We recurrently bring to our clients and readers the importance of Heritage Planning. Reinforcing this idea, even before going deeper into the international sphere, it is essential to understand the 3 (three) pillars of Heritage Planning:

I – Asset Protection: It is important to emphasize that asset protection does not consist in causing losses to creditors. Asset protection is the set of legal measures that aim to reduce the risk of asset dilapidation as a result of lawsuits, obligations, divorces, among others.

II – Asset Succession: These are strategies to optimize the asset succession process, aiming to simplify the future inventory, as well as reduce legal costs. In addition, good succession planning prevents future family conflicts and litigation.

III – Tax Planning: In this pillar, we explore the famous tax avoidance. We use strategies and tools that aim to reduce the tax burden, especially on assets. We bring together tools such as business structures in Brazil and abroad, in addition to several other legal instruments that allow us to obtain tax savings of up to 100%.

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1. The fiscal impacts of the change of residence:

We know that the United States is the main destination for several Brazilian families who are planning or considering living abroad. Regardless of the country to be chosen, it is important that before leaving Brazil, whether temporarily or permanently, you carry out pre-immigration tax planning, in order to understand the local laws and verify the possibility of legally avoiding double taxation.

If you are Brazilian, it is important that you know that your tax domicile is in Brazil and, therefore, all your income earned in any country in the world will be taxed in Brazil. If you are moving to the US, it is important that you know the rules governing tax residency in the US.

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1.1. Tax Residence by Attendance Test:

If you are temporarily or intend to reside temporarily in the US, it is important to know that you will be subject to becoming a US tax resident based on your length of time on US soil. To determine whether the foreigner has US tax obligations, a “Substantial Presence” is performed.

The test will assess whether the person has been in the US for a minimum of 183 (one hundred and eighty-three) days in the US in the last 3 (three) years – including the current year. The calculation is the sum of days in the US in the current year; sum of days in the US in the previous year, multiplied by 1/3; sum of days in the US in the penultimate year, multiplied by 1/6.

If you make frequent trips to the US for tourism or business (Visa B1/B2), it is important to be aware. You may qualify as a US tax resident.

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1.2. Permanent resident:

Permanent residents, from the day they enter the country (even if only for one day), are automatically considered tax residents. Therefore, they will have to pay taxes in the United States.

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How to avoid double taxation?

Each person or family has specific characteristics and needs to be analyzed individually to find the best fiscal alternative. However, as a rule, the main resource is the Final Exit Declaration, which must be submitted to the Internal Revenue Service of Brazil. If you only have income abroad, this will be the most advantageous measure, as you will no longer pay income tax in Brazil. It is important to emphasize, however, that the Definitive Exit from Brazil causes some effects:

a) Cannot be a partner of a Brazilian company opting for Simples Nacional;

b) If you are a partner of a Brazilian company, you must appoint a permanent resident prosecutor in Brazil, aged over 18, to be responsible for commercial activities in the country and empowered to receive subpoenas and respond to civil and criminal proceedings ;

c) Current individual bank account must be closed. Banks offer a bank account for non-residents who generally have a high maintenance fee, greater compliance requirements and difficulty in moving.

d) Limitation to make investments in Brazil.

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If you intend to earn income in Brazil and abroad, the possibility is to take advantage of the principle of reciprocity. Brazil offers Brazilians residing in the US the same treatment as the US offers its citizens residing in Brazil. Thus, federal taxes that have the same taxable event are compensable.

As we've discussed a few times on our blog and earlier in this article, it's important to evaluate case by case so that you can determine a strategy. As tools for an effective wealth planning, it is also possible to use Offshore companies and Patrimonial Holdings.

Offshores are companies located in a foreign country (other than the country of origin of their owners), subject to different legal and tax regimes – usually called Tax Havens. It is a resource widely used by people with great wealth (including Brazilians) who seek tax advantages.

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On the other hand, the Equity Holding, one of the most famous resources of wealth planning, are companies that hold the share control of an economic group and/or that manage the assets of a family, an individual or a group of investors. The Equity Holding helps to protect assets, in addition to being effective in the sphere of succession. Furthermore, it allows for a reduction in the tax burden.

The Equity Holding must be incorporated in the country where the assets are allocated. E&G has extensive experience in setting up Holdings in Brazil and the United States.

If you are planning to reside abroad, please contact us and schedule a coffee at our office. We have a team of specialists ready to assist in your pre-immigration process.

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If you have any questions, please don't hesitate to contact us!