Spanish Government measures. Foreign investment approval regime

1. Background

The Spanish Government approved on 18 March 2020 Royal Decree-Law 8/2020, of 17 March, of urgent exceptional measures to face the social and economic impact of COVID-19 (RDL 8/2020), which implements exceptional measures in relation to the social and economic impact of COVID-19 crisis.

These measures include, among others, a new foreign investment regime applicable to non-EU companies, by amending Law 19/2003 on legal regime of capital movements and foreign economic transactions (“Law 19/2003”).

Law 19/2003 is developed by Royal Decree 644/1999, of 23 April, on Foreign Investments (RD 644/1999), which shall remain in force to the extent consistent with the amendments made by RDL 8/2020. Additionally, RD 644/1999 provides a prior authorisation regime for transactions related to foreign investments in national defence companies involved in the production or trade of weapons, ammunition, explosives or any type of war goods.

The new regulation imposes certain restrictions on foreign investors resident in any country outside the EU or EFTA (Foreign Investors). The new measures include the need of prior authorisation for foreign investments in certain strategic sectors, as well as subjective restrictions based on the conditions of the investor. The breach of the new regulation is considered a ‘very serious infringement’ which may result in fines ranging between €30,000 and the transaction value and public or private warnings and the annulment of the transaction.

According to RD 644/1999, the restrictions apply to the acquisition of holdings in shares, financial instruments that entitle to acquire shares, such as convertible bonds or subscription rights, and voting rights.

2. Scope of the new regime

2.1 Foreign investment in certain sectors

The Government prohibits the acquisition by Foreign Investors of 10% holdings in companies active in sectors related to public order, public security or public health without a prior authorisation of the Spanish Government. Acquisitions of less than 10% of the share capital are also subject to authorization if resulting in an effective participation in the control or management of the target company.

The affected sectors are:

1. critical infrastructures, both physical and virtual (energy, transport, water, healthcare, communications, media, data storage and processing, aerospace, defence, finance or sensitive installations) as well as the land and real estate properties that are key for the use of those critical infrastructures;
2. critical technology and dual-use products;
3. essential supplies (energy, hydrocarbons, electricity, raw materials and food);
4. sectors with sensitive information such as personal data or with capacity to control such information; and
5. media.

2.2 Restrictions applicable to certain investors

Foreign investment in any industry, when the investment is equal to or higher than 10% of the share capital, or results in a participation in the effective control and management of the relevant company, shall be subject to a regime of prior authorization if the relevant investor is in one of the following cases:

(a) it is controlled directly or indirectly by the government of a third country, including public bodies or armed forces; or
(b) administrative or judicial proceedings have been initiated against it for exercising illegal or criminal activities.

2.3 Restrictions applicable to investors that have invested in the affected sectors in another EU member States

Foreign investment in any industry, when the investment is equal to or higher than 10% of the share capital, or results in a participation in the effective control and management of the relevant company, shall also be subject to a regime of prior authorization if the relevant investor has invested or participated in sectors affecting the security, public order or public health in another EU member State. In particular in those sectors referred in paragraph 2.1 above.

In this case, RDL 8/2020 does not refer to any minimum threshold of the participation held by the Foreign Investor in another EU member State, although we believe that a reasonable interpretation of this provision would require that such investment in another EU member State amounts to at least 10% or entail effective participation in the management of the relevant company.

2.4 Acquisitions or indirect holdings

The restrictions apply to direct and indirect investments by Foreign Investors. For these purposes, an investor will be deemed a Foreign Investor if 25% of its shares or voting rights are ultimately owned, directly or indirectly, or if it is otherwise controlled, directly or indirectly, by residents in any country outside the EU or EFTA.