Spain: Consolidation of FDI regime as Spanish Government Adopts New Royal Decree

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Overview of regime

Outline of applicable legislation and relevant authorities

The Foreign Direct Investment (FDI) control regime in Spain is mainly governed by the Spanish Act on the legal regime of capital movements and economic transactions abroad (the Spanish Act 19/2003). Specifically, the consolidated version of the Spanish Act, Article 7 bis, lays out the main principles of the FDI screening mechanism in Spain (the General Screening Mechanism).

Moreover, the Spanish FDI regulatory regime has been recently updated with the Royal Decree 571/2023, of 4 July 2023 on foreign investments (the RD 571/2023), which has been in force since 1 September 2023. It develops the General Screening Mechanism, clarifying some relevant points, which makes it a crucial tool for lawyers assessing FDI in order to confirm whether transactions could be under the FDI regime in Spain and, thus, be subject to mandatory notification.

On the other hand, the RD 571/2023 foresees mandatory filings for FDIs ‘directly related to national defence’, maintaining the Defence Screening Mechanism that was introduced by the Royal Decree 664/1999, of 23 April, on foreign investments (the RD 664/1999) (which was repealed with the entry into force of the RD 571/2023).

The RD 571/2023 also introduces both the Weapons Screening Mechanism and the Diplomatic Real Estate Screening Mechanism.

Finally, there is some transitional regulation, mainly as a consequence of covid-19 and the war in Ukraine, which should also be taken into account and to which we will refer.

Regarding the relevant authorities in FDI control regime, the Ministry for Industry, Trade and Tourism (in particular the Directorate General for International Trade and Investments) is the body in charge of reviewing filings under the General Screening Mechanism and proposing the decisions to the Council of Ministers, which ultimately decides on transactions (except for filings on transactions for amounts equal to or less than €5 million, where the Directorate General for International Trade and Investment shall be the decision maker).

Concerning the remaining screening mechanisms, in all cases, the Council of Ministers ultimately decides on transactions. While in the Defence Screening Mechanism, the Directorate General for Weapons and Equipment of the Ministry of Defence is in charge of reviewing filings and making proposals to the Council of Ministers, in the Weapons Screening Mechanism and the Diplomatic Real Estate Screening Mechanism, filings shall be addressed to the Directorate General for International Trade and Investment and to the Ministry of Foreign Affairs, European Union and Cooperation, respectively.

Scope of regime, including types of transactions and investors covered

The Spanish FDI screening regime applies to four main areas:

  • the General Screening Mechanism, introduced in March 2020, foresees mandatory filings for certain FDIs taking place in strategic sectors and affecting national security, public order and public health, or when the foreign investor meets certain subjective conditions;
  • the Defence Screening Mechanism, which is now foreseen in the RD 571/2023, (as mentioned above, it was previously foreseen in the RD 664/1999, which was repealed with the entry into force of the RD 571/2023) and provides for mandatory filings for FDIs directly concerning national defence;
  • the Weapons Screening Mechanism, introduced by the RD 571/2023, which foresees mandatory filings for FDIs conducted in activities related to the manufacture, trade or distribution of weapons, cartridges, pyrotechnic articles, and explosives for civilian use; and
  • the Diplomatic Real Estate Screening Mechanism, introduced by the RD 571/2023, which provides for the need of acquisitions of real estate intended for diplomatic or consular representations to be previously authorised.

The General Screening Mechanism

The General Screening Mechanism applies to FDIs conducted by foreign investors from a list of strategic sectors in which activities may have implications for national security, public order and public health or when the foreign investor meets certain subjective conditions, provided that one of the following two criteria are met:

  • As a result of the FDI, the investor will hold an interest equal to or greater than 10 per cent of the share capital of the Spanish company.
  • As a result of the corporate operation, act or legal transaction, the control of the Spanish company is acquired in accordance with the criteria set out in Article 7.2 of Spanish Act 15/2007, of 3 July 2007, on the defence of competition (the Spanish Competition Act).[2] The concept of control inherent to competition law is a separate and autonomous legal form from that used in other legal fields (e.g., accounting regulations, as defined in the Commercial Code, Article 42), and is interpreted in an extremely wide sense.[3]

The RD 571/2023 specifies that the following investments do not trigger the General Screening Mechanism: direct investments carried out by a share-holder already holding more than 10 per cent if the increase in the capital share is not accompanied by change of control and internal restructurings within a group of undertakings.

