Spain has tightened its legal regime for certain types of foreign investments in order to protect its most vulnerable economic sectors, by introducing changes in Law 19/2003, of July 4, on the Legal Regime of Movements of Capital and Economic Transactions Abroad.

The origin of the changes lies in Regulation (EU) 2019/452, of the European Parliament and of the Council, of March 19, which allowed the Member States to establish a prior control system for investments from outside the EU.

The outbreak of the pandemic due to Covid-19 gave rise to the approval of the measures which suspended the liberalized regime for certain foreign investments in Spain through Royal Decree 8/2020, of March 17, and Royal Decree 11/2020, of March 31.

In other words, if previously foreign investments that came from outside the EU were declared post factum before the Spanish authorities, it is now required, in certain cases, to obtain an express authorization prior to making the investment.

The new regime is applicable only to the following foreign direct investments:

  • They involve a stake of equal to or greater than 10% of the share capital of a Spanish company, or
  • When, as a result of the corporate transaction, act or agreement, the investor effectively participates in the management or control of a Spanish company.

In addition, investments must be in excess of one million euros and meet one of the following legal requirements:

1. Subjective criteria – investments are carried out by the following categories of foreigners:

  • Residents of countries outside the EU and the European Free Trade Association.
  • Residents of EU countries or of the European Free Trade Association whose beneficial ownership corresponds to residents of non-EU countries and of the European Free Trade Association.

2. Objective criteria– investments are carried out in the following sectors:

  • Critical infrastructures, for example, energy, transport, water, health, communications, aerospace, defence, financial, etc.
  • Critical technologies and dual-use items, e.g. artificial intelligence, robotics, aerospace technologies, nanotechnologies, etc.
  • Supply of essential commodities, in particular energy, or those referred to as raw materials, as well as food safety.
  • Sectors with access to sensitive data, in particular personal data.
  • Media.

3. Special cases – investments are carried out under the following conditions:

  • The foreign investor is controlled directly or indirectly by the government of a third country.
  • The foreign investor has made investments or participated in activities in certain sectors determined by law.
  • There is an on-going administrative or judicial proceeding which has been brought against the foreign investor.

The powers to grant authorizations for these foreign investments correspond to the Council of Ministers.

The general term to obtain authorization is 6 months. However, there is a simplified procedure applicable to investments of between 1 and 5 million euros, whose term is 30 days.

It is important to emphasize that foreign investments that fail to comply with the new legal regime shall have no validity or legal effect.

Finally, it will be interesting to see in the near future if the measures described are going to be transitory because they have been put in place due to the health crisis, or if they will become permanent, extending their application to other sectors.

From Martí & Associats we will keep you informed of the latest developments and we will be happy to offer you our professional advice on foreign investments, of any kind, that you may be interested in making in Spain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.