COVID-19 – Spanish Royal Decree with urgent measures

1. Introduction

The Government of Spain has approved Royal Decree-law 8/2020, of 17 March, with urgent and extraordinary measures in order to mitigate the economic and social impact of the COVID-19 pandemic (RDL 8/2020).

The purpose of RDL 8/2020 is to mobilize ca. 20% of Spain’s GDP, about 200,000 million Euro, of which 117,000m Euro will correspond to the public sector, as well as to provide support and mitigation provisions against the effects of the COVID-19 pandemic.

These measures have been approved after the Royal Decree 463/2020, of 14 March, declared the emergency situation (estado de alarma) for the management of the health crisis caused by COVID-19 (RD 463/2020).

Below you will find a summary of the most relevant provisions of RDL 8/2020.

2. Finance and corporate provisions

2.1 Moratorium of mortgage debt for the acquisition of permanent residential property

Certain measures are adopted for implementing a moratorium in relation to mortgage debt for the purchase of permanent residential property of debtors who suffer extraordinary difficulties for attending payments as a consequence of the COVID-19 crisis.

A. The mortgage debt moratorium applies to the following cases:

1. loan and credit facilities secured with mortgage over real estate assets whose debtor is in a situation of financial vulnerability; and
2. guarantors and security providers of the main debtor, with respect to their permanent residence and in the same terms as for the mortgage debtor.

B. A debtor is considered to be in a “situation of financial vulnerability” caused by the COVID-19 health crisis when:

1. he/she becomes unemployed or, if he/she is an entrepreneur or a professional, suffers a substantial loss of income or a substantial decrease of sales (of at least 40%);
2. the aggregate income of all the members of the family unit does not exceed, within the month immediately preceding the moratorium request, 3 times the Public Index of Multiple Purpose Income (IPREM), which shall be increased depending on the number of children, elder or disabled persons forming part of the family unit;
3. the mortgage instalment plus basic expenses and supplies is equal to or higher than 35% of the aggregate net income of all the members of the family unit; or
4. as a consequence of the health emergency, the family unit has suffered a significant change of its financial circumstances in terms of the effort to acquire a residential property. This occurs when the effort to pay the mortgage debt over the income of the family unit has multiplied by at least 1.3.

C. Debtors may request the moratorium to the lender until 15 days after the expiry of RDL 8/2020, and the credit entity shall implement it within 15 days from the receipt of such notice.

D. The effects of the moratorium include the suspension of the mortgage debt during the term stipulated therein, during which:

1. the early termination and acceleration clauses of the mortgage loan agreement cannot be enforced by the lender;
2. no mortgage debt instalments are payable to the lender, including principal, ordinary interest and default interest; and
3. no ordinary and default interest shall accrue.

2.2 Guarantee facility provided by the Spanish administration

The Ministry of Economic Affairs and Digital Transformation will grant guarantees (avales) for a total maximum amount of 100,000 million Euro in connection with the financing granted by credit institutions, financial credit institutions, electronic money entities and payment entities to companies and self-employed workers, in order for them to meet their needs arising from, amongst others, the management of invoices, working capital, maturity of financial or tax obligations or other liquidity needs.

The applicable conditions and requirements to be complied with, including the maximum period for requesting the guarantee, will be established by an Agreement of the Council of Ministers (Consejo de Ministros).

2.3 Increase of the net debt limit of the ICO

The net indebtedness limit established for the Official Credit Institute (Instituto de Crédito Oficial, ICO) in the State Budget Act is increased by 10,000 million Euro, in order to provide additional liquidity to companies, in particular to small and medium-sized companies and self-employed workers.

This will be carried out by means of ICO Financing Facilities through the intermediation of financial institutions both in the short and the medium and long term and in accordance with their direct financing policy for larger companies.

2.4 Extraordinary insurance coverage

An insurance coverage line of up to 2,000 million Euro (the “Coverage Line”) has been authorized to be created with a duration of 6 months from the entry into force of the RDL 8/2020 (ie, until 18 September 2020), with the following characteristics:

A. The working capital credits necessary for an exporting company will be eligible, without direct relationship with one or more international contracts being necessary, provided that they originate from new financing needs and not from situations prior to the current crisis.

B. Beneficiaries: Spanish companies considered to be Small and Medium-sized Companies according to the definition in Annex I of Commission Regulation EU 651/2014, as well as other larger companies, provided they are unlisted entities, in which the following circumstances concur:

1. Internationalized companies or companies in the process of internationalization, which meet at least one of the following requirements:
   a) companies in which the international business, reflected in its latest available financial information, represents at least a third (33%) of its turnover, or
   b) companies that are regular exporters (those companies that have exported regularly during the last 4 years according to the criteria established by the Spanish Secretary of State for Commerce).
2. Companies that face a liquidity problem or lack of access to financing as a result of the impact of the COVID-19 crisis on its economic activity.

