Maria Estela Pichardo (White & Case) contributed to the development of this publication

The Spanish FDI regulations provide for the need to obtain prior administrative authorization for certain FDIs in Spain that are deemed to affect public order, public safety or public health. Specifically, the mechanisms focus on investments that operate in critical sectors or are made by certain purchasers, subject to certain thresholds.

Summary of major changes in 2023

During 2023, a new FDI regulation was enacted in order to further develop the existing Spanish FDI legislation. Specifically, this regulation introduces the following changes:

• In regard to investment funds, the FDI regulation has clarified that its management company ("sociedad gestora") will be considered as the ultimate beneficial owner
• The new FDI regulation states that previous authorization from the competent authorities in Spain will not be necessary if: the transaction consists of internal group restructurings and increases in share capital by shareholders that hold more than 10 percent of the share capital and that do not suppose a change of control; within the energy sector, the companies or assets acquired do not engage in regulated activities; as a result of the transaction, the company does not acquire the status of dominant operator in the electricity generation and supply sectors; and in the case of the acquisition of electricity production assets, the share of the company's shareholding in the electricity generation and supply sectors is not higher than that of the company's shareholding in the generation sector
• In relation to the scope of application, the regulation further defines activities in certain strategic sectors, such as critical and dual-use technologies and key inputs. It further defines the operations that are subject to prior authorization by investor profile, including those profiles where there is control by the government of a third country, or where there could be a presumption of serious risk
• Foreign direct investments where the turnover of the acquired companies does not exceed €5 million in the last closed accounting period, as well as transitory operations without the capacity to influence, are now exempt from the FDI scrutiny mechanism. Moreover, the exemption for investments of less than €1 million that were not subject to prior authorization is no longer applicable
• The maximum term for resolving the request for authorization is reduced from six to three months for all types of transactions, regardless of the amount involved. Additionally, the maximum term for the Ministry of Industry, Commerce and Tourism to resolve informal filings for preliminary assessment will be 30 days

Who files?

The FDI application must be filed by the investor, specifically, by the legal entity that will be investing into the Spanish target.

The filing must be made through the electronic office of the Ministry of Industry, Commerce and Tourism. To request the authorization, the legal entity must complete a questionnaire for the foreign investment screening, which is publicly available in the Ministry of Industry, Commerce and Tourism. Even though the filing requires no standard form, the competent authorities have put into place a questionnaire to be filled out regarding the investor profile and the details of the transaction.

Among other things, the entity will have to identify details of the investor and the target; the shareholding structure of the investor; the method by which the investment is being made; the amount of the investment; and the effective participation of the investor in the target after the transaction, among other information.

There is no filing fee.

Types of deals reviewed

The Spanish FDI legislation provides for the need to obtain prior administrative authorization for a number of foreign direct investments in Spain that are considered to affect public order, public safety or public health. This is assuming that they are operations that are ultimately carried out by residents of countries outside the EU and EFTA, and that involve the investor becoming a shareholder of 10 percent or more of the share capital of a Spanish company, or part thereof or acquiring control thereof.

Authorization is also required for investments where the target operates in areas such as critical infrastructures, critical and dual-use technologies, supply of fundamental inputs, and with access to sensitive information and the media; or in which the investor is directly or indirectly controlled by the government of a third country or poses a serious risk of criminal or illegal activities affecting public safety, public order or public health in Spain.

Additionally, investments in Spanish companies with a turnover of less than €5 million in the past fiscal year are exempt from previous authorization, except for several exceptions in the energy, communications and raw materials sectors.

Likewise, investments by residents of EU or EFTA countries will also be subject to authorization when their value exceeds €500 million or when they are directed to companies listed in Spain.

Scope of the review

The review by the regulator focuses on several aspects. The regulator focuses primarily on the nationality of the investor, its shareholding structure, its ultimate beneficiaries and what other investments it has made.

The regulator is interested in who controlled the target prior to the transaction and what its main activity is, in case the acquisition could affect public order, safety or health in any way.

The regulator focuses on how the transaction will be carried out, whether it will result in a change of the target's activity and what the amount of the investment will be. In practice, it is usually sufficient to include this information in the filing, and it is not usually necessary to provide the sale purchase agreement or any other documentation related to the transaction.

The regulator is interested in how the company will be managed after the transaction, who will be part of its governing body, if it intends to change its activity, or if it intends to make substantial changes regarding its employees, among other aspects. In practice, at the time of filing, there is usually not much information on these issues, so the regulator focuses less on them than on the other aspects.

Review process timeline

Given the new changes introduced by the FDI Regulation, the authority must authorize or deny the transactions within a maximum period of three months. Once this period has elapsed without a response from the authority, it will be understood that the authorization has been denied.

For foreign investors who submit the questionnaire seeking a preliminary opinion as to whether the authorization mechanism applies, the authorities will have 30 working days to respond, subject to a favorable report from the Foreign Investment Board, and during this period, no application for authorization may be made. In any case, the investor should assume that the foreign direct investment proposal is rejected if there is no response from the regulator. In practice, the average time taken by the authority to respond to questionnaires is approximately one-and-a-half months.

In any case, the response time, both for the authorization and for the questionnaire, will depend on the volume of requests that the authority has at the time.

How foreign investors can protect themselves

A good form of protection for investors is to receive specific advice on each transaction, as the application of the mechanism is still quite uncertain given its recent introduction.

It is useful to consider similar transactions that have been made previously, as this may be an indicator of whether or not it will be necessary to seek approval.

It is also useful to provide the necessary information to the authority in advance, as this may avoid additional questions from the authority and speed up the response process.

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