Since 23 April 2026, every acquisition of control of a Brazilian company that holds rural property (rural land) among its assets, or a rural lease among its contracts, passes through a question that used to be sidestepped: will the buyer, after closing, be a company whose capital is majority-owned by foreigners? If so, Law No. 5,709/1971 governs what that company may buy and lease, with area limits, authorization from the National Institute for Colonization and Agrarian Reform (INCRA) or from the National Congress, and nullity of any transaction made outside those conditions. That is what the Supreme Federal Court (STF), Brazil’s constitutional court, decided unanimously in the joint judgment of ADPF 342 and ACO 2,463, two kinds of action tried directly by the Court, the ADPF (arguição de descumprimento de preceito fundamental) as an action of concentrated constitutional review and the ACO (ação cível originária) as an original action brought by the Federal Union against a State, when it held that Article 1, § 1, of that law was received by the 1988 Constitution. That provision creates the company treated as foreign (sociedade equiparada): a Brazilian company whose capital is majority-owned by foreigners is treated as a foreign legal entity for the purposes of the law.
The ruling ends more than thirty years of oscillation on foreign ownership of rural land in Brazil, among opinions of the Federal Attorney General’s Office (AGU), guidance issued by the state court offices that oversee notaries and registries, and preliminary injunctions, and with that it takes off the table the strategy, common until now in agribusiness M&A by foreign investors in Brazil, of treating the matter as an open question of interpretation and moving on. What remains open is the temporal reach of the judgment, under discussion in motions for clarification, and that is why this article carefully separates what has already been decided from what still depends on the Court.
The text is addressed to the foreign investor and to its adviser in Brazil, and covers, in this order, what was decided, when a company comes to be treated as foreign, what the limits and authorizations are, what this imposes on due diligence and on deal structure, and in which sectors the problem appears most often. The legal basis is Law No. 5,709/1971 with Decree No. 74,965/1974, Article 23 of Law No. 8,629/1993 for rural leases, § 2 of Article 1 of Law No. 5,709/1971, as worded by Law No. 13,986/2020, for security interests, INCRA Normative Instruction No. 88/2017 for the procedure and AGU Opinion LA-01/2010, whose validity the Court confirmed. The firm publishes, in Portuguese, an article on setting up the Brazilian subsidiary of a Chinese company, including the visas of the professionals sent by the parent, and an article on the import chain from China to Brazil for the project.
What did the Supreme Court decide and what remains open?
The Court dismissed ADPF 342, brought by the Brazilian Rural Society, a landowners’ association, and granted ACO 2,463, brought by the Federal Union and INCRA, holding that Article 1, § 1, of Law No. 5,709/1971 was received by the 1988 Constitution. Consideration began in a virtual session held from 26 February to 5 March 2021, with the opinion of the reporting justice, Justice Marco Aurélio, and a request by Justice Alexandre de Moraes to review the case file, and it was concluded in the in-person plenary session on 18 and 19 March and on 23 April 2026, with the report read by Justice André Mendonça, successor to the reporting justice and for that reason barred from voting, and with the opinion written by Justice Gilmar Mendes. The judgments were published in the electronic Official Gazette of the Judiciary (DJe) of 21 August 2026, with a headnote and an operative part and without a formal thesis (tese de julgamento). The Court understood that Article 190 of the Constitution gives the legislature the prerogative of regulating and limiting the acquisition or lease of rural property by foreigners, and that the nationality of those holding the majority of the capital is a criterion pertinent to the subject regulated, in the name of sovereignty; when anticipating the opinion he delivered after his request to review the case file, Justice Alexandre de Moraes cited rare earths and minerals as geopolitical assets, and the opinion of Justice Nunes Marques spoke of strategic minerals for the energy transition, which bears directly on mining. As a result, the restrictions of Law No. 5,709/1971 apply to the Brazilian company whose capital is majority-owned by foreigners, under the terms of Opinion CGU/AGU No. 01/2008, adopted by AGU Opinion LA-01/2010, which the judgment upheld, and the judgment annulled the São Paulo opinion that had exempted notaries and registries from applying the law.
What the judgment did not say is from when it applies. Justice Flávio Dino proposed, in his written opinion, a prospective limitation of the ruling’s effects (modulação) so that the decision would apply from 23 August 2010, the publication date of the AGU opinion, preserving the transactions entered into under the earlier opinions; the proposal was left out of the headnote, the operative part and the session minutes, no other justice addressed it, and the justice who wrote the opinion noted that the 2010 opinion itself already limited its effects to its publication date. The history that the motions for clarification seek to put in order runs as follows.
