Holding, Trust, and Offshore: Advantages, Disadvantages, and Legal Effects of Each Structure

Structures such as holdings, trusts, and offshore companies are frequently used for asset, succession, corporate, and tax planning.

Each model has its own legal characteristics, practical effects, and distinct risks, making it essential to understand their advantages and disadvantages to ensure proper and lawful application.

This technical-legal article provides a neutral, informative, and well-founded comparative analysis, enabling readers to strategically understand the use and implications of each instrument.

The growth of wealth and the increasing complexity of corporate and family relations demand efficient legal tools for the organization, protection, and succession of assets. Although often confused or generalized, holding companies, trusts, and offshore entities are not equivalent and must be applied in accordance with the legal framework, specific circumstances, and lawful purposes intended.

2. General Comparative Framework

Structure	Legal Nature	Main Jurisdiction	Primary Purpose	Requires Registration in Brazil?
Holding	Domestic legal entity	Brazil	Asset and succession organization	Yes, with the Commercial Registry
Trust	Fiduciary arrangement	Common law countries	Fiduciary management and international succession	No, but must be declared
Offshore	Foreign legal entity	Low-tax jurisdictions	International operations and asset protection	No, but must be declared

3. Holding Company: Advantages and Disadvantages

Advantages

·         Legality and security: regulated by the Brazilian Civil Code and corporate law;

·         Asset protection: separates personal assets from corporate assets;

·         Effective succession planning: avoids probate through clauses such as usufruct, inalienability, and substitution upon death;

·         Tax benefits: allows lawful tax avoidance through tax-free dividend distribution to individuals;

·         Governance: enables clear rules among partners and heirs.

Disadvantages

·         Formalities: requires incorporation, registration, and active bookkeeping;

·         Maintenance costs: accounting, taxes, and ancillary obligations;

·         Risk of recharacterization: if it lacks genuine activity or is used solely for fraudulent purposes.

Legal Effects

·         Subject to limited liability (except in cases of abuse – Article 50, Civil Code);

·         May be a party to judicial proceedings, enter into contracts, and hold property;

·         May be integrated into tax and succession planning strategies.

4. Trust: Advantages and Disadvantages

Advantages

·         International flexibility: useful when heirs or assets are located abroad;

·         Effective asset separation: the trustee manages the assets, which no longer belong to the settlor’s estate;

·         Robust succession instrument: avoids lengthy probate and ensures execution of post-death directives;

·         Discretion: in some jurisdictions, trusts are not publicly registered.

Disadvantages

·         Incompatibility with Brazilian Civil Law: not a recognized legal institution under domestic law;

·         Difficulty of recognition in Brazil: may require judicial proceedings for succession or tax effects;

·         Subject to scrutiny: if used for concealment, may lead to penalties by the Federal Revenue Service, especially after Law No. 14,754/2023;

·         High costs: requires specialized legal, fiduciary, and compliance services.

Legal Effects

·         In common law countries, trusts produce full legal effect;

·         In Brazil, effects are limited (e.g., inheritance recognition through judicial homologation of foreign decisions);

·         Must be declared to the Federal Revenue Service and Central Bank of Brazil, pursuant to Normative

Instruction RFB No. 2,133/2023.

5. Offshore Company: Advantages and Disadvantages

Advantages

·         Access to international markets: facilitates transactions with foreign banks and investors;

·         Currency diversification: protection against exchange rate fluctuations;

·         Lawful tax planning: may reduce overall tax burden depending on jurisdiction and purpose;

·         Banking confidentiality: available in some jurisdictions with strong data protection.

Disadvantages

·         Social stigma and reputational risk: often associated with tax evasion, requiring cautious use;

·         Mandatory reporting and taxation: noncompliance may lead to penalties and audits (via OECD data exchange and CRS systems);

·         Risk of double taxation: when no tax treaty exists between Brazil and the offshore jurisdiction;

·         High regulatory oversight: aimed at preventing money laundering and illicit financial flows.

Legal Effects

·         Autonomous foreign legal entity;

·         Must be declared annually in the Individual Income Tax Return (IRPF) and Foreign Capital Declaration (CBE);

·         Retained profits are subject to annual taxation in Brazil as of January 1, 2024 (Law No. 14.754/2023).

6. Final Considerations

Each structure — holding, trust, or offshore — offers significant advantages when used lawfully and strategically, but also entails serious risks when misapplied or implemented without proper legal support.

Criterion	Holding	Trust	Offshore
Jurisdiction	Domestic	International (common law)	International
Control	Partners	Trustee (fiduciary obligations)	Shareholders or appointed managers
Supervision	Federal Revenue / Commercial Registry	Federal Revenue / OECD	Federal Revenue / OECD / Central Bank
Compliance with Brazilian Law	Full	Partial (limited effects)	Lawful if declared and taxed

7. Conclusion

There is no “best” or “worst” structure — only technical adequacy to the intended purpose.If the goal is to structure family and business assets within Brazil, the holding company is the natural choice.

If there are heirs or assets abroad, the trust may be an alternative, provided it is properly coordinated.If the intention is international expansion with full transparency, the offshore company can be a legitimate tool.

Responsible use of these structures requires fiscal transparency, solid legal planning, and guidance from specialized professionals who understand the ethical and legal limits applicable to each case.