Tax and Succession Aspects of Offshore Investments

Managing offshore investments involves tax and succession complexities that require careful strategic planning. In the latest edition of Wealth Planning Insights, William Heuseler, our Global Head of Wealth Planning, analyzes the tax and succession aspects of offshore investments.

He also explores Law 14,754, enacted in 2023, which significantly changed the tax landscape for foreign investments. Understand the practical implications of these changes and the strategic guidance for investors holding assets in international jurisdictions.

Offshore investments refer to the allocation of financial resources into assets or entities located abroad. These can be made directly by individuals or through corporate structures such as PICs (Private Investment Companies), funds, or foundations.

These structures are often based in jurisdictions that offer tax and regulatory advantages and, when classified as controlled foreign entities, are subject to the rules of Law 14,754/2023.

If the investment is made directly by an individual, it is essential to track all portfolio movements, such as interest payments, dividends, asset sales, or maturities.

With the new law, income generated abroad—including gains from positive exchange rate fluctuations—is now subject to income tax at a 15% rate, with the tax due at the time of the Annual Tax Return (DAA).

Additionally, the income tax exemption on exchange rate gains was revoked for assets acquired with foreign currency or from individuals who acquired them as non-residents. As of January 2024, taxes must be calculated in Brazilian reais, which directly impacts tax planning.

When investments are made through a controlled foreign entity, the investor may irrevocably choose between two taxation regimes:

• Transparent regime: The assets held by the foreign entity must be declared and taxed as if they were held directly by the individual.
• Opaque regime: Profits earned by the entity are automatically taxed on December 31st at a 15% rate, generating a dividend receivable credit that can be distributed later without additional taxation—even if there is a positive exchange rate variation.

The choice between regimes depends on each investor’s profile and objectives and should be made with the support of a specialist.

In addition to declaring offshore investments in the Annual Tax Return, individuals holding capital abroad must also comply with the DCBE, which must be submitted to the Central Bank of Brazil:

• Annually, for amounts starting at USD 1 million in foreign capital;
• Quarterly, if the amount exceeds USD 100 million.

Directly Held Assets

In the event of death, if the assets are held directly by the individual and there is no succession instrument in place, it will be necessary to wait for the probate process to be completed in Brazil.

Transfer On Death Solution – Itaú Miami

For accounts held at Itaú Miami, the account holder can complete a Transfer On Death form, designating the beneficiaries of the funds held in the account. Upon death, the service team only needs to be notified and receive the documents proving the initiation of the succession process for the funds to be transferred directly.

Important: Review your designated beneficiaries regularly and update them whenever necessary.

Assets Held via Structures Without Succession Planning

If the assets are held by a Brazilian resident through a structure and there is no succession instrument in place, two probate processes will be required: one in Brazil and another in the jurisdiction where the structure is located. This process is usually more time-consuming and costly, requiring specialized legal and tax support.

There are instruments that simplify international succession, such as trusts or foreign wills. At Itaú Private Bank, we offer international estate planning solutions, including the structuring of trusts and declarations of trust. Our team is ready to help you find the structure that best suits your needs and goals.

To learn more, please contact your relationship team.