Changes to the ITCMD: what were the changes to the ITCMD introduced by the Brazilian Tax Reform and how might it affect digital nomads?
The Brazilian Tax Reform approved in December 2023, through Constitutional Amendment No. 132, brought several changes to the National Tax System.
There have been changes to the IPTU, the IPVA, the abolition of the ICMS, ISS, PIS and COFINS, as well as the introduction of a new single tax on consumption: the IBS.
I commented on the Tax Reform in this article.
There have been significant changes to the ITCMD, which not only impacts those who reside in Brazil, but also those who have assets or possible heirs in Brazil, as is the case with some digital nomads.
Before delving into the changes, it's important to get to know the ITCMD itself.
What is the ITCMD?
The Causa Mortis and Donation Transfer Tax - "Imposto sobre transmissão Causa Mortis e Doação (ITCMD)", as its name implies, is the tax levied on donations, inheritances and legacies in the division of a deceased person's assets.
This tax is the responsibility of the states, so each state has its own way of instituting and collecting it: the rates, exemptions and immunities vary.
The competence of the state to collect the ITCMD varies according to the location of the assets and the domicile of the parties.
In addition to the provisions of art. 155 of the 1988 Federal Constitution, the ITCMD is regulated by state laws and the limits of the maximum rates are set by Federal Senate Resolution.
What changes have been made to the ITCMD?
The main changes are:
1- The determination of progressive tax rates:
Before the Tax Reform, the application of progressive rates was optional. Some states applied progressive rates based on value, as is the case in Rio de Janeiro, and others applied fixed rates, as is the case in São Paulo.
After the enactment of the Tax Reform, the states will be obliged to institute progressive rates based on the value of the inheritance, legacy or donation. In other words, they will not be able to apply fixed rates.
2- Institution of the ITCMD for those domiciled abroad:
The Federal Constitution states in art. 155, §1, III, that the competence to institute ITCMD in the cases of those domiciled abroad would be regulated through a Complementary Law.
However, this Complementary Law was never created. Consequently, there was a kind of legislative "vacuum" on the subject. Because of this omission, several states began to regulate the issue in their respective state laws, all of which were declared unconstitutional.
To remedy this legislative omission, the Tax Reform determined that, until a Complementary Law is passed to deal with the issue, the ITCMD will be levied in the states where the donors or the deceased had their last domicile, or in the states where the beneficiaries of the inheritance, legacy or donation are domiciled.
In addition to these options, the Tax Reform brought in other options so that there are no obstacles: the option for the Federal District to institute the ITCMD, or the state where the assets are located.
Conclusion: ITCMD will now be levied on those domiciled abroad.
How will this affect digital nomads and all those living abroad?
Everyone who owns assets in Brazil and lives abroad will be impacted by these changes. Those who have any close relatives in Brazil (mother, father, children, grandparents, etc.) may also be impacted.
Without payment of the ITCMD, it is impossible to transfer the inheritance or legacy. Late payment of the ITCMD, or failure to pay the ITCMD, incurs interest at the Selic rate and fines of up to 100%, as well as possible criminal prosecution.
You may never receive a donation in your life, or even make one. However, death is a certainty, because everything and everyone is doomed to death and destruction.
Therefore, all those who own property or close relatives who own property need to carry out succession planning or tax planning to avoid undue tax collection, double taxation and tax evasion.
If you plan to live abroad or already do, tax planning becomes even more necessary. With proper tax planning, you can optimize your tax payments and avoid problems with the tax authorities, such as fines, interest and even criminal prosecution for tax evasion.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. To do so, contact us via Whatsapp or e-mail: thyanipuppio@gmail.com
