TerraLex Guide to Foreign Direct Investment - NEW

In the case of Spain, Foreign Direct Investment screening procedures are regulated mainly at national level. The relevant rules at Spanish level are Law 19/2003 (“Ley 19/2003, de 4 de julio, sobre régimen jurídico de los movimientos de capitales y de las transacciones económicas con el exterior y sobre determinadas medidas de prevención del blanqueo de capitales”) and the Royal Decree 571/2023 (“Real Decreto 571/2023, de 4 de julio, sobre inversiones exteriores”), which complements the latter.

At European Union level, the relevant framework is contained in Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (“Regulation 2019/452”). However, the current Spanish FDI legal framework has already adapted to Regulation 2019/452 with the adoption of Royal Decree 571/2023.

The authority in charge of overseeing the application of FDI rules and, ultimately, granting authorization in most cases is the Spanish Council of Ministers. However, the authorisation can also be granted by the General Directorate on International Commerce and Investments, when the amount of the investment concerned is equal or below 5 million euros.

There is no possibility of informal confirmation of the need to file any specific transaction. However, Spanish FDI framework foresees the possibility of submitting a formal voluntary consultation, previous to the investment, regarding the need to request the authorisation of the investment pursuant to FDI legislation (Article 9 of Royal Decree 571/2023). Such formal consultations should be directed to the General Directorate of International Commerce and Investments of the Ministry of Industry, Commerce and Tourism.

This voluntary consultation must be answered by the relevant General Directorate within 30 days from its submission and is legally binding for the administrative bodies involved in the consultation.

There are two possible factors that can trigger the need to request authorisation of any investment by which a foreign investor acquires more than 10% of the shares of a Spanish company (or acquires legal or de facto control of such company).

Pursuant to article 7 bis of Law 19/2003 and article 16 of Royal Decree 571/2023, authorisation can be needed:

a) Because of the object of the investment: in this regard, any investment affecting one of the affected sectors shall be subject to the FDI control process. In particular, these sectors cover (i) critical infrastructures (energy, transport, water, health, communication, media, etc), (ii) Double-use and critical technology, (iii) technology related to industrial training, (iv) technology developed under projects or programs of interest for Spain, (v) supply of fundamental products, (vi) sectors with access to sensitive information, (vii) the media, (viii) other sectors that could affect public security, public order or public health.

b) Because of the characteristics of the investor: those investments made by non-european investors will be subject to FDI scrutiny, regardless of the sector in which the investment takes place, whenever the investor (i) is controlled directly or indirectly by the government, public entities or armed forces of a third country, (ii) has partaken in investments or activities in sectors affecting security, public order or public health in any other EU member state, (iii) with high probability, could partake in illegal activities which affect public security, public order or public health.

An investor is considered to be non-european when (i) they reside outside the EU or EFTA, (ii) they reside in the EU or EFTA, but the ultimate beneficial owner resides outside the EU or EFTA (it is presumed to happen when non-EU residents possess, directly or indirectly, more than 25% of the share capital of the direct investor or exercise control over it, directly or indirectly, by other means).

Certain operations will not be considered foreign investments, and thus, won’t need authorisation. According to Article 14 of Royal Decree 571/2023, this is the case of internal restructuring withing a company group, or any increase in shareholding by a shareholder already in possession of more than 10% of the shares (as long as it doesn’t entail any change in control of the company in question). The FDI control regime is not applicable to most investments in Spanish companies with an annual turnover below 5 million euros (except for a few exceptions related to the energy, communications and raw materials sectors).

The relevant test for FDI control according to the legislation cited previously consists in analysing whether the investment might generate any risk for national security, public order or public health in Spain.

The Spanish FDI control regime requires pre-closing filing. Article 11 of Royal Decree 571/2023 explicitly states that those investments affected by the FDI screening process can only be executed with previous express authorisation by the competent authority. Any investment executed without the mandatory authorisation shall be considered automatically void and shall have no legal effects, with the foreign investor uncapable of exercising its political rights in the target Spanish company.

To date, the Spanish FDI control regime does not foresee any filing fees for authorisation requests.

The information to be included in the filing is set in a notification form (available on the website of the Spanish Government). In essence, the information requested covers the following topics:

• Information about the direct investor, and the ultimate beneficial owner, (where applicable): it includes general corporate information (i.e. name, address, domicile, registered office, date of incorporation, annual turnover, number of employees, whether it is listed on any stock exchanges, the ownership structure of the investor), description of its activities and products or services and EU Member states where it conducts operations, a list of the main competitors, whether it receives funding from a non-EU government, whether it is subject to sanctions or restrictive measures of other countries, and a description of the investment plan for the company in the 3 years following the investment.

In the case of the ultimate beneficial owner, further information must be included, such as: (i) whether there is any funding or subsidies or public control over the ultimate beneficial owner (i.e. this is, by the government, armed forces or public entities of third countries); (ii) if other investments have been made in areas affecting security, public order and public health in another EU Member State (especially in the sectors listed in previous questions), (iii) whether any other authorisation request for investments has been approved (with or without conditions) or denied in other country; and (iv) whether there are any administrative or judicial decisions imposing any kind of sanctions in the three previous years (particularly with regards to money laundering, environmental or financial matters).

• Information about the target of the investment: it includes general corporate information (such as corporate purpose and address, national registration number, number of employees, listings on stock exchange, ownership structure, last annual accounts and turnover…).

