Latin America’s sleepinggiant
When itcomes to Latin America, Brazil is the giant of the region. Its prominence isthe result of a combination of many factors including its size, diversified naturalresources and a huge consumer market. In the 2000s, the economy profited fromglobal growth and high demand for its commodities. In 2008, the globalfinancial crisis put such prosperity under threat, although the country wasable to partially contain its effects. Unfortunately, Brazil did not viewits commodities boom as an opportunity to tackle important issues that havebeen challenging sustainable economic growth for decades. Instead, it kept thesame mediocre policies. It did not push forward with the necessary fiscal and political reforms, nor didit make essential investments ininfrastructure.
Furthermore,the country has been gripped since the beginning of 2015 by an endemiccorruption scandal known as Operation Car Wash. It dominated internationalheadlines and impacted on people at the highest levels of business andpolitics, including former presidents Lula and Dilma. This widespreadcorruption scandal has been testing Brazil’s institutional and democratic limits.As a result, many have claimed the country suffered its worst recession.Despite hints of a recovery underway and a new president elected, the qualityof life is still not improving for Brazilians. The jobless rate is high andviolent crime is on the rise due to drug-related activities and widespreadpolice corruption. Access to quality public services such as education andhealth care is still a huge challenge. Despite its potential and size, Brazilis a sleeping giant intoxicated by its socioeconomic challenges and corruptionscandals.
Portugal’s many advantages
Amidst thepolitical and economic uncertainty, over the past few years a Braziliandiaspora has been spreading and one of the favorite destinations so far hasbeen Portugal. Among its attractions are: a great quality of life, no languagebarrier, cultural proximity and a low cost of living. In addition, Portugal isvery much ‘in vogue’ nowadays and even Madonna has been extolling the delightsof living in the sunshine capital of Europe!
At themeeting point of three continents, the Iberian nation boasts an advantageousgeographic location and excellent transport connections both to the rest ofEurope and overseas destinations. Once the hub of a colonial empire, it offerstouristic sites full of history and impressive architecture redolent of pastimperial glory. Whether in the northern Douro Valley wine region or on the southernAlgarve coast, the country offers an excellent affordable lifestyle and a veryattractive fiscal regime with no wealth or inheritance taxes. Portugal also has anextensive double tax treaty network to mitigate the risk of double taxation ofincome earned in multiple countries. In addition, the government has stimulatedinbound mobility by creating the Non-Habitual Resident regime (NHR) and theGolden Visa program.
Anindividual may qualify as a NHR by registering as a tax resident in Portugal, aslong as they have not been tax-resident in any of the previous five years. Individuals meeting this condition maybenefit from the special regime for a 10-year period, involving a special taxrate of 20% applicable to work-related income from high added-value activitiesas well as tax exemption forforeign-source income. The Golden Visa programme offers a special residencecard for foreigners meeting an investment criterion, including a minimum €1million capital transfer or the purchase of real estate worth at least€500,000, allowing investors to live and work in Portugal. The residence permitalso allows visa exemption for travel within the Schengen Area and theopportunity to apply for permanent residence or citizenship.
Once theydecide to move to Portugal, Brazilian HNWI’s1 must meticulously assess the mostefficient and compliant way to structure their wealth.
Benefits of a foreign unit-linked lifeinsurance product
Unit-linkedlife insurance is a product fully recognised and compliant in Portugal. Since it entails a savings regime for individuals,it enjoys favorable tax treatment. By comparison with traditional fiduciarystructures, it can be a more effective means of investing and transferringwealth in a flexible and tax-efficient way. Although many people in Portugal arenot yet very familiar with this cover, demand has been increasing in recentyears as the high net worth community and its advisors learn about the productand its benefits for wealth structuring and asset protection. This enterprisingproduct offers the unique security of a contract issued in Luxembourg, aleading investment jurisdiction that offers the protection of a rigorous regimepopularly known as the Triangle of Security. In addition, Luxembourg offers taxneutrality since taxation is based on the policyholder’s country of residence. Moreover,contracts can be tailored to provide portability if individuals relocatebetween various jurisdictions during their lifetime. They also have access to aflexible and wide range of underlying assets, including external investmentfunds and internal collective funds, as well as dedicated funds that offerdiscretionary management according to the policyholder’s personal objectives.Another interesting feature is that clients may withdraw a portion of theiroriginal investment if needed. Regarding taxation, the attractive treatment ofunit-linked life insurance in Portugal provides a broad scope for inheritanceand tax planning. For death claims, lifeinsurance benefits are tax-free, notbeing subject to either income tax or stamp duty. In the case of surrenders,only the portion exceeding the amount initially invested is subject totaxation. If at least 35% of the totalpremiums are paid in the first half of the policy lifetime, either one-fifth or three-fifths of the incomemay be excluded from taxation in cases where the surrender takes place afterfive or eight years respectively of the contractual period, which could resultin an effective taxation rate as low as 11.2%.
All thesefactors mean that unit-linked life insurance may be the best option for Brazilian individuals resident inPortugal to hold financial assets thatcan produce income to be distributed throughout their lifetime. If properlystructured, it can be the most efficientwealth management tool, since it offersgreat flexibility in terms of investmentand a more attractive tax regime thanother options.
In a changingworld where transparency is ‘de rigueur’ and control is a priority forinvestors, unit-linked life insurance facilitates compliance with the evolvinglegal, regulatory and fiscal environment, at a time when certain traditionalstructures risk losing competitiveness and relevancy.
1 High Net Worth Individuals
Taiza Ferreira
Is a qualified lawyer registered with the Brazilian and Portuguese BarAssociations. Taiza graduated from Law School at Pontifical Catholic University, Rio de Janeiro(Brazil) and has a master’s degree in international and European business law from Université JeanMoulin Lyon III (France). Experienced ininternational tax advisory with a six-year ‘Big Four’ background in both LatAmand Europe, she has been working for the past years as a wealth structuringexpert in the Luxembourg life assuranceindustry. Taiza is Senior Wealth Planner at OneLife.
