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STF declares 25% Income Tax on Retirement Payments to Non-Resident Unconstitutional The Brazilian Supreme Federal Court (STF) has ruled that the 25% income tax withheld at source on retirement and pension payments made to individuals residing abroad is unconstitutional. The decision was issued in Extraordinary Appeal (ARE) 132749, under the General Repercussion system (Theme 1174). The withholding obligation was based on Article 7 of Law 9,779/99, which equates pension and retirement income remitted abroad with income from labor or services for tax purposes. According to the majority opinion, led by Justice Dias Toffoli, merely residing outside Brazil does not reflect greater economic capacity and therefore cannot justify a higher tax burden compared to retirees residing in Brazil. The case in question involved a retiree living in Portugal who received the equivalent of Brazil’s minimum wage yet was still subject to the 25% withholding tax. The STF found the tax rule unconstitutional for violating the constitutional principles of progressivity, equality, non-confiscation, and the obligation to protect the elderly. While the decision takes effect from its publication and has binding authority, it does not prevent the future enactment of legislation that differentiates tax treatment between residents and non-residents—so long as such differentiation respects constitutional principles of ability to pay and proportionality. In this context, Bill 1418/2007, which proposes a differentiated income tax treatment for non-resident individuals, remains under discussion in the Chamber of Deputies, though it has been inactive since 2021. If you have questions about how this ruling may affect your tax obligations or planning, our tax law team is available to assist. Contact us at tributario@lbm-legal.com.br

In a unanimous decision issued in AgReg in RE 1.439.539/RS, the First Panel of the Brazilian Supreme Federal Court (STF) ruled out the requirement of Income Tax in a case involving the donation of assets by an individual as an advance inheritance. The tax had been levied on the capital gain corresponding to the difference between the acquisition cost and the value assigned to the assets at the time of donation. However, Justice Flávio Dino, reporting the case, emphasized two key points that led the Court to reject the tax: (i) no increase in the donor’s net worth occurs in a donation, as the donor’s total assets are reduced by the gift; and (ii) the donation is already subject to Estate and Gift Tax (ITCMD) at the state level, meaning that applying federal income tax would constitute unconstitutional double taxation on the same event. While this STF decision does not have binding effect for all courts, it sets an important judicial precedent that can be used to challenge similar tax assessments. It provides greater legal certainty for individuals who wish to donate assets at market value as part of an inheritance plan, particularly in cases involving family asset planning and succession strategies. If you have questions about how this STF decision may impact your donation strategy, inheritance planning, or tax obligations, our tax law team is ready to help. Reach out to us at tributario@lbm-legal.com.br.