Impact of covid-19 on the foreign investment regime in Spain

The Covid-19 health crisis has tightened the control mechanisms for foreign direct investment in Spain by means of various royal decrees law published since last March and April 2020, which have successively amended and included new regulations to the suspension of the liberalisation regime of foreign investments.

In summary, the general regime of liberalisation of foreign investments foreseen in Law 19/2003 on the legal regime of capital movements and economic transactions abroad and on certain measures for the prevention of money laundering (Law 19/2003), is suspended for certain investments in Spain based on:

1. Subjective scope. Foreign direct investment in Spain is considered to be that made by:

• residents of countries outside the EU and the European Free Trade Association (EFTA); or,
• made by residents of EU or EFTA countries whose beneficial ownership corresponds to residents of countries outside the EU or EFTA.

And provided that:

• as a consequence of the investment, the investor holds a stake equal to or greater than 10% of the share capital of a Spanish company; or,
• acquires control over the company in accordance with the criteria laid out in article 7.2 of Law 15/2007, of 3 July, against Unfair Competition (Law 15/2007).

2. Objective scope. The regime of liberalisation of foreign direct investment in Spain is suspended:

• provided that the investor, who meets the above requirements, invests in the following sectors affecting public order, public security and public health:

1. Critical infrastructures, whether physical or virtual (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructures, and sensitive facilities), as well as land and real estate that are key to the use of such infrastructures, meaning those covered by Law 8/2011, of 28 April, which establishes measures for the protection of critical infrastructures.
2. Critical and dual-use technologies, key technologies for industrial leadership and capacity building, and technologies developed under programmes and projects of particular interest to Spain, including telecommunications, artificial intelligence, robotics, semiconductors, cybersecurity, energy storage, quantum and nuclear technologies, nanotechnologies, biotechnologies, advanced materials and advanced manufacturing systems.
3. Supply of fundamental inputs, in particular energy.
4. Sectors with access to sensitive information, in particular personal data, or with the capacity to control such information.
5. Media

• provided that:

1. the foreign investor is directly or indirectly controlled by the government, including public bodies or the armed forces, of a third country, the criteria established in Article 7.2 of the Law 15/2007 being applied for the purposes of determining the existence of the aforementioned control.
2. the foreign investor has made investments or engaged in activities in the sectors affecting security, public order and public health in another Member State, and in particular those listed in this Article.

• Additionally, the Government may suspend the regime of liberalisation of foreign direct investment in Spain in those other sectors not contemplated in this article, when they may affect public safety, public order and public health.

The Royal Decree-Law 34/2020, of 17 November, on urgent measures to support business solvency and the energy sector, and on tax matters (RDL 34/2020), on top of amending the aforementioned Law 19/2003, sets a transitory provision that suspends the liberalisation regime of foreign direct investments in Spain by residents in the EU and EEA, until 30 June 2021.

The investments subject to this transitory regime, distinguish between subjective and objective criteria:

1. Subjective scope. The RDL 34/2020 extends the definition of “foreign investors” to those investors who:

• are residents in the EU or EEA,
• Spanish resident companies whose beneficial ownership corresponds to residents of the EU or EEA countries; and in addition,
• as a consequence of a corporate or legal transaction, acquire more than 10% of the share capital of a Spanish company, or acquire control of said company in accordance with the criteria laid out in Article 7.2 of Law 15/2007.

The RDL 34/2020 considers as last beneficial owner the investor that ultimately controls, directly or indirectly, a percentage of more than 25% of the capital or voting rights of the investor, or when by other means they exercise direct or indirect control over the investor.

2. Objective scope. In addition to meeting the subjective criterion, the RDL 34/2020 stipulates that such foreign investments will be subject to the control mechanism provided that:

• the closing of such investment takes place before the 30 June 2021; and
• investment is targeted in companies listed in the Spanish Stock Market; or
• the investment is targeted in unlisted companies but where the value of the investment exceeds €500 million.

The aforementioned investments require ex-ante authorisation, with the consequence that investments carried out without the required prior authorisation shall have no legal validity and effects, without prejudice to the penalties applicable for infringement of the aforementioned Articles.

Therefore, due to the interpretative complexity that this new regulation may entail for certain foreign investments in Spain, and the consequence of not obtaining such prior authorisation, we consider it advisable for anyone planning to make a foreign investment in Spain to carefully analyse the applicability of this ex-ante authorisation regime.

The information contained in this note should not be considered in itself as specific advice on the subject under discussion, but only as a first approximation to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their particular case before adopting specific measures or actions.