It is important to clarify the meaning of the term ‘foreign investor’ in FDI control regulation, in order to determine the subjective scope of the regulation. It includes three groups:

  • residents of countries outside the European Union and the European Free Trade Association (EFTA), under all circumstances;
  • residents of countries in the European Union and EFTA whose ‘beneficial ownership’ ultimately belongs to residents of countries outside the European Union and EFTA. Beneficial ownership shall be deemed to exist when the foreign residents:
    • possess or ultimately control (within the meaning of Article 7.2 of the Spanish Competition Act), directly or indirectly, more than 25 per cent of the capital or of the investor’s voting rights; or
    • otherwise exercise control (within the meaning of Article 7.2 of the Spanish Competition Act), directly or indirectly, over the investor; and
  • the subjective scope of the General Screening Mechanism is temporarily extended (until 31 December 2024) to FDIs made by residents of countries in the European Union and EFTA where:
    • the target of the FDI is a company listed in Spain (for this purpose, companies listed in Spain will be considered as those whose total shares, or part of them, are admitted to trading on an official Spanish secondary market and have their registered office in Spain); or
    • in the case of unlisted companies, the value of the investment exceeds €500 million.

In relation to the term ‘foreign investor’ it should also be noted that management companies of the following institutions, entities or figures shall be considered to be holders of the foreign investment and, therefore, subjects of the foreign investment subject to authorisation, provided that the shareholders or beneficiaries do not legally exercise political rights or have privileged access to the company’s information:

  • collective investment institutions or closed-end collective investment entities resident in the European Union or European Free Trade Area, or similar entities or figures that are resident in third countries; or
  • institutions for occupational retirement provision or other institutions for occupational retirement provision which are authorised and domiciled in the European Union or European Free Trade Area, or similar institutions or entities which are resident in third countries.
Application of General Screening Mechanism based on the activities of the target

Where an FDI meets the previous requisites, it will be subject to prior authorisation if the target is active in any sector that is considered to be ‘strategic’. The RD 571/2023 develops the list of strategic sectors via an extensive Article 15, which is one of the main novelties of this regulation, being the strategic sectors the following:

  • Critical infrastructures: whether physical or virtual, networks or systems, (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities), as well as land and real estate key to the use of such infrastructure (in accordance with the provisions of the Spanish Act 8/2011, of 28 April 2011, establishing measures for the protection of critical infrastructures).
  • Critical technologies and dual-use items: those defined in Article 2(1) of the Regulation (EU) 2021/821 of the European Parliament and of the Council of 20 May 2021 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items, including telecommunications, artificial intelligence, robotics, semiconductors, cyber-security, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies.
  • Key technologies for industrial leadership and capacity building: comprise key enabling technologies for the future as referred to in Council Decision (EU) 2021/764 of 10 May 2021 establishing the Specific Programme implementing Horizon Europe – the Framework Programme for Research and Innovation and repealing Decision 2013/743/EU. These technologies include advanced materials and nanotechnology, photonics, microelectronics and nanoelectronics, life sciences technologies, advanced manufacturing and processing systems, artificial intelligence, digital security and connectivity.
  • Technologies developed under programmes and projects of particular interest to Spain: include those involving a substantial amount or percentage of funding from the European Union or Spanish budget.
  • Supply of key inputs: those which are indispensable and non-substitutable for the provision of essential services relating to the maintenance of basic social functions, health, safety, security, social and economic well-being of citizens, or the effective functioning of State institutions and public administrations, the disruption, failure, loss or destruction of which would have a significant impact, in particular: inputs provided by enterprises that develop and customise software used in the operation of critical infrastructures; and other indispensable and non-substitutable inputs to ensure the integrity, security or continuity of activities affecting critical infrastructure. For these purposes critical infrastructures are understood as the water supply, energy (hydro-carbons, renewable gases, biofuels or electricity), strategic raw materials and telecommunication or transport services, health services, food safety, research facilities, or the financial and taxation system.
  • Sectors with access to sensitive information: undertakings shall be deemed to have access to sensitive information when they:
    • access to official databases that are not publicly accessible;
    • access to databases related with essential services (energy, health, connectivity or transport, food and/or water security);
    • access to data about strategic infrastructures; or
    • carry out activities subject to mandatory personal data impact assessment in accordance with Article 35(3) of the Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of individuals with regard to the processing of their personal data and on the free movement of such data and repealing Directive 95/46/EC (General Data Protection Regulation).
  • Media (without prejudice to the fact that audio-visual communication services as defined in the Spanish Act 7/2010, of 31 March 2010, on audio-visual communications shall be governed by the provisions of that law).
Application of General Screening Mechanism due to the subjective characteristics of the foreign investor

