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Briefing

Suspension of the liberalization regime of certain foreign investments in Spain

On 17 March 2020, the Spanish Government approved Royal Decree-Law 8/2020, of 17 March, on urgent extraordinary measures to deal with the economic and social impact of COVID-19 (the Royal Decree-Law 8/2020). The Royal Decree-Law 8/2020 was published in the Spanish Official Gazette on 18 March 2020, which was also the date of its entry into force. Additionally, Royal Decree-Law 11/2020, of 31 March, on urgent complementary measures in the social and economic field to cope with COVID-19 (the Royal Decree-Law 11/2020), which entered into force on 2 April 2020, further amended the regime included in the Royal Decree-Law. Finally, on 17 November 2020, the Spanish Government has approved Royal Decree-Law 34/2020, of 17 November, on urgent measures to support business solvency and the energy sector and in the tax field (the Royal Decree-Law 34/2020), which sets forth new measures as regards foreign investments in Spain and entered into force on 19 November 2020.

Before the Royal Decree-Law 8/2020, Spanish foreign investments regulations were mainly included in Law 19/2003, of 4 July, on the legal regime of capital movements and economic transactions abroad and on certain measures to prevent money laundering (the Law 19/2003), and Royal Decree 664/1999, of 23 April, on foreign investments. These existing regulations only suspend and require prior authorization for Foreign Direct Investments (FDI) related directly to the national defense, without prejudice to other restrictions set forth in certain sector regulations.

It is also to be noted that Regulation (EU) 2019/452 of the European Parliament and of the Council, of 19 March, establishing a framework for the screening of foreign direct investments into the Union applies since 11 October 2020. This Regulation covers the lack of a comprehensive framework at the European Union (EU) level for the screening of FDI on the grounds of security or public order. Thus, the aim of such Regulation is to set forth a general framework to screening FDI in the EU to be further developed by the Member States.

The New Spanish FDI regime

The recent impact of the global crisis triggered by COVID-19 on the world's stock markets poses a threat to listed Spanish companies, but also to unlisted entities that are experiencing a decline in their asset values, in the context of acquisitions by foreign investors. A number of such Spanish entities operate within strategic sectors of the Spanish economy.

Consequently, Royal Decree-Law 8/2020, as amended by Royal Decree-Laws 11/2020 and 34/2020, included in Article 7 bis of Law 19/2003 a set of measures to control foreign investments in Spain. This Article 7 bis sets forth the following:

1. For the purposes of this Article, foreign direct investments in Spain are considered to be all those investments as a result of which the investor holds a stake equal to or greater than 10% of the share capital of the Spanish company, or when as a result of the corporate transaction, legal act or business, the control of said company is acquired in accordance with Article 7.2 of Law 15/2007, of 3 July, on Defense of Competition, provided that one of these circumstances occurs:

a) That they are carried out by residents of countries outside the European Union and the European Free Trade Association.

b) That they are carried out by residents of countries of the European Union or European Free Trade Association whose ultimate ownership corresponds to residents of countries outside the European Union and the European Free Trade Association. It will be understood that such ultimate ownership exists when the latter ultimately hold or control, directly or indirectly, a percentage above 25% of the equity or voting rights of the investor, or when through other means exercise control, directly or indirectly, over the investor.

2. The liberalization regime for foreign direct investments in Spain made in the following sectors which affect public order, public safety and public health, is suspended.

Specifically, the sectors are the following:

a) 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 that are key to the use of such infrastructures, as such infrastructures are referred to in Law 8/2011, of 28 April, establishing measures for the protection of critical infrastructures.

b) Critical technologies and dual-use items, key technologies for industrial leadership and training, and technologies developed under programmes and projects of particular interest for Spain, including telecommunications, artificial intelligence, robotics, semiconductors, cyber security, aerospace, defense, energy storage, quantum and nuclear, as well as nanotechnologies, biotechnologies, advanced materials and advanced manufacturing systems.

c) Supply of fundamental supplies, in particular energy, which are those referred to in Law 24/2013, of 26 December, on the Electricity Sector, and Law 34/1998, of 7 October, on the Hydrocarbons Sector, or those related to strategic connectivity services, as well as raw materials and resources related to food safety.

d) Sectors with access to sensitive information, in particular personal data, or with the capacity to control such information, in accordance with Organic Law 3/2018, of 5 December, on the Protection of Personal Data and the guarantee of digital rights.

e) Communication media, without prejudice to the fact that audiovisual communication services under the terms defined in Law 7/2010, of 31 March, General of Audiovisual Communication, shall be governed by the provisions of said Law.

