USDA Proposes Major Overhaul of AFIDA Rules: In Focus on the Expansion of the “Significant Interest or Substantial Control” Test to Include “Beneficial Owners”

This Advisory is a companion to our June 2026 Advisory on the proposed rule (Docket No. USDA-2026-0001; RIN 0560-AI70) published by the U.S. Department of Agriculture (USDA) on June 25, 2026, that would, if finalized in its current form, make significant changes to the Agricultural Foreign Investment Disclosure Act (AFIDA). Here, we focus more closely on the proposed expanded definition of “foreign persons” subject to filing requirements under AFIDA; in particular, the addition of a brand-new “beneficial owner” definition as part of the restructured “significant interest or substantial control” test that gives the definition broader reach. Together, these changes move AFIDA away from a purely equity-based inquiry and toward a broader look at governance and operational control. These changes, if implemented, could have far-reaching consequences to companies that have never considered themselves “foreign” or had to consider the requirements of AFIDA at all.

The Existing AFIDA Framework

Before getting into what the proposed rule would add, it is worth noting the current state of the law. Under AFIDA, foreign persons that acquire or transfer any interest in agricultural land, other than a security interest, are required to file a report to the Secretary of Agriculture no later than 90 days following such acquisition or transfer. 7 U.S. Code § 3501(a). A “foreign person” is defined to include (1) any individual who is not either a citizen of the United States, the Northern Mariana Islands or the Trust Territory of the Pacific Islands or who is not lawfully admitted to the United States for permanent residence, or paroled in the United States, under the Immigration and Nationality Act; (2) any person,¹ other than an individual or a government, which is created or organized under the laws of a foreign government or which has its principal place of business located outside of the United States; (3) any person, other than an individual or government, which is organized under the laws of any state and in which, a significant interest or substantial control is directly or indirectly held by any individual referenced in (1) or (2) above, a foreign government or, by any combination of such individuals, persons or governments; or (4) any foreign government. 7 U.S. Code § 3508(3).

The existing regulations define “significant interest or substantial control” through three equity-based tests: a single foreign person or government holding 10% or more of an entity; multiple foreign persons acting in concert who together reach 10% or more, even if none of them individually crosses that line; or foreign persons or governments who are not acting in concert but who nonetheless hold 50% or more of the entity in the aggregate. 7 C.F.R. § 781.2(k). Notably, none of these prongs speak to control of the agricultural land. Accordingly, control without equity has, until now, simply not been something AFIDA reaches. The proposed “beneficial owner” definition, discussed below, is the USDA’s mechanism for closing that gap by making control, on its own, an independent trigger for AFIDA reporting.

The Proposed “Beneficial Owner” Definition

Section 5100.2(d) of the proposed rule adds a new prong to the “significant interest or substantial control” test for persons defined as “beneficial owners.” The proposed definition of a beneficial owner is: “[A]ny foreign person who, directly or indirectly, through any contract, understanding, relationship, or other arrangement, exercises decision-making authority over the agricultural land or the legal entity holding the land, including but not limited to the power to direct the sale, lease, or use of the property.” Three features of this new definition stand out: (1) it is control-based, not equity-based; (2) the undefined scope of “decision-making authority,” and (3) “indirectly” is written to broadly capture complex ownership structures.

First, by contrast to the existing law, the additional test turns on decision-making authority only regardless of whether such foreign person holds any equity interest in the underlying property. Accordingly, a foreign person with zero equity will still qualify as a beneficial owner if that person exercises the requisite authority over the land or the entity holding it. The preamble to the proposed rule illustrates the point with the board of a foreign-based nonprofit that acquires agricultural land: the board members would qualify as beneficial owners by virtue of their governance authority over the nonprofit’s policies and practices, even though none of them holds any financial interest in the land. Note that in this example it is a foreign-based board that is directing the company and not persons that are lawfully admitted to the United States for permanent residency or otherwise excluded as described above in our discussion of the existing law. This distinction is worth keeping in mind, as the new regulations appear intended to capture entities that are controlled by persons residing outside of the United States.

Secondly, the phrase at the heart of the new definition, “exercises decision-making authority through any contract, understanding, relationship, or other arrangement,” is left undefined in the proposed rule, and that gap leaves several interpretive questions open during the comment period. It is not clear whether customary passive-investor protective rights held by foreign limited partners or joint venture partners, such as budget approvals, major-decision consents, removal-for-cause provisions, and transfer restrictions, would count as decision-making authority over the land. It is likewise unclear whether the concept is limited to operational control over the actual use and disposition of the property, or whether it extends further to governance-level approval rights that constrain property decisions without affirmatively directing them. Further, would the inclusion of one or more foreign persons on the board of directors of a U.S. company constitute foreign persons having decision-making authority given that they have input (even if they do not have the ability to act on their own accord)? These are all questions that remain unanswered based on the current language set forth in the proposed rule. Because the proposed rule includes no safe harbor for customary protective rights or de minimis input, investors and practitioners structuring any transaction involving agricultural land with foreign participation are left with real uncertainty about where the line falls.

Finally, the definition is written to reach through every layer of intermediary ownership, and it calls out circular ownership, shell corporations, trusts, and partnerships by name so that structuring around the rule through layered entities does not work.

Other Changes to the “Significant Interest or Substantial Control” Definition

Section 5100.2(p) of the proposed rule rebuilds “significant interest or substantial control” into three separate channels, and satisfying any one of them is enough to make a domestic entity a “foreign person” under AFIDA.