The other possibility for an FDI to be subject to the General Screening Mechanism relates to the subjective characteristics of the foreign investor, regardless of the sector affected, provided that the previous requirements are met (that is, there is a foreign investor that holds an interest equal to or greater than 10 per cent of the share capital of the target; or acquires control). These characteristics relate to the following foreign investors:

  • Those that are directly or indirectly controlled by the government, including public bodies or the armed forces, of a third country, on the basis of the criteria to determine the existence of control set out in Article 7.2 of the Spanish Competition Act; in order to verify whether or not an investor is controlled by the government of a third country, it may be analysed if such control is articulated through significant funding (including subsidies); in addition, it should be noted that investments made by vehicles through which funds of a public nature, or pension funds of public employees, are invested may be deemed not to be under public control and therefore exempted from the FDI authorisation regime.
  • Those that have made investments or have participated in activities in the sectors affecting security, public order or public health in another EU or EFTA Member State and, in particular, the strategic sectors subject to the Screening Mechanism referred to above. Those that pose a serious risk of carrying out criminal or illegal activities affecting public security, public order or public health in Spain. The severity of the risk shall be weighted taking into account any administrative or judicial sanctions imposed on the investor in the last three years.

The Defence Screening Mechanism

The Defence Screening Mechanism is specifically established in Article 18 of the RD 571/2023 for foreign investments made in Spain in activities directly concerning national defence, such as those affecting the industrial capacities and areas of knowledge necessary to supply the equipment, systems and services that provide the Armed Forces with the necessary military capabilities, as well as activities related to the production, maintenance or trade of defence material in general.

The concept of activities ‘directly related to national defence’ under the Defence Screening Mechanism must also cover the production, trade or other activities related to those products included in Annex I of the Spanish Regulation on the control of foreign trade in defence material, other material and dual-use products and technology, approved by the Royal Decree 679/2014. Section 1 of this Annex I replicates the European Common Military List, and Section 2 lists dual-use items which, in turn, are also included in Annex I and IV of the Dual-use Regulation (see the Common Military List of the European Union (2020/C 85/01) adopted by the Council on 17 February 2020 and the Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items).

Regarding the Defence Screening Mechanism, ‘foreign investors’ are considered to be natural or legal persons not resident in Spain (including EU residents outside Spain) and is extended to foreign natural persons resident in Spain.

Investments in activities directly related to national defence will be subject to prior authorisation if it acquired at least a 5 per cent of the share capital of the target or the investment allows the investor to form part, directly or indirectly, of the administrative body of the target.

The Weapons Screening Mechanism

This regime was introduced in Article 19 of the RD 571/2023, suspending the liberalisation regime for foreign investment in activities related to the manufacture, trade or distribution of weapons, cartridges, pyrotechnic articles and explosives for civilian use, without exception thresholds. The subjective scope is identical to the Defence Screening Mechanism’s (non-resident natural or legal persons or foreign natural person that are resident, independently of their nationality).

