Today I will speak in more detail about the benefits of incorporating a rural holding company. Many people seek us out with a single objective: tax savings. And when we show that the gains go far beyond this aspect, the reaction is always one of surprise.
This article aims to demonstrate that the benefits encompass tax savings, asset protection, succession planning, and business management.
Tax savings
Let us begin with the simplest and best-known of the benefits of the rural holding company: the financial gains in relation to taxes.
The tax benefits of incorporating a rural holding company are:
- tax savings on income declared by a legal entity instead of a natural person,
- tax savings on the transfer of assets in the case of estate succession,
- tax savings in the case of donation of corporate shares instead of donation of rural real property (for some states), and
- tax savings on the distribution of profits earned by the partners (in accordance with the law in force at the time).
It is worth noting that to accurately verify the amount of these savings, a technical and detailed analysis carried out by specialized professionals is necessary, as each case is unique and the legislation varies from one state to another.
In any case, for didactic purposes only, we have prepared a demonstration.
Revenue (a): R$ 1,200,000.00
Expenses (b): R$ 780,000.00
Result (a-b): R$ 420,000.00
| DESCRIPTION | NATURAL PERSON | LEGAL ENTITY – PRESUMED PROFIT | LEGAL ENTITY – ACTUAL PROFIT | LEGAL ENTITY – SIMPLES |
| ICMS | – | – | – | – |
| PIS | – | – | – | – |
| COFINS | – | – | – | – |
| IR | 66,000.00 | 14,400.00 | 63,000.00 | – |
| IR SURTAX 10% | – | – | 18,000.00 | – |
| CSLL | – | 12,960.00 | 4,536.00 | – |
| SINGLE TAX | – | – | – | 83,600.00 |
| FUNRURAL | 27,600.00 | 34,200.00 | 34,200.00 | – |
| TOTAL | 93,600.00 | 61,560.00 | 119,736 | 83,600.00 |
Important observations about what we considered in the simulation:
- For most agricultural products, PIS/COFINS is exempt or at a rate of “0”.
- The single tax was calculated considering a rate of 6.96%.
- Federal legislation provides for certain factors under which the collection of PIS/PASEP and COFINS is not required, with the possibility of exemption, immunity, suspension, non-levy, and levy at a zero rate. Such cases, in which rural companies are taxed on presumed profit, will be addressed separately.
- Non-levy: considered in the simulation as the waiver of the obligation to collect the tax. The export of products abroad is free of the levy of the PIS and COFINS contributions, in accordance with Law 10.833/03, art. 6, item III, and Law 10.637/02, art. 5, item III.
- Levy at a zero rate: the zero-rate reductions in relation to the PIS/PASEP and COFINS contributions have as their main objective to lower the prices of products for the consumer and to stimulate production. In this respect, coffee, beans, potatoes, fruits, and horticultural products, for example, fall within this category.
It is also worth noting that, provided all the requirements determined by the legislation are met, there will be no payment of PIS and COFINS in the following cases provided for by law:
- on the sale of grains in natura, such as rice, wheat, corn, and others, provided that the buyer assesses its taxes on actual profit and uses the grain as an input, intended for human or animal consumption;
- in soybean sale operations, in accordance with Law 12.865 of 10/09/2013, in which the conditions imposed by Law 10.925/04 in articles 8 and 9 were abolished. Thus, in all soybean sales carried out by legal entities taxed on presumed profit, regardless of who the purchaser is, there will be a suspension;
- on cattle sales, in accordance with Law No. 12.058/2009, art. 32, item I; and
- on sugarcane sales, when the legal-entity buyer opts for actual profit.
Asset protection
Just as technical analysis by attorneys is necessary to ensure legal certainty in tax savings, it is necessary to rely on specialists in Corporate and Contract Law so that the rural holding company is incorporated within the good practices of asset protection.
An experienced team can foresee the most common situations that require express provision at the very inception of the company and form part of its articles of association and the agreement between the partners. Otherwise, all the gains in tax savings may go down the drain.
Succession planning
In almost 100% of the cases of incorporation of a rural holding company that I have worked on, we jointly developed succession planning. As an attorney and as a business manager, I consider the benefits of this category to be the most relevant in the long term, since having a planned and organized estate succession can avoid many distressing problems in the future and unexpected expenses.
The benefits of incorporating a rural holding company with associated succession planning are:
- prior acceptance by all those involved in the succession, thus reducing the possibility of future family disputes,
- prior drafting of asset protection clauses in the case of donation/inheritance,
- protection of assets against third parties and safeguarding against the failure of relationships (marriage, dating, etc.),
- savings in probate time in the case of death,
- financial savings on procedural costs and attorneys’ fees in the case of donation/inheritance or litigation, among others.
Business management
By turning heirs into shareholders of a company, a process of professionalization of the partners’ performance naturally occurs, as they come to understand that the family’s real property is a livelihood business that needs to be managed daily.
The entire process of incorporating the rural holding company can itself be used as a means of training the partners, provided that there is legal advisory that knows how to work in a mentoring model.
Here at Lassori, we have adopted this attorney-mentor model for many years, and the results are always positive. We believe that the knowledge of all those involved in the rural holding company facilitates the succession planning process and reduces communication noise. Our perception is that the company already starts at a different level from the standpoint of management, just as happens in family businesses outside the rural area.
The incorporation of a rural holding company brings many gains, provided that it is carried out with legal certainty, clear communication, and an in-depth approach to management issues
As you were able to see in this article, the incorporation of a rural holding company can bring many financial, business, and family benefits. But it is necessary to pay great attention to all the details and to the level of knowledge of the team that will conduct this process.
Later this month, we will have the last article of the Rural Holding Company series. Follow my profile here on LinkedIn to be notified when it is published. Until next time!
By Glauber Ortolan – previously published on the attorney’s profile
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