Brazil, through its rich geographical and economic diversity, has increasingly captured the attention of foreign investors looking to acquire rural properties for various economic ventures. However, foreigners seeking to purchase rural real estate in Brazil encounter many challenges due to existing laws and regulations on the subject. Nevertheless, there are alternatives that can be explored to facilitate and/or mitigate the risks associated with rural real estate investments in Brazil.
First and foremost, a due diligence should be performed before the investment. This entails the investigation and analysis of essential information on the rural property and its owners to provide assurance to investors in concluding their transactions.
Regardless of the intended transaction being subject to existing restrictions, the rules for acquiring a rural real estate should be examined thoroughly.
For acquisitions of a rural property, limitations on acquisition by foreigners are more specific and significant. These restrictions apply not only to foreign individuals and foreign legal entities authorized to operate in Brazil but also to Brazilian legal entities with the majority of their capital held by foreigners. It is important to note that these restrictions also apply to the leasing of rural properties. In addition to these restrictions, prior authorization from the National Institute for Colonization and Agrarian Reform (INCRA) is also mandatory. Obtaining this authorization is a complex procedure and, in some cases, it may require approval by the Brazilian Congress.
Among the restrictions imposed by legislation, it is important to highlight that the acquisition of rural properties is measured in terms of Indefinite Exploitation Modules (MEIs). INCRA is responsible for establishing the MEI for each region, which can range from 5 to 10 hectares (e.g., 12 to 24 acres) depending on the municipality where the real estate is located. These limits can be adjusted by INCRA whenever there are changes in the economic and social conditions of the region.
For foreign individuals, the acquisition of a rural property is only unrestricted if its area does not exceed 3 MEIs. In all other cases, including for the acquisition of more than one rural property with up to 3 MEIs, existing restrictions must be observed.
For foreign legal entities or Brazilian legal entities with the majority of their capital held by foreigners, limits related to MEIs must also be observed, with a maximum limit of 100 MEIs. Additionally, territorial limits imposed by legislation must be adhered to. The law stipulates that the total combined area of rural properties acquired by foreigners cannot exceed 25% of the municipal territory where the property is located. Furthermore, individuals of the same foreign nationality cannot collectively own more than 10% of the territory of the municipality. These properties must be exclusively used for the implementation of agricultural, livestock, forestry, industrial, tourist, or colonization projects, in accordance with their statutory or contractual purposes, as applicable.
It’s worth noting that there is a Bill of Law (2,963/19), approved at the end of 2020 by the Brazilian Senate, but still pending other legislative procedures, which aims to reduce the restrictions on the acquisition of rural properties by foreigners. Among the proposed changes, we can highlight:
- The possibility for Brazilian legal entities with foreign control not to be subject to such restrictions;
- foreign individuals and legal entities being able to acquire up to 15 MEIs (Indefinite Exploitation Modules), without the need for authorization from INCRA or any other public body, also eliminating the requirement for submission of a land exploitation project; and
- the validation of irregular acquisitions made during while the current law was in force.
From a practical standpoint, if the intended operation is subject to the aforementioned restrictions, there are legal alternatives under Brazilian law that have been widely used by foreigners to facilitate real estate investments in Brazil and circumvent these limitations, such as surface right, assignment of right and use, and corporate structures that prevent the characterization of foreign control. Thus, the assessment of possible alternatives to facilitate the intended project may only occur after a thorough analysis of the intended activity, the area, the state where the property is located, and other specific details.