In 1994, in Opinion GQ-22 of 7 June, and again in 1998, in Opinion GQ-181, the Federal Attorney General’s Office stated that the rule treating the company as foreign had not been received by the Constitution, and for sixteen years Brazilian companies with foreign capital bought and leased land free of the law’s constraints. In 2010 the AGU reversed its position with Opinion LA-01/2010, published on 23 August of that year. In 2012 the São Paulo State Court’s internal affairs office for notaries and registries issued Opinion No. 461/12-E, which exempted São Paulo notaries and registries from observing the restrictions. In 2014, Joint Ministerial Ordinance AGU/MDA No. 4 of 25 February preserved the legal situations completed between 7 June 1994 and 22 August 2010. In 2016, on 1 September, Justice Marco Aurélio suspended the São Paulo opinion by preliminary injunction, and the judgment has now annulled it. In 2023, on 26 April, Justice André Mendonça suspended all proceedings on the subject by an interim order requested by the Federal Council of the Brazilian Bar Association (OAB), and in May of the same year the full Court, in a virtual session that ended in a five to five tie, declined to confirm the measure. In 2026 came the judgment described above, concluded on 23 April and published on 21 August, followed by the motions: on 28 August 2026 a motion for clarification was filed in ADPF 342, attributed by the specialized press to the Brazilian Rural Society, asking that the decision take effect only from the conclusion of the judgment or, in the alternative, from September 2016, when Justice Marco Aurélio suspended the São Paulo opinion by preliminary injunction, or, in the worst case, from 2010; in ACO 2,463 there is a motion of 28 August and a second motion of 15 September 2026, all awaiting a decision by Justice André Mendonça. As of 31 October 2026, the date of publication, the motions for clarification remained pending, with no ruling and no date set for their consideration, and this section will be updated when they are decided; in the meantime there are three possible readings for transactions already completed, each with a different consequence for the target of an acquisition. For anyone buying a company with land today, this chronology is the due diligence script: each acquisition by the target must be placed in one of these periods, because the answer on the validity of title depends on when it was formed and on where the property is located.
In Congress, Bill No. 2,963/2019, approved by the Senate on 15 December 2020, would remove Brazilian companies incorporated or controlled by foreigners from the restrictions, and it is pending in the Chamber of Deputies under an urgency procedure, awaiting the creation of a special committee, with no movement since April 2024. The Court’s decision leaves the legislative path open, because it recognizes that the matter is one for statute, and at the same time does nothing to hasten it; no transaction should be structured on the assumption that the bill will pass.
When is a Brazilian company treated as foreign?
When the majority of its capital belongs to foreign individuals resident abroad or to legal entities headquartered abroad that hold an interest in it in any capacity. That is the criterion of Article 1, § 1, of Law No. 5,709/1971, and it looks at the capital, whatever the nationality of the company, the location of its head office or the position of its officers. Under the letter of the law, a minority foreign interest leaves the company outside the rule, and a majority brings it in, regardless of whether the foreign shareholder exercises control in fact. INCRA, however, on the basis of AGU Opinion LA-01/2010 and Article 15, § 1, of Normative Instruction No. 88/2017, also treats as foreign the company in which the foreign shareholder resident or headquartered abroad, even without a majority of the capital, has the power to steer the resolutions of the shareholders’ meeting, elect a majority of the officers and direct the company’s activities; a minority interest with veto rights must be designed with this criterion in view. A foreigner resident in Brazil counts as a foreigner under the law and falls under the regime for individuals, which has limits of its own and lies outside the rule for companies; a Brazilian resident abroad remains Brazilian for this purpose.
The rule reaches the corporate chain. Article 17 of Normative Instruction No. 88/2017 applies the regime to changes of shareholding control, to mergers (fusão), to mergers by absorption (incorporação), to conversions of corporate form (transformação) and to indirect acquisition through the quotas or shares of a company that owns rural property, and INCRA and the real estate registries examine who stands above the acquiring company; interposing a Brazilian holding company whose capital is majority-owned by foreigners keeps the treatment as foreign in place, because the holding company is itself treated as foreign and the capital it holds is, for the law, foreign capital. The normative instruction is silent on investment funds, private equity vehicles and silent partnerships (sociedades em conta de participação); the firm’s reading is that they must be examined by the same test of capital and control, with the added difficulty that the composition of quotas changes; the relevant moment is that of the acquisition or of the lease, and a company that comes to be treated as foreign after having bought the land becomes subject to the restrictions in each new transaction.
