Legal and practical obstacles in the acquisition of rural property by a national company with foreign capital

The acquisition of rural property by a national company with foreign management or control is a tortuous matter, as it requires analysis of the legislation and political-economic scenario in force in the country.

The Civil Code in its art. 1126 determines that the company is considered Brazilian when the organization is carried out in accordance with national legislation and the administrative headquarters is located in Brazil. The concept of a foreign company, in turn, is negative.

The treatment given to Brazilian and foreign companies is quite unequal, starting with the need, for the latter, to obtain authorization by decree from the Executive Branch for its operation and, also, the power granted to it to establish, at its discretion, conditions that meet the national interests for granting said authorization, including regarding contractual or statutory modifications.

It is common, therefore, for foreign investors to set up Brazilian companies and make contributions of foreign capital into them - the so-called direct foreign investment - to take advantage of the simplified procedure for opening and operating these companies. 

With regard to the acquisition or leasing of rural properties, however, the national company whose control is held by foreign investors faces several difficulties arising from its assimilation to a foreign company, initially promoted by Decree Law 494/69, promulgated as a result of art. 3rd of Complementary Act nº 45/69. Decree Law 494/69 was later revoked by Law 5.709/71, regulated by Decree 74.965/74, which, together with Law 8.629/93, not only maintained the restrictions on acquisition, but also expanded them to cases of leasing rural properties by foreigners and, consequently, by Brazilian companies controlled by foreign capital.

From 1994 to 2010, following guidance from AGU opinions GQ 22/94 and GQ 181/98, the government stopped applying the restrictions described above to Brazilian companies controlled by foreign capital. Thus, national companies with foreign capital were able to acquire and lease land in Brazil without the need for authorization. However, with the change in macroeconomic conditions, especially regarding the dispute over areas for the production of food and biofuels, the Brazilian government consulted the AGU again, resulting in the review of the previous position, through Opinion LA 01/2010. The applicable rules have undergone a change, which is negative for the attractiveness of investments in the country.

According to current legislation, Brazilian companies controlled by foreign capital, as well as foreign companies and natural persons, must obtain prior authorization, through INCRA, to acquire or lease rural properties in the country. The request must be accompanied by the documents provided for in INCRA Normative Instruction 88/2017, including an agricultural, livestock, industrial or colonization plan, which must necessarily be linked to the company's corporate purpose. There is a limit on the area that can be acquired by foreigners of 25% of the municipality in which they are located, and 10% of the city's area is reserved for holders of the same nationality.

Authorization from the National Congress is required for leases of an area exceeding 100 indefinite exploration modules, with a public deed being mandatory, in accordance with CNJ Provision 43/2015.

The time for consideration and judgment of the application depends, in addition to the internal process between the sectors of the authority, on all the bodies involved, such as the respective Ministries, and even in specific cases, the National Defense Council and the National Congress, which brings delay and legal uncertainty for the applicant and does not match the agility necessary for investments of this nature to be perfected.

Aware of this demand, Bill 4.059/12 seeks to regulate the issue in order to exclude Brazilian legal entities controlled by foreigners from the restrictions imposed by it, maintaining restrictions on foreign companies and individuals and prohibiting access to land by funds sovereigns, NGOs and foreign foundations. The information would be provided through the Rural Environmental Registry (CAR) and the National Rural Registry System (SNCR).

Even though the Brazilian option honors its sovereignty, seeking to preserve the country's capacity to generate wealth and explore its natural resources by maintaining restrictions, it is essential to say that the Executive Branch is capable of providing means so that the entities involved in the procedure can , in fact, carry out the control it proposes in an agile way.  

In Brazil, SNCR data does not currently allow us to identify the real foreign appropriation of Brazilian lands, a reflection of the lack of an efficient inspection apparatus, mainly because the imputed data is declaratory.

In addition to clear rules regarding restrictions, it is essential that the Executive Branch provides financial, technological and human resources, taking advantage of satellite data, automatic cross-referencing of registration information from the Commerce Registry, City Halls, the Property Registry and others , seeking efficiency and justice in granting authorizations and in the country taking advantage of the positive effects of foreign investment, both financial and technological and social development.