Law and policy

Policies and practices

What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

Last year, the Spanish government adopted restrictive policies on foreign investment in Spain because, owing to the current economic situation and the lower valuation of certain Spanish legal entities, foreign buyers could take control of Spanish entities at a lower cost. Throughout 2020, owing to the covid-19 crisis, the applicable law was modified so that foreign investments are subject to increasing scrutiny. The new policies specifically focus on investments that exceed a certain threshold of the share capital of Spanish entities that operate in critical sectors or are made by certain purchasers.

Main laws

What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The main laws governing foreign direct investment in Spain are the following:

 

In addition, four royal decree-laws have been enacted since March 2020:

Royal Decree-Law 12/2021 of 24 June 2021, adopting urgent measures in the field of energy taxation and energy generation, and on the management of the regulation levy and the water use tariff.

Scope of application

Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

The scope of application of Law 19/2003 of 4 July 2003 and Royal Decree 664/1999 is, in general, any act, business, operation or transaction that, by its nature, form or conditions of performance, affects or may affect activities related, even occasionally, to the exercise of public authority, activities directly related to national defence, or activities that affect or may affect public order, public security and public health.

Specifically, the laws and the royal decree-laws focus on the screening mechanism for foreign direct investments in Spain, which are those investments in which a non-resident in the European Union or in the European Free Trade Association (EFTA) acquires 10 per cent or more of share capital in a Spanish company, whether listed or unlisted, or acquires control over it. According to article 7.2 of Law 15/2007 on antitrust, to acquire control over the company means to become a party to contracts or acquire rights that allow the investor to have a decisive influence in the target company. Consequently, even the acquisition of minority interests is subject to screening.

Although the laws do not mention indirect investments, they are also subject to scrutiny, as any investment in a company from another country that has subsidiaries in Spain may also be reviewed by the authorities.

The laws also provide penalties for failure to comply with the obligation to request the authorisation to invest.

Ministerial Order of 28 May 2001 applies generally to foreign investment, but it specifically concerns practical aspects of the screening mechanism for foreign direct investments regulated in the aforementioned laws, such as the procedure to request an authorisation to invest and the procedure to declare the investment, apart from focusing on the screening mechanism itself.

Royal Decree-Law 8/2020 of 17 March 2020, passed at the outbreak of the covid-19 pandemic, included provisions concerning foreign direct investment in Law 19/2003 of 4 July 2003, including a new article 7 bis, which established the foreign direct investment screening mechanism.

On the other hand, the scope of application of Royal Decree-Law 11/2020 focuses on certain foreign direct investment operations that enjoy a fast-track scrutiny mechanism.

Finally, Royal Decree-Law 34/2020, in addition to modifying Law 19/2003, temporarily includes within its scope investments both in Spanish listed and unlisted companies (provided that the unlisted company exceeds €500 million in turnover), carried out by residents in the European Union and EFTA.

Definitions

How is a foreign investor or foreign investment defined in the applicable law?

Law 19/2003 defines foreign direct investment, in article 7 bis, as all investment as a result of which the investor holds a stake equal to or greater than 10 per cent of the share capital of a Spanish company, or when as a result of a corporate operation, act or legal transaction, the investor effectively acquires control of a company, provided that one of the following occurs:

  • the investment is carried out by residents of countries outside the European Union or EFTA; or
  • the investment is carried out by residents of countries of the European Union or EFTA but whose real ownership corresponds to residents of countries outside the European Union and EFTA; real ownership shall be understood to exist when the latter possesses or ultimately controls, directly or indirectly, more than 25 per cent of the capital or of the voting rights of the investor, or when they exercise control, directly or indirectly, over the investor by other means.

 

On a temporary basis (from 19 November 2020 to 31 December 2021), according to the transitional provision contained in Royal Decree-Law 34/2020 of 17 November 2020 (as amended by Royal Decree-Law 12/2021 of 24 June 2021), investments made by EU and EFTA residents, and investments made by residents of Spain whose real ownership belongs to non-EU or non-EFTA residents, are considered to be foreign direct investments.

Special rules for SOEs and SWFs

Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

None of the laws applying to foreign direct investment provide for a definition of SOEs or SWFs.

However, there is a special rule regarding SOEs and SWFs. Article 7 bis of Law 19/2003 of 4 July specifically provides that foreign direct investments made by a company directly or indirectly controlled by a government are always subject to the screening mechanism.

Relevant authorities

Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

According to article 11.2 of the Ministerial Order of 28 May 2001, the scrutiny of the investment must be carried out by the General Directorate for International Trade and Investment, which is a department of the Ministry of Commerce, Industry and Tourism. The scrutiny must be jointly carried out by the Directorate and the Foreign Investment Board, which will issue a report on the characteristics of the investment operation. However, the Spanish Council of Ministers will decide on the approval or denial of the foreign direct investment transaction, taking into account the information provided by the Directorate and the Foreign Investment Board.

Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

Although the reviewing authorities must apply the criteria provided by the applicable laws on foreign investment, they have a great deal of discretion to approve or reject transactions, as the definitions given by the law about what is critical infrastructure or what a strategic sector is are too broad. At present, there is no further regulatory development to explain in depth the criteria that must be applied to grant an authorisation to foreign investors.