What this means in M&A is that the closing itself triggers the treatment as foreign. The target, a Brazilian company with Brazilian capital, is outside the law; the same company, on the day after the transfer of a majority of its quotas to a foreign buyer, is a foreign-controlled Brazilian company holding rural property, and it is inside the law. The law speaks of the acquisition of rural property, and a transfer of quotas preserves the titles the company already holds, formed when it was still Brazilian for the purposes of the law. INCRA, however, under Article 17 of Normative Instruction No. 88/2017, treats the change of control itself and the indirect acquisition through quotas as transactions subject to authorization, so that closing may depend on INCRA when the target owns rural property; the extension of the law to the corporate transaction is an administrative position, open to debate, and it is the one that INCRA and the registries apply, and the contract must take it into account. From closing onward, any purchase of land, any new lease and, on the strictest reading, any renewal of an expired lease falls under the regime of the law, with the limits set out in the next section. A buyer that pays for the target a price that assumes land expansion or the renewal of leases is paying for something it may be unable to do.
Finally, there is the hypothesis of fraud. The law punishes acquisitions made in breach of it with nullity, and the Court, in upholding the rule, made clear that structures set up so that foreign capital holds land through an interposed Brazilian person, with usufruct, call options, irrevocable powers of attorney or convertible debt that hand the foreigner the economic substance of ownership, are the target of the rule. The line between a legitimate structure and a sham is the one separating the Brazilian shareholder who actually holds and disposes of the capital from the one who holds it on the foreigner’s behalf.
What are the limits and who authorizes?
For the company treated as foreign, the rules for foreign legal entities apply, and they are the narrowest in the law. A legal entity may acquire rural property only for the implementation of an agricultural, livestock, industrial or colonization project tied to its corporate purpose, and the project must be approved by the competent authority before the acquisition; there is no free acquisition in any area bracket. INCRA authorization is granted under the procedure of INCRA Normative Instruction No. 88/2017, and above one hundred indefinite exploitation modules (MEI) jurisdiction passes to the National Congress, as established by Article 23, § 2, of Law No. 8,629/1993. The indefinite exploitation module is INCRA’s unit of area, set by typical zone and by municipality, today in INCRA Special Instruction No. 5/2022, and ranging between five and one hundred hectares, so that the same number of hectares may fall below the limit in one zone and far above it in another; the first step in any due diligence is to convert the target’s area into modules of the municipality where it is located, using INCRA’s basic index lookup.
The example that circulates among practitioners in this field is telling: a Japanese-controlled company asked Congress in 2019 for authorization to acquire land above the limit in Minas Gerais, and Legislative Decree Bills No. 157 and 158/2021, ready for the floor of the Chamber of Deputies since August 2021, are still awaiting a vote today. In INCRA’s bracket the answer arrives, on timelines that fall outside an acquisition calendar; in Congress’s bracket, in practice, it never arrives.
There are also two collective ceilings. The sum of rural areas belonging to foreigners and to companies treated as foreign may not exceed one quarter of the municipality’s surface, and persons of the same nationality may not hold more than forty percent of that limit. Excluded from these ceilings are areas smaller than three modules, transactions registered with INCRA before 10 March 1969 and the acquirer who has a Brazilian child or is married to a Brazilian under a community property regime, exclusions that Normative Instruction No. 88/2017 applies only to individuals. These ceilings are checked by the real estate registry from the special register that the law requires it to keep, with quarterly reports to the court’s internal affairs office and to INCRA, and they are the reason why municipalities with a strong presence of capital from a single origin, which occurs in regions of immigrant settlement and in mining and energy hubs, may be closed even before any project is analyzed.
Rural leases follow the same regime. Article 23 of Law No. 8,629/1993 provides that a rural land lease to a foreigner resident in Brazil or to a legal entity authorized to operate in Brazil may be made only in the form of Law No. 5,709/1971, and § 1 of the same article applies to leases all the limits, restrictions and conditions of acquisition; the operative part of the judgment deals with acquisition, and the headnote invokes Article 190 of the Constitution, which authorizes the legislature to limit acquisition or lease, so that the extension to leases comes from the statute. This closes the most obvious way out, leaving the land with the Brazilian seller and leasing it to the acquired company; a rural lease to a company treated as foreign depends on the same authorizations as a purchase.
