1. eVOLUTION OF THe RegULATORY FRAMeWORK FOR FOReIgN ACQUISITION OF LAND IN BRAzIL
Brazil’s 2010 “change of attitude” toward foreign acquisition of rural land is not new. Indeed, steps to preclude foreigners from owning lands were taken as early as 1964. Antonio Buainain describes three regulatory patterns of restricting, loosening, and re-restricting the conditions in which non-Brazilians could acquire farmlands: (1) from 1964 to 1995, there were strong formal restrictions to land acquisition by foreigners; (2) from 1995 to 2010, there was a period of liberalization and of loosening of legal restrictions; (3) since 2010, there have been new attempts to limit and take hold of the situation.106 Generally speaking, foreigners have always had the right to own land in Brazil in the same way as Brazilians, but this right is subject to various mandatory limitations in terms of the scope of the transaction, the area involved, and the place where the land is purchased.
105. Gómez E (n 1) 21.
106. Antonio Buainain, ‘China’s Public Investments in Land and Technology in Latin America’
(Workshop on Agricultural Trade Linkages between Latin America and China, Rome, September 2011) (presentation slides available at <http://typo3.fao.org/fileadmin/templates/tci/pdf/presentations/
Antonio_Buainain_-_Land_and_technology.pdf>).
a. 1964–1995: Stringent Limits on Foreign Acquisition of Land
In 1964, with the adoption of the Estatuto da Terra (Land Statute), the military regime aimed at creating a national cadastral survey of all rural land holdings that could serve to classify land owned by small farmers and the land enclosed in large holdings, such as latifundios, mostly for taxation purposes (the aim was to heavily tax latifundios in order to get their (often) underused land on the market). Although the Land Statute is still on the books today, and although it remains the most comprehensive land law in Brazil, it became a dead letter during the remain- der of the military regime.107 This law did not set forth strong rules concerning foreigners, but it did lay down the essential basis for the law of 1971 which would regulate foreign acquisitions of land. In 1970, another big step in land tenure was made with the creation of the INCRA (National Institute for Colonization and Agrarian Reform), which had, inter alia, the respon- sibility for the Rural Properties Register created by the Land Statute of 1964. The INCRA took charge of land registration and issued the certificate of rural property register (CCIR) required for every kind of land transaction. However, it is worth noting that this system had, and still has, huge flaws due to the fact that the INCRA and the municipalities have no ties between each other.108 This constitutes this would constitute a major problem with regard to the effec- tiveness of land-acquisition regulations.
The very beginnings of a legal regime concerning foreign investors came on 7 October 1971 with Law 5709 (hereafter “the 1971 law” or “the law of 1971”), enacted on 26 November 1974 by Decree 74965, which originally targeted three kinds of foreigners: foreign individuals, foreign legal entities authorized to operate in Brazil, and Brazilian companies with foreign capital (i.e., owned by foreign individuals or corporations).109 This law, too, was enacted during the military dictatorship, and it is still valid today. The law creates three limits on foreign land ownership. The first limit set forth by the law is a general limit on foreign land acquisition at 25% of the municipal land on which the project is to take place. This means that in no case will foreigners ever own more than 25% of the land of a municipality. In addition, a second limit ensures that no more than 40% of that portion can be owned by investors of the same nation- ality. In other words, foreigners of the same nationality cannot own more than 10% of the land of a municipality. Given that the INCRA and the municipalities have very little contact with each other, and that the nationality of foreigners is hardly known (see Section B. 2. b. i., and footnotes 95 and 96), it is difficult to know how this provision has been enforced over the years. Finally, a third limit focuses on the nature of the investor and refers to specific admin- istrative rules which limit foreign acquisitions to a determined area of land (MEIs, see next paragraph): Depending on whether the investor is a permanent resident of Brazil or a foreign corporation, there is a local and individual limit on the amount of land that can be acquired.
Indeed, the law provides that individual foreigners with habitual residence in Brazil (it is a mandatory condition excluding inheritance rights) cannot acquire more than an area
107. Lincoln Gordon, Brazil’s Second Chance: En Route toward the First World (Brookings Institution Press 2001) 243.
108. Wilkinson, Bastian and Di Sabbato (n 18) 84.
109. Alberto Murray Neto, Fabricio Polido and Tatiana Erhardt, ‘Legal bulletin: real estate transactions in Brazil acquisitions of rural lands by foreign entities’ Paulo Robert Murray Law Firm (April 2011), http://
www.prmurray.com.br/en/informativo/acquisition-of-rural-lands-in-brazil-by-foreingners (‘[…] any foreign entity operating in Brazil—even as “foreign” owner of immovable goods or investor—must comply with the procedure of administrative authorization set up by the Executive Branch, under the competence of National Department of Registry of Commerce.’).
equivalent to 50 units of rural land.110 Each unit of land is defined as a múdulo de exploraỗóo indefinida (MEI), and its area depends in which municipality the land is located. The dimen- sion of each unit thus varies between 5 and 100 hectares.111 In addition, this dimension depends on the kind of agricultural activity to be developed in the area and on the specific economic and environmental characteristics of the region where the land is located. More important,the area of each MEI can be modified by the INCRA.