The Diplomatic Real Estate Screening Mechanism

This mechanism was introduced in Article 20 of the RD 571/2023, requiring prior authorisation for direct or indirect investments made in Spain by non-EU Member States for the acquisition of real estate for their diplomatic or consular representations, unless there is an agreement to liberalise them on a reciprocal basis.

Applicable exemptions

The RD 571/2023 provides a new system of exemptions for the General Screening Mechanism, which varies depending on the sector of the company in which the investment is made:

  • In the energy sector, independently of the amount and if the investor does not fall ‘under-all-cases’ foreign investors (i.e., who meet certain subjective conditions as explained above), provided that:
    • the company is not engaged in ‘regulated activities’;
    • as a result of the transaction, the company does not acquire the status of dominant player on the market;
    • in the case of the acquisition of energy production assets, the share of installed capacity per resulting technology held by the investor be less than 5 per cent; and
    • in the case of electricity trading companies, their number of customers is below 20,000.
  • The acquisition of real estate which is not assigned to any critical infrastructures or which is not indispensable and not substitutable for the provision of essential services.
  • In the rest of the strategic sectors (except for critical infrastructures), when the total turnover of the company in which the investment is made is less than €5 million. However, there are a few exemptions to this exemption that must be acknowledged:
    • undertakings with technologies developed under programmes and projects of particular interest to Spain;
    • certain electronic communications operators; and
    • activities for research and exploitation of mineral deposits of strategic raw materials.
  • Transitory investments, (i.e., investments of short duration and where the investor does not have the capacity to influence the management of the acquired company).

In relation to the Defence Screening Mechanism, exemption applies to some investments of between 5 and 10 per cent of share capital. These investments shall not require authorisation where the investor notifies the transaction to the Directorate General for Armaments and Equipment and the Directorate General for International Trade and Investment and accompanies such notifications with a document in which the investor undertakes to not use, exercise or transfer its voting rights to third parties, or to form part of any of the listed company’s administrative bodies. The wording of the RD 571/2023 includes a final reference that the commitment should refer to ‘the listed company’, so it should be clarified whether this reference is an error or whether this exception is really intended to be limited to listed companies.

Extent of extraterritorial application or local nexus requirement

The Spanish FDI control regime covers the acquisition of Spanish target companies as well as, according to the current interpretation by the administration, Spanish subsidiaries and assets.

There is no guidance for the time being on, for example, the possibility to close a deal globally prior to local clearance.

Review process – procedure and substantive assessment

Notification and review: practical insights and strategic considerations

Where the relevant conditions and triggering thresholds are met (as explained above), notification is mandatory for all FDIs. There is no discretion yet to review transactions that do not meet any of the relevant thresholds.

A transaction subject to a mandatory FDI filing is subject to a standstill obligation and the parties must await clearance by the FDI authority (i.e., Council of Ministers or Directorate General) before closing.

It is the responsibility of the foreign direct acquirer for electronically filing a notifiable transaction to the relevant authority.

With regard to the General Screening Mechanism, there is a specific form for filing available on the website of the Ministry for Industry, Trade and Tourism.[4] This same filing form is also used in practice for the voluntary consultation procedure (explained below).

As for the Defence Screening Mechanism, the Ministry of Defence provides on its website a guide and filing forms on how to request an authorisation that specifies the information and documentation that the foreign investor should provide when notifying a transaction.[5] Without prejudice to this, any other documents or information deemed necessary for the assessment and reporting of the foreign investment may be requested.

No filing fees apply in either case.

There is no applicable deadline for filing a notifiable transaction in all the screening mechanisms foreseen in the Spanish FDI regulation, although it should always be done before completion. There is also no timetable scheduled for the process of reviewing a notifiable transaction except that the relevant FDI authority (i.e., Council of Ministers or Directorate General depending on the amount of the FDI) shall issue a formal decision within three months of the notification to the Ministry for Industry, Trade and Tourism (time starts running once the notification is formally lodged). The lack of an express decision shall be deemed to have a negative effect (referred to as negative administrative silence). However, this does not mean that the authorisation cannot be granted after this period, so that a rejection by silence only has the effect of enabling the investor to appeal, if necessary, to the contentious administrative jurisdiction. The authority will continue to be obliged to issue an express decision in the FDI proceedings, and may grant the authorisation. This is likely to be the scenario in complex procedures or procedures requiring the adoption of commitments.

