ITCMD: find out how Estate and Gift Tax works in Brazil

Each state has different rules in place, which may cause confusion among taxpayers

Transfers of money, property and assets from person to person on account of inheritance or donation are subject to the Estate and Gift Tax (ITCMD).

As this tax is imposed at the state level, its rules may differ substantially from one federative unit to another, which may cause quite a bit of confusion among taxpayers when it comes to making the necessary payments. The differences are significant, ranging from the rates in force to the very name of the tax.

Check out below a few important aspects on this matter.

What is the ITCMD?

The ITCMD is a state tax that is levied on the gratuitous transfer of goods and assets inherited (causa mortis) or donated (inter vivos) in Brazil. In some regions, it may also be known as ‘ITCD’, ‘ICD’ or ‘ITD’, and its rates and exemption rules may vary as well.

Who is required to pay?

Individuals and legal entities that benefit from assets or rights received as inheritance or gift are required to pay this tax. In other words, this obligation tax falls on:

• the deceased’s heirs or devisees; and
• donees who benefit from the transfer.

It should be noted that in some states, the tax must be paid by the donor. it is also important to keep in mind that both parties are jointly and severally liable for the payment, i.e. in the event of non-payment, the state can collect the tax from both donor and donee.

Which state is responsible for collecting the ITCMD?

According to the Federal Constitution of Brazil (article 155, paragraph 1), the state responsible for collecting the ITCMD tax varies depending on whether the good or asset is considered personal property or real estate.

Real estate and immovable assets: jurisdiction of the state where the property is located.

Personal property, securities, and receivables: jurisdiction of the state where the inventory or probate is being processed or where the donor is domiciled.

What are the tax bases and rates in place?

The ITCMD tax base is the selling price of the asset or right transferred, as determined by the tax authority of the corresponding state, which takes into consideration criteria such as the market value.

Tax rates vary per state. Some adopt fixed rates, as in São Paulo, where it is always 4%. Others, such as Rio de Janeiro, apply progressive rates, which increase in proportion to the property value, up to the 8% limit established by the constitution.

As such, one should check the particular laws of the corresponding state to find out the tax rates in effect.

What situations give rise to tax cuts and exemptions?

Some states provide for exemptions and reliefs in the payment of the ITCMD tax. Broadly speaking, exemptions mainly concern small gifts and charitable donations. There may also be tax cuts in place for inheritances left by spouses, cohabitants and close relatives.

What is the deadline for paying the ITCMD?

Deadlines may vary, but payment terms usually start on the date of death of the decedent or on the date the property or asset is transferred. Payments must be made before the public deed is executed.

What happens if I fail to pay the tax?

Failure to pay the ITCMD tax leads to fines and interest being charged on the amount due. Furthermore, the taxpayer may be prevented from registering the transfer of the asset or right, leading to potential problems.

Notaries still usually require the payment of the ITCMD tax before issuing an order setting out the definitive distribution of the estate or the ratification of the conveyance or transfer of asset ownership. However, the Superior Court of Justice (STJ) has held that the proof of tax payment shall not be required for the document to be issued if all heirs are in full agreement on the partition of the estate and its value does not exceed 1,000 minimum wages.

Read more: Superior Court of Justice rules that estate distribution is not conditioned to the payment of Estate and Gift Tax

Do I need to report assets subject to the ITCMD in my Income Tax Return?

Donors and administrators must report the transferred property and to whom it was destined on their Income Tax Returns (IR). In turn, beneficiaries must also declare the asset and enter the transferor's data, when filing their own returns.

It is worth mentioning that, according to a recent ruling by the Federal Supreme Court (STF), the Federal Government cannot levy Income Tax on capital gains resulting from the appreciation of assets transferred on account of inheritance or donation if they have already been subject to the ITCMD.

Read more: Federal Supreme Court rules out levying income tax on donation or estate

Tax consultancy and support for individuals

The information provided on this page is meant to be general and may not apply to all cases. For this reason, it is essential to check the legislation of each particular state and request specialized support, if necessary.

Domingues e Pinho Contadores provides tax consulting services and helps its clients in putting best practices in place for tax calculation and compliance with the requirements related to the ITCMD and other taxes. You can count on our support: dpc@dpc.com.br.