Foreign Investment Controls in Europe Comparative Overview: Spain
2020-06-18
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Foreign Investment Controls in Europe Comparative Overview: Spain
Foreign Investment Controls in Europe Comparative Overview: Spain
Introduction
The European Union ('EU') has one of the world's most open investment regimes. Nevertheless, there have been growing concerns in recent years about the impact of certain foreign investments on security and public order. A key issue has been the increasing level of Chinese foreign investment that takes place in the technology sector, with prominent examples in Europe including the takeover of the German robotics manufacturer Kuka by Midea and the attempted takeover of the chip equipment manufacturer Aixtron by Fujian Grand Chip Investment Fund.
Partly as a result of such acquisitions, member states of the European Union (the 'Member States') and EU decision-makers have become increasingly concerned about European know-how and consumer data being transferred to China and related security issues. In early 2017, Germany, France and Italy proposed in a letter to the EU Trade Commissioner that the Member States should be able to block investments from non-EU countries. At the same time, several Member States, including Germany and Italy, tightened or considered tightening their national investment control regimes. As of April 2020, 14 Member States[1] have national screening mechanisms in place aimed at preserving security and public order at national level. In November 2018, a political agreement was reached by the European Parliament, the Council and the Commission on an EU framework for screening foreign direct investment into the European Union and in March 2019 a regulation of the European Parliament and of the Council establishing a framework for the screening of foreign direct investments into EU was adopted. In March 2020, as part of the overall response to the economic effects of the COVID-19 pandemic, the European Commission issued guidance to the Member States concerning foreign direct investment and the protection of EU's strategic assets, in particular in healthcare-related industries.
Against this background, Ashurst Guantao (FTZ) Joint Operation Office seeks to give general insights into the foreign investment control regimes in the European Union and in the major European jurisdictions, including Belgium, France, Germany, Italy, Luxembourg, Spain, and the United Kingdom.
Please feel free to contact any of your Ashurst contacts in case of any questions.
The Ashurst Team
Spain
While Spain generally has a liberal policy to foreign investment there are nevertheless certain notification requirements in place which allow for the Government to scrutinise activities directly related to national defence (e.g. the production of or trade in weapons, ammunition, explosives, war materials or aircrafts). Moreover, freedom of foreign investment may be suspended on an ad hoc basis by the Council of Ministers (Consejo de Ministros) when investments are deemed to affect or may affect, even occasionally, the exercise of public powers, or public order, security or public health. In such cases, the relevant foreign investment is subject to prior authorisation by the Council of Ministers. This is the case of the suspension of the liberalisation regime set out by the state of alarm declared in Spain in the context of the health crisis situation caused by COVID-19.
What are the key laws and regulations governing restrictions and controls of foreign investments?
The key laws and regulations governing restrictions and controls of foreign investments include:
• Law 19/2003 of 4 July 2003 on regulating the movement of capital and foreign economic transactions;
• Law 18/1992 of 1 July 1992 on certain rules regarding foreign investments in Spain;
• Royal Decree 664/1999 of 23 April 1999 on foreign investments; and
• Royal Decree 1080/1991 of 5 July 1991 on countries and territories considered to be tax havens.
The aforementioned regulations are without prejudice to specific regulations additionally applicable to certain sectors (e.g. audio-visual, energy or air transportation sectors).
How is a foreign investor defined?
Foreign investors are defined as:
• individuals not resident in Spain;
• legal entities domiciled abroad; and
• foreign government entities.
There are no special rules on investments made by foreign state-owned entities.
Which transactions are scrutinised and which sectors are affected?
The following transactions are subject to scrutiny :
• acquiring a stake in a Spanish company (including the incorporation of a new company, the acquisition of or subscription for shares, and the acquisition of pre-emption and subscription rights, convertible bonds or any other securities which grant the right to acquire shares in a company);
• incorporating a branch in Spain or increasing its capital;
• subscribing or acquiring loan securities issued by Spanish residents;
• acquiring for participation in investment funds registered with the relevant Spanish registry;
• acquiring any property assets or property situated in Spain at a price exceeding EUR 3,000,000 (except where the investor is from a tax haven country or territory, in which case this threshold does not apply); and
• incorporating or participating in a joint venture, foundation, economic interest grouping, cooperative or co-ownership, when the investment exceeds EUR 3,000,000 (except where the investor is from a tax haven country or territory, in which case this threshold does not apply). However, an investment made in a listed company carrying out activities related to national defence will only require authorisation when such investment:
• represents more than five per cent of the Spanish company's share capital; or
• allows the foreign investor to participate in the managing body of such company even when such percentage stake is not reached.
