LC 227/2026 Explained — Brazil’s ITCMD Reform

Lei Complementar 227/2026 is Brazil’s comprehensive reform of inheritance and gift taxation (ITCMD), enacted to implement the constitutional amendments introduced by EC 132/2023. The law mandates progressive ITCMD rates across all states, establishes market value as the mandatory tax base, introduces taxation of trusts and trust-like structures, expands donation aggregation rules, and — most critically for foreigners — authorizes ITCMD on inheritances and donations involving assets located abroad. LC 227/2026 represents the most significant change to Brazilian succession taxation in three decades.

What Are the 5 Key Changes in LC 227/2026?

1. Progressive Rates Are Mandatory. All states must replace flat ITCMD rates with progressive structures. The federal ceiling remains 8% (Resolucao do Senado 9/1992), but states can no longer charge a single flat rate. High-value estates will pay significantly more.

2. Market Value Is the Standard. Art. 154 requires ITCMD to be calculated on the market value (valor de mercado) of transferred assets — not assessed values, book values, or declared values. This closes the valuation gap that reduced effective ITCMD rates by 30-60%.

3. Trusts and Trust-Like Structures Are Taxable. Arts. 146-151 create a framework for taxing trusts — a category previously unaddressed in Brazilian tax law. This affects every American in Brazil with a US revocable trust, irrevocable trust, or family trust holding assets for their benefit.

4. Donation Aggregation Over 5 Years. Arts. 155-157 require donations to be aggregated over a 5-year rolling window for purposes of applying progressive rates. This prevents the strategy of splitting large gifts into small annual amounts to remain in lower brackets.

5. Foreign Assets Are Now Jurisdictionally Covered. Art. 152 provides the complementary legislation that the STF required in RE 851.108 to tax inheritances and donations involving foreign assets. Brazilian residents inheriting from abroad now owe ITCMD to their state of domicile.

How Did We Get Here? Timeline of the Reform

Date	Event	Significance
2021	STF decides RE 851.108	Rules that states cannot tax foreign inheritances/donations without federal complementary law
Dec 2023	EC 132/2023 enacted	Constitutional amendment mandating progressive ITCMD rates and authorizing complementary legislation
2024-2025	Legislative process	PLP drafts debated in Congress, public consultations with tax authorities and bar associations
Jan 2026	LC 227/2026 signed	Complementary law enacted, establishing the new ITCMD framework
2026	State implementation window	States must enact implementing legislation adapting their ITCMD laws to LC 227/2026
2027+	Effective dates	New progressive rates and rules take effect per each state’s anterioridade principle (minimum 90-day waiting period after state legislation)

“LC 227/2026 is the most consequential change to Brazilian succession taxation since the 1988 Constitution. Every American in Brazil with a trust, holding company, or foreign inheritance needs to reassess their plan before state implementation begins.” — Zachariah Zagol, OAB/SP 351.356

Key point: LC 227/2026 establishes the federal framework, but each state must pass its own implementing legislation. The rates, brackets, and exemptions will vary by state. States that already have progressive rates (RJ, SC, BA) need only minor adjustments. States with flat rates (SP, MG, PR) require significant legislative changes.

What Does Each Key Article Change?

Arts. 146-151: Trust Provisions

These articles are unprecedented in Brazilian tax law. They define how ITCMD applies to trusts — a legal concept that does not exist in Brazilian civil law but is ubiquitous in Anglo-American estate planning.

Before LC 227/2026: No specific rules. Tax authorities sporadically attempted to tax trust distributions as donations, with inconsistent results. Many American expats held assets in US trusts with no Brazilian ITCMD consequence.

