For decades, acquisition of rural land by foreigners has been a major issue in Brazil. For over thirty years, rules and regulations have imposed restrictions for foreign ownership of Brazilian land.
At the time the first restrictions were created, the world was under the Cold War and Brazil under military government. Homeland security was a priority and Brazilian control over properties, particularly rural and at the border, a matter of national defense.
First, the concern was with foreign ownership of Brazilian land, for which Law 5,709/71 and Decree 74,965/74 were enacted. A few years later, concerns about Brazilian borders grew as communism tried to expand in Latin America, giving cause to rules and regulations (Law 6,634/79 and Decree 85,064/80) specifically designed to limit activities carried out within Brazil’s frontier zone, including foreign ownership of land in that area.
This article focuses on the rules applicable to foreign ownership of Brazilian rural land outside the frontier zone.
Acquisition of Brazilian rural land by foreigners
A foreign individual domiciled outside Brazil and a company organized under the laws of a foreign country cannot acquire land in Brazil directly. For foreign individuals, the law requires proof of Brazilian residency, while for a foreign company the law requires it to form a Brazilian company (to acquire land).
For legal purposes, the term “foreigner” also includes (i) a foreign individual resident in Brazil, (ii) the Brazilian branch of a foreign company operating in Brazil, and (iii) a Brazilian company which most of its capital is owned by foreign individuals or legal entities with residence or domicile outside Brazil.
Law 5,709/71 and Decree 74,965/74 have established a series of restrictions concerning acquisition of rural land by foreigners, which can be summarized as follows:
(a) The total area of the land cannot exceed the equivalent to 50 standard lots for general exploitation _. The size of a MEI varies according to the region of the Brazilian territory. The National Institute for the Agrarian Reform _(Instituto Nacional de Colonização e Reforma Agrária, or INCRA) is the competent authority to determine, and change, the size of a MEI;
(b) For rural land of up to 3 MEIs, the acquisition by foreigners is free and does not require any prior approval or consent from Brazilian authorities;
© For rural land of more than 3 and up to 50 MEIs, INCRA’s approval is required;
(d) Congress approval is required for acquisition of land exceeding 100 MEIs;
(e) Foreign companies can only acquire rural land destined to agricultural, cattle rising, industrial or development projects, to the extent such activities are included in the Brazilian subsidiary’s bylaws, which must be approved by the Ministry of Agriculture or by the Ministry of Industry and Commerce, as the case may be;
(f) Acquisition of rural land of more then 20 MEIs by foreign individuals is conditioned to approval of the corresponding exploitation project;
(g) The sum of all rural land owned by foreigners, whether individuals or companies, cannot exceed _ (one fourth) of the territory of the municipality where they are located. In addition, persons of the same nationality cannot own (with a few exceptions) more than 40% of this _ limit.
Acquisition of rural land in violation of the restrictions above, according to Law 5,709/71 and Decree 74,965/74, is considered to be null and void. The notary public who prepares the public deed (for the acquisition of rural land) and the Real Estate Registration official who registers such deed in violation of the law are civilly and criminally liable.
Notwithstanding the limitation for foreign individuals and foreign companies to acquire rural land in Brazil, those same restrictions no longer apply to Brazilian subsidiaries, which most of their capital is owned by foreign individuals or entities domicile outside Brazil (included in the definition of “foreigner” in item (iii) above.)
This is because a Legal Opinion issued by the Union’s General Attorney Office (Advocacia Geral da União, or AGU) in 1997 concluded that the Brazilian 1988 Constitution no longer accepts any type of distinction or restriction between Brazilian companies owned by foreigners and Brazilian companies owned by Brazilians .
In the Legal Opinion, AGU has concluded that the 1988 Constitution revoked the restriction for Brazilian companies owned by foreigners to acquire and own rural land. Therefore, foreign ownership restriction would apply only to (i) foreign individuals resident in Brazil, and (ii) Brazilian branches of foreign companies that own rural land directly. Brazilian companies owned by foreign companies/individuals, according to the Legal Opinion, can legally own rural land in Brazil.
