From Tijuana to the penguins of Patagonia

Sunday, 01 September 2013
Klemens Zeller provides an overview of trust and estate issues in Latin America.

From an estate practitioner’s point of view, Latin America consists of 21 countries, including the Dominican Republic and Cuba, and excluding Haiti, Belize, Suriname and the Guyanas. It stretches from Tijuana at the northern Mexican border to Patagonia, with the penguins.

General observations

The legislative framework of Latin American countries derives from Roman, French and Spanish origins; typically, a civil code is the legal basis. Most jurisdictions apply a community property regime as a default way to govern the ownership of a married couple’s assets, and offer the option of a separate property regime (this is more common among younger couples). On death, the concept of legitima applies, and is akin to forced heirship. The notable exception among the larger economies is Mexico, which does not apply formal forced heirship laws. Argentina has the most restrictive regime, although a recent proposal seeks to reduce children’s and remoter issue’s legal share from four-fifths to two-thirds, and recognise prenuptial agreements.

Latin America is a region of wide inequality. Wealth is concentrated among a limited number of families. Poverty, despair, lack of education and the drug trade contribute to crime levels, resulting in kidnapping, extortion and bodily harm. This is combined with memories of dictatorships, military oppression, economic turmoil, devaluation, expropriation, asset freezing, forced conversion of foreign currencies and politically motivated discrimination. Understandably, many families prioritise confidentiality – a challenging goal in a world that is moving swiftly towards a standard of automatic information exchange for tax purposes.

As for recognising trusts, the uncertainty could hardly be greater. Only Panama has ratified the Hague Trust Convention,1 but most countries have some form of fideicomiso or fiducia, which are different animals legally. One danger is the tendency to compare the tax treatment of foreign trusts with the rules for the domestic version of a fideicomiso, which often leads to imprecise and unwelcome results. Except for Argentina (see below), no country in Latin America hands down court decisions involving common-law trusts that would offer guidance on their legal and tax treatment. Usually the local legal community has established a generally accepted view of how they expect trusts to be treated should such a case arise.

There seems to be an accelerating trend for offering tax amnesties. Mexico, Argentina and Colombia have amnesties under way, and Brazil has been debating it for some time.


Argentina presents a challenge to the international estate-planning practitioner because of growing restrictions on financial intermediation, the curb on capital flows and accessing foreign currency, along with reporting obligations on foreign trusts.

Argentina may be the only country in Latin America with high-level, high-profile judgments involving foreign trusts, in particular Eurnekian2. This case led many advisors to conclude that trust structures should protect assets from exposure to tax, especially the personal assets tax (annual wealth tax). However, some remain nervous about the economic-reality doctrine in cases where a family leader tries to maintain indirect control.

A more recent development involved replacing the blacklist of 88 low-tax jurisdictions with two new lists: cooperative jurisdictions and non-cooperative jurisdictions. The division was based on whether the counterparty jurisdiction entered a tax information exchange agreement (TIEA) and whether such an exchange is actually taking place. The tax authorities have the power to classify a jurisdiction as either non-cooperative or cooperative. This assessment can change at any time, making planning less predictable, as passive income earned via a corporation in a jurisdiction deemed non-cooperative would be taxed on an accrual basis. Another concern is the possibility that the end of this year’s tax amnesty will be followed by forced repatriation of offshore funds.


Chile is an OECD member and is doing well on many fronts: corruption is low and it has a stable banking system. Many families invest locally using tax-optimised structures and have amassed large concentrations in single-stock positions and real estate investments. There tends to be a preference for private foundations, and larger families have shown interest in private trust companies (Colombia is similar). Chile is one of few countries left in Latin America without anti-deferral rules.


