The Problem of Double Taxation
Tax Risks and Planning Options
In recent years, there has been a significant increase in probate cases involving Brazil in legal practice. German citizens live permanently in Brazil, Brazilian citizens have their primary residence in Germany, or estate assets are located in both countries.
These cross-border situations involve a significant tax risk:
Germany and Brazil currently do not have a double taxation treaty covering inheritances.
This can result in a significant multiple encumbrance on the same assets.
The following article explains,
when and why double taxation occurs in German-Brazilian inheritance cases,
what tax considerations need to be taken into account and
what options for structuring and reducing the estate exist both before and after the opening of the estate.
Why is there a risk of double taxation in cases of inheritances involving Brazil?
While Germany has concluded special inheritance tax agreements with numerous countries—such as France, Switzerland, and the United States—no such agreement exists with Brazil.
This results in parallel taxation in both countries:
In Germany
, pursuant to § 2 of the Inheritance Tax Act (ErbStG), the entire inheritance is taxed if
the decedent or
the heir
was a resident of Germany at the time of the opening of the estate.
Brazil
levies the so-called
ITCMD – Inheritance and Gift Tax,
as soon as
assets are located in Brazil, or
the decedent was a resident there.
Result:
The same assets can be taxed simultaneously in Germany and Brazil.
The Brazilian ITCMD – An Overview
The ITCMD is a state tax. Unlike in Germany, there is no uniform regulation at the federal level. Each Brazilian state sets its own rules:
Tax Rate
Tax Base
Procedure
Typical conditions include:
Tax rates ranging from 2% to 8%
Payment is typically made before the inventory process (inventário) is completed
The basis for assessment is usually the so-called " valor venal " (tax assessed value)
Important:
The ITCMD does not reduce German tax exemptions and is not automatically credited. It initially constitutes a separate tax liability.
German Inheritance Tax Despite ITCMD Already Paid
Even if ITCMD has already been paid in Brazil, the German tax authorities generally levy inheritance tax on the entire acquisition.
There is no such thing as a complete tax exemption.
However, Section 21 of the Inheritance Tax Act (ErbStG) provides for a limited credit for foreign inheritance tax, provided that:
the tax was actually paid and
it relates to the same asset.
In practice, this provision often results only in partial relief, but does not completely eliminate double taxation.
Note: Under certain circumstances, additional taxation may apply in Brazil, such as in cases where a right of usufruct over real estate is subsequently terminated—for example, due to a time-limited usufruct or the death of the beneficiary. In such cases, it is necessary to carefully examine the extent to which this additional taxation can still be claimed in Germany.
Tax Reduction Before the Inheritance Takes Effect
The most effective tax planning is typically done during one's lifetime. Unfortunately, this advice is rarely followed, resulting in immense amounts of avoidable taxes.
Design options include:
a) Gifts Made During One's Lifetime
Use of German tax-exempt allowances
(e.g., €400,000 for children every ten years)ITCMD also occurs in Brazil, though the severity is often moderate
Staggering asset transfers reduces the overall tax progression
b) Usufruct and Retention-of-Title Models
Transfer of Real Estate Subject to a Right of Usufruct
Reduction of the German tax base
Generally recognized in Brazil, but assessed differently by state
Careful harmonization of both legal systems is absolutely essential.
c) Matrimonial Property Regimes and Family Planning
Utilization of the Effects of Matrimonial Property Law Between Spouses
Adapting Existing Wills to German and Brazilian Law
Avoiding Unintended Shifts in Statutory Inheritance Shares or Allocations
d) Asset structuring
Separation of German and Brazilian Assets
Review of corporate law solutions (e.g., holding company structures)
Simultaneous Review of Exit and Abuse Cases
Tax Optimization Following the Opening of the Estate
Even after a death, there is often still significant room for action.
a) Accurate valuation of Brazilian assets
The Brazilian assessed value is not binding in Germany.
Therefore, the following are possible:
Claiming Lower Market Values
Obtaining (Second) Expert Opinions
Significant tax implications, particularly with regard to real estate
b) Credit for Foreign Taxes (Section 21 of the Inheritance Tax Act)
The prerequisite is accurate documentation:
ITCMD Payment Receipts
clear allocation to individual assets
Compliance with Deadlines Set by the Tax Office
c) Distribution of the estate and bequests
Intrafamily agreements can have tax implications
However: Be careful—there may be additional gift tax implications!
d) Deferral and Payment in Installments
In the event of a lack of liquidity—particularly in the case of estates with a high proportion of real estate—an application can be filed in Germany for
Deferral or Payment in Installments Pursuant to Section 28 of the Inheritance Tax Act (ErbStG)
will be assessed. The tax will initially be deferred without interest, and installment payments are also possible.
Conclusion: Without cross-border planning, there is a risk of significant additional burdens
Inheritance cases involving Germany and Brazil are highly complex from a tax perspective. Without early planning, this can result in a significant cumulative tax burden that, in many cases, could have been avoided from a financial standpoint.
In particular, the following are required:
in-depth knowledge of both tax and inheritance law systems,
Experience with the practical application of the Brazilian ITCMD,
as well as close coordination between estate planning and tax advisory services.
