Introduction
Over the past four years, Spain has significantly strengthened its foreign investment screening mechanism. As a result, acquisitions by foreign investors (as defined below) in a Spanish entity active in a strategic sector are subject to prior authorisation by the Spanish FDI authorities, namely, the Ministry of Economy, Trade and Business (“MINECO”) or the Council of Ministers. In addition, transactions undertaken by investors linked to foreign governments are all subject to review. The rules also allow the MINECO to impose severe sanctions in case of a breach (including the nullity of the transaction and fines of up to the value of the deal). As a result, the Spanish screening mechanism has become a relatively burdensome regime, which is in many ways similar to merger control. In this regard, on 1 September 2023, the long-awaited Royal Decree 571/2023 on foreign investment (the “Implementing Regulation”) finally entered into force, adding some clarification to the scope of the Spanish FDI screening regime.
However, please note that, in addition to the rules summarised in this publication, there are other rules in Spain that are applicable to acquisitions in certain industries (notably defence, for more details click here).
Spain’s FDI Screening Mechanism: The Need for Prior Authorisation
Scope of Application of the FDI Screening Regulations: Definition of FDI in Spain
Under Article 7 bis of Law 19/2003, of 4 July, regarding the rules applicable to capital movements and economic transactions with foreign countries (the “Spanish FDI Act”),1 prior authorisation is required for investments made by certain investors or made in companies operating in certain strategic sectors, when the following cumulative conditions are met:
- Regarding the investment: as a result of such investment:
(i) The investor acquires for the first time a stake equal to or greater than 10 per cent of the share capital of a Spanish company, OR
(ii) The investor acquires “control” over the company or Spanish assets (as defined by the EU Merger Regulation (“EUMR”)2 and the European Commission’s Consolidated Jurisdictional Notice3)4. AND
- Regarding the investor: The investor is a not a European Union (“EU”) or European Free Trade Association (“EFTA”) resident5 , meaning:
(i) The investor resides in any country other than EU or EFTA Member States; OR
(ii) The investor resides in an EU or EFTA Member State but is ultimately owned by residents outside the EU or the EFTA, which is deemed to occur in the case of any EU or EFTA resident company in which non-residents (a) directly or indirectly hold 25% or more of the shares or the voting rights, or (b) otherwise (i.e. by any other means) exercise direct or indirect control6.
NOTE: Temporarily (under the Sole Transitory Provision of Royal Decree-law 20/2022 of 27 December, on urgent measures to respond to the economic and social consequences of the war in Ukraine and to support the reconstruction of island of La Palma and other situations of vulnerability), EU or EFTA residents may also be subject to the Spanish FDI screening mechanism if the target or investor are sensitive as identified below. This regime was initially established to run until 31 June 2021 and has been extended until 31 December 2024. It is likely that it will be extended again.
FDI in Spain Subject to Review
Provided that the investment at stake falls within the definition of FDI set out in the previous section, it will be subject to the Spanish screening mechanism if the target or the investor fall within any of the situations described in the following sections.
Investments Subject to Review Based on the Activities of the Target: Investments in Strategic Sectors
Any FDI in a Spanish company will be subject to prior authorisation if the target is active in any of the following sectors, which have been declared strategic:
(a) Critical infrastructures, i.e. those qualified as such in the National Catalogue of Strategic Infrastructure provided for in Art. 4 of Law 8/2011, of 28 April, which establishes measures for the protection of 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 infrastructures..
(b) Critical technologies and dual-use items, i.e. those defined in Article 2(1) of EU Regulation 2021/821 of 20 May 2021 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items, including telecommunications, artificial intelligence, robotics, semiconductors, cybersecurity, aerospace technologies, defence-related technologies, technologies related to energy storage, quantum, and nuclear, and nano- and bio-technologies.
(c) Key technologies for industrial leadership and capacity building as referred to in Council Decision (EU) 2021/764 of 10 May 2021 establishing the Specific Programme implementing Horizon Europe – the Framework Programme for Research and Innovation, and repealing Decision 2013/743/EU. These technologies include advanced materials and nanotechnology, photonics, microelectronics and nanoelectronics, life science technologies, advanced manufacturing and processing systems, artificial intelligence, digital security and connectivity.
(d) Technologies developed under programmes and projects of particular interest to Spain, which include those involving a substantial amount or percentage of financing from the EU or Spanish budget, including those mentioned in the Annex of Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union.
(e) Supply of critical inputs, i.e. inputs which are indispensable and non-substitutable for the provision of essential services relating to the maintenance of basic social functions, health, safety, security, social and economic well-being of citizens, or the effective performance of state institutions in Spain whose disruption, failure, loss or destruction of which would have a significant impact, including the development and modification of software.