The law also establishes that all land acquisitions made by foreign corporations authorized to operate in Brazil are legal only if they are consistent with their corporate purposes and if they are approved by the Ministry of Agriculture (MAPA), and the regional administrative bodies (generally the INCRA) for “prior approval review.”112 This mandatory authorization is granted only if the main purpose of the transaction concerns projects in agriculture (cul- tivation or cattle-raising), industry, or colonization. As a matter of fact, these corporations could originally acquire no more than 50 MEIs, but this limit was extended in 1993, with Law 8629/93, which extended it to 100 MEIs, both for acquisition and leasing of land rights.113 Every acquisition by individuals or by corporations that has not been approved on a case-by-case analysis is null and void, and the rights are not registered.114
Today, in accordance with this law, the acquisition of rural estates by foreigners is regis- tered with the Land Office Registers, which must regularly report to the Justice Controllers of the Federal States and the Ministry of Agriculture. Depending on the size of the acquired land (in terms of MEIs) and the nature of the buyer, be it an individual or a firm, the transaction is subject to an authorization regime:
• Under 3 MEIs, no authorization is required, either by the corporation or the individual;
• For acquisition by foreign individuals of rural lands ranging from 3 to 50 MEIs, or of areas comprising 3 to 100 MEIs, prior review by the Ministry of Agriculture and the INCRA is necessary; and
• For acquisition of rural land over 50 MEIs by foreign individuals and over 100 MEIs by foreign companies authorized to operate in Brazil, approval by the National Congress is required.
The most important provision of the 1971 law for understanding further legal developments is Article 1°, §1°, which has the effect of extending these limitations to any legal entity incor- porated under Brazilian law with foreign individuals or entities as the majority shareholders.
In practical terms, this means that, from the outset, three different actors are targeted by the law: (1) foreign individuals with permanent residence in Brazil (those with residence overseas cannot acquire land except through inheritance); (2) foreign corporations authorized to oper- ate in Brazil (a “branch” of the corporation); and (3) Brazilian companies with foreign capital
110. Walter Stuber and Adriana Maria Gửdel Stuber, ‘Brazil: the acquisition of Brazilian rural land by foreign- ers’ Mondaq (25 August 2010), <http://www.mondaq.com/article.asp?articleid=108576>.
111. This dimension is said to be different (5 to 150 ha) in Gómez E (n 1). However, INCRA’s website is quite clear on that point. See Instituto Nacional de Colonizaỗao e Reforma Agraria, ‘Múdulo de Exploraỗóo Indefinida’ (INCRA), <http://www.incra.gov.br/index.php/estrutura-fundiaria/regularizacao-fundiaria/
modulo-de-exploracao-indefinida-mei>.
112. For industrial projects, an authorization must first be given by the Ministry of Industry and Commerce.
See Neto, Polido and Erhardt (n 109).
113. Buainain (n 106) slide 52.
114. For more details, see Neto, Polido and Erhardt (n 109).
(foreigners are required to have more than 50% of voting rights) that is subsidiary to foreign corporations. In other words, due to Article 1°, §1°, foreign-controlled Brazilian companies are, under this law, considered to be foreign companies. As the legal regime for foreign individuals and foreign corporations has not changed much, the various changes in the interpretation of this article, including the one provided in 2010, have basically decided what land foreigners can or cannot acquire through a Brazilian subsidiary. As explained below, the interpretation given by administrative bodies until 1996 was that Brazilian companies held by a majority of foreign capital had to be considered as foreigners under the 1971 law and thus had to comply with its restrictions. But this changed with the constitutional revision of 1995 and a subsequent new interpretation of the 1971 law.
b. 1995–2010: Liberalization of Foreign Acquisition of Lands
Once the military dictatorship came to an end, the new Brazilian government concentrated its efforts on agrarian reform in order to settle landless farmers,115 thus marking a renewed inter- est in land regulation. The new Brazilian Constitution was promulgated on 5 October 1988, and the authorities introduced an article that would be especially relevant to land acquisition by foreigners, though indirectly. Indeed, by introducing the concept of company nationality in Article 171, the text drew a de facto116 distinction between, on the one hand, Brazilian compa- nies of national capital and, on the other hand, Brazilian companies with foreign capital.117 This change did not seem, in itself, to have a great impact on land purchases by foreigners at that time. However, by introducing this new nationality concept, it allowed challenges to the inter- pretation and constitutionality of Article 1°, §1° of the 1971 law. In 1994, for instance, the AGU issued an opinion118 explaining that the distinction made by Article 171 had only the effect of creating a “positive” discrimination between the two categories of companies. In other words, Article 171 should only be interpreted as conferring benefits on Brazilian companies with national capital, and not as permitting restrictions of Brazilian companies without national capital. The AGU concluded by saying that Article 1°, §1° of the 1971 law “should not be applied to the Brazilian companies whose majority of corporate capital was held directly or indirectly, by foreign individuals or foreign legal entities.”119 However, administrative bodies in charge of