The main arguments of the Legal Opinion are summarized below:
(a) The (former) 1969 Federal Constitution (Article 153, paragraph 34) did not make any type of distinction between Brazilian companies with foreign capital and Brazilian companies with Brazilian capital. Instead, the 1969 Constitution delegated powers to Congress to enact legislation on acquisition of rural land by Brazilian and foreign individuals and companies;
(b) Such delegation of powers resulted in the enactment of Law 5,709/71, which imposed a restriction on Brazilian companies with foreign capital for the acquisition and ownership of rural properties;
© The 1988 Constitution revoked the former constitutional rules by (i) defining Brazilian companies with foreign capital and Brazilian companies with Brazilian capital, and (ii) listing the subjects where a distinction in favor of Brazilian companies with Brazilian capital would be accepted , namely, (a) the grant of special and temporary protection and benefits for the development of strategic activities for the national defense and the country’s development; (b) requirement of minimum Brazilian capital for companies carrying on technological activities; and © the grant preferential treatment with respect to purchases of goods and services by the government;
(d) All laws enacted before the 1988 Constitution would be valid and effective under the new constitutional system as long as they do not conflict with any provisions of the 1988 Constitution;
(e) Specifically to Brazilian companies and the nationality of their capital, this meant that apart from the limitations imposed by the 1988 Constitution (please refer to item © listed above), no other restriction could be imposed on Brazilian companies with foreign capital;
(f) As a consequence, any legal provision imposing other restrictions on Brazilian companies with foreign capital would not be valid and would be revoked as of the entry into force of the 1988 Constitution. This would be the case of Article 1, paragraph 1 of Law 5,709/71, which prevented Brazilian companies owned by foreigners to acquire and own rural land as the Constitution did not expressly allow any type of discrimination in this area. Therefore, since 1988 this provision would have been revoked and Brazilian companies with foreign capital might acquire rural land;
(g) In 1995, Article 171 of the Constitution was totally revoked , eliminating the distinction between Brazilian companies with foreign or Brazilian capital, and the limitations so existent;
(h) The revocation of Article 171 of the Constitution, however, did not bring back the limitations contained in Article 1, paragraph 1 of Law 5,709/71;
(i) The consequence of this revocation is that from now on Congress might enact new laws imposing distinctions between Brazilian companies with foreign and national capital;
(j) Until such a law is enacted, however, Brazilian companies with foreign capital may acquire rural land.
The conclusions of the Legal Opinion are an important ally for foreigners willing to acquire rural land in Brazil.
No less important is the fact that the Legal Opinion is binding to the federal Administration because (i) the AGU has the authority to determine the official interpretation of the Constitution, laws, treaties and other administrative acts, (b) the Legal Opinion was approved by presidential order and published in Brazil’s official gazette.
As a consequence, a Brazilian subsidiary of a foreign company may acquire and own rural land as long as no future law imposes new restrictions. No such law exists at the present moment. If, in the future, a law limiting foreigners’ ability to own rural land in Brazil is ever approved by Congress, then such law should regulate not only the terms, conditions and penalties for those in violation therewith, but also the legal consequences for those who have (legally) acquired rural land before such law has been passed.
Legislative Proposals to Limit Foreign Ownership of Land
Currently, there is only one law project in Congress aiming at limiting foreigners’ ability to acquire and own rural land in Brazil: it is law project 4,440, which is currently under review in Brazil’s House of Representatives.
Project 4,440 was presented in April 2001 by lawmakers Nilson Mourão and José Dirceu and after more than six years it has not been yet approved by the House of Representatives.
The project limits foreigners’ ability to own “large” rural land properties within the so-called “Legal Amazon”, which includes the Brazilian states of Acre, Pará, Amazonas, Amapá, Roraima, Rondônia, and certain areas of the states of Mato Grosso, Goiás and Maranhão. It does not define “foreigners”, but due to cross references to Laws 5,709/71 and 6,634/79, it is fair to conclude that the same definition of foreigners used therein applies to the definition used in the project, including Brazilian companies with the majority of capital owned by foreign individuals or companies.
Although the wording of the law project is confused, a provision therein excludes the application of the restrictions to Brazilian companies (of any kind) or foreigners domiciled in Brazil for more than 10 years. This means that Brazilian companies with foreign capital formed for at least 10 years are eligible to own rural land (at least outside the Frontier Zone) in Brazil.
For land located within Brazil’s frontier zone, the project expressly prohibits foreign ownership of rural land in that area, although some loopholes may enable ownership.
Project 4,440 has been approved by the House of Representatives’ commissions of Agriculture and Rural Development (2002) and of the Amazon and Regional Development (2002). Because the law project had not been approved during the 1998-2002 legislative period, it was closed in early 2003. In April 2003, under a new legislative period (2003-2006), the project returned to the House of Representatives upon request of lawmaker Nilson Mourão.
It was then remitted to the House Commission of Constitution and Justice where a lawmaker delivered a favorable opinion on the law project, but suggested some changes. However, because the opinion has not been voted on by the end of the 2003-2006 legislative period, the law project was, once again, closed in early 2007.
On March 29, 2007, lawmaker Nilson Mourão once again requested the project to continue its legislative process in the House of Representatives, where it is pending vote by the House Commission of Constitution and Justice. If the law project is not approved by the House Commission of Constitution and Justice by the end of 2010, it will be closed once again.
It is important to note that these commissions have conclusive powers, which means that no review or vote by the full House of Representatives is necessary. If approved by the House Commission of Constitution and Justice – the last commission to review the project, the law project will be forwarded directly to the Senate. If approved by the Senate, the project will follow to the president for signature and entry into force.
(1) Legal Opinion (Parecer) AGU/LA-01/97, published in Brazil’s Official Gazette of January 22, 1999
(2) Also called “Brazilian companies with foreign capital”
(3) Also called “Brazilian companies with Brazilian capital”
(4) Article 171 of the 1988 Constitution
(5) Article 3 of Constitutional Amendment No. 6/95