Consulate General of Brazil in Los Angeles

The following information is available at our Brazilian Embassy http://www.brasilemb.org/trade_investment/guide_investors.pdf (pages 56-59).

12. ACQUISITION OF REAL ESTATE IN BRAZIL

12.1. INTRODUCTION

Under Brazilian law, questions relating to property are governed by the law of the place where the property is located. Thus, issues regarding real estate property situated in Brazil are governed primarily by the Brazilian Civil Code ("BCC").

Pursuant to the Brazilian Civil Code, assets are divided into two broad categories: movable and immovable. Movable are those assets which can be moved by external forces or by themselves, without causing their own destruction or devaluation.

Immovable assets are those which are by nature immovable or fixed in the land, and can not be partially or totally removed without causing their own destruction or devaluation. The category of immovable property comprises land together with its surface, and all things attached to or forming part of the land, the air space above the land and the subsoil, except for the mines and products from the subsoil, as well as waterfalls, which constitute, for the purposes of exploitation and usage, separate assets from the land. In this sense, according to the Brazilian Federal Constitution ("Federal Constitution"), the exploitation of mineral resources and hydroelectric power requires federal authorization or license. Some assets, however physically movable, are considered immovable by the law, by reason of the use to which they are put by the owner, i.e., industrial machines and equipments. Likewise, property rights are also treated as immovable property, such as rights in rem over immovable property, government stock incorporating an inalienability clause, and the right of an heir to inherit property.

Foreigners individuals or foreign-owned companies can acquire real estate property in Brazil in the same conditions applied to national individuals or companies. However, special conditions may apply to foreigners or to foreign-owned companies, referring to the purchase of property located near the coast or frontiers or certain specific areas designated as being of national security. Rural areas can be acquired by foreigners or foreign-owned companies, according to specific law dispositions, which will be discussed in item 3.2. Foreigners or foreign-owned companies can also acquire rights in rem related to immovable property.

12.2. POSSESSION AND OWNERSHIP

With respect to real estate properties, two broad categories of rights emerge: the right of possession and the right of ownership:

The right of possession is a personal right to exercise certain powers of ownership such as: the right to claim, maintain or recover the possession of property; the right to receive its fruits (including rents and other income from the property), the right to be indemnified for necessary improvements carried out, and the right to retain the object.

The right of ownership is the most important of all property rights and is defined by the Brazilian Civil Code as the right of an individual to use, enjoy and dispose of his goods, and to recover them from whoever may have taken possession of them unlawfully. It is an absolute and exclusive right, which may, however, belong to several persons at the same time, in relation to the same property, as in a co-ownership or condominium, which is when each of the co-owners of an asset has all the property rights in relation to an ideal part of such asset.

The right of ownership may be restricted in view of public interest or in respect for the property rights of third parties, as in the following situations:

the expropriation of real estate properties by the government (ownership of private property is transferred to the expropriating authority against payment of an indemnity);

the restrictions relating to the division of urban land as, for example, those restrictions to buildings construction, establishing of industrial plants in critical pollution zones, etc, imposed by the law of the municipality where the property is located;

the restrictions imposed in the interest of national security, such as the restrictions on the sale of private land in the coast or within 150 kilometers of the national frontier; and

the restrictions to the right of the proprietor to freely dispose of his goods, arising from the status of insolvency, bankruptcy or "concordata" of the proprietor, in order to protect the creditor's rights.

12.3. ACQUISITION AND LOSS OF OWNERSHIP

12.3.1.GENERAL PROVISIONS

According to Brazilian law, ownership of real estate property is constituted upon the registration of the public or private instrument through which the sale was accomplished at the appropriate Real Estate Registry of the location where the property is situated. The execution of an instrument involving real estate property that was not registered at the respective Real Estate Registry will only become a binding instrument between the parties involved in the sale agreement and, thus, will not be enforceable against third parties. Real estate property is acquired by the registration of the act which have transferred the property, due to any cause, such as:

by the sale and purchase agreement signed by the parties;

by accession (which is the enlargement of the land caused by the incorporation of parcel of the soil, dislocated by natural forces);

by prescription (which is the acquisition of ownership by the possessor who, although not being the owner, has had the possession of the property during a certain period of time, stipulated by law); and

by inheritance.

Likewise, any act which modifies, extinguishes, transmit or create rights related to immovable properties must be registered with the competent Real Estate Registry, such as:

court orders by which undivided land is divided among different owners;

court orders in the winding-up of an estate of a deceased person or the division of property, awarding immovable property to creditors in payment of the debt of the estate;

public auctions and adjudications; and

orders of separation, divorce and nullity which involves the settlement of property or rights in rem related to immovable properties.