Form is of the essence. An acquisition by a foreigner or by a company treated as foreign requires a public deed with the statements the law prescribes, which the notary must check, and the real estate registry must keep the special register; an acquisition made in breach of the law is null and void by operation of law, the notary and the registrar are civilly liable, the seller must return the price, and the transaction is never cured by the passage of time. The nullity strikes the title and, as a consequence, the balance sheet of the company that carries it, which explains why the issue has left the realm of environmental and land regulation and become a question of price.
What does this impose on due diligence and on deal structure?
Land due diligence now has two objects that used to be conflated: the validity of the titles the target already holds and the feasibility of what the target intends to do after being acquired. As to the titles, every rural property and every rural lease of the target must be placed in the chronology of the previous section, answering three questions: who was the target’s majority shareholder on the date of the acquisition; if the target was already treated as foreign on that date, was there authorization from INCRA or from Congress; and in which state is the property located, because between 2012 and 2016 the position of the São Paulo internal affairs office diverged from the federal position. A title formed by a company treated as foreign without authorization, outside the period preserved by Joint Ministerial Ordinance No. 4/2014, carries a risk of nullity whose extent depends on the pending motions, and that risk must be reflected in the price or in an indemnity, without relying on the expectation of a prospective limitation of effects.
As to the future, due diligence must state, in modules of the municipality, what the company treated as foreign will be able to buy and lease, and whether the municipal and nationality ceilings are already filled. The buyer’s business plan, when it assumes expansion of area or renewal of leases, must be rewritten in light of that answer before pricing.
In structuring, the law’s capital test is the guide. The alternative that preserves access to land is a company whose capital is majority-owned by Brazilians, with the foreign investor in a minority position and with governance rights designed in the shareholders’ agreement; it is a legitimate structure to the extent that the Brazilian shareholder actually holds and disposes of the majority, and it ceases to be legitimate when ancillary instruments hand the foreigner the economic substance of the quotas. Segregating the land in a Brazilian company, with operations in a company treated as foreign, requires that the relationship between the two be something other than a rural lease, because a lease to a company treated as foreign depends on authorization; sharecropping partnerships (parceria rural), agricultural service agreements and output supply agreements are used for this, with the risk of recharacterization if the economic substance is that of a lease, that is, if the foreign company has possession and use of the land in exchange for a fixed payment.
Law No. 13,986/2020, in Article 51, opened a specific door by giving new wording to § 2 of Article 1 of Law No. 5,709/1971: the restrictions do not apply to the creation of a security interest over rural property, including fiduciary title (alienação fiduciária), in favor of a domestic or foreign legal entity, nor to the receipt of the property in settlement of a transaction with a domestic or foreign legal entity or a company treated as foreign, through enforcement of the security, payment in kind or otherwise. The land law sets no deadline for the creditor to dispose of the property; in fiduciary transfers the general rule of Article 27 of Law No. 9,514/1997 applies, which requires an auction within sixty days of registration of the consolidation of title. This allows a foreign investor to finance the target with security over the land and to receive it in payment outside the restrictions; the next acquisition, by purchase, returns to the regime of the law.
In the contract, the clauses that follow from this are a condition precedent of INCRA authorization whenever closing depends on an acquisition or lease by the company treated as foreign or, on the reading of Article 17 of Normative Instruction No. 88/2017, on the transfer of control itself, with a deadline and a right of termination; the seller’s representation on the composition of the target’s capital at each past acquisition and on the existence of authorization where required; a specific indemnity, with a price holdback or an escrow account, for the risk of nullity of titles formed in the disputed periods; and a material adverse change clause that captures the ruling on the motions and any legislative change between signing and closing.
In which sectors does the obstacle appear?
In agribusiness the problem is direct, because in farmland investment in Brazil the land is the asset. The purchase of a grain producer, of a sugar and ethanol mill with its own cane fields or of a forestry company by a foreign investor transfers control of a company whose value lies in rural property, and the company, treated as foreign at closing, loses the ability to grow by acquisition or lease without authorization. In Paraná, where ownership is fragmented and expansion happens through leases of neighboring areas, the effect falls mainly on the renewal of contracts, which expire in short cycles and come under the regime of the law at each expiry. The buyer must know, before signing, what share of the operated area is owned, what share is leased and when the leases expire.
