Have there been any recent changes to the Foreign Investment rules in Spain?
At present in Spain foreign investment transactions involving certain strategic sectors are subject to certain formalities.
Recent new regulation regarding foreign investment has entered into force including:
- Royal Decree-Law 8/2020, 17 March 2020, regulating urgent extraordinary measures to deal with the economic and social impact of the COVID-19 (Act 8/2020);
- Royal Decree-Law 11/2020, 31 March 2020, regarding the adoption of additional urgent measures in the social and economic field to deal with COVID-19 (Act 11/2020), which amended Act 8/2020; and
- Royal Decree-Law 34/2020, 17 November 2020, regulating urgent measures to support business solvency and the energy sector, and on tax matters (Act 34/2020, and together with Act 8/2020 and Act 11/2020, the Acts) was published.
These Acts amended Law 19/2003, 4 July 2003, regarding the legal regime on capital movements and economic transactions with foreign countries (Law 19/2003), suspending the liberalisation regime for certain foreign direct investments in Spain, specifically those that are carried out in strategic sectors.
Therefore, it is important to highlight that certain foreign direct investments require prior authorisation from the relevant authorities. We expect that additional legislation in Spain will be passed in the near future in relation to foreign direct investments.
If yes, please provide a brief summary of the changes.
Scope of the changes to the Foreign Investment rules in Spain
The new regulation restricts the liberalisation regime for certain foreign direct investments in Spain, specifically those that are carried out in sectors that affect public order, public safety and public health.
For these purposes Act 8/2020 sets out that foreign direct investments in Spain are all the investments carried out by residents of countries outside the European Union (EU) and the European Free Trade Association to the extent that the investor holds at least 10% of the share capital of the Spanish company, or if as a consequence of any transaction, legal act or business, the investor effectively participates in the management or control of such company.
In addition, Act 11/2020 extended the subjective scope of the authorisation requirement in order to include investments made by investors resident in the EU and the European Free Trade Association in the event that such investors are controlled by entities which are resident outside this territory. In this regard, an entity controls an investor in the event that it (directly or indirectly) owns or controls more than 25% of the share capital or voting rights of the investor, or if, by any means, it exercises direct or indirect control over the investor.
In order to determine the existence of such control, Act 34/2020 sets out that the criteria of article 7.2 of Law 15/2007, 3 July 2007, on the Defense of Competition (Law 15/2007) shall apply. The referred article establishes a broader concept of control including control that results from contracts, rights or any other means that confer the possibility of exercising a decisive influence on a company. In addition, the concept of control for the purposes of article 7.2 of Law 15/2007 shall be interpreted and examined on the basis of the Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No. 139/2004 on the control of concentrations between undertakings.
Under the new regulation the sectors which are targeted by the restrictions on foreign direct investment rules in Spain include:
- Critical infrastructures, whether physical or virtual (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructures, and sensitive facilities), as well as land and real estate assets needed for the use of the said infrastructures, as set forth in Law 8/2011, 28 April 2011, establishing measures for the protection of critical infrastructures;
- Critical technologies and dual-use items, key technologies for industrial leadership and training, technologies developed under programmes and projects of particular interest for Spain including telecommunications, artificial intelligence, robotics, semiconductors, cyber security, aerospace, defense, storage of energy, quantum and nuclear technologies, nanotechnologies, and biotechnologies, advanced materials and advanced manufacturing systems;
- Supply of essential inputs, such as energy (in particular, electricity and fuels as set out in Law 24/2013, 26 December 2017, regarding electricity sector and Law 34/1998, 7 October 1998, regarding hydrocarbon sector), or those referring to strategic connectivity services, raw materials and food safety;
- Sectors with access to sensitive information, in particular personal data, or capable to control such information, in accordance with Organic Law 3/2018, 5 December 2018, on the protection of personal data and the guarantee of digital rights; and
- Media, considering that audiovisual communication services (as defined in Law 7/2010, 31 March 2010, regarding audiovisual communication) shall be governed by said law.
Additional scenarios that require prior authorisation
In addition to the sectors set out above, the restrictions to the liberalisation regime for foreign direct investments in Spain also apply in the event that:
- The foreign investor is, directly or indirectly, controlled by the government of a foreign country (including public bodies or the army). In order to determine the existence of such control, the criteria set out in article 7.2 of Law 15/2007 shall be applied;
- The foreign investor has invested or been active in industries related to public security, public order and public health in another EU Member State and, in particular, the sectors set out above; and
- There is a serious risk that the foreign investor carries out criminal or illegal activities that affects public safety, public order or public health in Spain.
