As a result of an increasing worldwide interest for landowning in Brazil supported by the country’s economic stability and motivated by the need to produce food and the search for renewable energy sources, the Brazilian Government intends now to limit land purchase by national companies controlled by foreign capital.

The purpose of this measure, which will apply to the entire country, is to control the entrance of foreign landowners in the Amazon. They already possess, according to the National Institute of Colonization and Agrarian Reform (INCRA), 3.1 million hectares in the region (which means 55% of the land is owned by foreigners). The foreign presence may be even higher, since the owners are not required to identify their nationality at the moment of registration.

Until 1995, land acquisition by foreigners in Brazil was controlled by the INCRA throughout the national territory. With the advent of the Constitutional Amendment No. 06, the article 171 of the Brazilian Federal Constitution, which allowed the distinction between legal entities of national and of foreign capital was revoked. Consequently, it was interpreted that the 1st paragraph of article 1 of the Law 5.709/71, which allowed such control, was also revoked. This therefore allowed land acquisition by foreigners (Brazilian companies controlled by foreign capital) at the national level.

As a result of the Legal Opinion GQ-181 of the Federal Government Attorney’s Office (AGU), dating of 1998, there existed no necessity for foreign companies based in the country to get an authorization before buying land. Only non-resident companies or companies with headquarters abroad have had restrictions for such operations in Brazil.

The proposal to restrict land purchase by foreigners has being evaluated by the AGU during the last year. A new legal opinion setting limits for such acquisitions is being submitted, obliging companies to seek permission before the INCRA and the National Congress for land purchasing in the country. In practice, the new standard would equal conditions among national companies with foreign-owned capital, non-resident companies and companies with their headquarters abroad. In a range of 150 km of borders, an authorization from the National Council of Defense is necessary.

To legalize the purchase by foreigners, in case of new legal opinion from the AGU, rural properties with areas between 250 and 5 thousand hectares will require registration before the INCRA, as well as specific project approval and express authorization from the National Congress.

Following the desire of President Lula to turn Brazil into the solution for food crisis and into the world’s hub for biofuels, the AGU has two alternatives to make more difficult land purchase by foreigners: it may revoke the legal opinion in effect and enforce the law of 1971, which provides that foreigners cannot own more than 25% of land in a municipality and that they need to register the purchase with public certificate; or claim that, despite the changes in the Federal Constitution, the articles of the Law 5.709/71, that extend to companies controlled by foreign capital the same restrictions as for foreign natural persons and legal entities, remain unchanged.

Adelmo Emerenciano
Partner at EBA
BRAZIL