After LC 227/2026:

Trust Event	ITCMD Treatment
Creation of trust with Brazilian-domiciled settlor	May trigger ITCMD as a donation at the time assets are transferred to the trust
Distribution from trust to Brazilian-domiciled beneficiary	Triggers ITCMD as a donation (inter vivos) or inheritance (causa mortis), depending on the triggering event
Settlor death (irrevocable trust)	Assets deemed transferred at death; ITCMD applies as causa mortis
Settlor death (revocable trust)	Assets included in the estate; ITCMD applies as causa mortis
Trust holding Brazilian real estate	ITCMD applies regardless of where the trust is established

“The trust provisions in Arts. 146-151 effectively ended the argument that US trusts were invisible to Brazilian tax authorities. If you have a revocable trust and live in Brazil, the planning window to restructure is measured in months, not years.” — Zachariah Zagol, OAB/SP 351.356

Impact on American expats: If you have a US revocable living trust — the most common American estate planning vehicle — your Brazilian ITCMD exposure has fundamentally changed. The trust assets are now explicitly included in your estate for ITCMD purposes. If you have an irrevocable trust that makes distributions to you in Brazil, each distribution may trigger ITCMD as a donation. See our trust advisory service for restructuring guidance.

Art. 154: Market Value as Tax Base

Art. 154 mandates that the ITCMD tax base be the valor de mercado (market value) of the transferred assets.

Before LC 227/2026: States used various reference values. In Sao Paulo, the valor venal de referencia for real estate was often 30-60% below actual market value. Many estates used IPTU assessed values (even lower) with little pushback from SEFAZ. Holding company quotas were valued at book value, not the market value of underlying assets.

After LC 227/2026:

Asset Type	Old Valuation Practice	New Valuation Standard
Real estate	IPTU value or valor venal de referencia (30-60% of market)	Appraised market value; state databases as reference
Listed stocks	Closing price at date of death	Closing price at date of death (unchanged)
Private company quotas	Book value (patrimonio liquido)	Fair market value of the company, including underlying assets
Financial investments	Account balance at date of death	Account balance at date of death (unchanged)
Vehicles	FIPE table	FIPE table (unchanged)

Impact on holding companies: The most significant impact is on holding company structures. Previously, transferring real estate worth R$10 million into a holding company and then donating the quotas could result in ITCMD calculated on the company’s book value of, say, R$3 million. Under Art. 154, the tax authority can — and will — look through the corporate structure and assess ITCMD on the R$10 million market value.

Arts. 155-157: Donation Aggregation

These articles introduce a 5-year rolling aggregation window for donations.

Before LC 227/2026: In states with progressive rates, a donor could make annual donations below the threshold for the top bracket, keeping each individual donation in the lowest rate band. A R$5 million gift could be split into 5 annual gifts of R$1 million, each potentially taxed at the lowest progressive rate.

After LC 227/2026: All donations from the same donor to the same donee within a 5-year period are aggregated for purposes of determining the applicable progressive rate. The R$5 million split over 5 years would be aggregated and taxed at the same progressive rate as a single R$5 million gift.

Transition rule: Donations made before the effective date of the state’s implementing legislation are not retroactively aggregated. This creates a narrowing window for pre-reform donation planning.

Art. 158: Progressive Rate Mandate

Art. 158 requires all states to adopt progressive ITCMD rates, implementing the EC 132/2023 constitutional mandate.

Before LC 227/2026: States could choose flat or progressive rates. Major states like SP (4%), MG (5%), and PR (4%) chose flat rates — effectively making ITCMD regressive, as a R$100,000 inheritance and a R$100 million inheritance paid the same percentage.

After LC 227/2026: All states must implement progressive rate schedules. The federal ceiling of 8% remains (RS 9/1992), and the floor is set at 2% for the lowest bracket. Each state designs its own brackets and rates within these bounds.

Projected SP rate structure (based on legislative proposals):

Estate/Donation Value (R$)	Projected SP Rate
Up to R$353,600 (10,000 UFESPs)	Exempt
R$353,600 - R$1,060,800	2%
R$1,060,800 - R$3,536,000	4%
R$3,536,000 - R$10,608,000	6%
Above R$10,608,000	8%

Note: These brackets are projections based on PL 7/2024 (SP). Final rates depend on the state legislature’s enacted law.

How Does LC 227/2026 Change Jurisdiction Rules for ITCMD?

