For generations, Brazilian investors have been defined by their home bias. High interest rates, a large domestic financial sector, and a cultural preference for familiarity kept the bulk of Brazilian portfolios invested in local assets.
The rationale for this concentration was clear. Government bonds offered double-digit returns, while equities in companies such as Petrobras or Itaú delivered exposure to a booming domestic market. Overseas investments, in contrast, were often regarded as optional, pursued only by a wealthy minority or during episodes of currency instability.
Today, this mindset is starting to change. The combination of economic volatility, a generational shift in investor preferences, and, most recently, tax reforms has brought diversification to the centre of wealth management in Brazil.
The Cayman Islands, long a hub for Brazilian international investment structuring, stands to play a renewed role in this transition as a platform for accessing global markets, protecting family wealth and building portfolios that are resilient across economic cycles.
Investment diversification is needed
Brazilian investors are encouraged to diversify beyond home borders because domestic portfolios, no matter how varied in appearance, often move together in response to the same shocks. Holding shares in Petrobras, bank deposits, CDBs and government bonds is less a diversified strategy than it is an accumulation of highly correlated exposures. When political uncertainty strikes or the Real depreciates, these instruments tend to fall all at the same time.
Recent years have demonstrated the benefits of looking outward. While the Ibovespa has struggled and Brazil’s currency has depreciated, international markets, particularly US technology stocks, have surged. Younger investors, less attached to traditional domestic names, are increasingly allocating directly to companies such as Nvidia, Tesla or Alphabet. According to surveys of wealth managers, this shift is structural rather than tactical. International exposure is now seen as a necessary component of long-term portfolio construction, not as a speculative bet.
Brazil’s largest institutions are following suit. Multi-family offices describe international allocation as mandatory, while leading brokerages such as XP recommend that at least 15 percent of portfolios be invested abroad. Even conservative pension funds such as Previ, which for decades devoted virtually all assets to Brazil, are beginning to recognise that a move away from excessive concentration is warranted.
A new tax environment
Against this backdrop, Brazil’s tax framework for offshore wealth has undergone its most dramatic reform in decades. For more than ten years, Brazilian investors had enjoyed stability in the taxation of overseas assets. Taxation only applied when income or profits earned abroad were remitted back to Brazil. This system allowed deferral and gave investors confidence in structuring wealth offshore.
Law 14,754/2023, in force since 1 January 2024, has fundamentally altered that landscape. Now, almost all foreign income earned by Brazilian residents is taxed at a flat annual rate of 15 percent, regardless of whether it is distributed.
Offshore entities such as companies, trusts and other structures that Brazilian residents control are no longer treated as separate for tax purposes; their profits are attributed to the controlling individual and taxed annually.
At the same time, the law provided for some nuance. Offshore companies that conduct real business operations outside of countries or dependencies with favourable taxation (called ‘jurisdições com tributação favorecida’ in Portuguese) can still benefit from deferral, provided that at least 60 percent of their income is active rather than passive. Structures created before 31 December 2023 also retain deferral on past profits, with tax only due upon repatriation. These transitional rules softened the immediate impact and gave investors time to adjust.
The law also simplified choices for Brazilians by making tax treatment more uniform. Previously, much planning effort went into building complex structures to demonstrate substance and avoid blacklists. Now, with a flat 15 percent rate applied broadly, the emphasis shifts from complexity to efficiency and genuine wealth management.
The distinction between controlled and non-controlled offshore funds
The treatment of funds is central to the reform. Where a Brazilian investor controls the fund, for example, by holding more than 50 percent of shares, profits are taxed annually, even if no cash is distributed. This can create liquidity issues, especially for private equity vehicles where gains are unrealised for years.
By contrast, non-controlled funds, such as Cayman master-feeder structures with a diversified investor base, are taxed only upon redemption, amortisation or distribution. As a result, families who established closely held offshore vehicles are subject to annual taxation, while those investing as minority participants in large institutional funds may still enjoy timing advantages.
Moreover, Cayman funds remain attractive for their ability to provide access to international managers, asset classes and diversification opportunities that domestic funds cannot replicate.
Private equity and venture capital
Private equity and venture capital are also affected by the changes. Many Brazilian founders and investors have long used Cayman or Delaware structures, where a Cayman holding company controls a Delaware entity, which then invests directly into a Brazilian operating company. This model offered neutrality, credibility with foreign investors and a platform for IPOs on global exchanges.
Even with the new law, this structure remains relevant. Where Brazilian investors do not control the structure, annual taxation does not apply, and deferral can continue until realisation. Moreover, the law explicitly provides that gains from the sale of long-term assets, held for at least two years, by entities in jurisdictions not classified as tax-favourable by authorities, such as Delaware, are not automatically treated as passive income. This means that, in some cases, deferral can still be preserved, particularly for exits through IPOs or trade sales.
The challenge arises for Brazilian residents who control offshore private equity vehicles. They must recognise profits annually, even if those profits are unrealised and illiquid. This may create mismatches between tax liabilities and cash flow. In some instances this can be mitigated by fund structures that ensure Brazilian investors are minority participants or hybrid vehicles that balance domestic and offshore considerations.
Trusts and succession planning
One of the most important innovations in Law 14,754/2023 was the explicit recognition of trusts. Previously existing in a legal grey area, trusts are now treated as belonging to the settlor until distribution. Income is taxed annually at 15 percent, and assets transferred upon death or donation are taxed accordingly. This clarification expands planning options and is likely to encourage greater use of trusts by Brazilians seeking to manage succession in an orderly manner.
Offshore structures also remain attractive in protecting families from foreign estate taxes. Direct ownership of US assets, for example, exposes Brazilians to estate taxes that cannot be offset in Brazil. By holding such assets through Cayman vehicles or trusts, investors can mitigate this risk while still complying with domestic tax rules.
A new chapter
Although some investors were concerned about the end of offshore structures, Law 14,754/2023 did not eliminate their use, but shifted the focus to simple, transparent, efficiency-driven structures. Offshore platforms continue to provide diversification, access to global banking, protection against estate taxes and robust succession planning.
And as a result, the Cayman Islands continues to play a pivotal role in Brazil’s international investment landscape. Its function has evolved beyond tax efficiency to become a cornerstone of resilience and global connectivity. Cayman structures remain essential for Brazilian fund managers seeking foreign capital, for families planning succession, and for investors building globally diversified portfolios. Recent tax reforms have only emphasised the strategic value of these international platforms as robust foundations for long-term, cross-border investment strategies.
Disclaimer: This article provides general information and not tax or investment advice.