Moreover, a notification regime applies to foreign investments, meaning that:
• A statistical declaration must be filed with the Foreign Investments Registry (Registro de Inversiones Extranjeras) of the MINCOTUR (as defined below) within one month after the foreign investment is made; the purpose of such declaration is to gather administrative, statistical and economic information; and
• when foreign investments are made from a country or territory identified as a tax haven, a declaration must be filed within six months before the investment is made, unless: (i) the investment is made in a listed company or regulated fund or (ii) the investment amounts to less than 50 per cent of the Spanish company's share capital. Please note that this prior declaration is required without prejudice to the subsequent statistical declaration, which will also be required after the investment is made.
All sectors are subject to the declaration requirements explained above. In addition, foreign investments into national defence activities are subject to prior authorisation as set out above.
Moreover, several sectors are affected by specific restrictions:
• Audio-visual sector. The shareholding held (directly or indirectly) by a particular non-EEA person or legal entity in companies which hold a communication services licence may not exceed 25 per cent of its share capital. Additionally, the shareholding corresponding to all non-EEA persons or legal entities' shareholders in such companies may not exceed 50 per cent.
• Energy sector. The Ministry of Energy controls share acquisitions in companies carrying out (i) regulated activities in connection with the electricity or hydrocarbons sectors or (ii) activities related to strategic assets, which include, among others, thermal and nuclear power plants and oil refineries and pipelines. Such investments shall be communicated to the Ministry of Energy which may impose conditions on non-EU or non-EEA parties where there is the possibility of a genuine and serious threat to the guarantee of energy supply.
• Air transportation sector. The holders of operating licences for air transportation of passengers, mail and/or cargo have to be majority owned and effectively controlled by EU member state businesses and/or nationals of EU member states.
• Concessions: A transfer of shares in a company holding a government concession which implies that more than 50 per cent of the concessionaire's share capital is transferred, will qualify as an assignment of the concession and will require approval from the government authority which granted the concession. The approval of concession assignments is not part of the Spanish foreign investment control framework per se (i.e. prior approval is required irrespective of whether the investor is foreign).
Who is the decision-maker?
Approval requests must be submitted to:
• the Directorate General of International Trade and Investment (Dirección General de Comercio Internacional e Inversiones) subject to the Ministry of Industry, Commerce and Tourism (Ministerio de Industria, Comercio y Turismo) ('MINCOTUR') in the case of ad-hoc suspensions of the liberalisation regime;
• the Directorate General for Weaponry and Material (Dirección General de Armamento y Material) subject to the Ministry of Defence (Ministerio de Defensa), in case of investments in activities related to national defence;
• Ministry for Ecological Transition and Demographic Challenge (Ministerio para la Transición Ecológica y el Reto Demográfico) in case of investments in the energy sector.
The Board of Foreign Investments (Junta de Inversiones Exteriores) issues a report on the proposed foreign investment.
Decision on the requests is made by the Council of Ministers.
Declarations
Declarations must be addressed to the Registry of Investments of the MINCOTUR.
Is filing or approval mandatory?
Both declarations and prior authorisations, if required, are mandatory.
The party responsible for filing/securing the prior approval is the non-resident investor. The party responsible for foreign investment declarations is also, as a general rule, the non-resident investor, with the following exceptions:
• with respect to acquisitions of traded securities, filing must be made by the investment services institutions, credit institutions or financial institutions in charge of the deposit and administration of securities;
• with respect to acquisitions of nominative shares, filing must be made by the Spanish company issuing the shares; and
• with respect to acquisitions related to investment funds, filing must be made by their management companies.