Before the reform, the jurisdictional rules for ITCMD were fragmented and contested. LC 227/2026 Art. 152 establishes clear rules:

Transaction Type	Old Rule	New Rule (LC 227/2026 Art. 152)
Inheritance — Brazilian assets, Brazilian heir	ITCMD to state where inventory is filed (last domicile of deceased)	Unchanged
Inheritance — Brazilian assets, foreign heir	ITCMD to state where asset is located	Unchanged
Inheritance — Foreign assets, Brazilian heir	No ITCMD (per STF RE 851.108)	ITCMD to state where Brazilian heir is domiciled
Donation — Donor in Brazil	ITCMD to donor’s state of domicile	Unchanged
Donation — Donor abroad, Brazilian donee	No ITCMD (per STF RE 851.108)	ITCMD to donee’s state of domicile
Donation — Brazilian donor, donee abroad	ITCMD to donor’s state of domicile	Unchanged (foreign donee owes ITCMD on Brazilian assets)

The practical impact for Americans in Brazil is substantial. A US parent who dies leaving a $3 million IRA to their American child living in Sao Paulo now triggers ITCMD in Sao Paulo — on top of any US estate tax. This creates a new double-taxation scenario that did not exist before 2026. The STF’s 2021 ruling in RE 851.108 had temporarily blocked this taxation, but LC 227/2026 provides the complementary legislation the Court required. For Americans navigating both systems, the Brazil-US income tax treaty (Decreto 85.985/1981) does not cover estate or gift taxes, leaving no automatic relief mechanism.

What Are the Anti-Avoidance Provisions?

LC 227/2026 includes several provisions designed to prevent common ITCMD avoidance strategies:

Art. 154, paragraph 2 — Look-through for corporate structures: When a holding company’s primary assets are real estate, the state tax authority can value the company’s quotas at the market value of the underlying real estate rather than book value. This directly targets the holding company strategy used by many foreign investors to reduce ITCMD.

Art. 155, paragraph 3 — Sham donation identification: The tax authority can recharacterize transactions structured as sales or loans between family members as donations for ITCMD purposes. The burden of proof shifts to the taxpayer to demonstrate the transaction was genuinely at arm’s length.

Art. 148 — Trust veil-piercing: For trusts where the settlor retains effective control (including US revocable trusts), the tax authority treats the trust as transparent — meaning the assets are treated as directly owned by the settlor for ITCMD purposes.

Art. 157 — Aggregation anti-fragmentation: The 5-year rolling aggregation specifically targets the practice of splitting donations across multiple calendar years to keep each individual donation in the lowest progressive bracket. The aggregation applies per donor-donee pair, not per transaction.

Who Is Most Affected by LC 227/2026?

American Expats in Brazil

The double impact is severe: (1) your US trust is now visible to Brazilian ITCMD, and (2) inheritances you receive from US relatives are now taxable in Brazil. An American living in Sao Paulo who inherits $2 million from a parent in the US previously owed zero ITCMD. Under LC 227/2026, that inheritance will be taxed at progressive rates — potentially 6-8% — on the full value. That’s R$600,000-R$800,000 in ITCMD on an inheritance that is also subject to US estate tax if the parent’s estate exceeds the federal exemption.

Holding Company Owners

The market value mandate in Art. 154 and the look-through rules for corporate structures reduce the ITCMD efficiency of holding companies. This doesn’t eliminate holding companies as a planning tool — they still offer liability protection, succession management, and income tax advantages — but the pure ITCMD arbitrage is significantly diminished.

Trust Beneficiaries

Americans with beneficial interests in US trusts (revocable or irrevocable) face new ITCMD exposure on distributions. The trust provisions in Arts. 146-151 are broadly drafted and will capture most common US trust structures. Trust advisory is now essential for any American in Brazil who is a settlor, beneficiary, or trustee of a US trust.

Foreign Investors with Brazilian Assets

Investors who hold Brazilian real estate or private company equity through foreign structures face the same market value and progressive rate changes. The holding company restructuring that was common among European and American investors will need to be re-evaluated under the new framework.

