SMART Fund Solutions for Brazilian Families

For Brazilian residents seeking international wealth planning solutions, the Bahamas SMART Fund offers a flexible, efficient, and legally recognized structure to defer taxes and consolidate family investments. With Brazil’s global tax regime and complex inheritance rules, structuring through a SMART Fund—particularly when combined with a trust—can help families manage income, reduce exposure, and plan for generational wealth transfer.

At SCG Fund Services, we specialize in helping Latin American clients, including high-net-worth individuals and family offices in Brazil, establish Bahamas SMART Funds and related ownership structures that align with legal and tax planning strategies.

Understanding the Brazilian Tax Landscape

Brazil operates on a residence-based taxation system. This means that if you reside in Brazil—regardless of citizenship or domicile—you are subject to Brazilian income and capital gains tax on your worldwide income.

Key Brazilian Tax Rates:

• Income Tax: Progressive, from 0% to 27.5%
• Capital Gains Tax: Flat 15%

Capital gains include traditional asset appreciation, redemptions of investment funds, and even reductions of paid-up capital in some cases. As a result, frequent realizations of gains or dividends may trigger annual tax liabilities.

How a SMART Fund Can Help

A SMART Fund allows an individual or family to consolidate their assets into a single offshore vehicle, often referred to as a private investment company. Importantly, the income and gains generated by the fund are not attributed directly to the investor for Brazilian tax purposes unless a dividend is paid or shares are redeemed.

Strategic Benefits Include:

• Tax deferral until income is distributed or interest is sold
• Consolidation of global assets under one structure
• Simplified reporting and administration
• Potential reduction in tax payable with proper cross-border planning

While some of these benefits overlap with those offered by offshore companies, a SMART Fund may provide greater legitimacy, structure, and optionality, especially when paired with a properly administered trust.

We work in close coordination with your Brazilian tax advisers to ensure that the fund and its ownership are structured for maximum tax efficiency and compliance.

What Is a Bahamas SMART Fund?

The Special Mandate Alternative Regulatory Test (SMART) Fund is a licensed investment fund created under the Bahamas Investment Funds Act, 2003. The regime was designed with private investors in mind, offering:

• Streamlined regulation
• Lower costs
• Flexible structuring options

There are currently seven SMART Fund models, but for Brazilian families, the most commonly used is SMART Fund Model 004.

SMART Fund Model 004: Key Features

• No Offering Memorandum Required (a simple term sheet is optional but recommended)
• Maximum of Five Individual Investors
• Operates as a private investment company
• Annual certification required by a licensed fund administrator
• Audit waiver possible with investor consent
• Can obtain an ISIN and Bloomberg Ticker Symbol

In essence, the SMART Fund regime offers the legal and regulatory benefits of a licensed fund, without the cost and complexity of traditional mutual funds or public offerings.

Ownership Structuring: Direct vs. Trust Ownership

While Brazilian families can invest directly into a SMART Fund, this may not be optimal from an estate or tax planning perspective. Considerations include:

• Limitations on number of investors (Model 004 = max 5)
• Potential tax consequences of transferring shares between family members
• Probate delays and costs in case of death
• Brazil’s forced heirship rules, which dictate to whom and how wealth is passed

Our Recommendation: Use of an Irrevocable Trust

We typically recommend that a discretionary irrevocable trust be used to hold the SMART Fund shares. This allows for:

Seamless succession planning

• Avoidance of probate and forced heirship issues
• Discretionary distribution to beneficiaries
• Preservation of family wealth for future generations
• Continued confidentiality and control (via a protector or letter of wishes)

Taxation Note: In most cases, Brazilian beneficiaries are only taxed on what they receive from the trust. Your tax counsel can evaluate this approach in the context of Brazilian tax law and your personal circumstances.

Why Brazilian Families Choose SCG Fund Services

With over 18 years of experience serving clients across Latin America and the Caribbean, SCG Fund Services provides:

• Licensed SMART Fund setup in the Bahamas
• Trust formation and trustee coordination
• Fund administration and regulatory compliance
• Personalized service in both English and Portuguese (if required)
• Collaboration with Brazilian legal and tax professionals

We ensure your offshore planning is not only efficient and effective—but also fully compliant with international tax transparency frameworks.