Current scope for certain investments
In terms of the current scope of authorisation process please find below certain key aspects:
- Investments made for an amount less than Euro 1 million, on a provisional basis and until a minimum amount is established by regulations, shall not require prior authorisation;
- The following transactions are subject to a simplified authorisation procedure:
- Ongoing transactions: Those transactions in which there is evidence, by any means recognised by law, of the existence of an agreement between the parties or a binding offer in which the price was fixed, determined or determinable, prior to the entry into force of the Act 8/2020; and
- Transactions of reduced amount: Those transactions with an amount equal to or greater than Euro 1 million and less than Euro 5 million, until the entry into force of the implementing regulations.
To the extent that the relevant transaction complies with the referred provisions, the investor shall send the administrative authorisation application to the head of the General Directorate for International Trade and Investment, who will apply ex officio the simplified procedure established in article 96 of Law 39/2015, 1 October 2015, on the Common Administrative Procedure for Public Administrations. Within 30 days from the day after the interested party is notified that the procedure will be simplified, the head of the General Directorate for International Trade and Investment will decide on the basis of a prior report from the Foreign Investment Board.
Investments in non-target sectors
For transactions in non-target sectors, the foreign investor must send its administrative authorisation request to the General Director of Commercial Policy and Foreign Investment, in accordance with the procedure set out in Royal Decree 664/1999, 23 April 1999, regarding foreign investments and the Order dated 28 May 2001 related to the procedures applicable to foreign investment declarations and their liquidation, as well as the procedures for the submission of annual reports and authorisation files.
Within six months from the receipt of the application by the General Directorate for International Trade and Investment, the Council of Ministers shall decide on the granting of the authorisation, following a proposal from the Minister of Economy and Finance, and, where appropriate, jointly with the head of the department competent by matter and following a report from the Foreign Investment Board.
Act 34/2020 sets out that until 30 June 2021, prior authorisation will be required for foreign direct investments in Spanish listed companies, or other not listed Spanish companies in the event that the investment exceeds €500 million, which are carried out by residents of other European Union and European Free Trade Association countries.
This regulation shall apply in the event that the foreign investment is carried out in one of the sectors targeted and considering the percentage of ownership and rules set out in the scope of the changes described above.
What was the rationale for the changes?
The rationale for the changes in Spain regarding restrictions on foreign direct investments which have been passed by the Acts shall be considered as a result of the EU-led changes, COVID-19 and powers to review business transactions to protect national security.
These Acts were passed in order to avoid transactions related to the acquisition of Spanish companies (sociedades de capital) by foreign investors due to the decrease in their value as a consequence of the impact of the global crisis triggered by the COVID-19.
Are these changes temporary and if yes, when are they likely to be reviewed again? If not, are they part of a bigger reform (i.e. have there been any other recent developments, and are you expecting any further changes)?
The amendments to Law 19/2003 are not subject to any time limitation and will be in force until a new set of rules is adopted or the referred law is replaced.
Other changes which are temporary are the ones included in Act 11/2020 and Act 34/2020 as set out above and which are expected to be released once new reforms are implemented.
Are there any particular sectors that are affected the most?
As set out above there are a number of sectors targeted by the referred restrictions. Article 6 of Law 19/2003 sets out that the definition of each sector targeted may be narrowed down by virtue of a new regulation.
In addition, article 4 of Law 19/2003 sets out that the Spanish Government may suspend the liberalisation regime for certain foreign direct investments in Spain in any additional sector in the event that it is considered that public safety, public order and public health may be affected.
Finally, in accordance with article 6 of Law 19/2003, the Spanish government may establish by means of a new regulation the categories and the amounts below which foreign direct investment transactions will be exempted from requiring a prior authorisation. This can be decided due to the minor impact that the transaction may have on the legal assets protected by Law 19/2003.
What is the outlook for foreign direct investments in Spain?
We expect continued scrutiny of foreign investment under the Spanish regulation as described above, particularly while concerns regarding COVID-19 exist.
What is your advice to foreign investors in Spain?
Foreign investors in Spain will need to observe the additional regulatory requirements and analyse whether a prior authorisation is required given that there is a risk of prohibition by the relevant Spanish Authority. Therefore, we recommend that foreign investors should obtain advice as early as possible in the investment process and should include a foreign investment control analysis in their transactions.
Does the Spanish FDI regulator coordinate with other government agencies, including the antitrust regulator?
In Spain, the General Directorate for International Trade and Investment has primary oversight of foreign direct investment under Law 19/2003 and the Acts. In certain transactions, from the receipt of the application by the General Directorate for International Trade and Investment, the Council of Ministers will decide on the granting of the authorisation following a proposal from the Minister of Economy and Finance, and, where appropriate, will do so jointly with the head of the relevant department following a report from the Foreign Investment Board.