115. Wilkinson, Bastian and Di Sabbato (n 18) 84.
116. It is difficult to know exactly what distinction was made by this amendment. Nonetheless, it appears that most commentators agree that Article 171 of the 1988 Brazilian Constitution established a criterion (and thus a distinction) regarding the nationality of the companies’ capital. To be more accurate, it seems that the distinction in Article 171 was ‘negative.’ According to Neto, Polido and Erhardt (n 109) art 171 ‘estab- lished a distinction between: i) companies incorporated under Brazilian Law and with their main seat in Brazil, irrespective of the nationality of the ownership of capital, and ii) Brazilian companies having corporate interests owned by nationals (‘national companies’)’ Therefore, we can argue that a de facto distinction was made between Brazilian firms with foreign capital and other Brazilian firms. Others have argued the contrary, namely that the effect of the article was to make no distinction among Brazilian firms, be they of national or foreign capital, and that therefore, art. 1, §1 of the law of 1971 was revoked de facto. See Daiuto and Lobo (n 99).
We are not totally convinced by this latter interpretation because it does not properly explain the reasoning given by the AGU in 1994, as well as that in the opinion of 1998 (see following paragraphs).
117. To avoid any confusion, the term ‘national’ here means ‘Brazilian.’
118. Legal Opinion AGU/LA04/94.
119. José Paulo Bueno, Camila Araujo and Carolina Gora, ‘New rules: restrictions on the acquisition of rural real properties by foreigners in Brazil’ Araújo e Policastro International Newsletter 1(6) (September 2010),
<http://www.araujopolicastro.com.br/boletimaep/REAL%20ESTATE%20&%20CORPORATE%20-%20
regulating foreign acquisitions of land such as the INCRA were never bound to this interpreta- tion of the law because this opinion was never published and therefore never came into force.120 This attempt to overrule the limitation on foreigners can be explained by the Brazilian gov- ernment’s policy changes. During the 1990s, the government was no longer trying to prevent anyone from investing in the country. On the contrary, neo-liberal reforms and policies oriented toward market-based agriculture started a period of softened regulations for non-Brazilian inves- tors. In 1995, Article 171 was revoked by a constitutional revision.121 This eliminated the previ- ous distinction concerning Brazilian corporations with national capital, on the one hand, and Brazilian corporations with foreign capital on the other. The goal of this reform was to prevent any protection, advantage or preferential treatment for “Brazilian corporations” or “Brazilian corporations with national capital,” and had the major consequence of opening the borders to foreign investors desiring to acquire land through Brazilian subsidiaries.122 Nonetheless, it is important to note that this had no consequences on the acquisition of land by foreign individu- als or corporations which were still subject to the limitations set forth in the 1971 law.
Pursuant to that change, the issue of whether foreign-controlled Brazilian companies should be subject to the regulations set forth in the 1971 law in light of the deletion of Article 171 was submitted to the analysis before the AGU. In 1998, the AGU published a new opin- ion,123 which recognized the “legality” of the acquisition of rural lands by Brazilian companies having foreign equity, and rejected the application of Article 1°, §1° of law 1971 to them. His reasoning was that the federal constitution “set forth the possibility of distinguishing Brazilian companies with national capital from Brazilian companies with foreign capital, but the restric- tions to foreign capital could only be made by a new ordinary law enacted after the referred-to Amendment of the Federal Constitution.”124 This interpretation was published and thus was binding over all administrative bodies125, though some commentators criticized it as a “legal sophism.”126 Indeed, after the removal of Article 171 from the constitution, the situation should
New%20Rules%20-%20Restrictions%20on%20the%20acquisition%20of%20rural%20real%20properties%20 by%20foreigners%20in%20Brazil.pdf>.
120. This results from Article 40 of the 1988 Constitution of Brazil; the constitution can be consulted at http://www.planalto.gov.br/ccivil_03/leis/LCP/Lcp73.htm. The AGU is the ‘legal adviser’ of the federal gov- ernment, and his opinions give the ‘official interpretation’ on various issues. In order to be binding over all administrative bodies, these opinions issued by the AGU have to be published and approved by the President.