Dual Citizens and Permanent Residents

Brazilian-American dual citizens face compounded exposure. As US citizens, they owe US estate tax on worldwide assets. As Brazilian domiciliaries, they now owe ITCMD on inherited foreign assets under LC 227/2026. A dual citizen living in SP who inherits $1M from a US relative could face $0 US estate tax (within exemption) but R$40,000+ in Brazilian ITCMD — a tax that simply did not exist before 2026.

How Does LC 227/2026 Interact with Existing State Laws?

LC 227/2026 is a federal framework law — it establishes the rules that states must follow, but each state retains authority over its own ITCMD rates, brackets, and exemptions. The interaction creates a layered implementation:

Immediate effect provisions: The jurisdiction rules (Art. 152), trust taxation framework (Arts. 146-151), and market value mandate (Art. 154) take effect at the federal level upon enactment. However, states must update their own ITCMD laws to operationalize collection.

State-dependent provisions: Progressive rates (Art. 158) and donation aggregation (Arts. 155-157) require state implementing legislation. Until a state enacts its own law, the old flat rates remain in effect — creating the current planning window.

Transitional rules: LC 227/2026 Art. 160 provides that:

• Inventory proceedings already in progress on the effective date of state legislation follow the old rules
• Deaths occurring before the state’s effective date follow the old rules (even if the inventory is filed after)
• Donations completed before the effective date are taxed at old rates (but count toward the 5-year aggregation window)

State-by-state implementation tracker:

State	Progressive Rate Status	Trust Provisions Status	Market Value Status	Expected Effective Date
Sao Paulo	PL under review	Awaiting state regulation	SEFAZ already using reference values	H1 2027
Rio de Janeiro	Already progressive — minor adjustments	Regulations drafted	Already using reference values	H2 2026
Minas Gerais	PL under development	Awaiting federal guidance	Transition planned	H1 2027
Santa Catarina	Already progressive — minor adjustments	Under review	Partially implemented	H2 2026
Parana	PL under development	Awaiting state regulation	Not yet addressed	H1 2027
Rio Grande do Sul	Already semi-progressive — expanding	Under review	Partially implemented	H1 2027

Note: This tracker reflects the status as of early 2026. State legislatures may accelerate or delay their implementation schedules.

What Should You Do Now?

The window between LC 227/2026’s enactment and state-level implementation is the last opportunity for certain planning strategies. Here’s what to prioritize:

Actions for 2026 (Before State Implementation)

Action	Why Now	Potential Savings
Complete lifetime donations in flat-rate states	Lock in current flat 4% rate before progressive rates take effect	Up to 50% ITCMD reduction on high-value transfers
Restructure holding companies	Establish book values and transfer quotas before market value enforcement	Significant, depending on asset appreciation
Review US trust structures	Determine ITCMD exposure under Arts. 146-151 before enforcement begins	Avoid surprise ITCMD on trust distributions
Evaluate insurance (VGBL) rebalancing	VGBL remains outside the ITCMD base; reallocating now preserves the benefit	100% ITCMD elimination on reallocated amounts
Update Brazilian and US wills	Ensure coordinated estate plans reflect new tax realities	Prevent contradictory provisions that increase tax

Actions for 2027+ (After State Implementation)

Once progressive rates are in effect, the focus shifts to ongoing optimization:

• Annual compliance reviews to monitor state-level implementation and rate changes
• Strategic use of the remaining exemptions and deductions
• Coordination of donation timing with the 5-year aggregation window
• Marriage regime review to optimize the surviving spouse’s meacao vs. inheritance split
• Cross-border tax credit planning for US-Brazil dual exposure

Frequently Asked Questions

When does LC 227/2026 take effect?

LC 227/2026 itself is already in force as the federal framework. However, ITCMD is a state tax, so each state must pass implementing legislation. The anterioridade principle requires a minimum 90-day waiting period (and usually the start of the next calendar year) after state legislation is enacted. Most states are expected to have new rates effective January 2027, though some may delay into 2028.

