The Brazilian political and economic landscape has darkened in recent years. With a sluggish economy (in 2015, the economy shrank by 3,8%, the worst figure since 1981, inflation reached 10,7%, and the budgetary deficit 11% of Brazilian GDP), an unstable political environment (motion to impeach President Dilma Roussef and criminal scandals involving prominent Brazilian politicians) and increasing delinquency rates, Brazil is clearly becoming an unappealing jurisdiction for wealthy Brazilian individuals and their families.
In this context, some Brazilian wealthy families are looking at alternatives, in particular relocating to jurisdictions with which they have natural cultural ties, and where they will be able to maintain their lifestyle and benefit from a more stable political and social environment.
Portugal: an attractive destination for wealthy individuals and their families
Since 2008, Portugal has undergone deep economic and structural reform in order to stabilise its economy and comply with the standards and rules set by the European Union and the International Monetary Fund. Nonetheless, throughout the process, Portugal has been able to maintain its key defining features which make it one of the most alluring countries in which to live and to relocate to. For instance, Portugal is a country where public safety is not a main concern, the standard of living is still high and the climate is mild in any season.
On the fiscal side, Portugal has become an attractive jurisdiction with (i) no taxation being applied on transfers between spouses, descendants or ascendants, (ii) no wealth tax being applied on the patrimony held by resident individuals and (iii) no “exit-tax” applicable when leaving Portugal.
In addition, Portugal approved a personal income tax system in 2009 for non-regular residents (the Portuguese “non-habitual tax resident regime”) aimed at attracting to Portugal wealthy individuals and their families, amongst others. Under this scheme, approved applicants can benefit from tax exemption on foreign source income for a 10-year period, which renders this tax regime especially attractive for individuals holding wealth offshore such (which is the case for most wealthy Brazilians).
In parallel, foreigners willing to relocate to Portugal will be able to apply for the Portuguese “golden visa” which will enable them to lawfully reside in Portugal and obtain the free right to access any country within the “Schengen” area. The granting of the visa by the Portuguese Authorities is subject to certain “investment” requirements laid down in the Portuguese law which are not in most cases difficult to meet for wealthy individuals.
Holding investments through a compliant solution in Portugal
Many wealthy Brazilians have their wealth structured through well-known investment vehicles such as trusts, foundations, partnerships or offshore corporate structures located in low-tax jurisdictions. These are investment vehicles which might be efficient for Brazilian residents but usually are highly inefficient when relocating to Portugal as these have been specifically targeted by Portuguese tax transparency legislation and fiscal anti-avoidance rules enacted in Portugal.
Once Portuguese residency is gained, Brazilian clients need to carefully assess with their advisors the possible compliant investment structures that could allow them to hold all their investments under a flexible structure subject to an efficient tax treatment in Portugal.
Unit-linked life insurance remains a proven and tax efficient instrument recognised as part of both the European and Portuguese tax and legal frameworks. The combination of the advantageous local tax rules applicable to life insurance and the flexible investment rules applicable to Luxembourg insurance carriers make some unit-linked life insurance solutions offered from Luxembourg a unique proposition for these clients.
Insurance solutions can be tailored to meet the needs of specific clients. Multiple portfolios custodied by different banks or managed by different managers can be integrated into one life contract. Complex investments and assets can be held under the umbrella of the policy, a traditional wealth planning tool whose tax and legal treatment is clear and stable, and one which is broadly recognised all through Europe. Complex succession planning can be achieved through life insurance and the Luxembourg policyholder protection regime provides for one of the best asset protection regimes in the world in case of failure of the insurance company or the custodian bank.
Planning ahead for a possible return to Brazil
Unit-linked life insurance is also a smart wealth planning solution for clients currently planning to move back to Brazil in the future, alone or together with their families, and/or for clients with a view of planning an efficient transfer to the next generation.
If correctly implemented, holding a life insurance policy once the client becomes a Brazilian resident once again could continue providing full tax deferral on any gains accrued under the policy (i.e. the holder of the policy would only be taxed if any withdrawals were made out of the policy). And once the client passes away, the transfer of wealth to the next generation would be made in an organised manner and in a tax efficient manner (ie. any indemnity out of the policy paid to any Brazilian or Portuguese resident beneficiary (ies) would be tax exempt).
By Pablo Peciña, Senior Wealth Planner
If you need any questions or require further information, please contact your usual Lombard International Assurance representative.
This article was published on the fundspeople.es platform in Portuguese.