Spain revamps FDI regulations

On July 5, 2023, the Spanish Government gave the green light to additional regulations (Royal Decree 571/2023) overseeing foreign direct investments (FDI) in Spain. These regulations, effective from September 1, 2023, bring about significant changes, offering much-needed clarity to the existing FDI screening mechanism established in 2020. This mechanism, initially implemented in response to the COVID-19 pandemic, expanded control over foreign investments.

The FDI screening mechanism doesn’t outright prohibit foreign investments but mandates an authorisation procedure before closing specific transactions in Spain. The approval authority is either the Spanish Council of Ministers or the FDI authority, depending on whether the investment exceeds €5 million.

In essence, this authorisation process applies to investments made by non-EU/EFTA residents and EU/EFTA residents beneficially owned by non-EU/EFTA residents. The criteria for authorisation include subjective aspects, such as the investor’s control by a non-EU/EFTA third-country government or engagement in activities affecting national security. Objective criteria involve investments in sensitive sectors or business activities in Spain, regardless of the investor’s characteristics. This process becomes mandatory when the investment results in a stake equal to or greater than 10% of a Spanish company’s share capital.

The new regulations introduce several key changes to the existing framework. Notable aspects include clarifications on when a new filing is necessary, considerations for state-controlled investors, and exemptions for certain investments, such as those in the energy sector and real estate.

Additionally, the regulations reduce the decision period for FDI screening from 6 to 3 months, and a voluntary pre-filing consultation procedure is introduced to confirm if doubtful investments are subject to screening. The fast-track screening mechanism for investments below €5 million is eliminated, with all screening now subject to the three-month legal term.

While the new regulations enhance the interpretation and enforcement of Spain’s FDI framework, some key concepts, like the definition of investment and the delineation of sensitive sectors, may still require further guidance.