₋ In practice, the MINECO attaches a lot of importance to market shares and the materials provided for in Annex I, Section 1 – List of Strategic Raw Materials and Annex II, Section 1 – List of Critical Raw Materials of Regulation 2024/1252 of 11 April 2024 establishing a framework for ensuring a secure and sustainable supply of critical raw materials amending Regulations (EU) No 168/2013, (EU) 2018/858, (EU) 2018/1724 and (EU) 2019/1020.
(f) Sectors with access to or control of sensitive information, in particular personal data, or with the capacity to control such information. This includes access to data on strategic infrastructure, access to databases related to the provision of essential services, access to official databases that are not publicly available, and activities which are subject to an Article 35(3) GDPR Impact Assessment obligation.
(g) Media.
The Spanish Government reserves the right to add to this list other sectors that may affect public order, public security and public health.
In practice, the Spanish FDI authorities interpret these concepts broadly (i.e. the Spanish authority will not rule out that an investment may affect public order, public security or public health until it is satisfied that this is not the case, which often requires the submission of relatively detailed information on the activities of the target).
In this sense, the Implementing Regulation introduced some much-needed clarification as regards the scope of the broadly defined sectors in the Spanish FDI Act. The Implementing Regulation also established an exemption for certain targets (i) active in the energy sector or (ii) with a turnover in Spain not exceeding EUR 5 million in the last completed financial year if certain additional conditions are met.
Investments Subject to Review Irrespective of the Activities of the Target
The following investments are subject to review irrespective of the activities of the target:
(a) Investments by foreign entities, which are directly or indirectly controlled7 by the government (including public bodies or the army) of a third country.
(b) Investments by entities who have made investments or participated in activities in sectors affecting security, public order and public health in another Member State. The Spanish authority has used criteria that have changed over time to refine it. More recently, the authority has been concerned with whether the investor and the entity that ultimately owns it, as defined above, have engaged in activities that are detrimental to public order, public security or public health in an EU Member State.
(c)All investors, when there is a serious risk that the foreign investor carries out criminal or illegal activities affecting public security, public order or public health in Spain. To determine this risk, the Spanish FDI Implementing Regulation considers, as a proxy, whether the investor has been subject to administrative or judicial sanctions in the last three years, in areas such as money laundering, environmental, tax, or protection of sensitive information.
Enforcement and Consequences in the Event of a Breach (Gun Jumping)
In the event that an investment is implemented without prior authorisation or breaching conditions imposed for such authorisation, the transaction is null and lacks legal force and effect. In addition, it would constitute a very serious administrative infringement, and the MINECO could impose fines of between EUR 30,000 (which would be a sort of “entry fee”- like a minimum fine) and the value of the investment.
Although the MINECO is keen to exercise its reviewing powers, having formally analysed around 264 investments since 2020, since its entrance into force until the end of 2023, the period for which the authority publishes statistics, only one transaction has been prohibited and approximately 24 transactions have been subject to remedies. In addition, even though not mentioned in its yearly reports, the authority has told us informally that it has started to impose fines for gun jumping.
Pablo Figueroa
Alejandra González-Concheiro
Julia Böhme
1As amended by the following:
(a) Royal Decree-law 8/2020, of 17 March 2020, regulating urgent extraordinary measures to deal with the economic and social impact of COVID-19;
(b) Royal Decree-law 11/2020, of 31 March 2020, regarding the adoption of additional urgent measures in the social and economic field to deal with COVID-19;
(c) Royal Decree-law 34/2020, of 17 November 2020, regulating urgent measures to support business solvency and the energy sector, and on tax matters; and
(d) Royal Decree-law 20/2022, of 27 December 2022, of measures in response to the economic and social consequences of the war in Ukraine and in support of the reconstruction of the island of La Palma and other situations of vulnerability.
2Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation).
3Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (2008/C 95/01).
4More precisely, the Spanish FDI regulations cross-refer to Article 7(2) of the Spanish Competition Act which is interpreted, in turn, in accordance with the Consolidated Jurisdictional Notice.
5Spanish FDI rules, as they stand today, look at residence, not nationality.
6There is no express indication in the law as to (i) whether the above 25% should be calculated individually or in aggregate, or (ii) what should be considered to be a non-EU/EFTA resident when the investor is a fund acting through its general partner or managing or advisory entity. However, Art. 10(2) of the Implementing Regulation clarifies that the holder of the foreign investment and consequently subject to the authorisation obligation is the management company of the fund, provided that the LPs do not legally exercise political rights or have access to the company's information..
7In order to determine the existence of such control, the criteria set out in the EUMR / the European Commission’s ‘Consolidated Jurisdictional Notice’ apply.
