In terms of corporate law, foreign investors in Brazil — either legal entities or
individuals — do not face a broad range of legal restrictions and, in general terms,
are permitted and welcome in the vast majority of economic sectors.
Foreign direct investments, which
are regulated by Brazilian Law
4,131/62, may be carried out by
investing in an existing company
or incorporating a new one. For
foreign direct investments, both
the Brazilian entity and the foreign
investor must be registered with the
Brazilian Central Bank. Additionally,
every inflow and outflow of money
resulting from such investment must
be registered with the Central Bank.
These registrations are simple online
procedures and do not require any
prior review or authorization by the
Brazilian Central Bank.
Foreign shareholders, as well as
Brazilian entities, must also provide
the Brazilian Federal Revenue
with information regarding their
respective corporate chains up
to the individuals deemed their
“ultimate beneficial owners.”
Notwithstanding the straightforward
legal framework which allows
foreign investors into Brazil, social
and economic aspects, such as the
political environment, high interest
rates and the expensive debt market,
may impact the inflow of investments.
According to data collected by the
Brazilian Central Bank, during 2017,
Brazil received US$540 billion in
direct foreign investment, which
represents an increase of 12 percent
in comparison with 2016.
The Brazilian real estate market has
also experienced a period of gradual
economic recovery. There are a
number of positive factors creating
good investment opportunities in the
Brazilian real estate sector, including:
- Logistics and warehousing:
the need for warehouse space
has increased significantly, as
online retailers need storage units
and delivery facilities.
- Hospitality: recent major sporting
events in Brazil, such as the World
Cup and the Olympics in Rio de
Janeiro, have allowed this sector
to continue to develop and attract
resources.
- Commercial and office
buildings: vacancy rates have
been decreasing, particularly in
São Paulo, and there may even
be untapped demand over the
next few years. The return of
investment is already driving
many real estate developers
to launch new commercial real
estate developments.
- Residential: new developments are
taking place for compact and studio
apartments, notably in urban areas,
such as Brasilia, São Paulo, Rio de
Janeiro, and other major cities.
- A recovery in the retail industry
sectors has also been noted,
with the return of consumer
confidence in purchasing goods
and real estate associated
with some improvement in the
Brazilian economy.
- Shopping malls too are
now indicating that business
developers have begun to reopen stores that had been closed
in the recent period of austerity.
New technologies also are perceived
to be responding to the demand
for a more participatory world,
developing very attractive real estate
products that meet new demands
such as co-working, a flexible
working model in which the sharing
of office space and resources takes
place, bringing together people who
do not work for the same employer,
or in the same area. This disrupts
the traditional forms of working
arrangements.
Other ways to set up households
are emerging, with the co-living
concept. Co-living projects already
correspond to an important
trend reflecting the desire for
co-existence. This sector delivers
individual rooms with common
services and areas of all kinds to
meet the needs of particular groups,
and it is attracting notable interest
from older people and students.
Other areas should also generate
new business opportunities in real
estate, such as the current discussion
on amendments to the new Zoning
and Master Plan in the City of São
Paulo which will affect new real
estate developments in the city.
Regarding investment in Brazilian
farmland, in 2010, at the end of the
government of former President
Lula, there was a change in the
position adopted by the Office of
the General Counsel to the Federal
Government (AGU), consisting of the
new Opinion1 which re-established
restrictions on the acquisition and
lease of farmland by foreigners
and similar entities (ie, Brazilian
subsidiaries of foreign companies,
controlled by foreigners in any way).
There are a number of positive factors
creating good investment opportunities
in the Brazilian real estate sector.
The intended purpose of this
Opinion in 2010 was to stop all
investments in Brazilian farmlands
by foreigners, and this intention
was achieved, since the change in
the interpretation of the legislation
resulted in the classification of
all and any externally originated
investment as subject to the
Legislation of 1971. This prevents
acquisitions and leases without the
prior approval of the government/
National Congress, and also makes
them subject to other extensive
limitations established by the law.
In reality, it renders such deals
unviable, adversely affecting all
and any type of acquisition or lease, disregarding the
important nuances and the existence of economic
sectors with their own regulations, such as the energy
generation industry.
Currently, a foreign investor may only hold a minority
stake in a Brazilian company holding farmland. This
restriction may also prevent the granting of guarantees
and collateral related to the farmland to foreign
investors, which could improve the growth of the
agribusiness sector, including the development of
new technology.
However, the recently elected president and the
Ministry of Finance are now keen to facilitate foreign
investments in order to leverage the Brazilian economy.
Thus, it may be opportune to reconsider whether the
political and economic reasons for the restrictions are
still justifiable, or whether the time has come to find a
better way to deal with investment in Brazilian farmland
by foreign companies.
Times have changed, and if the economy is to grow
again, Brazil requires fresh investments. Economists now
agree that this will only happen if foreign investment is
encouraged, especially given the restrictions on credit.
It is important to approach this question afresh,
examining not only the implications for every sector of
the economy, avoiding the “catch all situation” set out in
the opinion of 2010 which made any deal unfeasible, but
also considering a new regulatory framework, one that
will achieve a better balance between national security
and the country’s economic development.
It would not be the intention to completely eliminate
restrictions on the acquisition and lease of farmland
by foreigners. Several countries, to a greater or lesser
degree, impose such limits and restrictions, but they
are generally supported by rules that are clear and easy
to implement. The intention would be to make such
transactions subject to rules that are clear and subject
to penalties for those who fail to comply, thus ensuring
investment that benefits the nation’s economic growth.
New investment could boost Brazil’s economy and
generate growth for Brazilians by creating jobs and
income, and also foster competition in agribusiness. Brazil is currently searching for the right path to take
between the alternatives presented, namely, continuing
to preclude foreign investment and its attendant
development, or to achieve a balance between foreign
interests and those of the Brazilian population.
Brazil as a whole, and its real estate market in particular,
has been experiencing a gradual but significant period
of recovery in growth and investment. As a result,
there are many excellent investment opportunities in
Brazil and the Brazilian real estate sector that could be
attractive to foreign investors.
Campos Mello Advogados is an independent law firm
working in cooperation with DLA Piper.
1 Opinion CGU/AGU LA 01, of August 9, 2010