First, the equity-based test currently in place (the 10% alone, 10% acting in concert, or 50% in the aggregate described above) is replaced with a flat 10% or greater interest in the aggregate, whether or not acting in concert. The second is the “beneficial owners” prong discussed in detail herein. The third is an adversary-based prong, which includes any interest held by a foreign adversary or a Foreign Adversary Controlled Entity, with no percentage floor.

How the “Beneficial Owners” Definition Differs From the SEC and CTA Beneficial Ownership Frameworks

The preamble of the proposed rule acknowledges that other federal regulations already use the phrase “beneficial ownership” in different ways, and it takes care to distinguish the AFIDA proposal from the best-known of those frameworks, SEC Rule 13d-3. Under the securities rule, beneficial ownership of a security turns on whether a person has or shares voting or investment power, meaning the ability to dispose of the security or direct its disposition.

The proposed AFIDA definition is broader than the SEC test. The SEC’s test is securities-centric: it asks who can vote or dispose of shares. The AFIDA test is asset-centric in that it asks who can direct the sale, lease, or use of real property, whether or not that person holds any equity or voting rights at all. Based on the text of the proposed rule, a person can qualify as an AFIDA beneficial owner purely through a management agreement, a governance document, or some other contractual arrangement that hands them operational authority over the land.

The proposal appears to have conceptual roots in the Corporate Transparency Act’s (CTA) “substantial control” test administered by FinCEN, which is similarly broad. “Substantial control” under the CTA includes anyone who exercises substantial control over an entity through a senior officer position, has the ability to appoint or remove senior officers, has substantial influence over company decisions, or has any other form of substantial control. Like the definition in the proposed AFIDA rule, “substantial control” requires no ownership interest and there is no cap on how many people can qualify. 31 C.F.R. § 1010.380. However, the two frameworks diverge in scope. The CTA test is entity-focused, looking only at control over the reporting company (which, per current FinCEN rules, only includes entities formed outside of the United States), while the AFIDA proposal extends to control over either the entity (including domestic entities) or the land itself.

Roles and Structures That May Be Captured Under the “Beneficial Owners” Definition

Every category discussed below is subject to one threshold qualifier: the person holding the role has to be a “foreign person.” With that qualifier in mind, several familiar roles could end up captured. A foreign director sitting on the board of directors of a U.S.-based organization who has governance authority over the entity that holds the land, including the power to approve or direct dispositions, leases, or changes in use, could fall within the definition. A foreign senior officer, such as a Chief Operating Officer or Chief Financial Officer with operational authority over how the property is used or disposed of, may likewise qualify if that person can direct the sale, lease, or use of the property. A foreign asset or investment manager holding contractual authority under a management or advisory agreement to direct acquisitions, dispositions, leasing, or use of the land could also be captured. The same logic applies to a foreign general partner who controls a fund or partnership holding agricultural land, even with zero or nominal equity. And, lastly, a foreign joint-venture partner or managing member with major-decision rights, approval or veto rights over sales, leases, or use of the land, or the ability to remove and replace a manager, could qualify based on control alone, even at an equity stake well below 10%.

Practical Implications for Deal Due Diligence and Documentation

The shift of the proposed rule from an equity-based test to a control-based test changes what AFIDA due diligence needs to cover. Historically, confirming AFIDA status meant reviewing a cap table or ownership schedule for foreign holders above the relevant equity thresholds. Under the proposed rule, that review would need to extend to governance and contractual control as well, including board composition, officer appointments, management and advisory agreements, and consent, veto, or removal rights held by foreign parties, regardless of their equity stake. The conceptual overlap with CFIUS’ own control-based jurisdictional test should be noted. While the two regimes are administered separately and serve different purposes, entities that have already mapped their CFIUS control profile may be able to reuse much of that analysis to assess AFIDA beneficial owner exposure.

Several categories of transaction documents should be reviewed in light of this proposal. Limited liability company and limited partnership agreements should be reviewed for provisions granting foreign parties major decision consent rights, board or manager designation rights, or removal for cause authority. Joint venture agreements warrant particular attention where a foreign partner holds approval rights over leasing, use, or disposition of real property, even at a minority equity stake. Investment management and advisory agreements should be checked for contractual authority over acquisition, disposition, leasing, or use decisions held by a foreign manager.

Parties negotiating acquisitions, financings, or joint ventures involving agricultural land should also consider whether AFIDA-specific representations, warranties, and closing conditions are warranted, similar to how deal documents were revised to address beneficial ownership certifications after the CTA took effect. This could include representations regarding the foreign person status of beneficial owners as newly defined, covenants to notify counterparties of changes in control that could trigger a filing obligation, and closing conditions tied to completion of any required AFIDA report.

Key Takeaways

Taken together, the proposed rule marks a fundamental shift in how AFIDA identifies a “foreign person.” Where the existing framework asks only who holds equity, the new “beneficial owner” prong asks who holds control. Accordingly, decision-making authority over agricultural land or the entity that holds it is now an independent, standalone trigger for filing, wholly apart from any ownership stake. Companies and investors with foreign participation anywhere in their governance or management structure (even those that have never before considered themselves “foreign” for AFIDA purposes) should evaluate the impacts of the proposed rule.

The comment period on the proposed rule closes on August 10, 2026. We are continuing to monitor developments and can assist with assessing exposure, structuring analysis, and preparing public comments.

This Advisory is for informational purposes only and does not constitute legal advice.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.