Ultimately, these proceedings are confidential, subject to the general rules governing Spanish administrative proceedings.

Possibility of submitting a consultation

The new RD 571/2023 formally introduces the possibility of voluntary filing a consultation when there are reasonable doubts as to whether the relevant transaction may be subject to FDI screening (foreseen in Article 9). This consultation is submitted before the Directorate General of Foreign Investments of the Ministry for Industry, Trade and Tourism or the Directorate General of Armaments and Material of the Ministry of Defence (depending on the activities of the target) and allows investors to receive, within a maximum of 30 working days, a confidential and binding reply as to whether or not a particular transaction should be subject to authorisation.

The RD 571/2023 states that voluntary consultation shall be resolved in 30 working days (with the possibility of suspension in case of requests for additional information). The period shall start to run on the day following the submission of the application and shall suspend the possibility of requesting authorisation until the decision is notified. Once this period has elapsed without an express decision, the interested party may submit a request for authorisation of the investment operation.

This formally new procedure actually reflects a practice that was already occurring despite not being legally recognised. In fact, according to the recent publication by the Ministry for Industry, Trade and Tourism of the aggregate data on FDIs under the General Screening Mechanism in Spain, the Sub-Directorate General for Foreign Investments received 334 consultations in 2020, 231 in 2021 and 174 in 2022.[6]

Sanctions for non-compliance

Failure to notify or suspend the completion of a transaction caught by the regime would represent a very serious infringement of the Spanish Act 19/2003.[7]

FDI carried out without prior authorisation shall be invalid and without legal effects until it has become compliant, leaving the foreign investor unable to exercise its economic and political rights in the Spanish investee company until the necessary authorisation has been obtained.[8]

In addition, a fine may be imposed, the amount of which may be up to the total value of the transaction, but certainly not less than €30,000, and a public or private warning can be imposed (i.e., in practice, reputational damage and further scrutiny in future transactions).[9]

Substantive assessment process and main evaluation criteria

The FDI control scheme focuses on the impact of acquisitions on national security, public order and public health in Spain.

The RD 571/2023 provides details of what are the grounds for review and explains that the substantive criterion to be considered is the risk that such investments could affect public security, public health, public order, national defence or external action as a consequence of its effects on the areas in which such investment takes place or on other related areas and the context and circumstances of the foreign investor.

In addition, it will also be taken into account the conformity of the actions of the State in which the ultimate investor resides with the international commitments entered into by Spain in matters affecting public safety, public health or public order.

Decision-making process and scope for appeal

The Council of Ministers is the competent authority to clear (including with conditions) or block FDIs in Spain that are subject to the General, Defence, Weapons and Diplomatic Real Estate Screening Mechanisms.

The only exceptions are for filings on transactions regarding the General Screening Mechanism for amounts equal to or less than €5 million, where the Directorate General for International Trade and Investment shall be the decision maker, as stated above; and for filings on transactions regarding the Defence Screening Mechanism where, due to its nature, characteristics or amount of the transaction, does not affect the essential interests of defence.

Article 11 (6) of the RD 571/2023 provides for the possibility of lodging an appeal to reposition in accordance with the provisions of Articles 123 and 124 of the Spanish Act 39/2015, of 1 October, on the Common Administrative Procedure of Public Administrations, or a direct contentious-administrative appeal in accordance with the Spanish Act 29/1998, of 13 July, regulating the Contentious-Administrative Jurisdiction against refusals of authorisation and authorisations subject to conditions or commitments contained in the agreements, resolutions or decisions.

Involvement of third parties, in theory and in practice

The current FDI regime in Spain does not regulate the involvement of third parties in the FDI proceedings.

