Tax On Gifts And Donations
In Brazil there is a tax for inheritance and donations. In this article, we will provide an overview of the tax, who must pay it, what the rates are and in which cases there are tax exemptions.
This tax was not well known even by Brazilians until recently, when the Receita Federal in conjunction with each state’s Treasury department, started cross-referencing information for a more effective way of collecting this tax.
What is it
The Imposto sobre Transmissão Causa Mortis e Doação, Portuguese for Inheritance upon Death and Donation Tax - or simply ITCMD - is a state tax payable by every person or legal entity that receives goods or rights such as inheritance or donation. The tax must be calculated and declared by the taxpayer themselves, who are obliged to anticipate the payment without prior supervision by the administrative authority. However, any tax exemption must be ratified by the State Treasury.
Who must pay it
The beneficiary - the person who receives the inheritance or donation - is the one responsible for the declaration and payment of ITCMD.
- In cases of inheritance upon death, the heir or the legatee are responsible for declaring and paying the ITCMD
- In cases of transmissions due to donations, the donee is responsible for declaring and paying the ITCMD
Moreover, the following people and entities are also responsible for the declaration and payment of the tax:
- Notary officers, and other clerks working in notary offices are responsible not for the payment, but for reporting it
- Companies, financial and banking institutions and those who may be responsible for the transmission of goods and assets
- The donor, when the donee fails to declare or pay the tax
- The individual or legal entity that holds the goods or assets transmitted by donation or inheritance upon death
In a case where one of the heirs renounces their inheritance in favor of another person, the assets that are transferred to the new beneficiary are considered to be a donation. This also happens in the case of a transfer of assets due to a divorce or in the case of receiving gifts.
Physical assets with a value of less than BRL 20,000 and donations in cash up to BRL 2,000 are exempt from ITCMD.
Donations to charity are also subject to ITCMD taxes. They are only exempt from ITCMD charges when the contributions are made directly to funds controlled by the Municipal, State and National Child and Adolescent Rights Councils, which must be proven by a document issued by these Councils.
Where to pay
In the case of immovable assets, the ITCMD is to be paid to the state’s Treasury Department in which the immovable asset are located. In the case of movable assets - cash donations, equities, jewels or other goods - the ITCMD is to be paid to the state’s Treasury Department in which the donor lives. If the donor lives abroad, the ITCMD is to be paid to the state’s Treasury Department in which the beneficiary lives.
How it is calculated
In order to define the amount of tax due to the ITCMD, the financial value of an asset is considered. Each state is free to chose its own minimum value of transmission upon which it will start charging the ITCMD. Generally, the values range from 2% to 8%.
There is an 8% additional rate over the value of the asset, independently of the value of the asset inherited or donated when the beneficiary does not have a direct relationship to the former owner of the asset.
Different rates from state to state
RIO DE JANEIRO
- Rate: 4% over the value of the asset
- Exemptions: Immovable asset of up to BRL 61,900 or any asset worth less than BRL 12,000 received as inheritance, and donation in cash of up to BRL 2,880 per year
SÃO PAULO
- Rate: 4% over the value of the asset
- Exemptions: Immovable asset of up to BRL 96,800 received as inheritance, and donation in cash of up to BRL 19,370 per year
MINAS GERAIS
- Rate 5% over the value of the asset
- Exemptions: Immovable asset of up to BRL 100,064 received as inheritance, and donation in cash of up to BRL 25,016 per year. For values of up to BRL 225,100 there is a discount of 50%
PERNAMBUCO
- Rate: 5% for inheritances and 2% for donations
- Exemptions: Donations of up to BRL 5,000 per year
RIO GRANDE DO SUL
- Rate: 4% for inheritances and 3% for donations
- Exemptions: Immovable asset up to BRL 60,100 or total inheritance of up to BRL 144,300
PARANÁ
- Rate: 4% over the value of the asset
- Exemptions: There is no discount for cash donations, but immovable assets of any value are exempt of tax, provided that the heir does not possess any other immovable assets and will use it as their own house
SANTA CATARINA
- Rate: 1% over values of up to BRL 20,000
- Rate: 3% from BRL 20,000 to BRL 50,000, minus BRL 400
- Rate: 5% from BRL 50,000 to BRL 150,000, minus BRL 1,400
- Rate: 7% above BRL 150,000, minus BRL 4,400
For all the other states, the values range from 2% to 4% over the value of the asset.