Even though Spain is facing its deepest recession in half a century – with an unemployment rate of over 20% in the first quarter of 2011 – it still has important appeal for foreign investors, not only for those seeking to enter its domestic market, but also for those looking to use it as a base for operating in third-country markets.  Spain occupies a privileged geo-strategic position: it belongs to the European Union but it is also the gateway to North Africa and Latin America.

Despite this, foreign investors have traditionally had serious difficulties in getting established in Spain, due to rigid immigration laws that seek (sometimes seemingly without sense or logic) to protect its own employment market.  These laws, and their strict and subjective application by the Immigration Authorities, can easily be argued to block the entry of foreign capital and therefore actually to damage Spain’s national economy.

When a company applies for a work and residence permit in Spain, the Immigration Authorities will consider the national employment situation.  Taking this into account – especially during this recession – means it is really difficult to obtain a permit.  The applicant company has to put the job into the local market and then must be able to show that there were no Spanish candidates who could fit the job description.  In practice this is very difficult – fitting the job description is often a question of degree, sometimes forcing companies to take on people who may be technically adequate but are still not as expert as could be found externally.  

Perhaps in recognition of this, from 30 June the law will introduce a new procedure “authorising the entry, residence and work of foreigners in Spain whose profession meets the country’s economic, social or labour demands, or who intend to undertake research or developmental or educational work which requires highly qualified personnel, or who will carry out performances of special cultural interest”.  If a company can show that the role satisfies these criteria it will not then have to demonstrate that there are no Spanish candidates who would fit the job description. 

My preliminary thoughts are that these reforms will be insufficient to achieve their stated aims.  Why?  Mainly because the new legislation will be limited to:

  • so-called “large and medium companies”, namely those with either (i) over 500 workers in Spain; (ii) investments in Spain of over 200m Euros or net shareholders with equity of over 100m Euros; or (iii) investments into Spain of at least 1m Euros per annum, funded entirely from abroad;  
  • medium and small companies in limited strategic areas: information and communications technology, renewable energy, environment, water and water treatment, health sciences, biopharmaceuticals, biotechnology, aeronautics and aerospace; and  c
  • ompanies that can prove that hiring a particular manager or highly qualified individual is part of a business project that is in the public interest because it will result in (i) a significant increase in the number of jobs at the company applying for the permit; (ii) a significant increase in the number of jobs in the company's particular sector or geographic area; (iii) a significant financial investment with a positive socio-economic impact in the company's geographic area; or (iv) a relevant contribution to a scientific and/or technological innovation.

Let's see if in practice this new legislation can help foreign investors do business in Spain.  At least it's a starting point and a move forward from the previous legislation. Enough to reverse the recession? Time will decide…