Notwithstanding this, under the general public law regime, third parties have the right to submit writs or observations before the administration at any time. It should also be noted that the competent body for handling FDI filings could coordinate with other bodies and request their views on certain investments. This would largely depend on whether an investment could affect regulated sectors falling within the scope of other ministries (such as energy or health).

Finally, since the full application of the EU FDI Screening Regulation on 11 October 2020,[10] the European Commission and other EU Member States can be involved in the review of FDI filings in Spain (they can provide comments or an opinion no later than 15 calendar days following receipt of the notification, and request additional information, where, if needed, suspensions of the deadline could be adopted.


Potential for agreeing remedies to secure conditional clearance

The Council of Ministers can give conditional clearance of FDIs in Spain. This possibility was introduced by Article 6 of the Spanish Act 19/2003, in which it is indicated that operations within the scope of suspension of the liberalisation regime can be carried out with prior administrative authorisation and under the conditions established as part of that authorisation. This is a legislative precedent in which conditional clearance is included.

Furthermore, a breach of any such conditions will be considered a very serious infringement (under the fourth final provision of the Royal Decree-Law 8/2020, of 17 March 2020, on extraordinary urgent measures to deal with the economic and social impact of covid-19 (the RDL 8/2020).

In the same vein, the RD 571/2023, Article 11, also confirms this possibility of applying conditions or measures for mitigating risk.

A good example of clearance subject to conditions is the Decision of 4 August 2021 regarding the investment of the Australian fund IFM in the Spanish energy company Naturgy. According to the press release issued by the Spanish government,[11] up to nine conditions were imposed on the investor, including:

  • to support the investment of the company in projects relating to energy transition in Spain;
  • to support the maintenance of the effective management and headquarters in Spain;
  • to support the maintenance of a significant part of the group in Spain; and
  • not to support any divestment proposal that would involve the loss of control of subsidiaries that could put at risk the proper functioning of gas and energy transportation in Spain.

Insights from previous cases

The Council of Ministers may publish on its official website press releases with brief references to its final decisions on FDI. In addition, Article 14 of Spanish Act 19/2013, of 9 December 2013, on transparency, access to public information and good governance establishes several limits on the right of access to the information held by the administration on the basis of confidentiality or the protection of economic or commercial interests. In fact, the RD 571/2023 reserves Article 26 to the processing of personal data and the confidentiality of the information transmitted.

On the other hand, a noteworthy event is the publication of the aggregate data on FDIs under the General Screening Mechanism in 2020, 2021 and 2022 by the Ministry for Industry, Trade and Tourism.[12]

According to this information, in 2020 a total of 28 transactions (15 of them through the not currently existing simplified proceedings) were reviewed under the scope of the General Screening Mechanism. All of them were approved (although one was subject to conditions).

Furthermore, in 2021, 48 transactions were submitted for prior authorisation of which only three were analysed through the (not currently existing) simplified procedure. All transactions were finally authorised, six of them subject to conditions – also called risk mitigation measures.

Finally, in 2022 there were a total of 83 applications for authorisation. There were 63 transactions authorised without mitigation measures, nine authorised with mitigation measures and one transaction that was not authorised. The remaining 10 applications were rejected on the grounds of not requiring prior authorisation.

Impact of the covid-19 pandemic and the war of Ukraine

How first the pandemic and then the war of Ukraine have affected FDI regulation and enforcement

The covid-19 pandemic and its economic consequences on Spanish companies have been important factors in the regulation of FDI in Spain.

This situation has left some Spanish companies in a situation of unprecedented vulnerability, causing their value to decline rapidly, which has shown to the legislator the need to protect the strategic sectors of Spain’s economy and to safeguard national security and public order. This has entailed the adoption of the General Screening Mechanism in Spain.[13]

That was the reason why the RDL 8/2020 introduced Article 7 bis suspending the liberalisation regime.[14] In this way, the ex ante authorisation mechanism was introduced.