If a required declaration or prior approval request is not filed, the Government is entitled to (i) require the relevant investor to comply with the applicable administrative requirements through a formal approval process and (ii) initiate sanctioning proceedings, if appropriate.
What are the assessment criteria?
For foreign investments requiring prior approval from the Government, the criteria will generally be based on Spanish public interest. Such general criteria are specified for certain sectors, e.g. the energy sector, in respect of which the guarantee of electricity, gas or hydrocarbons supply is also assessed.
What does the review process look like?
Declarations
Declarations do not involve verification or clearance by the competent authorities. With regard to declarations required to be filed before the investment is made, the investor may carry out the investment immediately after submission.
Authorisations
Following the submission of the approval request, the Council of Ministers must resolve whether to authorise the investment within six months of the submission of the approval request. The lack of express resolution is deemed an implicit authorisation. However, where the investment relates to activities related to national defence, the lack of express resolution within six months is deemed a refusal of authorisation.
If authorised, the investment should take place within the specific term set forth in the authorisation or, if not expressly specified, within six months following authorisation. Otherwise a new request for approval would need to be filed before the investment is made.
An extension of such term (which typically should not exceed half of the term initially granted) may be obtained upon request.
Under Spanish law, all discretionary decisions must be explained. This implies that, when a foreign investment is subject to a prior administrative authorisation, the decision authorising, denying or imposing conditions on it (i) cannot be taken arbitrarily and (ii) can be challenged by the investor before a court.
Competent authorities publish online guides for information purposes for investors requesting information.
What are the powers of the competent authorities and can they prohibit or otherwise interfere with a transaction?
When a foreign investment is subject to prior approval requirements the relevant authority must authorise the investment before it can be made. In addition, failure to comply with the relevant requirements (prior authorisation/prior or subsequent declaration) may result in the authorities imposing fines. Sanctions are imposed on the person responsible for fulfilling the relevant obligation who failed to comply with its duties.
In addition, where prior authorisation is required, the respective authority could argue that the transaction was carried out without such prior approval is null and void.
How long does the review process take?
When prior authorisation by the Council of Ministers is required, the approval request must be decided upon within six months after its submission. The lack of express resolution is deemed an implicit authorisation, except for investments related to national defence where lack of resolution is deemed a rejection.
How much does the review process cost?
There are no filing fees for approval requests or foreign investment declarations. The costs associated with the filing are typically those relating to expenses incurred by the investor to justify its investment through relevant documents translated into Spanish and duly legalised, as well as legal advisory fees, if any.
What is the degree of transparency?
As a general rule, access to administrative records is restricted to those persons who have a direct and legitimate interest in the relevant files and records (e.g. the parties involved), except where those refer to national defence and security, or privacy. Where the information is leaked causing actual damages, the relevant administrative body may be liable to indemnify the damages incurred, to the extent they were effectively caused by the administrative body (in which case the onus of proof will be on the claimant).
In addition, as a rule of thumb, persons are entitled to confidential treatment of their personal data.
What are the consequences of the lack of clearance?
Implementing the transaction without the required clearance (or before clearance is obtained) may lead to penalties being imposed by the respective authority, which may be summarised as follows:
• Failure to submit the relevant declaration:
• If the investment exceeds EUR 6,000,000 the infringement is deemed serious and may result in (i) a fine ranging from EUR 6,000 to half the amount of the investment and (ii) a public or private warning; or
• If the investment does not exceed EUR 6,000,000 the infringement is deemed minor and may result in (i) a fine ranging from EUR 3,000 to a quarter of the amount of the investment and (ii) a private warning.
• Failure to obtain the relevant authorisation (if required) prior to an investment is deemed a very serious infringement which may result in (i) a fine ranging from EUR 30,000 to the total amount of the investment and (ii) a public or private warning.
Sanctions are imposed on the relevant person (individual or legal entity) that is responsible for fulfilling the relevant obligation and does not comply with its duties.
The statute of limitations for imposing any sanction ranges from one to five years, depending to the seriousness of the infringement.
In addition, as set out above, the respective authority may raise consistent arguments that a nonauthorised transaction should be rendered null and void.