C. Companies in insolvency or pre-insolvency proceedings are expressly excluded, as well as those companies in default with Public companies or debts with the Administration, registered before 31 December 2019.

D. The percentage of credit risk coverage in the operations entered into under the Coverage Line will not exceed the limit that may be established at any time in accordance with the EU regulations on State aid.

Decisions to provide the Coverage Line to individual transactions, as well as the risk analysis of each transaction, will be made with agile mechanisms and carried out, particularly for small and medium- sized companies, with extraordinary information and solvency criteria, within the framework of the market conditions generated by the health crisis, while it lasts.

The Coverage Line will be implemented in two sections of 1,000 million Euro, the second section coming into force after having verified a satisfactory execution of the first section.

All kinds of commercial transactions, including national ones, whether the supply of goods, the provision of services, or others carried out by Spanish companies, may be included within the Coverage Line, if the State Risks Commission understands that such transactions are part of the commercial strategy of said companies which act preferably in the field of internationalization.

2.5 Suspension of certain tax deadlines

Certain tax deadlines have been suspended until 30 April 2020, to the extent that such deadlines had not been reached as of 18 March 2020. Deadlines notified from 18 March 2020 onwards are extended until 20 May 2020, unless the relevant legal deadline elapses on a later date.

The following deadlines will benefit from the suspension:
A. deadlines for the payment of tax liabilities assessed by the tax administration in both voluntary and executive periods;
B. deadlines resulting from tax deferral decisions or decisions approving the delayed payment of tax liabilities on instalments, which had been already granted by the Spanish tax authorities; and
C. deadlines for answering to miscellaneous requests from the Spanish tax authorities or for the submission of allegations in certain tax procedures.

Note that the above extension of deadlines does not cover for instance self-assessed taxes (ie the deadlines for filing and paying corporate and personal income taxes or VAT, or payroll taxes would remain the same).

In addition, in the context of administrative tax seizures, the enforcement of securities granted over real estate assets will not occur until 30 April 2020.

2.6 Extraordinary measures applicable to Spanish legal persons

The management of Spanish legal persons, including limited companies (S.A.) and limited liability companies (S.L.), has been simplified within the emergency situation (estado de alarma):

A. Meetings of governing bodies of legal persons may take place, even if not allowed by the relevant by-laws, by means of:

1. video conference which ensures the authenticity and the bilateral or multilateral connection in real time and with image and sound of all remote attendants; or
2. voting by written letters without a meeting when so decided by the Chairman or requested by two members of the governing body.

B. The approval of the annual accounts of legal persons benefits from an extension in the following terms:

1. The period of 3 months from the closing of the financial year within which the governing body of a legal person shall approve the annual accounts (whether ordinary or abbreviated, individual or consolidated), the management report (if mandatory) and any other mandatory documents is suspended until the date on which the emergency situation finalizes. Such period of 3 months will start anew from said date.
2. If the governing body of the legal person has already approved its annual accounts as of the date of the declaration of the emergency situation, the deadline for the auditing of such annual accounts (if mandatory) is extended for two months after the date on which the emergency situation finalizes.
3. The general ordinary shareholders’ meeting for the approval of the annual accounts shall be held within three months after the expiry of the new term for approval by the governing body.

C. The winding-up of companies also benefit from the following provisions:

1. If the by-laws of a company provide the winding-up of the company on a date within the emergency situation, such winding-up shall only legally occur until two months after the date on which the emergency situation finalizes.
2. If a company enters into a winding-up cause under the law or its by-laws before or during the emergency situation, the legal deadline for convening the general shareholders’ meeting in order to approve or avoid the winding-up is suspended until the emergency situation finalizes.
3. If a winding-up cause under the law or the by-laws of a legal person has occurred during the emergency situation, the directors shall not be liable for any company debts incurred within such period.

3. Labour provisions

3.1 Remote working

Remote work (teleworking) is established as a priority measure against the temporary cease or reduction of activity, in those companies where it is technically and reasonably possible and if the necessary adaptation effort is proportionate. In the case of teleworking in those companies in which it has not been foreseen, the obligation to carry out the risk valuation through a self-assessment carried out voluntarily by the worker himself will be understood having been fulfilled.

