The Official Gazette of the Union (Diário Oficial da União - DOU) of August 23, 2010 published Legal Opinion CGU/AGU Nº 01/2008 - RVJ, dated September 3, 2008, issued by the General Counselor of the Republic and approved by the Attorney-General of the Union and the President of the Republic, which extends to Brazilian companies controlled by foreigners the limits to the acquisition of Brazilian rural land by foreigners imposed by the applicable legislation.
This Legal Opinion sets forth a new interpretation for Law No. 5,709, of October 7, 1971, that governs the acquisition of rural land by foreigners who have permanent residency in Brazil and by foreign legal entities authorized to operate in Brazil, and it is based on the Principle of Sovereignty applied to the economic order and on the provisions of article 172 of the Brazilian Federal Constitution1 and takes into consideration changes in the social and economic context in Brazil, as well as the increase of value of the agricultural commodities, the foods' world crisis and the biofuels' development.
Law 5,709/1971, which is regulated by Decree No. 74,965, of November 26, 1974, provides that individual foreigners with residence in Brazil cannot acquire more than an area equivalent to 50 units of rural land. Each unit is called "módulo de exploração indefinida" (MEI). The area of each MEI is determined by the law of the unit of the Federation where the land is located, according to the specific economics and environmental characteristics of the region where the property is situated and to the kind of agricultural activity to be developed in such area. The Brazilian Institute for the Agrarian Reform (Instituto Nacional de Colonização e Reforma Agrária - INCRA) is the competent authority to determine and change the size of a MEI.
For rural land of up to 3 MEIs, the acquisition by foreigners is free and it is not subject to any prior approval or consent whatsoever from any Brazilian authority. For rural land of more than 3 and up to 50 MEIs, INCRA´s approval is needed. Congress approval is required for the acquisition of rural land exceeding 100 MEIs. Foreigners who do not have permanent residence in Brazil cannot acquire rural land in Brazil, expect if such acquisition is due to inheritance rights.
Foreign companies can only acquire rural land destined to agricultural, cattle-raising, industrial or development projects, to the extent that such activities are included in the Brazilian subsidiary´s bylaws, which must be approved by the Ministry of Agriculture and Food Supply or the Ministry of Development, Industry and Commerce, as the case may be.
Acquisition of rural land of more than 20 MEIs by foreign individuals is conditioned upon the approval of the corresponding exploitation project.
The sum of all rural land owned by foreigners, whether individuals or legal entities, cannon exceed 25% (one fourth) of the territory of the Municipality where they are located. As a general rule, persons of the same nationality cannot own more than 40% of this limit.
Acquisition of rural land in violation of the restrictions contained in Law 5,709/1971 and Decree 74,965/74 is deemed to be null and void. Furthermore, the notary public who prepares the public deed for the acquisition of the rural land and the Real Estate Registration official who registers such deed in violation of the law are civilly and criminally liable.
With the new interpretation adopted by this Legal Opinion, the Brazilian Government intends to have a better control in relation to the acquisition of rural land by foreigners, when the transaction is structured by means of a Brazilian subsidiary formed by foreigners. These transactions must be registered in special books in the relevant Real Estate Registries. All the registrations of acquisitions made by foreigners, included those made by Brazilian companies controlled by foreigners, will have to be informed quarterly to the Judicial Department of the relevant State and to the Ministry of Agricultural Development.
This Legal Opinion is very important because it is binding on the Federal Administration since the General Attorney Office of the Union (Advocacia Geral da União - AGU) has the authority to determine the official interpretation of the Constitution, laws, treaties and other administrative acts and it has been approved by presidential order and published in the DOU. Therefore, from now on INCRA will have to follow the conclusions expressed in this Legal Opinion in its analysis of any request submitted by a Brazilian company controlled by foreign individuals or legal entities which intends to buy rural land in Brazil.
However, it should be mentioned that this Legal Opinion does not affect transactions made by Brazilian companies controlled by foreigners closed before its publication in the DOU.
1. According to article 172 of the Brazilian Federal Constitution, the law shall regulate, based on national interests, the foreign capital investments, shall encourage reinvestments and shall regulate the remittance of profits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.