Brazil has changed its anti-money laundering (AML) law by removing the list of specific predicate offences, raising doubts about whether tax offences can be included. This was in line with the Financial Action Task Force’s revised recommendations (February 2012)3. This year Brazil approved its TIEA with the US, paving the way for an intergovernmental agreement (IGA) (the TIEA had been held up for six years). One thing that stands out is Brazilian families’ affinity with investment funds, particularly private family funds, both domestically and internationally. This is also driven by the favourable taxation of distributions, at 15 per cent, versus distributions from personal investment companies (PICs), which attract the ordinary income tax rate of 27.5 per cent for most taxpayers.

Controlled foreign company (CFC) rules do not apply to individuals, although in April 2013 the Supreme Court held that CFC rules are constitutional and apply to companies located in low-tax jurisdictions and controlled by Brazilian corporate taxpayers. This decision has led many practitioners to expect expansion of the CFC rules to include individuals. When planning trusts, some advisors use a corporate settlor and beneficiaries, which creates unique challenges and complications where US beneficiaries receive distributions4.


Strict exchange control has burdened Venezuelan business and individuals for many years; the Bolívar was devalued from 4.3 to 6.3 per US dollar on 8 February 2013. Source-of-funds and AML concerns are prevalent given the high level of corruption and crime, and the dominance of state-owned enterprises. Planning for Venezuelan families has been motivated by asset protection,5 especially for domestic assets facing government expropriation and ‘recoveries’, but has otherwise not seen drastic changes given that worldwide tax and CFC rules (based on a blacklist and 20 per cent minimum tax rate criteria) have remained constant in recent years. In light of many families having left for Colombia, Costa Rica, Panama, Canada and mostly the US, planning will often involve foreign grantor or pre-immigration trusts and the need to structure investments in US real property.


Peru implemented a major tax reform from 1 January 2013, including the introduction of CFC rules based on a 75 per cent minimum tax rate criterion and a 50 per cent ownership or control test on share capital, right to income and voting power. The rules are flanked by a new substance-over-form doctrine for tax purposes, making some of the solutions available in other countries rather perilous unless additional features are built in.


A recent candidate for OECD membership, Colombia, like Peru, implemented a tax reform from 1 January 2013. This included an amnesty for unreported assets, but no CFC rules. A concern is the addition of the ‘place of effective management’ criterion when determining the tax residency of companies, and the exposure this could cause for ‘self-managed’ offshore PICs. There is a preference for private foundations, although as many families have US connections the trust should remain the favoured option when structuring assets for the benefit of US family members. More than elsewhere in Latin America, family governance and business succession planning are major topics.


Mexico is at the forefront of international tax information exchange efforts. It is a mature planning jurisdiction6 that could be shaken by tax law changes7. Individuals currently enjoy tax exemptions on gifts and inheritance,8. Subject to reporting obligations and denial of exemptions for non-lineal relatives and non-residents dividend distributions of previously taxed earnings and some capital gains obtained via transactions on the local stock exchange and international quotation system9. Tax reforms could end all or some of these.

There are more similarities than differences in Latin America, as can be seen from countries negotiating IGAs, TIEAs and double-tax treaties. However, it remains to be seen whether those agreements, along with more sophisticated and automated tax collection and reporting tools, will bolster domestic tax enforcement. 

  • 1. Convention on the Law Applicable to Trusts and on their Recognition, concluded on 1 July 1985,
  • 2. Eurnekian, Eduardo; Buenos Aires City’s Criminal Court of Appeals, 2004
  • 3.
  • 4. Distributions to US beneficiaries from a trust with a corporate settlor may trigger taxation under the passive foreign investment companies rules
  • 5. Venezuela withdrew its membership of the International Centre for Settlement of Investment Disputes in January 2012 –
  • 6. Mexico’s CFC rules for individuals date back to 1997, saw a major overhaul in 2005 and are presently based on a 75 per cent minimum tax payment and ‘effective control’ tests, plus reporting obligations
  • 7. Changes have been under discussion for some time but no legislative action has been taken
  • 8. Subject to reporting obligations and denial of exemptions for non-lineal relatives and non-residents
  • 9.  Sistema internacional de cotizaciones
Author block
Klemens Zeller

Klemens Zeller TEP is a Wealth Advisor with JP Morgan

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