COVID-19: PRESSURE POINTS: Additional modifications to the rules governing foreign investments in Spain as a result of the crisis caused by the COVID-19 outbreak (Spain)

In a previous newsletter (see here) we analysed the new rules for screening foreign direct investments in Spain established by Royal Decree-law 8/2020, of 17 March, on extraordinary measures to tackle the economic and social impact of COVID-19 (“RDL 8/2020”).

The new framework has, in turn, been amended by Royal Decree-law 11/2020, of 31 March, which adopts additional labour and economic measures to tackle COVID-19 (“RDL 11/2020”). These additional modifications are significant as we will see below.

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The scope of application is now wider: it includes investments made by EU or EFTA residents whose beneficial owners are, or that are controlled by, non-residents

RDL 8/2020 established that prior authorisation would be necessary in the case of certain foreign direct investments made in Spain; it defined a foreign investor as one that “was not resident in the European Union or the European Free Trade Association”.

RDL 11/2020 expands the definition of foreign investor to which the authorisation obligation applies, now including “residents of the European Union or the European Free Trade Association whose beneficial owners are residents of non-European Union or non-European Free Trade Association members”.

Beneficial ownership by non-residents is understood to exist when:

• they ultimately hold or control, whether directly or indirectly, more than 25% of the investor’s share capital or voting rights; or
• they hold direct or indirect control over the investor by any other means.

The authorisation obligation can no longer be lifted by Resolution of the Council of Ministers

RDL 8/2020 established that the authorisation framework established in that provision would remain in force “until lifted by Resolution issued by the Council of Ministers”.

RDL 11/2020 has deleted the possibility of the authorisation obligation being lifted by Resolution of the Council of Ministers, which means that the new regime of prior authorisations can only be lifted by a new provision ranking as law that modifies it.

Although the change might have been made for the sake of upholding proper regulatory process (it is doubtful that a Council of Ministers Resolution would be the best means of cancelling a provision with the rank of law), it cannot be ruled out that there is an underlying intention to make the new regime longer lasting, compared to the explicitly temporary nature of the measure pursuant to RDL 8/2020.

However, it cannot be ignored that RDL 8/2020 justified the new rules (reiterated by RDL 11/2020) on “preventing the threat of Spanish companies being taken over by foreign investors taking advantage of the fall in their value as a result of the global crisis triggered by COVID-19”; as a result, it is possible that the authorisation obligation might be relaxed once that threat disappears.

Exemption from the authorisation regime in the case of investments of less than €1 million

One of the most surprising aspects of the provisions brought in by RDL 8/2020 was that they did not establish a quantitative threshold for investments subject to authorisation: all foreign direct investments, irrespective of amount, made by the persons and/or in the sectors established in RDL 8/2020 were subject to the obligation to obtain authorisation, which would have to be granted by Resolution of the Council of Ministers. On that basis, equal treatment would be given to, for example, the acquisition of a dominant operator in the electricity sector and the owner of a 1 MW PV plant.

Under RDL 11/2020, the volume of the transaction would be taken into consideration, on a two-pronged basis:

• Temporarily, investments for an amount less than €1 million are exempt.
• The temporary threshold may be modified by implementing regulations, with the approval of the draft Royal Decree on foreign investments (“the draft Royal Decree”), which the Council of Ministers has agreed to fast-track by Resolution dated 24 March 2020.

A simplified authorisation process has been established for investments of up to €5 million or investments for which an agreement had already been reached as to price before 18 March 2020 (the date on which RDL 8/2020 entered into force)

As explained in the previous newsletter, the general procedure to authorise foreign direct investments requires submitting an application for authorisation to the Directorate General of International Trade and Investments (currently a part of the Ministry of Industry, Trade and Tourism). A decision on the application would then be made within six months by the Council of Ministers, pursuant to a joint proposal from the Ministry of Economic Affairs and Digital Transformation (and Ministry of Industry, Trade and Tourism and a report issued by the Foreign Investments Board.

RDL 11/2020 establishes a simplified process, with authorisation being granted by the Directorate General of International Trade and Investments, subject to a report from the Foreign Investments Board, within a maximum of 30 days. The simplified process applies to:

a) Investments for which evidence is provided, by any legally valid means, that an agreement or binding offer existed between the parties before 18 March 2020 that set the price of the investment or a formula for calculating it.

b) Investments equal to or more than €1 million and less than €5 million (these thresholds may be modified by regulations).

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