On August 23, 2010, the Opinion nº LA-01 of the Office of the General Counsel to the Federal Government (AGU) was published, which deals with the acquisition of rural real properties by foreigners in Brazil.
According to the referred-to Opinion, the restrictions on the acquisition of rural real properties in Brazil, set forth in Law nº 5709 of October 7, 1971, shall apply not only to foreign individuals or foreign legal entities, but also to Brazilian companies which majority of the corporate capital is held, either directly or indirectly, by foreign individuals or foreign legal entities.
This opinion gives a new interpretation to the matter. In fact, this matter was subject to AGU´s review in the past, AGU itself having interpreted this matter differently and issued opposite opinions on 1994 and 1998.
Law 5709/1971 sets limits to the acquisition of rural real properties in Brazil by foreign individuals and foreign legal entities and establishes in paragraph 1 of its article 1 that the Brazilian companies which majority of the corporate capital is held, for any purpose, by foreign individual or foreign legal entities shall be deemed as foreign legal entities.
Article 171 of the Federal Constitution of 1988 introduced the concepts of Brazilian company and Brazilian company with national capital. Therefore, in view of the enactment of the Brazilian Federal Constitution with such new concepts, the constitutionality of paragraph 1 of article 1of Law 5709/1971 was challenged. AGU had issued Opinion LA 04/94, which was not published, stating that the distinction between the Brazilian company and the Brazilian company with national capital established by the new Constitution was made with the purpose of permitting the granting of some benefits to the Brazilian companies with national capital and not to permit restrictions to the Brazilian companies (without national capital). Therefore, the AGU’s interpretation concluded that paragraph 1 of article 1 of Law 5709/1971 was not consistent with the terms of the new Constitution and, accordingly, the limitation set forth in the law should not be applied to the Brazilian companies which majority of the corporate capital was held, directly or indirectly, by foreign individuals or foreign legal entities.
Later on, the Amendment to the Federal Constitution nº 06 of 1995 revoked article 171 of the Federal Constitution, eliminating the definition of the Brazilian company and the Brazilian company with national capital. Therefore, the issue was again submitted to the analysis by the AGU as to the applicability of article 1, paragraph 1 of Law 5709/1971 in view of the amendment to the Federal Constitution. The interpretation of AGU, published through the Opinion GQ 181/98, was that the Federal Constitution sets forth the possibility of distinguishing Brazilian companies with national capital from Brazilian companies with foreign capital, but the restrictions to foreign capital could only be made by a new ordinary law enacted after the referred-to Amendment to the Federal Constitution. Therefore, the AGU has again stated the opinion that the limitations imposed by Law 5709/71 should not apply to Brazilian companies which majority of the corporate capital was held, directly or indirectly, by foreign individuals or foreign legal entities.
The AGU’s new opinion L A-01 changes significantly the current scenario.
The new opinion gives a new interpretation to this matter and reviews opinions of 1994 and 1998, establishing that paragraph 1 of article 1 of Law 5709/1971 is constitutional, by virtue of the Constitutional Change phenomenon, the National Sovereignty, Independence and National Development Assurance principles, as well as article 172 of the Federal Constitution. Therefore, as per such opinion, the limits set forth in Law 5709/1971 should also be applied to the acquisition of rural real properties by Brazilian companies which majority of corporate capital is held, directly or indirectly, by foreign individuals or foreign legal entities.
In view of the above, the restrictions currently applied to the acquisition of rural real properties by foreigners are:
Note that the mentioned laws and the AGU’s interpretation do not apply to urban real properties.
Note further that the effects of AGU’s opinions are not the same as the effects of an enacted law. According to articles 40 and 41 of Supplementary Law nº 73/1993, the approved and published opinion of AGU, jointly with the Presidential Order binds the Federal Administration, the departments and entities, which are obliged to comply with AGU´s opinion. Therefore, the Registries of Real Estates shall comply with this order by registering the acquisition of said real properties in special books after previous authorization of the proper authorities. Furthermore, they shall inform, every quarter, the Internal Affairs Department of the State Courts and the Ministry of Agrarian Development about any such acquisitions.
In Brazil, the title of a real estate property is only obtained with the registration of the acquisition and transfer of the property to the new owner before the Registry of Real Estates.
The new AGU Opinion is the outcome of a trend of restricting the acquisition of rural land by foreigners in Brazil that we have been closely following up for some time.
With this same purpose, the Bill of Law nº 4440 of 2001, already approved by the Chamber of Deputies and still under examination by the Federal Senate, aims at restricting land acquisition by foreigners in the Official Legal Amazon, which corresponds to the totality of the States of Acre, Amapá, Amazonas, Mato Grosso, Rondônia, Roraima, Tocantins and Pará, and part of the State of Maranhão. If such Bill of Law is passed, foreign individuals or legal entities, as well as Brazilian companies which majority of the corporate capital is held by foreign individuals or legal entities, will only be entitled to purchase rural real properties in the official Legal Amazon with total area equal to 15 tax modules (which, in the Official Legal Amazon, corresponds to 1,500 hectares).
Finally, as informed by the AGU, the acquisitions of rural real properties already registered with the Registry of Real Estates should not be impacted by the new interpretation.
Year 1 | No. 6 | Sep 2010