Brazil’s Complementary Law No. 227/2026 and Its Impact on Inheritance and Gift Taxation (ITCMD).

Complementary Law No. 227/2026, enacted as part of the regulatory framework implementing Constitutional Amendment No. 132/2023, establishes nationwide tax guidelines and introduces structural adjustments to Brazil’s constitutional tax system. Among its provisions, the law sets forth general rules applicable to the Tax on Inheritance and Gifts (Imposto sobre Transmissão Causa Mortis e Doação – ITCMD), a state-level tax with growing relevance for individuals holding assets or conducting estate planning involving Brazil.

Federal authority and binding general rules

Under the Brazilian Constitution, the federal government is vested with authority to enact general tax rules that must be observed by states and the Federal District. Complementary Law No. 227/2026 exercises this authority by issuing binding guidelines on the ITCMD pursuant to Article 146, item III, of the Constitution. As a result, state and district legislation governing the tax must now conform to the standards established at the federal level.

Mandatory progressive taxation

The new law expressly requires the ITCMD to follow a progressive rate structure, based on the value of the transferred asset, right, or inheritance. This approach aligns the tax with current constitutional principles and reinforces the use of progressive taxation in wealth transfers.

While the law mandates progressivity, the specific tax rates and value brackets remain within the legislative discretion of each state and the Federal District, provided they adhere to the general framework established by the complementary law.

Rules determining taxing jurisdiction

Complementary Law No. 227/2026 consolidates objective criteria for determining which state or district authority has jurisdiction to levy the ITCMD. Key rules include:

• the location of the property, in the case of real estate transfers;

• the domicile of the deceased, for inheritance involving movable property, rights, securities, or credits; and

• the domicile of the donor, in the case of gifts of movable assets, rights, securities, or credits.

These jurisdictional standards are now formally incorporated into Brazil’s general tax framework, promoting greater legal certainty and consistency among the states.

Transfers involving foreign assets

A particularly significant aspect of the new legislation is its treatment of inheritances and gifts involving assets, rights, or funds located outside Brazil. The law addresses a longstanding constitutional requirement that cross-border ITCMD matters be regulated by a federal complementary law, thereby providing a legal basis for state taxation of foreign-located assets in inheritance and donation scenarios.

This provision has direct implications for Brazilian individuals residing abroad, as well as for families and business owners with international asset structures.

Tax base and valuation

With respect to valuation, the law reaffirms that the ITCMD tax base corresponds to the fair market value of the asset or right transferred. This principle reflects established Brazilian tax doctrine and general tax law standards, emphasizing market value as the appropriate reference for tax assessment purposes.

Position within Brazil’s reformed tax system

Although the ITCMD is not part of the newly created Goods and Services Tax (IBS), Complementary Law No. 227/2026 integrates the tax into the broader framework of Brazil’s reformed constitutional tax system. Accordingly, the interpretation and application of ITCMD rules must align with the principles and structural guidelines introduced by Constitutional Amendment No. 132/2023 and its implementing legislation.