CMS Expert Guide to Foreign Investment Screening Laws in Spain

The Spanish FDI laws are set out in Article 7a (7 bis) of Spanish Law 19/2003 of 4 July 2003 on the legal regime governing capital movements and external economic transactions.

Royal Decree 571/2023 of 4 July 2023 on foreign investments further expands the types of transactions captured by the Spanish FDI regime and provides further guidance on the procedure to be followed and expected timings to obtain FDI authorisation.

In addition, Royal Decree – Law 34/2020 of 17 November 2020 on urgent measures to support business solvency and the energy sector, and on tax matters introduced a transitory FDI regime on EU investors which applies beyond the scope of Royal Decree 571/2023. This transitory regime has been extended several times now and is currently in force until 31 December 2026 (and is expected to be extended again in the future).

Transactions are caught if the following three requirements are met (cumulatively):

1. the investment is made by a foreign investor, i.e. resident outside the EU/EFTA; or a resident in an EU or EFTA country but whose ultimate beneficial owners are foreign entities (i.e., where the foreign entity possesses or ultimately controls, directly or indirectly, more than 25% of the capital or voting rights in the investor, or exercises direct or indirect control of the investor by other means);
2. the foreign investor acquires (directly or indirectly) control over a Spanish target company or Spanish assets , or a stake equal to or greater than 10% in a Spanish target company; and
3. the investment affects public order, public security, or public health.

2.1.1 Control: relevant thresholds

Share deals are caught if the foreign investor (i) reaches ownership of 10% or more of the Spanish company, or (ii) acquires control of the company (the concept of ‘control’ is as defined by merger control regulations; joint control or certain types of veto right will suffice to consider that the foreign investor acquires control).

Asset deals relating to assets located in Spain are also caught.

There is an exemption from seeking FDI authorisation for investments in Spanish companies with a turnover not exceeding 5 million euros in the last audited financial year (save in certain exceptional cases).

2.1.2 Sensitive activities

Foreign investments in Spain will be subject to the screening regime and require FDI authorisation when they meet either of the two following criteria:

i. The target company operates in one of the following “sensitive sectors”:

• Critical physical or virtual infrastructure (including transport infrastructure) and key land and property used for such infrastructure. This list of critical infrastructure is not public (it includes energy, transport, medical, financial system infrastructure etc.). Note that these are named pieces of infrastructure, not just any in a ‘critical’ sector, that have been specifically designated as such.
• Critical technologies and dual-use products, or key technologies for leadership or industrial capabilities, or technologies developed under programmes or projects of particular interest for Spain, including telecommunications, artificial intelligence, robotics, semiconductors, cyber security, aerospace, defence, energy storage, quantum and nuclear technologies, nanotechnology, biotechnologies, advanced materials, and advance manufacturing systems.
• Supply of critical inputs, in particular: energy, strategic connectivity services, raw materials and food security. All transactions in these sectors and within any activity are subject to the screening rules.
• Sectors with access to confidential information, in particular personal data, or those with the capacity to control such information. This is a very broad category and includes: health centres, insurance companies, banks, call-centres, etc.
• The media.

OR

ii. The investor falls within one of these three categories (irrespective of the sector in which the target company operates):

• Foreign investors controlled directly or indirectly by the government of a third country (including bodies, sovereign wealth funds or the armed forces).
• Foreign investors who have invested or participated in activities in sectors affecting security, public order and public health in another EU Member State and especially the sectors listed above. In practice, foreign investors whose investments in other EU Member States have been vetoed or subject to conditions, protective measures or commitments.
• Foreign investors for whom there is a serious risk of their being involved in criminal or illegal activities that affect public security, public order or public health in Spain or any other EU Member State.

A special transitory FDI regime applies to acquisitions by an investor resident in the EU/EFTA  (but outside of Spain) on a transitional basis until 31 December 2026. Where a transaction meets the following three cumulative conditions, prior approval by the Spanish Council of Ministers will be required:

1. The EU/EFTA investor acquires a stake of 10% or more in the Spanish company or, as a result of the transaction, gains control of that company (the concept of ‘control’ is as defined by merger control regulations; joint control or certain types of veto right will suffice to consider that the foreign investor acquires control);
2. The Spanish company is either publicly listed or the “investment value” exceeds EUR 500 million; and
3. The investment is made in one of the “sensitive sectors” listed in 2.1.2 (i) above.

Filing is mandatory for transactions captured by the Spanish FDI regime, and the relevant transaction cannot be completed until the authorisation is granted (or the authority confirms that no FDI authorisation is in fact required).

Grounds for review are very widely defined, and capture all investments that may affect public security, public order or public health.

In those cases where it is unclear for the foreign investor whether its investment in Spain is in scope and requires FDI authorisation, parties may file a written consultation with the Spanish FDI authorities, describing the transaction, the parties involved, etc. and formally asking whether FDI authorisation is required or not in their particular case.

Spanish FDI authorities respond within 30 business days.

The contents of these written consultations and responses provided by the Spanish FDI authorities are confidential and not published and, therefore, they cannot be used as precedents for future transactions.

Requests for authorisation are submitted to the General Directorate for International Trade and Investment (Dirección General de Comercio Internacional e Inversiones) and the decision granting the authorisation (with or without conditions, commitments and/or protective measures) or vetoing the investment will be made by the Council of Ministers (Consejo de Ministros).

Defence-related activities and investments in companies active in this sector have their own procedure, with certain differences. In general terms, it is a more formalistic and strict procedure, managed by the General Directorate of Armaments and Material of the Spanish Ministry of Defence (Dirección General de Armamento y Material del Ministerio de Defensa), and the final approval of the investment (or veto) will be made by the Council of Ministers (Consejo de Ministros).

The foreign investor is responsible for the filing.

The authorisation request includes a very detailed questionnaire (with questions addressed to the direct purchaser, its ultimate beneficial owner, the target company, etc.) and is submitted to the General Directorate for International Trade and Investment (Dirección General de Comercio Internacional e Inversiones, belonging to the Spanish Ministry of Industry, Trade and Tourism), which is the administrative body responsible for analysing and processing the authorisation request.

In principle the maximum timeframe within which to grant the authorisation is three months (after which the authorisation request will be considered as rejected on the basis of administrative silence - silence from the authorities does not constitute approval; express approval is always required). In practice the process might take longer, e.g. the review timetable might be suspended if the Spanish FDI authorities request additional information from either party (until this information is provided) or when technical/internal reports from other public bodies are needed (until these reports are issued).

There is no administrative fee.

All information sent to the Spanish FDI authorities and the decision they adopt for each investment is absolutely confidential, and not published (not even the decision to grant the FDI authorisation, which is only notified to the investor and remains confidential to the rest of the market).

Completing a FDI in Spain without having obtained the prior FDI authorisation is  considered a serious infringement and the Spanish FDI authorities may impose fines ranging from EUR 30,000 to the amount of the FDI in Spain.

Although failure to obtain authorisation may be validated after the event (i.e. the authorisation may be granted after completion of the relevant FDI, and after the corresponding fines have been imposed and paid), in certain specific cases, (where no regularization is possible and the transaction would have been vetoed if FDI authorisation was requested at first instance) the unauthorised foreign investment will be considered null and void, and the transaction will have to be unwound.