Updates and trends - Spanish Foreign Direct Investment

In recent years, the EU has intensified its efforts to regulate foreign direct investments (“FDI”), considering growing concerns over national security and public order. As part of this initiative, and as a response to the covid-19 pandemic, in 2020, the Spanish law 19/2003, which establishes the framework for monitoring FDI, was modified. This modification included Article 7 bis, which acted as the cornerstone of the suspension of the liberalisation regime; and imposed prior administrative authorisation for certain transactions, based on the sector where the investment was made and the investor profile.

This regime, however, generated interpretative uncertainty, raising doubts about its application and scope, resulting in the submission of several informal consultations to the correspondent authority, aiming to test whether specific transactions were subject to FDI authorisation. 

Fortunately, the Spanish Royal Decree 571/2023 (the “RD”) came into effect in September last year, which approved a long-waited implementing regulation of the Law 19/2003. This regulation shed some light on ambiguous provisions of the Spanish FDI law, introduced some developments on the consultation and notification procedures and established a new exemption regime that may help foreign investors to avoid going through the screening process.

1.Relevant developments of the Spanish FDI regime

1. 1. Procedural changes

One of the key procedural changes introduced by the new legislation was the streamlining of the prior authorisation process. The legal term for the FDI authorities to issue their final decision has been halved, from six to three months, providing faster resolutions, since the average resolution period used to be between four and five months.

The RD also formalized the voluntary consultation procedure to provide legal certainty given that previously consultations were admitted informally. It has also established a deadline of 30 days for the authorities to provide a binding decision to those consultations, thus contributing to a more predictable investment environment.

1. 2. Increase of legal certainty

In addition, the new norm has offered legal certainty to specific situations in which it was not clear whether FDI rules should apply. In particular, the RD clarifies that internal group restructurings and shareholding increases not involving a change of control (i.e., investors already holding at least a 10% stake) are not covered by Spanish FDI rules. And, with respect to funds, it is stated that management companies are the beneficial owners of the investments.

The RD also helps to delimit the scope of the sector-based approach set out in Article 7 bis of Law 19/2003, by defining in more detail what the key elements are for the analysis of FDI control in each strategic sector (such as critical infrastructures, dual-use technologies, essential facilities, media or companies with access to sensitive information) and provides guidance to assess the subjective scope of FDI control, based on the investor’s profile. 

1.3. New exemptions regime

Before the implementation of the RD, there was a general threshold of EUR 1 million below which all transactions were exempt from the FDI screening mechanism in Spain. This was a transitory provision that is no longer applicable, but the RD introduces a wider exemption regime, which is applicable to the following investments:

1) A cross-sector exemption is available (except for the energy sector) for companies with an annual turnover of less than EUR 5 million, provided that: 

1. the company’s technologies have not been developed under programs of particular interest for Spain or the EU; and 
2. the investment is not made in specific electronic communications operators or in activities related to the research and development of strategic raw materials.

2) Investments made in the energy sector when the target:

1. does not carry out regulated activities, as referred to in sectoral legislation;
2. does not become a dominant operator because of the transaction;
3. if it is an energy-generation asset, the share of installed capacity per resulting technology is lower than 5%; and
4. if it is a power supply company, has less than 20,000 customers.

3) Investments for the acquisition of properties that are not assigned to a critical infrastructure or that are not deemed to be crucial for the provision of essential services.

4) Short-term investments (either hours or days) in which the investor does not have the ability to exert influence on the management of the acquired company (i.e., temporary acquisitions made by placement agents or underwriters of share issues and public offerings are exempt from control). It will be the end-investors who require authorization, when applicable. 

On another note, special rules shall apply to investments made in activities directly related to National Defense, such as those affecting the industrial capabilities and areas of expertise required to provide the equipment, systems and services to the army.

2. Current trends of foreign investments in Spain 

According to information provided by the Spanish Ministry of Economy, Trade and Enterprise, last year in Spain, the sectors with the highest FDI were the services sector (54.3%, underscoring healthcare), the industrial sector (42.2%) and construction (3%), with a particular focus on the subsectors of energy and telecommunications. 

Based on available data from the first quarter of 2024, Spain reached EUR 6.14 billion in productive foreign investment, marking a 6.5% increase over the five-year average, and the services and industrial sector continue to be the main recipients of FDI. However, a higher investment has been observed in other sectors, such as scientific, and technical activities. 

In terms of the number of authorisations submitted, in 2023, 97 applications were formally reported to the Board of Foreign Investments, 9 of which were closed, as they were considered to fall outside the scope of the prior authorisation mechanism. The other 88 investments obtained clearance, but 8 of them were authorised with conditions. 

On balance, the RD has fairly increased legal certainty regarding the application of the FDI rules in Spain. Nevertheless, FDI decisions are not publicly available and the lack of transparency in relation to the transactions screened and authorised, or the criteria followed by the authorities regarding certain provisions of the law makes it still necessary to go through the consultation procedure on several occasions, where the law leaves room for interpretation. 

If you need more information or further guidance in this area, please contact Candela Sotés.

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