3.2 Reduction of the working day

Workers employed by others who evidence care duties with respect to the spouse or common-law partner, as well as with respect to relatives by blood relationship up to the second degree of kinship, will have the right to adapt their working day and/or reduce it when there are exceptional circumstances related to the necessary actions to avoid the transmission of COVID-19.

It will be understood that said exceptional circumstances concur if:

• it is required care of some of the people indicated in the previous section that, for reasons of age, illness or disability, need personal and direct care as a direct consequence of COVID-19.
• there are decisions adopted by the governmental authorities related to COVID-19 that imply the closure of educational centers or of any other nature that dispense care or attention to the person in need of them.
• the person in charge of the direct care or assistance of the working person's spouse or relative up to the second degree could not continue doing so for justified reasons related to COVID-19.

The right to the adaptation of the working day due to care duties due to exceptional circumstances related to COVID-19 corresponds to the employee, both in its scope and in its content.

Workers will have the right to a special reduction in the working day in the situations set out in article 37.6 of the Spanish Workers' Statute, when the exceptional circumstances foreseen occur, with the proportional reduction of their salary. The reduction in working hours may reach 100% of the working day if necessary, but it must be justified and reasonable and proportionate to the situation of the company.

The worker must communicate the reduction in working hours to the company 24 hours in advance.

3.3 Measures to enable making temporary activity adjustments and introduce flexibility, aimed to avoid layoffs and dismissals

Suspension of contracts (ERTE) and reduction in working hours having as direct cause the loss of activity as a consequence of COVID 19, -including the declaration of the emergency situation, which entails the suspension or cancellation of activities, temporary closure of public affluence businesses, public transport restrictions and, generally, people and/or goods mobility, lack of supplies seriously impeding the continuation of the ordinary activity, or in urgent and extraordinary situations due to the infection of the staff or the adoption of preventive isolation measures issued by the health authority, which are duly evidenced-, will have the consideration of force majeure.

In this event, the following special provisions will apply:
a) The ERTE application promoted by the company shall be accompanied by a report in which the loss of activity is linked to the consequences of COVID 19, as well as the relevant supporting documentation. Such application shall be notified to the workers and send the report and supporting documentation to the workers’ representatives, if any.
b) The existence of force majeure alleged by the company shall be confirmed by the employment authority within 5 days from the submission of the application.
c) The decision will take effect from the date of the fact causing force majeure.

In the event of ERTE for force majeure due to COVID 19, the Social Security General Treasury will exonerate the company from paying the company contributions, as well as contributions for joint collections, meanwhile the ERTE persists, provided that the company has less than 50 workers registered with the Social Security. For 50 workers or more, there will be a reduction of the company contributions up to 75% of the quota.

Such exemption shall not have any effects to workers and it shall be considered as effectively contributed to all effects.

The right to receive unemployment allowances shall be recognised even if the affected workers do not meet with the minimum contribution period required. The period of time during which unemployment allowances are perceived shall not be counted as unemployment right consumption ahead of any potential future scenarios of same type.

Suspensions of contract and reductions in working hours for economic, technical, organisational and productive reasons related to the COVID-19, will also need to apply some special provisions during the emergency situation period.

3.4 Extraordinary allowance for cease of activity of self-employed workers

The following provisions are approved exceptionally and for a term of one month only, commencing on the date on which RD 463/2020 came into force or until the last day of the month in which the emergency situation (estado de alarma) finalizes, if the emergency situation is extended for more than one month:

A. Self-employed workers whose activities are suspended due to the application of RD 463/2020, or whose billing for the previous month in which the allowance is requested is reduced by, at least, 75% in relation to average billing of the previous semester, have the right to receive the extraordinary allowance for cease of activity, provided that they meet the following requirements:

1. they were registered with the Social Security (SS) at the date of the declaration of the emergency situation;
2. if their activity is not directly suspended by RD 463/2020, they show evidence of the reduction of, at least, 75% in relation to average billing of the previous semester; and
3. they are up to date with payment of SS contributions (however, if this is not the case, self- employed workers will be allowed to settle any outstanding amounts within 30 calendar days).

B. The amount of the allowance will be calculated by applying 70% on the relevant regulatory base.

When the minimum required term of contribution to the SS to be eligible for the allowance cannot be proved, the amount of the allowance will be calculated by applying 70% on the minimum regulatory base of the Special Regime of Self-employed Workers.

C. This allowance is incompatible with any other allowance from the SS. The term of perception of this allowance will be considered as if contributed and it will not reduce any term of allowance for cease of activity to which beneficiaries may have the right to obtain in the future.

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.