RURAL LAND IN BRAZIL AND THE FOREIGNERS
The debate over the acquisition of rural land in Brazil by foreign nationals, foreign companies and foreign-controlled Brazilian companies has returned in full force.
The acquisition of rural land by foreign individuals or legal entities is governed by legislation dating from the 1970s – Federal Law 5709 of October 7, 1971 and the regulations issued under Federal Decree 74,965/74. Article 1 of Federal Law 5709/711 provides that Brazilian companies that are controlled by foreign individuals or legal entities are treated as foreign for the purposes of the Law.
After the Brazilian Constitution of 1988 came into force, however, the prevailing interpretation of the law was that the new Constitution had made the distinction between a nationally-controlled Brazilian company and a foreign-controlled Brazilian company unconstitutional, and that consequently article 1§1 of Federal Law 5709/71 no longer had effect. This understanding of the law was set out in formal opinions (Parecer AGU n.º 22/1994 and Parecer AGU n.º GQ 181/1998) issued in 1994 and 1998 by the Office of the Federal Attorney-General.
On August 23, 2010, a new opinion (Parecer CGU/AGU nº 01/2008-RVJ), approved by the Federal Attorney-General and by the President of the Republic, was published in the Federal Gazette, revoking the earlier opinions that held that the distinction between nationally-controlled Brazilian companies and foreign-controlled Brazilian companies made in Federal Law 5709/71 had no effect. Since the new opinion has been approved by both the Federal Attorney-General and the President, it is binding on the entire federal administration.
According to the opinion published on August 23rd, article 1§1 of Federal Law 5709/71 is compatible with the provisions of the Constitution of 1988. Consequently, Brazilian companies that are controlled by foreign individuals or legal entities that reside or are domiciled outside Brazil are now required to obtain authorization from the National Institute of Agrarian Reform (Instituto Nacional de Reforma Agrária – INCRA) in order to acquire rural land, just like foreign nationals and foreign-domiciled legal entities.
Thus, all new acquisitions of rural land by foreign-controlled Brazilian companies, and any disposal of rural property to foreign individuals or legal entities, in cases such as merger, change in corporate control or transformation of a national company into a foreign legal entity2, will not be valid without INCRA’s authorization, unless the acquisition or disposal falls under one of the exceptions provided for in the law (acquisitions of smaller areas of land by foreign individuals, for example).
According to Federal Law 5709/71, deeds of sale or lease may be made only after INCRA has granted authorization. The authorization is valid for 30 days, and the deed must be drawn up within that time. The deed must be registered in the Property Register for the district in which the land is located within the following 15 days.
The federal government’s new position on the acquisition of rural land by foreign-controlled Brazilian companies is already in effect, and being enforced by the officials of all Notaries’ Offices and all Property Registries, who are required to comply with Federal Law 5709/71 in their official acts (making and registering public deeds of sale or lease of rural land), on pain of losing their office.
Federal Law 5709/71 and Federal Decree 74,965/74 do not prohibit foreigners and foreign-controlled Brazilian companies from owning rural land. Rather, they impose limits on how much rural land can be acquired, and what it can be used for.
Foreign nationals are not permitted to acquire more than 50 “modules” of rural land, whether as a single parcel or in various parcels, and acquisitions of rural properties having an area of three to 50 modules is subject to prior authorization by INCRA. A “module” of rural land is a reference unit. The area of the module is established by INCRA and varies according to each municipality of the country and population density3.
Federal Law 5709/71 also provides that the sum of rural land belonging to foreign individuals and legal entities (including foreign-controlled Brazilian companies) in any one Municipal District cannot exceed one quarter of the area of the Municipal District, and no more than 40% of this quarter can be held by individuals or legal entities of the same nationality.
In addition, foreign legal entities and foreign-controlled Brazilian companies are permitted to acquire rural land only for agricultural, industrial or settlement projects. The projects must be approved by the Ministry of Agriculture, after hearing INCRA’s opinion.
Exceptionally, for projects that are determined to be priorities for Brazil’s development, the acquisition of rural land in excess of these limits may be authorized by Decree (article 5§3 of Federal Decree 74,965/74).
The limits on acquisition of rural land by foreigners and foreign-controlled legal entities also apply to leases of rural property, pursuant to Federal Law 8629/93.
Federal law 5709/71 also makes the validity of security interests in rural land (such as mortgages) granted to foreigners and foreign-controlled entities questionable at the very least, since the property cannot be adjudicated to a foreign creditor without INCRA’s authorization.
However, the new position adopted by the Brazilian government on acquisitions of rural land by foreigners does not affect urban land in any way, and land on the country’s borders and in indigenous areas is subject to specific legislation.
There are no regulations as yet on the procedures to be adopted by INCRA, Notaries’ Offices, and Property Registries with respect to acquisitions of rural land by foreigners and foreign-controlled entities. However, a recent decision by the National Council of Justice directed the state Court Administrations to begin complying with the procedures under Federal law 5709/91 and Federal Decree 74,965/74, demonstrating that federal government, acting through the executive, judicial and legislative branches, intends to protect national sovereignty by limiting the acquisition of rural land by foreigners.
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1 Federal Law 5709/71. Art. 1. Foreign nationals resident in Brazil, and foreign legal entities authorized to operate in Brazil, may acquire rural land only in the manner provided for in this Law. §1. Brazilian legal entities in which foreign nationals, or foreign legal entities, hold by any means a majority of the Brazilian entity’s capital and are resident or domiciled outside Brazil, are subject to the regime established by this Law.
2 Federal Decree 74,965/74. Art. 20. These Regulations apply to any disposal of rural land to a foreign national or foreign legal entity, in cases such as merger of companies, change in corporate control or transformation of a national company into a foreign legal entity. Sole paragraph. The Official of the Immovable Property Register shall transcribe documents related to the transactions referred to in this article only if the relevant authorizations are reproduced in such documents.
3 Federal Decree 74,965/74. Example: In the city of Ribeirão Preto, State of São Paulo, 1 module is equivalent to 10 hectares. In the city of Barcelos, State of Amazônia, 1 module is equivalent to 55 hectares.
