Tax Reform makes changes to inheritance tax – 07/07/2023 – Market

The PEC (proposed amendment to the Constitution) of the Tax Reform approved by the Chamber of Deputies this week provides for changes in the inheritance tax. According to the text, it will need to be progressive as per the value to be passed.

The changes are made in the section of the Constitution that deals with the so-called ITCMD (Tax on Transmission Causa Mortis and Donation of Any Assets or Rights). The charge is made by the states and applied to every natural or legal person who receives goods or rights as a donation, or as an inheritance due to the death of the former owner.

Currently, the ITCMD varies from 1% to 8% depending on each state in Brazil — much less than in certain developed countries, which even charge a rate of more than 50%.

Some states have a single rate – such as São Paulo, Paraná, Espírito Santo, Pará and Roraima (all 4%), Amazonas (2%), Rio Grande do Norte (3%) and Minas Gerais (5%). In the others, generally, there is already a variation according to the value of the goods and with a difference between inheritance and donation in life.

Ten states apply the highest rate, including Santa Catarina (1% to 8%), Bahia (from 3.5% to 8%) and Rio de Janeiro (from 4% to 8%).

The current rates were instituted, in most cases, in the middle of the last decade. In São Paulo, for example, ITCMD must be paid by anyone who received an inheritance or donation from 2001 onwards.

According to the Tax Foundation, the world’s highest inheritance rate of 55% is in Japan, followed by South Korea (50%) and France (45%). Even Latin American neighbors have higher rates than Brazil, such as Chile (25%) and Peru (10%).

The theme was in the news recently after the governor of São Paulo, Tarcísio de Freitas (Republicans), vetoed a project by Alesp (Legislative Assembly of São Paulo) that would further reduce the rate —from 4% to 1% in inheritances and 0, 5% on donations.

Now, the text of the PEC proposes that the ITCMD “will be progressive based on the value of the transmission or donation”. The proposal approved by the Chamber does not go so far as to set rates for the tax and, therefore, if the section goes ahead, the topic must still be discussed in each state.

The text of the PEC also proposes that the collection should be made by the state where the deceased was domiciled. Today, the Constitution determines that the tax is the responsibility of the entity where the inventory is processed.

The proposal also exempts transmissions and donations made to non-profit institutions with purposes of public and social relevance, including charitable and religious entities (such as churches) and scientific and technological institutes. At this point, a supplementary law is needed.