‘Section 39 of Complementary Law No. 73 states that only the President of Brazil may request the AGU to study any issue, and Section 40 determines that an Opinion issued by the AGU, approved by the president, and published in the Official Gazette is binding on the whole Federal Administration, including the Real Estate Property Registries.’ For further understanding on the definition of the role played by the AGU, see Daiuto and Lobo (n 99).
121. EC No. 6/95.
122. Wilkinson, Bastian and Di Sabbato (n 18) 95.
123. GQ 181 of 17 December 1998.
124. For a better understanding of the differences between the legal reasoning behind the 1994 and 1998 opinions, see Bueno, Araujo and Gora (n 119). Alternatively, see Renata Junquira Morelli, ‘Acquisition of Rural Land by Foreign-controlled Brazilian Companies’ (Rayes & Fagundes Avogados Associados), <http://www.
rfaa.com.br/Cmi/Pagina.aspx?1473>. According to Daiuto and Lobo (n 99), a major part of the doctrine con- sidered that restrictions on foreigner-controlled Brazilian firms could only be made by a new law, and that Constitutional Amendment n°6 of 1995 had the effect of considering all firms incorporated under the laws of Brazil as Brazilian.
125. See n 120 on Article 40 of the Brazilian Constitution.
126. Wilkinson, Bastian and Di Sabbato (n 18) 86.
have gone back to normal, that is to a regular application of the law of 1971. If we compare the situation between 1971 and 1998, the only thing that happened is the introduction of Article 171 (in 1988) and its removal (in 1995).127
This change of interpretation had a major impact on how foreign capital was controlled in the country. As a consequence of this interpretation, INCRA started giving a different inter- pretation of the application of the provisions of the original 1971 law and no longer drew a dis- tinction between foreign-controlled Brazilian firms and Brazilian firms when reviewing land acquisition projects. All Brazilian firms, irrespective of who owned their shares, were deemed to be Brazilian ones for the purpose of buying land rights. As a result of INCRA’s approach at the time, any foreigner could own as much land as a Brazilian, provided that the operation was handled by a subsidiary incorporated under Brazilian law and had its corporate headquarters in Brazil, without any mandatory limitations set forth in Law 5709/71. The 2010 AGU opinion changed this interpretation to bring foreign-controlled Brazilian corporations back into the scope of the law.
c. The 2010 New Legal Opinion and Its Impact on Foreign Acquisition of Land128
On 23 August 2010, the AGU issued a new opinion,129 overruling the previous opinions of 1994 and 1998, thus modifying “the mainstream approach within the governmental bodies, administrative agencies and all entities which are directly subject to the Executive branch, such as INCRA, the Land Office Registers, public (publicly owned) banks and enterprises.”130 This new opinion, further approved by Luiz Inácio Lula da Silva, the president of Brazil at the time, affirms that the restrictions set forth in the 1971 law would apply not only to foreign
127. This is why we are not entirely convinced by the interpretation of Article 171 of the constitution in the doctrine evoked in Daiuto and Lobo (n 99). According to them, Article 171 had the effect of not distinguishing among Brazilian firms, be they of national or foreign capital (which, incidentally, is contrary to the wording of Article 171 as reported by Neto, Polido and Erhard (n 109)). If we adopt this interpretation, the AGU’s opinions cannot be explained properly for two reasons. First, the AGU’s interpretation of Article 171 in 1994 was based on the existence of a distinction between Brazilian firms of national capital and Brazilian firms of foreign capital (this distinction was interpreted as allowing advantages to the former companies and not especially allowing restrictions on the latter). Second, pursuant to the interpretation of the doctrine evoked in Daiuto and Lobo, the removal of Article 171 should have had the effect of creating a distinction among Brazilian firms, thus providing for a regular application of the law of 1971. However, that is not what was decided by the AGU in 1998, who circumvented this by saying that, with a constitution containing no reference to companies’
nationality, it was possible to discriminate among Brazilian firms but that any restrictions to foreign firms should be made by a duly passed law.
128. This part is describing the evolution of the regulatory framework rather than summarizing what is pos- sible to do under the current regulatory framework. For a complete understanding of the current framework, the reader is advised to read Part B of this chapter. Alternatively, the reader may wish to look at Daiuto and Lobo (n 99).
129. Legal Opinion CGU/AGU n° 01/2008, published in the DOU (Diário Oficial Da União—Official Gazette of the Union) n° 161 of 23 August 2010 under the reference AGU/LA01/2008 amends the opinions AGU/
LA04/94 and GQ 181/1998 previously mentioned. More precisely, this opinion asserts that Article 1°, §1° of Law 5,709 still apply, even if Article 171 of the constitution of 1988 was revoked, since Articles 170 ‘I,’ 172 and 190 of the constitution already allowed restrictions on the participation of foreigners for certain activities.
(source: Morelli (n 124)).
130. Neto, Polido and Erhardt (n 109).