By:king&wood mallesons

Status of foreign direct investment control law in Spain

Spain is one of the most relevant global players in foreign investment, thanks mainly to its liberalized foreign investment regime. In this regard, Spain is ranked 15th globally and 6th in the EU in the FDI Index and has been considered as the 11th economy more open to foreign investments by the Organisation for Economic Co-operation and Development.

General regime for foreign investments.

FDI in Spain is governed by the Royal Decree 664/1999, 23 April, on the legal regime of foreign investments (“RD 664/1999”). This RD 664/1999 adapted Spanish domestic law to the rules on the freedom of movement of capital contained in the EU regulations.

The most relevant aspects relating to FDI in Spain are:

  • For purely administrative, statistical or economic purposes, foreign investments must be reported ex post to the Directorate-General for International Trade and Investments, once the investment has been made; and
  • The only exceptions would be: (i) investments from tax havens, which in general would be subject to ex ante administrative notification; and (ii) foreign investments in real estate, investments for diplomatic missions by non-EU Member States, which would also require ex ante notification.

The Council of Ministers can suspend this liberalized system on an ad hoc basis for investments that affect, or might affect, public powers, public order, national security or public health-related activities. In such case the relevant investments would need the clearance by the Council of Ministers.

Specific restrictions for some activities and sectors.

Telecommunications: Law 9/2014 of 9 May on Telecommunications (“Law 9/2014”) does not contain restrictions to foreign investments in Spanish telecommunications operators. However, the Law 9/2014 provides that telecommunication activities can be rendered by EU companies and by non-EU companies provided that, for non-EU companies, there is an international treaty signed between Spain and the country of the relevant company. However, the Spanish Government can authorise exceptions to this regime.

Television and radio: As a general rule, Law 7/2010 of 31 March, on Audiovisual Communication, does not set out any restrictions for the foreign investments in Spanish companies belonging to the audiovisual communication services sector. However, non-European Economic Area (“EEA”) investors would only be entitled to invest in Spanish audiovisual communication services company if they fulfil the principle of reciprocity. In addition, the stake held, directly or indirectly, by a non-EEA investor in a Spanish audiovisual communication license holder shall not exceed 25% of its share capital, and the total stake held by Non-EEA Investors in the relevant Spanish target must not exceed 50% of its share capital.

Energy: Law 3/2013 of 4 June, creating the National Commission on Markets and Competition (“NCMC”), establishes that the acquisition of or by companies that carry out regulated activities (such as transmission or distribution of electricity or gas) or owners of energy assets, must be notified to the Ministry of Energy, Tourism and Digital Agenda (“MINETAD”).

In addition to the above, in the scenario in which the acquisition is made by a regulated energy company or a non-EEA resident company and the relevant transaction implies a real and sufficiently serious threat to the guaranteed supply of electricity or gas within the scope of the companies with regulated activities, conditions related to the exercise of such activities may be imposed by the MINETAD. The National Commission on Markets and Competition NCMC has temporarily taken responsibility for this function of the MINETAD.

Article 34 of Royal Decree Law 6/2000 establishes limits on the holding of stakes in the main operators (production and supply) of the electricity and gas system, regardless of the nationality of the acquirer by application of European unbundling rules.

Financial: According to Law 10/2014 of 26 June, investments (both national and foreign) in certain financial entities, such as credit entities, insurance companies and investment service companies, must follow an authorisation or nonopposition process, respectively, before the European Central Bank (through the Bank of Spain), the General Directorate of Insurance and Pension Funds or the Stock Market National Commission (“CNMV”).

The thresholds triggering the prior authorisation requirement is 10% or more of the voting rights or a lower percentage if it allows the exercise of a significant influence in the relevant entity.

Prior approval from the CNMV is also required for the acquisition of a direct or indirect interests in the holding of the Spanish stock exchanges. National defence-related activities: Article 11 of RD 664/1999 states that a foreign investment in activities directly related to national defence is subject to a prior administrative authorisation from the Ministry of Defence.

The Spanish Ministry of Defence establishes that the concept of “activities directly related to the national defence” includes all defence material set forth in Annex I of Royal Decree 679/2014, 1 August, approving the regulations on control over the foreign commerce of defence material, other materials and products and technologies of double use (“RD 679/2014”). Annex I of RD 679/2014 is quite specific and technical and includes materials, software and even technical assistance related to military activities.

Air transportation: Law 48/1960 of 21 July on air navigation, with Regulation (EC) No. 1008/2008 of the European Parliament and of the Council of 24 September on common rules for the operation of air services in the European Community, states that at least 50% of the share capital of the companies holders of operating licences for air transportation of passengers, cargo or mail, or both, for remuneration, as well as their effective control, must be held by EU nationals, except otherwise provided in agreements entered into with a third country to which the EU is a party.

Hot topics: intended changes / discussions

Over the years, foreign investment restrictions and exchange controls in Spain have been mostly eliminated in line with the EU legislation on deregulation in this area.

As of today, the current Spanish Government does not have parliamentary majority to implement major reform programmes, and we understand that its main purpose is to sustain the growth in the Spanish economy and to manage the situation in Catalonia, trying to avoid any kind of instability that may inhibit FDI in Spain.

This article is excerpted from “Accessing Europe and the Middle East: Foreign Direct Investment Control Considerations”. For the full publication, please scan QR code to read.