Ideally, where prior authorisation is required, the completion of the transaction should be subject to the condition precedent that such an authorisation is effectively obtained.
Is there a right to challenge?
A resolution denying an authorisation is subject to administrative or judicial appeal, or both, on the grounds that the decision was unreasonable or arbitrary. Administrative appeals are generally made before the same authority which rejected the investment, while judicial appeals are made before the Spanish Supreme Court if the decision was taken by the Council of Ministers.
Spain has joined the International Centre for Settlement of Investment Disputes (ICSID) offering foreign investors another avenue of redress and a greater level of investment protection.
Suspension of the liberalisation regime due to health crisis caused by COVID-19
During the state of alarm declared in Spain by the Royal Decree 463/2020 of 14 March 2020, declaring the state of alarm for the management of the health crisis situation caused by COVID-19, the Royal Decree Law 8/2020 of 17 March 2020 and the Royal Decree-Law 11/2020 of 31 March 2020, amended the regulation on foreign investments to make it more protectionist, by amending the Law 19/2003 of 4 July 2003 (i.e. the law that until this moment established a liberalisation regime with certain information obligations).
The suspension of the liberalisation regime implies that the acquisition transactions in which the investor acquires a stake of 10 per cent or more of the share capital or, as a result thereof, it effectively takes part in the management or control of the Spanish company, made by (i) residents of non-EU or EFTA countries; or (ii) residents of EU or EFTA countries whose real owners are residents of non-EU or EFTA countries. It will be understood that such real ownership exists when residents of nonEU or EFTA countries hold or ultimately control, directly or indirectly, more than 25 per cent of the share capital or voting rights of the investor, or when by other means they exercise control, directly or indirectly, over the investor are subject to an administrative authorisation.
The authorisation is required for investments:
• in certain sectors (objective restriction) (whether listed or not), including: (i) critical infrastructures, whether physical or virtual (in this case, the liberalisation related to the acquisition of land and real estate which are key to the use of such infrastructures is also suspended); (ii) critical technologies and dual-use items; (iii) supply of fundamental inputs (e.g. energy, raw materials); (iv) sectors with access to sensitive information; and (v) the media; or
• where the investor is considered to be a 'risky' person (subjective restriction), including: (i) investors directly or indirectly controlled by the government of a third country; (ii) foreign investors that have invested or participated in sectors affecting security, public order and public health (especially those listed above) in another Member State; and (iii) foreign investors against whom administrative or legal proceedings have been instituted for criminal or illegal activities in another Member State, in their state of origin or in a third country.
The request for authorisation must be made to the Council of Ministers which has a period of six months to resolve. However, a simplified procedure to be decided within the deadline of 30 days by the Directorate General for International Trade and Investment (with the report of the Board of Foreign Investment) shall apply to:
• Transactions in respect of which there is evidence, by any legally valid means, of the existence of an agreement between the parties or a binding offer in which the price was fixed, determined or determinable prior to the entry into force of Royal Decree Law 8/2020 of 17 March 2020, on extraordinary urgent measures to deal with the economic and social impact of COVID-19; and
• Those whose amount is equal to or greater than EUR 1 million and less than EUR 5 million, until the regulations implementing the suspension of the liberalisation regime are approved by the Government.
In any case, lack of response means the negative decision. If the authorisation has not been requested/obtained, the transaction shall be invalid and sanctions may be imposed, including a fine of up to the amount of the investment made.
On a transitional basis (until the regulations implementing the suspension of the liberalisation regime are approved by the Government), transactions amounting to less than EUR 1 million are exempted from the obligation of prior authorisation.
Are any significant changes planned?
Please note that, a draft of Royal Decree is being processed for the purposes of updating the current regulation.
[1] According to the List of screening mechanisms notified by Member States, dated 12 December 2019: Austria, Denmark, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, Netherlands, Poland, Portugal, Romania and Spain. The United Kingdom is technically no longer an EU Member State following its decision to exit the EU, although it remains subject to EU rules for a transitional period, which currently lasts until 31 December 2020. The UK does have a national screening mechanism, although there have been proposals to strengthen it.
