This information was provided by Manuel Vélez Fraga on 7 January 2021,
and should be reviewed against any later legislative updates.
Law 19/2003, of 4 July, as amended by Royal-Decree-Laws 8/2020, of 17 March; 11/2020, of 31 March; and 34/2020, of 17 November, which implement in Spain the European Regulation 2019/452. With regard to foreign direct investment in Defence related companies, Royal Decree 664/1999 of 23 April is also applicable.
The authorities involved are the following:
- The Council of Ministers is the competent body for issuing the prior authorization required, when the regime is applicable, except in those cases in which the simplified procedure is applicable.
- When the simplified procedure is applicable (transactions in which the amount involved is between 1 MM € and 5 MM € and transactions with some elements such as price defined before 18 March 2020), the competent authority for authorizing the transaction is the General Directorate on Foreign Trade and Investment from the Minister of Industry, Commerce and Tourism (Dirección General de Comercio Internacional e Inversiones del Ministerio de Industria, Comercio y Turismo).
- Before the authorization is granted, it is always required a non-binding proposal issued by the Board of Foreign Investment (Junta de Inversiones Exteriores) (“JINVEX”).
A) In the first place, since the Royal Decree 664/1999, of 23 April, entered into force, all foreign investments in National Defence related companies require prior authorization from the Council of Ministers, upon proposal of the Ministry of Defence, and prior non-binding proposal from the JINVEX. In case of listed companies, the authorization is required when the investment reaches 5% of the capital share of the listed company involved.
B) As a consequence of the amendments introduced by Royal-Decree-Laws 8/2020, 11/2020 and 34/2020 (which entered into force on 18 March 2020, and has been ultimately amended on 19 November 2020), a new regime is applicable, the following mechanism is applicable:
- Definitions of foreign direct investments and foreign investor:
(i) Foreign Direct Investments include:
- investments that result in a foreign investor reaching a stake of at least 10% of the share capital of a Spanish company (when objective criteria or subjective criteria are met), or
- any corporate or legal transaction or business action by which a foreign investor acquires control over a Spanish company (when objective criteria or subjective criteria are met). In this regard, the possibility of exercising decisive influence as a result of an agreement or through the ownership of shares interests in another legal person (directly or indirectly) is deemed to constitute “control” for these purposes.
(ii) The concept of foreign investor is defined as follows:
- Residents in non-EU or non-EFTA countries.
- Residents in EU and EFTA countries, whose ultimate beneficial owner is resident in non-EU or non-EFTA countries.
Beneficial owner is defined, for this purposes, as the one who directs or indirectly holds or controls more than 25% of the capital share of the resident in EU and EFTA countries, or who controls the relevant company by other means.
- After 19 November 2020 and until 30 June 2021, EU/EFTA investors (with a minimum investment of EUR 1 million), provided that they invest in listed companies, or more than EUR 500 million in private companies.
- Objective criteria:
The mechanism will apply to investments in the following sectors:
(i) Critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, sensitive facilities, and land and real estate crucial for the use of such infrastructure.
(ii) Critical and dual-use technologies, key technologies for industrial leadership and training, and projects of particular interest to Spain.
(iii) Supply of critical inputs, energy, strategic connectivity services, raw materials and food security.
(iv) Sectors with access to or control of sensitive information, including personal data.
(vi) Other sectors designated by the Spanish government from time to time (currently, none).
- Subjective criteria:
The mechanism will also be applicable in the following cases, in which the key point is not the sector in which the investment takes place, but only some subjective or personal characteristics of the foreign investor:
(i) Investors directly or indirectly controlled by a Non-EU/EFTA government, including state bodies, armed forces or sovereign wealth funds; the possibility of exercising decisive influence as a result of an agreement or through the ownership of shares or interests in another person (directly or indirectly) is deemed to constitute “control” for these purposes.
(ii) Non-EU/EFTA Investors that have already made an investment affecting national security, public order or public health in another EU Member State.
(iii) If there is a serious risk that the Non-EU/EFTA investor engages in illegal or criminal activities affecting national security, public order or public health in Spain.
As commented above, the sectors covered by the mechanism are:
- Since 1999, National Defence related companies.
- Since 2020, see question 2.
4. Does the legislation apply to investment activities in a defined term? If so please provide a description.
As commented above, investments submitted to mechanism are the following ones:
a) For National Defence related companies, acquisitions in capital share of the relevant company, except in the case of listed companies, in which the threshold of 5% is applicable.
b) In the other cases defined by Royal Decree-law 8/2020, see question 2.