Other requested information about the target includes, among others: i) the existence of any contracts with the public administration, ii) whether the company incurs in any of the circumstances of article 7bis of Law 19/2003, iii) a description of the activities and products or services of the company, and whether they are subject to any export control, iv) identification of other competitors, v) ownership of patents or intellectual property rights, vi) if the company receives any public funding or maintains business relations with a project or programme of EU interest, and vii) whether the persons (both legal or natural persons) in charge of the management of the target are subject to EU restrictive measures or sanctions.

• Information about the investment: it includes a general description of the transaction, and the amount of the investment in Spain, as well as the reasons of the investment and whether it allows the investor any control in the management of the company. It is also necessary to indicate the post-transaction structure of the company, and whether the operation entails any type of investment in another EU member state and whether the transaction will need to undergo other FDI screening procedures in another EU member state or other authorities (for example, merger control procedures).

Lastly, it is also needed to indicate: i) the funding of the investment and its source, ii) whether it enables the participation of the direct investor in the management of the undertaking, iii) a description of the direct investor and ultimate owner’s participation in the target before and after the transaction, iv) whether any public entity holds any shares in the target, and v) the announcement of the transaction to the public, if applicable.

In the Spanish FDI screening procedure, it is the direct investor who has to initiate the procedure, by submitting the proper notification form to the authorities through the designated official means.

In the event that the authorisation request is not properly filed before the authorities, according to the abovementioned legislation the transaction shall be void and shall lack any legal effects (See Article 7 of Law 19/2003), with the foreign investor uncapable of exercising its political rights in the target Spanish company.

The execution of a transaction without the mandatory authorisation is considered a major serious infringement, and as such, it also entails the imposition of an economic penalty (amounting to the economic content of the transaction, and never below 30.000 euros), as well as a warning, either public or private (See Articles 8 and 9 of Law 19/2003).

Yes. The parties to the transaction cannot execute the operation without the obtention of the express mandatory authorisation (see article 11 of Royal Decree 571/2023). In the event that no express authorisation is granted within the mandated time period (i.e. three months since the authorisation request was submitted), the authorisation shall be deemed to have been denied (see Article 6 of Law 19/2003).

For the consequences of executing the transaction without obtaining the necessary authorisation, see the answer to the previous question.

In principle, it is not possible for FDI authorities to review transactions that do not qualify for mandatory filing.

In accordance with Article 11 of Royal Decree 571/2023, the relevant authority can adopt the following decisions with regards to an authorisation request:

• Denial of the authorisation.
• Unconditional approval of the authorisation.
• Approval of the authorisation, subject to certain conditions.
• File closed due to withdrawal by the investor or because the transaction is not subject to any regime suspending the liberalisation of foreign investments (i.e. the transaction does not qualify, by the profile of the investor nor by the object of the investment, to be subjected to review by FDI authorities).

FDI can authorise the transaction of the operation, with conditions or commitments. For example, it might be necessary to carve out of the perimeter of the operation certain activities or lines of business that affect these critical sectors mentioned above.

In this regard, the investor’s compliance with the conditions included in the authorisation decision will be monitored until full compliance, upon which the process shall be declared complete (following a report from the Foreign Investment Board).

The execution of the operation while failing to comply with the conditions included in the authorisation is also consider a major serious infringement and, in accordance with article 8 of Law 19/2003, it will also entail the imposition of an economic penalty (amounting to the economic content of the transaction, and never below 30.000 euros), as well as a warning, either public or private.

It is possible to appeal decisions of FDI Authorities. In particular, denials of authorisation and approvals with commitments can be appealed in two ways:

• Appeal of articles 123 and 124 of Law 39/2015, of 1 October, on the Common Administrative Procedure of Public Administrations, before the same body that issued the decision.
• Appeal before Administrative Courts in accordance with Law 29/1998, of 13 July, regulating Contentious-Administrative Jurisdiction.

In this case, the procedure starts with the submission of the authorisation request once the investor has assessed the need to obtain authorisation (either because the object of the investment or the profile of the investor).

From the moment of submission of the authorisation request, the authority has a three months deadline to adopt a decision, either: i) denying the authorisation, ii) with an unconditional approval, iii) with an approval with commitments, or iv) closing the file due to withdrawal by the investor or because the transaction is not to be subjected to review by FDI authorities). If no express decision has been made in this time period, the authorisation shall be deemed to have been rejected due to administrative silence.

It is important to consider that additional information can be requested at any point of the procedure by the authorities, for example, if the information contained in the initial application is deemed to be insufficient. These additional requests for information might suspend the three-month deadline for the decision and notification of the decision on the authorisation request.

Once the investment has been authorised, it should be executed within the time period indicated in the authorisation itself, or, when it is not specified, within six months.

According to article 26 of Royal Decree 571/2023, all information received in application of the procedures of Royal Decree 571/2023 can only be used for the purpose for which it was requested. Furthermore, the confidentiality of the information obtained through in application of said Royal Decree will be ensured by the Foreign Investment Board and any other administrative bodies participating in the procedures described therein, in accordance with national and European Union legislation.

In Spain, the regime for authorisation of foreign direct investments can coexist with other special authorization regimes in sectors with specific legal frameworks. In those cases, the investments will have to comply with the requirements of said specific legislation.

Such is the case, for example, of investments in activities directly related to national defense, or with the exercise of public powers or that can affect public order, public security or public health.

There is also a competition merger control regime.