New restrictions on Foreign Direct Investments in Spain

In March 2020, the Spanish Government introduced a screening mechanism for certain foreign direct investments in Spain (the "Spanish FDI Regime"), which requires prior administrative authorisation from the Council of Ministers of investments made by non-EU/EFTA investors in Spanish companies that meet certain criteria. On 17 November 2020, the Spanish Government enacted new amendments by which, from the 19 November 2020 to the 30 June 2021, investments made by EU/EFTA investors will also be subject to the Spanish FDI Regime when certain conditions are met.

In March 2020, the Spanish FDI Regime was enacted by Royal Decree-law 8/2020 which modified Law 19/2003 of 4 July 2003 on the legal regime of capital movements and economic transactions abroad ("Law 19/2003") by adding a new article 7 bis and modifying articles 8.2 and 12.2, all of which are related to the suspension of the liberalisation regime of certain foreign direct investments ("FDI") in Spain.

Investments made by Non-EU/EFTA Investors 

Under the new Spanish FDI Regime, an investment in a Spanish company made by one or more non-EU/EFTA investors will require prior administrative authorisation from the Council of Ministers if the investment meets each of the following criteria: 

• the investment is EUR 1 million or more;
• it comprises the acquisition of 10% or more of the share capital, or the acquisition of control (which will be interpreted according to the Spanish Competition Law), of a Spanish company; and
• the Spanish target company operates in certain strategic sectors, or the investor(s) met certain subjective criteria.

Regarding this last condition, Law 19/2003 provides:

• a non-exhaustive list of these strategic sectors, which include: critical infrastructure, critical and dual-use technologies, supply of fundamental inputs, sectors with access to sensitive information and the media; and
• the following alternative subjective criteria:
  • the foreign investor is directly or indirectly controlled by the government of a third country (again control will be interpreted according to the Spanish Competition Law);
  • the foreign investor has made investments, or participated, in activities in sectors affecting security, public order and public health in another Member State; or
  • there is a serious risk that the foreign investor may carry out criminal or illegal activities affecting public security, public order or public health in Spain.

Furthermore, investments made by prima facie EU/EFTA investors, but whose ultimate owners (i.e. parents who owns or controls 25% or more of the investor's share capital or voting rights, or who otherwise control, directly or indirectly, the investor) will be classed as non-EU/EFTA investors.

Investments made by EU/EFTA investors 

In addition, since 19 November 2020 and until 30 June 2021, investments made by EU/EFTA investors in Spanish companies will also be subject to the Spanish FDI Regime (i.e. will require prior authorisation), when each of the following criteria are met:

• the acquisition relates to a company list in Spain, or the investment is EUR 500 million or more;
• it comprises the acquisition of 10% or more of the share capital, or the acquisition of control (which will be interpreted according to the Spanish Competition Law), of a Spanish company; and
• the Spanish target company operates in certain strategic sectors. (The additional "subjective criteria" does not apply to EU/EFTA investors.)

Moreover, investments made by a Spanish investor when the investor is directly or indirectly controlled by an EU/EFTA investor are also subject to this regime.

Notification regime

The notification and subsequent authorisation of the transaction must be carried out before the closing of the operation. The Spanish FDI Regime foresees two procedures in this regard: 

• the normal procedure, for investments of EUR 5 million or more: notifications are addressed to the Council of Ministers and can last up to six months, although they are usually dealt with more quickly periods (around one or two months). If there is no decision within the six month deadline, the notification is not deemed approved; and
• the simplified procedure, for investments between EUR 1 and 5 million: notifications are addressed to the Directorate and can last up to 30 days.

Sanctions for non-compliance 

Failure to comply with the Spanish FDI Regime will render any concerned transaction void and with no legal effect until they are notified and approved. The investor(s) may also be subject to gun-jumping fine from EUR 30,000 up to the value of the transaction.

With thanks to Ana Soria of Ashurst for her contribution.