Does LC 227/2026 affect existing holding companies?

Yes. The market value standard in Art. 154 applies to future transfers of holding company quotas — including those in companies established before the law. The corporate structure itself is not retroactively taxed, but the next transfer event (death or donation of quotas) will be assessed at market value rather than book value.

Can I still make donations before the new rates take effect?

Yes — and this is the primary planning window. Donations made before your state’s progressive rate legislation takes effect are taxed at current rates. In Sao Paulo, this means a flat 4% until the state implements its progressive schedule (expected 2027). However, post-reform donation aggregation rules (Arts. 155-157) will apply to donations made within 5 years of the effective date, so timing is critical.

How does the trust taxation work for US revocable trusts?

A US revocable living trust — where the settlor retains control over assets during their lifetime — is treated for ITCMD purposes as if the assets are directly owned by the settlor. At the settlor’s death, the trust assets are included in the estate and subject to ITCMD causa mortis. During the settlor’s lifetime, distributions to third-party beneficiaries may trigger ITCMD as donations. The practical effect is that a US revocable trust provides zero ITCMD benefit in Brazil.

What is STF RE 851.108 and why does it matter?

RE 851.108 was a landmark 2021 Supreme Court decision that held states could not tax ITCMD on inheritances and donations involving foreign assets without specific authorization from a federal complementary law. This effectively created a tax-free window for foreign inheritances received by Brazilian residents. LC 227/2026 is the complementary law the STF required — meaning the tax-free window is now closed.

Will the 8% maximum rate increase?

Not without a new Resolucao do Senado. The 8% ceiling was set by RS 9/1992 and can only be changed by the Senate. There have been proposals to raise it to 16% or 20%, but none have advanced. The current reform focuses on making all states use the existing 8% ceiling through progressive structures, rather than raising the ceiling itself.

Should I move from a high-rate state to a low-rate state?

ITCMD on inheritance is owed to the state of the deceased’s last domicile. If you genuinely relocate from RJ (up to 8%) to a state with lower rates, your estate benefits from the lower rate. However, SEFAZ authorities actively investigate domicile claims, and a change made shortly before death with no genuine connection to the new state will be challenged. The move must be genuine, with demonstrable ties (residence, utility bills, voter registration, CPF address).

How does LC 227/2026 affect life insurance and VGBL plans?

LC 227/2026 does not explicitly address VGBL plans. The prevailing judicial interpretation — that VGBL is an insurance product, not an estate asset — remains intact. However, state tax authorities have been emboldened by the reform’s generally expansive approach and are expected to continue challenging the VGBL exemption, particularly for plans with large balances or recent lump-sum contributions. PGBL plans remain clearly subject to ITCMD, as they are classified as financial investments rather than insurance. The strategic recommendation is to maintain the VGBL classification defense but not rely on it as the sole ITCMD planning strategy.

Does the reform create retroactive tax liability?

No. LC 227/2026 Art. 160 contains explicit non-retroactivity provisions. Inheritances from deaths that occurred before the state’s effective date are governed by the old rules. Donations completed before the effective date are taxed at old rates. However, pre-effective-date donations DO count toward the 5-year aggregation window for purposes of calculating the progressive rate on future donations — meaning a large donation made in 2026 could push a 2027 donation into a higher bracket.

Why ZS Advogados for LC 227/2026 Planning?

LC 227/2026 planning requires an attorney who understands both the Brazilian tax reform and the foreign structures it now targets — US trusts, holding companies established for foreign investors, and cross-border inheritance patterns. Zachariah Zagol, the first American admitted to the Brazilian Bar (OAB/SP 351.356), has been advising American and European clients on ITCMD optimization since before the reform was enacted. With an LL.M. from USC Gould and over 15 years of cross-border practice, Zac provides the dual-jurisdiction perspective essential for navigating a law that explicitly brings foreign structures into the Brazilian tax net.

Book your LC 227/2026 planning session or read our comprehensive ITCMD guide.