5. Could the legislation be applicable to a broader category of activity, such as transactions whereby the foreign person acquires ownership or controlling interest by means of e.g. increased ownership through a rights issue?
Yes, Spanish legislation provides that when the control of the relevant percentage is reached by other means, or even when there is the possibility of participating effectively in the management of the company, the screening mechanism will apply.
Spanish legislation does not provide specific criteria for reviewing the transactions.
It only refers to general criteria such as public order, public health or national security. Consequently, this kind of authorisation involves a wide discretionary margin for the Government.
7. Is the screening requirement triggered in relation to foreign (EU or non-EU) investors, or may it also be triggered by domestic investors?
When the regime is applicable to National Defence related companies, it will apply to all foreign investors (including EU investors).
In the rest of the cases, it is applicable to non-EU and non-EFTA countries, unless the ultimate beneficial owner of the investors (someone holding more than 25% of its capital share) is a non-EU or non-EFTA undertaking; or from 19 November until 30 June 2021, the regime is applicable to EU/EFTA investors (with a minimum investment of EUR 1 million), provided that they invest in listed companies, or more than EUR 500 million in private companies.
8. Would the screening mechanism apply to an investor from another EU Member State if the investor is owned by a foreign entity (non-EU Member State)?
Yes, see answer to question 7.
9. Are there any specific thresholds for when the screening procedure is triggered / exempted? (Threshold could be the % of ownership or value of the investment.)
- National Defence: There is no general threshold, except for listed companies (5% of capital share).
- Other cases: Yes, the threshold is 10% of capital share, except when the amount of the transaction is under EUR 1 MM. For further details see question 2.
10. Does the screening mechanism apply also for foreign investments in publicly listed companies? (For examples when stocks are traded on the open market).
The procedure is not public until a final resolution is issued.
Then, general provisions on transparency (Law 19/2003) will be applicable. However, general provisions on transparency do not apply if confidential information is involved. It is up to the investors to request for considering some information as confidential.
12. Would it be normal procedure to use mitigation agreements and typical clauses in relation to FDI? Is it required by law?
There are not general provisions on mitigating clauses, but they have been required in some cases after a negotiation with the relevant investor.
13. What are the notification obligations (or could the notification be voluntary), i.e. before or after the investment is completed (e.g. in an M&A transaction, would the notification have to be made before signing or closing)?
Even though informal contacts are allowed, the formal request for an authorisation should be filed when formal documents involving the transaction (i.e. SPA) are duly signed with a condition precedent related to obtain the authorisation.
15. Does the competent authority have a right to call-in, or to ex officio start a screening i.e. ask for information about an investment that has not been notified?
16. What information does the authority normally require in a notification? For example, information about the ownership of the investor, the financing of the investment, and any ties to a foreign government?
Yes, information about the investor, its relevant shareholders, the conditions of the transactions and the business plan for the next three years for the Spanish company.
17. What are the main steps of the procedure and the time limits for those steps? Is there a period within which the competent authority has to issue a decision?
The decision is to be issued within 6 months (otherwise, it is considered rejected, even though the authority is able to issue a favourable decision after those six months).
When the simplified procedure is applicable, the decision is to be taken within 30 days.
The main steps of the ordinary procedure are:
(i) submitting the filing;
(ii) requirement for amendment if applicable;
(iii) proposal by the JINVEX; and
(iv) authorisation from the Council of Ministers.
18. Does the competent authority take the final decision or another authority or governmental body (e.g. consultation with other authorities)?
The Council of Ministers takes the final decision after the non-binding proposal from the JINVEX.
See answer to question 11.
20. What types of decisions may the authority adopt, for example, to stop or condition an investment?
The competent authority is able to:
(i) issue an authorization;
(ii) reject the authorization and then stopping the investment; and
(iii) impose conditions on the investment to be accepted by the investor.
21. What are the tools available to enforce decisions (for example fines or injunctions), and what are the penalties for not adhering to a decision by the competent authority?
Gun-jumping screening will render the transaction invalid and without any legal effect, until the required authorisation is obtained.
Fines up to the value of the investment could be imposed.
22. Is the authority's decision subject to appeal in court or are there other means of changing a decision (new notification or filing)?
Yes, the decision of the authority can be challenged before Spanish Courts.