The main grounds for extinguishing real estate ownership are:

expropriation, which is the unilateral act of public law by which individual wnership is transferred to the relevant government authority, upon payment of fair compensation by said authority, due to public interest;

transfer;

waiver (for example, when the heir renounces his rights of inheritance); and

abandonment or destruction of the property.

12.3.2.ACQUISITION OF RURAL PROPERTY BY FOREIGN PERSON OR FOREIGN LEGAL ENTITY

The acquisition of rural property by foreigners who have permanent residence in Brazil or by foreign companies authorized to operate in Brazil is regulated by Law No. 5.709("Law No. 5.709/72"). This law provides that individual foreigners with residence in Brazil cannot acquire more than an area equivalent to 50 (fifty) units of rural property called "módulos rurais". The area of each "módulo rural" is determined by the law of the unit of the Federation where the land is located, according to the specific economics and environmental characteristics of the region where the property is situated and to the kind of agricultural activity to be developed in such area. Foreigners who do not have permanent residence in Brazil cannot acquire rural properties in Brazil, except if such acquisition is due to inheritance rights. On the other hand, the restrictions to the acquisition of rural properties by Brazilian companies with foreign equity control are now being questioned because of the 1995 amendment to the Federal Constitution which removed the distinction between Brazilian companies and Brazilian companies with foreign equity control. However, the restrictions on foreign individuals and foreign corporate entities authorized to operate in Brazil remain in force.

According to Law No. 5.709/72 foreign companies can only acquire rural property if the purpose is the implementation of agricultural, cattle-raising, industrialization or colonization projects, and that such projects must be linked to their respective statutes. Such projects must be approved by either the Brazilian Agriculture Ministry or the Department of Trade and Industry, as the case may be. The President of Brazil may, upon specific decree, authorize the acquisition of rural property beyond the provisions of the current law, in cases where such property is the object of priority projects involving the country's development plans.

12.3.3.GENERAL REMARKS AND REQUIREMENTS UPON PURCHASE

The acquisition of a real estate property in Brazil due to inter vivos transactions is generally agreed between the purchaser and the seller by means of a sale agreement. If a property is acquired by a single buyer (not in a condominium situation), than the buyer has absolute title to that area of ground. In case of multiple ownership (as it is the case of condominium), each owner can exercise all the rights of ownership, except those incompatible with the indivisibility of the property (for example, the property can not be sold without the approval of all owners, and the price paid must be divided among them).

Besides the specific requirements related to transactions involving immovable property, Brazilian law requires, as for any other type of contract, that the parties of a sale and purchase contract be capable to perform such a transaction. They must have full legal age (majority), be mentally healthy, or, if not capable, they must be duly represented to perform such a transaction.

12.4. TAXATION

12.4.1.INTER-VIVOS TRANSFER TAX - ITBI

Inter-Vivos Transfer Tax ("ITBI") is a tax assessed by the municipalities which is due when real estate property or rights in rem to any real estate property (except those in guarantee), and also assignment of rights for the acquisition of property is transferred, for any reason whatsoever, and on a remunerated basis. For example, the rate established to the Municipality of São Paulo, according to São Paulo Municipal Law No. 11.154, varies from 2% to 6%, depending on the property's value.

ITBI is not assessed when the transfer of real estate property or rights to any such property takes place to pay up the capital of a company or when resulting from any merger, consolidation, spin-off or liquidation of the legal entity, except if in any of the above mentioned cases, the acquirer's chief activity is the purchase and sale of such assets and rights, lease or commercial lease of real estate property.

12.5. REAL ESTATE INVESTMENT FUNDS - FINANCIAL INSTRUMENT

Real Estate Investment Funds were established to provide funds for developing real estate ventures for subsequent sale, letting or leasing. The Brazilian Securities Exchange Commission must authorize, regulate and inspect Real Estate Investment Funds operations and administration.

Property Investment funds are currently being used for the purposes of raising funds for the construction of several Shopping Centers throughout Brazil. Previously, pension funds were direct investors of real estate projects but currently they are investing indirectly, by purchasing shares of property investment funds.

Both individuals and corporations resident or domiciled abroad are entitled to acquire such shares, provided that the funds resulting from the investment are duly registered with the Central Bank of Brazil, thereby enabling the return abroad of the respective investment and the gains resulting therefrom. Capital gains resulting from investments on property investment funds are subject to withholding tax (IR) at a rate of up to 20% upon disposal or drawing of Real Estate Investment Funds quotas.