The Brazilian Tax Service pays attention to trusts

18.05.2023 The Brazilian Government has published Interim Measure No. 1171/23 on the distribution of foreign trust assets. In fact, this measure changes the rules for taxation of income from foreign sources received by Brazilian residents from financial investments and controlled organizations.

This is the first case in Brazilian tax law when trusts are taken into account in taxation. Since the trust is not an institution recognized by the Brazilian legal system, there was no tax regulation on this issue before, and therefore there were many doubts about the taxation of Brazilian individuals participating in the trust.

According to the adopted measure, the assets of a foreign trust will be considered the property of the founder until their distribution to the beneficiary or the death of the founder. The distribution of the trust will be considered a gratuitous lifetime donation or transfer of causa mortis, and the trust will be considered for taxation if a resident of Brazil owns a controlled company abroad through it.

Income and profits from financial investments located abroad and profits from controlled foreign companies will be taxed on a sliding progressive scale. Thus, individuals who are residents of Brazil will have to pay up to 22.5 percent of income tax on such assets. Deductions are not allowed.

Controlled foreign companies are subject to a rule prohibiting tax deferral if they are located in low-tax jurisdictions or in jurisdictions with preferential tax treatment. The rule also applies if the organization receives less than 80 percent of its own active income, for example, income excluding royalties, interest, rent or dividends.
The measure comes into force on January 1, 2024.

Link to source: https://www.ctpadv.com.br/mp-1171-tributacao-de-rendimentos-do-exterior/
https://insightplus.bakermckenzie.com/bm/tax/brazil-provisional-measure-n-117123