3. The liberalization regime for foreign direct investment in Spain is also suspended in the following cases:

a) if the foreign investor is directly or indirectly controlled by the government, including public bodies or the armed forces, of a third country, applying for the purposes of determining the existence of such control the criteria established in Article 7.2 of Law 15/2007, of 3 July, on Defense of Competition.

b) if the foreign investor has made investments or participated in activities in sectors affecting security, public order and public health in another Member State, and in particular those listed in paragraph 2 of this Article.

c) if there is a serious risk that the foreign investor is engaged in criminal or illegal activities affecting public security, public order or public health in Spain.

4. The Government may suspend the liberalization regime of foreign direct investment in Spain in those other sectors not covered by paragraph 2 of this Article which may affect public security, public order and public health, in accordance with the procedure laid down in Article 7 of this Law.

5. The suspension of the liberalization regime established in accordance with paragraphs 2, 3 and 4 of this Article determines that the aforementioned investment transactions are subject to authorization, in accordance with the provisions of Article 6 of this Law.

Investment transactions carried out without the required prior authorization will not be valid and will not produce legal effects until they are legalized in accordance with the provisions of Article 6.

6. The Government may lay down, through further developing regulations, transaction categories and the amounts below which foreign direct investment transactions shall be exempted from the prior authorization regime, due to the fact that they have no or little impact on the legal assets protected by this Article. Likewise, the definition of the sectors listed in paragraph 2 may be limited in the developing regulations for the purposes of the application of this Law.

The Minister of Industry, Trade and Tourism is empowered to issue the necessary regulations for the correct implementation and application of the development provisions that the Spanish Government may issue in the development and implementation of this Article.

Transitional suspension of the liberalization of certain direct foreign investments made by residents of other European Union and European Free Trade Association countries

The Transitional Provision of the Royal Decree-Law 34/2020 also sets forth a transitional regime for the suspension of the liberalization of certain direct foreign investments made by residents of other European Union and European Free Trade Association countries. This provision sets forth the following:

The regime of suspension of the liberalization of certain foreign direct investments in Spain regulated in sections 2 and 5 of Article 7 bis of Law 19/2003,  shall apply as well, until 30 June 2021, to foreign direct investments made by residents of other European Union and European Free Trade Association countries: (i) in companies listed in Spain; or (ii) in unlisted companies if the value of the investment exceeds EUR 500 million. For these purposes, companies whose shares are wholly or partly admitted to trading on an official Spanish secondary market and which have their registered office in Spain will consider to be listed in Spain.

For the purposes of this transitional regime, foreign direct investments are considered to be those investments as a result of which the investor holds a stake equal to or greater than 10% of the share capital of the Spanish company, or when as a result of the corporate transaction, legal act or business, the control of said company is acquired in accordance with Article 7.2 of Law 15/2007, of 3 July, on Defense of Competition, whether they are carried out by residents of the European Union and European Free Trade Association countries other than Spain, or by residents in Spain whose ultimate ownership corresponds to residents of other countries of the European Union and the European Free Trade Association.

It will be understood that such ultimate ownership exists when the latter ultimately hold or control, directly or indirectly, a percentage above 25% of the equity or voting rights of the investor, or when through other means exercise control, directly or indirectly, over the investor.

Further considerations

  • According to existing regulations, in general, the time limit for the authorization provided for in Article 7 bis is six months and the award should be granted by the Council of Ministers, with the prior report of the Foreign Investments Board (Junta de Inversiones Exteriores). Failure to obtain authorization within six months will imply denial of the same.
  • Notwithstanding the above, on a transitional basis, the Second Transitional Provision of Royal Decree-Law 11/2020, sets out a simplified proceeding set forth below, which shall apply to requests for prior administrative authorization of the following FDI transactions:

a) Those in respect of which there is evidence by any legally valid means of the existence of an agreement between the parties or a binding offer where the price was already fixed, specified or subject to specification, prior to the entry into force of the Royal Decree-Law.

b) Those whose amount is equal to or greater than EUR 1 million and less than EUR 5 million, until the regulations developing Article 7 bis of Law 19/2003 are approved and enter into force.

In those cases, applications will be addressed to the Director General for International Trade and Investments (Dirección General de Comercio Internacional e Inversiones), who will decide on them within 30 days following a report from the Foreign Investments Board.

  • Pursuant to Royal Decree-Law 11/2020 and until regulations developing Article 7 bis of Law 19/2003 are approved and enter into force, foreign direct investment transactions whose amount is less than EUR 1 million are exempted from the obligation of prior authorization.
  • Finally, investment transactions carried out without prior authorization, before it is granted or not complying with the terms of the authorization, imply a very serious infringement to be sanctioned with fines of an amount up to the transaction´s financial value (and, in any case, above a minimum threshold of EUR 30,000) and public or private admonition.