June 29, 2011

"Land Council" to Regulate Land Purchases by Foreigners in Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

In August of 2010, the Brazilian government placed limits on the amount of land a foreign individual, company or country may purchase in Brazil. Since the limits were put in place, US$ 15 to US$ 25 billion in investments have been sidelined waiting for clarification of the new rules. For the last several months, four governmental agencies including the Office of the President, the Attorney General, the Agricultural Development Agency (MDA), and Incra (the National Institute of Colonization and Agrarian Reform) have been involved in developing the new regulations. Their recommendations are expected to be presented to the Brazilian Congress and President Rousseff in the next few weeks.

Part of the new regulations will involve the creation of a new agency called the National Land Council that will have final say over purchases of land by foreigners. Sources involved in the negotiations state that there will not be any barriers to land purchases by foreigners in Brazil if the new rules are followed. The government wants to have some control over the process, but the details of the new rules and regulations have not been fully reveled. One of the goals of the new regulations is to limit land speculation in Brazil.

It is believed that the new threshold limit above which the National Land Council will become involved will be 5 hectares, although this limit could change in subsequent negotiations. For purchases above the threshold, an investment plan will need to be presented before the purchase will be approved.

The National Security Council will also need to approve purchases of land near the Brazilian border. Purchases of land larger than 500,000 hectares would also have to be approved by the Brazilian Congress. The proposed regulations may also be in conjunction with reciprocal agreements for purchases of land by Brazilians in the country of origin of the investor. The new rules are also expected to require the true purchaser of the land be revealed and he/she will not be able to stay obscured behind a "dummy company".

The new rules will not apply to land that has already been purchased by foreigners, but prior purchases must be re-registered with the new National Land Council.

The rules that have been in place since last August of 2010 place a limit of 5,000 hectares for purchases by foreigners. Foreign purchases cannot surpass 24% of a given municipality and any one nationality cannot own more than 10% of a municipality. These rules will certainly change when the new legislation is approved by the Brazilian Congress.