In mining the obstacle is less visible and for that reason more dangerous. Mineral rights are granted by the Federal Union and do not require ownership of the surface; a mining company with foreign capital may hold the mining concession without buying land, and access to the surface is obtained through a mining easement and compensation to the surface owner. The problem arises at the processing plant, the tailings dams, the waste rock piles and the support areas, which the company generally buys or leases, and which are rural property for the purposes of the law. The emphasis of the opinions on rare earths and strategic minerals indicates that INCRA tends to examine applications from the sector with greater rigor, and the structure that separates mineral rights from ownership of the surface must be designed from the due diligence stage.
In renewable energy, wind and solar farms are built on rural land owned by third parties, almost always under a long-term contract with the owner. When the contract is a rural lease, the foreign-capital project company depends on the regime of the law; when it is a surface right or an easement, the application of the law is debated and registry practice varies from state to state. The acquisition of a project company by a foreign investor must therefore inventory the land contracts by their legal nature, whatever name they were given.
In every case, an investor already present in Brazil through a company treated as foreign, holding land bought before the judgment, should avoid assuming that it is protected by the fact that the title is registered. Registration leaves the nullity intact, and the answer about the past depends on the motions for clarification; until then, prudence calls for inventorying the titles, dating each one against the chronology described and, where there was an acquisition by a company treated as foreign without authorization after 2010, assessing with INCRA the possibility of regularization.
In what order should the checks be made before signing?
The order starts from the question about capital, because that is what decides whether the law applies, and ends with the contract, because that is where the remaining risk is allocated.
| Check | Who answers | What it decides |
|---|---|---|
| Composition of the buyer’s capital after closing, including up the chain of holding companies and funds | Buyer, with counsel | Whether the company will be treated as foreign and whether a minority structure is feasible |
| Inventory of the target’s owned rural properties and rural leases, with registry record (matrícula), area and expiry | Seller, verified in due diligence | What is exposed to the law and when |
| Conversion of the area into indefinite exploitation modules of the municipality | Counsel, with INCRA’s basic indices | Authorization bracket, INCRA or Congress |
| Composition of the target’s capital on the date of each past acquisition and existence of authorization where required | Seller, verified at the real estate registry and at INCRA | Risk of nullity of the titles and the period of the chronology in which they were formed |
| Occupancy of the ceilings of one quarter of the municipality and forty percent per nationality | Real estate registry, special register | Whether there is room for new acquisitions in the locality |
| Legal nature of each land contract: rural lease, sharecropping partnership, surface right, easement | Counsel | What depends on authorization and what may be recharacterized |
| Status of the motions for clarification in ADPF 342 and of the progress of Bill No. 2,963/2019 | Counsel, on the signing date | Allocation of the risk of the past and material adverse change clause |
| Condition precedent, representations, specific indemnity and price holdback | The parties, in the contract | Who bears what could not be eliminated |
INCRA’s timelines and the congressional agenda do not fit the schedule of an acquisition, and the decision whether to buy subject to a condition precedent or to restructure the capital must be made before the letter of intent.
Sources consulted on 31 October 2026: STF, full text of the judgment in ADPF 342, DJe of 21 August 2026; STF, full text of the judgment in ACO 2,463; STF, docket of ADPF 342, with the motions of 28 August 2026; Law No. 5,709/1971, text on the Planalto website; Law No. 8,629/1993, Article 23; INCRA Normative Instruction No. 88/2017; Joint Ministerial Ordinance AGU/MDA No. 4/2014; INCRA Special Instruction No. 5/2022, indefinite exploitation module by municipality; Chamber of Deputies, progress of Bill No. 2,963/2019; Chamber of Deputies, Legislative Decree Bill No. 157/2021; Demarest, STF reaffirms the validity of the restrictions, April 2026; Demarest, update on the judgment of 18 and 19 March 2026; Mayer Brown, restrictive regime upheld unanimously; Cescon Barrieu, STF holds the legislation valid; Ricardo Quass Duarte, opinion piece in Jota on the prospective limitation of effects, republished by CNB/SP on 26 October 2026; Migalhas, STF concludes the judgment; Barbieri Advogados, what the STF decided; Demarest, Senate approves Bill No. 2,963/2019; BMA, innovations of Law No. 13,986/2020 for agribusiness.
