermore, the current trend is for a ruling in favor of taxpayers, given the Court's precedents on similar issues. Therefore, taking the right precautionsIt is possible to take legal action to avoid ITCMD on donations and inheritances received from abroad.
It should be noted that there is a bill currently being considered by the National Congress to regulate the tax jurisdiction of the states, as well as the Federal District (Complementary Bill no. 363/2013(authored by Federal Deputy Erika Kokay (PT/DF)). Even if the bill is approved and converted into law, the complementary law will not apply to events that occurred before it came into force.
Other comments
It is worth remembering the duty to inform the Central Bank about the assets and rights held abroad by a person who is a tax resident in Brazil, by means of the declaration of Brazilian capital abroad (CBE). In this regard, I recommend reading the text with guidelines on the topic "declaration of brazilian capital abroad", up-to-date content that will help keep you up to date with the tax authorities.
On this blog you will always find relevant information and up-to-date information on the subject, as well as guiding you to avoid problems with the tax authorities and other authorities. Feel free to tell us about your experience, share the content with other friends who need guidance and contact us by e-mail at contato@tersi.adv.br or via WhatsApp. Click here to send a message now.
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Check out more posts on taxation and estate planning at information for residents abroad.
This text about Donations and inheritances received abroad was prepared by Vinícius Tersi Advocacia, a law firm specializing in International Tax Consulting.
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