Inheritance and Donation received from overseas are tax free, no ITCMD for now
Have you recently paid ITCMD, the Brazilian tax on inheritance and donation, in order to get access to money or any goods transferred to you from abroad?
Check out below the possibility of filing a lawsuit to avoid paying the ITCMD or get a tax refund!
What is ITCMD?
Before contacting a tax lawyer in Brazil, understand what is the ITCMD - Tax based on causa mortis transmission and donation, also known as ITD or ITCD.
Article 155, I, of the Brazilian Federal Constitution allows Brazilian States and the Federal District to create an inheritance and donation tax, that is, the ITCMD.
A causa mortis transmission occurs due to death, when the estate of a deceased person is transferred to a living one, by inheritance.
Whereas the Brazilian law considers a donation any free transfer, between living people, of any assets and rights, including money, real estate, jewelry, etc. ITCMD is due in any donation, also when someone grants usufruct and when, in a divorce, one of the spouses receives a portion higher than they are legally entitled to.
How to pay ITCMD, the Brazilian inheritance and donation tax?
In order to pay the ITCMD, the taxpayer declares the asset’s estimated value and issues a payment order.
However, many taxpayers have trouble with this procedure when they receive a donation or inheritance from relatives abroad.
One of the most common problems in Rio de Janeiro, faced by heirs and grantees, happens when the donor or deceased relative did not have a CPF number (Brazilian Individual Taxpayer Register). Therefore, the bank that received the money holds it until the ITCMD is paid. In such cases, some taxpayers are initiating an administrative procedure to pay the ITCMD.
However, there is no need to worry about paying the ITCMD to access the money. Currently, Heirs and grantees who received a inheritance or a donation from overseas do not need to pay the ITCMD, check it out!
Should I pay the Brazilian inheritance and donation tax on overseas transactions?
For now, the answer is NO.
Although the Brazilian States created laws and have been charging the ITCMD for years, these laws are not valid to collect inheritance or donation tax from abroad.
The Brazilian Federal Constitution establishes that it is up to the Federal Government to regulate the ITCMD when the donor has domicile or residence abroad or if the deceased person has assets, has been resident or domiciled or have their inventory processed abroad.
Therefore, the competence to tax foreign donations or inheritance lies with the Brazilian Federal Union, and that has not happened yet.
Recently, the Brazilian Supreme Court, in Brasilia, ruled that the Brazilian States and the Federal District cannot legislate on this matter and, in the absence of the federal law, the ITCMD is not due.
As soon as the Federal Government issues the law, this charge will be legitimate.
Brazilian Supreme Court Deadline
The Brazilian Supreme Federal Court (STF) has set a deadline for the collection of Inheritance and Gift Tax (ITCMD) from abroad.
ADO 67, a lawsuit filed in May 2021, highlighted the delay of Congress in enacting a law to regulate ITCMD in cases involving donors or deceased individuals with connections to foreign jurisdictions.
The STF recognized the Congress's omission in regulating the tax and mandated a 12-month period for the necessary legislative actions to address this issue.
The Complementary Law Bill 37/2021 has been introduced in the Chamber of Deputies to fill this regulatory gap. It specifies the tax jurisdiction for ITCMD based on the location of the probate, the domicile of the donor or beneficiary, and the location of the assets.
The legislative deadline has already expired, indicating that updates on the matter may emerge soon.
How to get a ITCMD tax refund?
To obtain the refund of ITCMD paid on a donation or inheritance originating abroad, the taxpayer or his legal representative can make an administrative application or file a lawsuit.
Usually, administrative requests are not granted or take too long to be judged, in such cases, the taxpayer must seek a tax lawyer in Brazil to file a lawsuit asking the undue payment back.
How long does it take to get the ITCMD refund?
A judicial final ruling can take a couple of years. However, the amount is returned with monetary correction.
If the taxpayer has not yet paid the ITCMD and there is an urgency to gain access to the donated / inherited estate, it is possible to request an injunction. That way, the taxpayer does not have to wait long. Usually, injunctions requests take one to two months.
When should I request a ITCMD Refund?
Immediately!
Someone who have unduly paid ITCMD on overseas assets are entitled to a tax refund, however, they must file a lawsuit as soon as possible.
The Brazilian Supreme Court established that only the ITCMD collections made after the publication of the ruling are invalid. Hence, tax collections made before the publication of the ruling are considered valid. [1]
On the other hand, the Supreme Court ruling is not published yet, and it also admits that lawsuits that have already been filed before its publication will be entitled to restitution.
If the taxpayer already paid the ITCMD, he must file a lawsuit before the ruling publication, or the precedent will not be applicable. There is no telling when the ruling is going to be published, the taxpayer interested in a refund must hurry in the next few days.
In addition, the taxpayer must avoid the statute of limitations. The lawsuit is viable only if the tax has been paid in the last 5 (five) years, once this period has elapsed, there is no longer a right to a refund.