Since the early 70's an important debate is going on, in Brazil, about the ownership of rural land by foreign investors.
A ruling from the Office of the Federal Attorney General back in 1970's, stated that, for the purposes of rural land ownership, Brazilian companies held by foreign capital were to be considered Brazilian companies. This ruling confirmed and clarified some doubts about the intent of legislators with Federal Law 5.709, article 12.
According to article 12 from Federal Law 5.709, the sum of rural land owned by a foreign investor may not exceed 25% of the extension of the municipalities where the land is located.
However, after the enactment of the New Federal Constitution of 1988, the same Office from the Federal Attorney General revised the ruling from the 70's and stated that Brazilian companies held by foreign investors were to be considered foreign when it came to the purchase of rural land - Ruling 250/2010.
The current point of discussion is a Ruling from the Internal Affairs Office from the São Paulo State Tribunal - Ruling 461/2012. This ruling established that companies incorporated under Brazilian Law should be considered Brazilian Companies, for the purchase or rural land, even if the capital is originated from foreign jurisdictions.
Against this São Paulo State ruling, the Office of the Federal Attorney General, along with INCRA - National Institute for Agriculture Reform, filed a lawsuit requiring the Federal Courts to declare such State ruling illegal and asking for an injunction.
After analyzing the reasoning from the Office of the Federal Attorney General and INCRA, Judge Marli Ferreira from Regional Federal Tribunal (TRF-3ª Região) granted an injunction, determining that for the purpose of rural land purchase, the origin of the capital of the investors (majority shareholding) in Brazilian companies, will determine the nationality of the company. Thus, Brazilian companies held by foreign investors will be treated as foreign companies.
The judicial decision is still open for reform by the Superior Courts. However, this battle is going on for decades and it seems we have not seen the end of it.
I have already written about this São Paulo State Ruling topic last January. Only 4 months later, another U turn on the matter appears to be in place.
This shows that foreign investors looking into purchasing rural real estate in Brazil have to follow these discussions closely.
Due to this uncertainty, planning and correct structuring of foreign investment in rural real estate in Brazil is strongly advised.
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.