On 14 January 2026, Brazil enacted Complementary Law No. 227/2026 (LC 227), the second piece of legislation implementing the constitutional Tax Reform. Although the Reform is best known for the introduction of the new VATtype taxes (IBS and CBS), LC 227 also rewrites the general rules of the State tax on inheritances and gifts (ITCMD), a levy historically left to twenty-seven different State statutes. For families with assets, heirs or donors between Brazil and Germany – or other countries abroad – the changes deserve careful attention.
A central novelty concerns cross-border transmissions. The Federal Constitution required, and still requires, a federal complementary law regulating the State’s competence to tax inheritances and gifts involving foreign elements, namely assets located abroad, deceased persons whose probate was conducted abroad, or non-resident donors.
In the absence of such complementary law, the Federal Supreme Court ruled, in the binding decision of Theme 825 (2021), that States could not levy ITCMD until the required complementary law was enacted. LC 227 finally fills that legislative gap. The constitutional requirement has not changed; what has changed is that the complementary law it demands now exists. Effective collection, however, still depends on each State adapting its own legislation to the new general rules, so the timing of the actual tax exposure will vary by State.
Under Article 159 of LC 227, when the deceased or the donor is domiciled abroad, the ITCMD is due to the Brazilian State (or the Federal District) where the heir or the donee is domiciled. When both parties to the transmission are domiciled abroad but the asset is located in Brazil, the ITCMD is due to the State where the asset is situated (Article 159, III).
This raises a structural concern that the Brazilian legislator did not address: the risk of double taxation. To the extent that the other jurisdiction involved in the transmission also levies a tax on inheritances or gifts, the aggregate burden on the same patrimonial event can become significant. Brazil and Germany have no treaty allocating taxing rights over inheritances and gifts. The bilateral treaty signed for income tax purposes was denounced by Brazil in 2005 and has never been replaced. However, even when in force, that treaty applied only to income taxes and would not have reached ITCMD or any equivalent foreign levy on transmissions, since wealth-transfer taxation lies outside its material scope.
A second important change is the mandatory progressivity of rates. Article 156 of LC 227 obliges all States to adopt progressive brackets based on the value of the share, legacy or gift. The federal ceiling remains at 8%, as fixed by Senate Resolution. States that historically applied flat rates will need to legislate brackets to conform. It is expected that, during this year, the States that still apply flat rates will enact new statutes introducing progressive schedules, as required by the complementary law. Under the constitutional principle of annual anteriority, those new statutes will, as a rule, only produce effects in the following year. In São Paulo, for example, no new statute has been enacted so far, and the current 4% flat rate continues to apply until the State legislature acts and the anteriority period elapses. The transition timing is therefore an open variable, with relevant implications for any anticipation of succession that is already under consideration.
A third change deserves particular attention from holding-company structures, which are widely used in Brazil for succession purposes.
Article 154 of LC 227 redefines the tax base for shares and quotas of non-listed companies. The new base must be calculated by a technically sound methodology that reflects market value and shall correspond, at a minimum, to the adjusted net equity, with assets and liabilities marked to market, plus the market value of goodwill. This is a material departure from the criterion historically applied in some States, such as São Paulo, where the tax base for non-listed quotas has been the patrimonial value, understood as the book net equity calculated from the value at which assets were contributed to the company, typically the historical cost reported in the donor’s individual income tax return. The State of São Paulo had attempted to require taxation based on market value, but the São Paulo Court of Appeals has consistently rejected that position.
As with the progressivity rule, State statutes that do not yet adopt market value as the base, such as the São Paulo statute, will need to be amended to reflect LC 227, and those amendments will, as a rule, only produce effects in the year following their enactment, by virtue of the anteriority principle. There is, therefore, a window of opportunity to carry out donations of quotas under the current historical cost base before the relevant State legislation is changed. Once it changes, real-estate holdings whose properties were contributed at historical cost will see their ITCMD base rise materially, often by multiples of the previous figure. As a consequence, after the State laws are amended, the ITCMD advantage of donating quotas of real-estate holdings (with a base calculated at historical cost) as compared to donating the underlying properties directly (whose base has long been the venal value, close to market value) will be neutralized. Other tax advantages traditionally associated with holding structures remain unaffected, in particular the lower corporate income tax burden compared to taxation at the individual level, alongside their utility as governance and asset-protection tools.
For Brazilian-German families and businesses, the recommendation is concrete: existing structures involving offshore holding vehicles, anticipated cross-border gifts, or successions whose planning has been postponed should be reviewed under the LC 227 framework, ideally before the relevant State statutes are amended. What was deferred may soon become taxable; what was undervalued will be marked to market; and what crossed borders untaxed now has, in many cases, a clear destination, normally the State where the Brazilian heir or donee lives.
Julia de Menezes Nogueira is a consultant at Pacheco Neto Sanden Teisseire Advogados.
