A few days ago, the Spanish Official Gazette published Royal Decree 571/2023, of July 5, on Foreign Investments (B.O.E., in Spanish, of July 4, num. 159), a Decree that constitutes an update of Law 19/2003, of July 4, on the Legal Regime of Capital Movements and Economic Transactions Abroad. According to the Spanish Government, this update is justified, on the one hand, by the legal reforms that have entered into force both at Spanish and European levels: Royal Decree 8/2020, of March 17, and Regulation (EU) 2019/452, of March 19, respectively; and, on the other, by the changes that have taken place in recent years and have brought with them a new economic and financial environment. Apart from these justifications, which seem worth considering, it should be equally noted that the ultimate objective of this update is to regulate more precisely the regime of foreing direct investments (FDI), as well as those cases in which this regime must be suspended, to offer greater legal security to foreign investors.

Although the Treaty on the Functioning of the European Union prohibits restrictions on the movements of capital between member States and between member States and third countries, it allows member States to establish procedures for declaring capital movements for administrative and statistical purposes and, above all, to adopt control mechanisms for foreign investments from outside the European Union for reasons of security, health and public order. Being so, how will this new regulation affect FDI since its entry into force on September 1? What FDI must be declared, where and by whom? Can the FDI general liberalization regime be suspended? If so, by whom and  in which sectors? Is there any possibility of investing in them despite this suspension? ? What is a prior authorization and what role does it play in these cases? Is there any FDI exempt from prior authorization?. I will try to answer these and other questions, despite the fact that these answers, conditioned by the limited length of this post, must necessarily be very brief.

To begin with, it should be born in mind that the provisions of this Royal Decree will apply to any FDI made in Spain, without prejudice to the special regimes that may affect investments in sectors that have specific regulations. Having said that, the first issue to address is the declaration of FDI, since every FDI must be declared on a mandatory basis (both investment and divestment) to the Investment Registry of the Ministry of Industry, Trade and Tourism. Among other investments subject to this obligation, just to mention a few, are those related to the participation in the capital of Spanish companies carried out by a non-resident investor who holds or reaches a participation equal or greater than 10%  of the issuer’s capital stock or its voting rights; the financing of Spanish companies or branches from companies of the same group whose amount exceeds 1,000,000 euros and its repayment period is greater than one calendar year; or the acquisition of real estate located in Spain whose sale price surpasses 500,000 euros.

Now, in addition to this obligation, the Royal Decree provides for another one that is no longer administrative or statistical, but of a substantive nature, and to which foreign investments are subject, either made by residents of countries outside the European Union or the European Free Trade Association (EFTA), or by residents of the latter but whose real ownership corresponds to residents of countries that do not belong to any of these organizations. This obligation, which consists of requesting a prior authorization to the General Directorate of International Trade and Investment, arises when the liberalization regime is suspended by the Council of Ministers for reasons of security, health or public order, especially in sectors related to critical infrastructures (energy, transport, water, communications or defense), critical or dual-use technologies (IA, robotics, semiconductors, cybersecurity or aerospace technologies), or key technologies for leadership and industrial training (nanotechnology, photonics, microelectronic or nanoelectronics).

In addition to these cases of suspension of the liberalization regime, others may occur, especially when the foreign investor is directly or indirectly controlled by the government of a third country; when the foreign investor has made investments that affect security, public order or health in other EU’s member States; or if there is a serious risk that the foreign investor will carry out criminal or illegal activities. These causes of suspension, as well as the previous ones, will determine the submission of investment operations to the corresponding authorizations, in such a way that, in the absence of these authorizations, said operations will be null and void.

There are, of course, operations exempt from submitting to the prior authorization regime, but they are limited, for instance, to operations in the energy sector, provided that the companies or assets acquired do not carry out regulated activities, that the company does not achieve the status of controlling company or that the quota of installed capacity is less than 5%. To operations in which the turnover of the owned companies does not exceed 5,000,000 euros in the last closed accounting year. Or to temporary investments of short duration  (hours or days), provided that investors do not have the capacity to influence the management of the acquired companies.

It is important to highlight in this context the attraction of FDIs for the Spanish market, as evidenced by the fact that Spain has captured a total of 34,360 million euros of gross productive investment in 2022, 14%  more than in 2021, making Spain  the third recipient of FDIs in Europe and the twelfth worlwide. Madrid, Catalonia, the Basque Country, Asturias and Andalusia have made 91% of these investments, and Madrid, of this 91%, 68.5%, with an increase of 75% since 2013. And finally it is important to also underline that these investments have enabled the establishment of 11,722 subsidiaries of foreign companies in  industry, trade and non-financial services, creating a total of 1.8 million jobs.

Antonio Viñal
Avco Legal