The persistence of the health and economic crisis over time, together with the further war in Ukraine, has resulted in new transitional measures and extensions such as, in particular, a temporary framework (originally in force until 30 June 2021 then extended to 31 December 2021, afterwards extended to 31 December 2022, and now, once again, extended to 31 December 2024) by which the Spanish FDI screening mechanism shall also cover investments in strategic sectors made by investors within the EU and EFTA, either in publicly listed companies in Spanish stock exchanges or where the value of the investment is above €500 million.

Finally, the receipt of European funds for the economic recovery after the pandemic (NextGenerationEU) has maintained and boosted the need to protect those companies that have benefited from them – as we have seen above when explaining the strategic sectors.

Key changes: paradigm shift, expansion of sectors, timetable implications and sanctions

One of the most relevant changes has been the paradigm shift from liberalisation to precaution and screening. Within the latter, the changes have been notable; for example, from controlling only those investments concerning national security and defence[15] to contemplating other sectors that in practice have also proven to be sensitive and strategic. The regime has been extended, therefore, to cover certain infrastructures, both physical and virtual (transport, health communications, electoral or financial, etc.), critical dual-use technologies (artificial intel­ligence, nanotechnologies, biotechnologies, etc.), supply key inputs (energy, food security, etc.), sectors with access to sensitive information (in particular to personal data, or with capacity to control such information) and the media.

In fact, this expansionary tendency is also reflected in the introduction of the Weapons Screening Mechanism and the Diplomatic Real Estate Screening Mechanism in the RD 571/2023.

With regard to the review timetable, it should be stressed that the Council of Ministers currently has a deadline of three months (the RD 571/2023 reduced the deadline from six months to three months) to decide whether or not to authorise a transaction. This timing must be considered as part of the strategy of the transaction, especially given that completion of the overall investment operation can only occur once all the mandatory authorisations have been obtained. For this reason, any extension to the duration of the procedure must be avoided.

Furthermore, another point to be considered is that the authorised investments must be carried out within the period specifically indicated in the authorisation or, failing that, within six months. If the period elapses without the investment having been made, the authorisation will expire, unless an express extension is obtained.

Finally, with regard to the sanctions for gun-jumping of the Screening Mechanism (which as explained above include invalidity, until investments are validated by obtaining a retrospective authorisation, and financial penalties), no known imposition has been made at this stage.

Are these changes permanent or temporary?

Many of the changes introduced are aimed at remaining in place permanently, whereas others seem to have been introduced only temporarily to cope with the exceptional situation resulting from the covid-19 crisis.

As regards permanent changes, the main one is the General Screening Mechanism itself, which has been importantly developed by the RD 571/2023. In the same vein, as the RD 571/2023 has expressly recognised not just the Defence Screening Mechanism, but also the Weapons and the Diplomatic Real Estate Screening Mechanism, it seems to be a pretty clear sign of the permanence vocation of this regime.

At the EU level, the coordination system and the mechanism for the exchange of information between Member States under the EU FDI Screening Regulation will also be permanent as per other areas covered by the Regulation.

As regards the changes that are likely to be temporary (although they have continually been extended), the most relevant is the extension of the General Screening Mechanism to certain transactions carried out by investors from the European Union and EFTA until 31 December 2024.

Practical insights and strategic guidance for investors

Focus on practical insights into application of rules

The authorisation procedure is set out now the RD 571/2023, which establishes the proceedings applicable to foreign investment filings.

The corresponding available form for FDI filing must be completed and submitted electronically to the relevant FDI authority. It should be borne in mind that during the handling of the proceedings, the FDI authority may ask for any data, reports or information it deems appropriate.

Apart from that, for the purposes of the cooperation mechanism established by the EU FDI Screening Regulation, the form includes a request for information from the investor for the purposes of notifications pursuant to Article 6 of the Regulation.

This template was developed by the European Commission to improve the cooperation mechanism. In this way, minimum information requirements were brought together and standardised to facilitate examination by the other 26 Member States and the European Commission (in case an FDI may affect the security or public order of at least one other Member State) without delaying the investigation carried out in the notifying Member State.

The form is detailed and exhaustive, requiring the provision of a large amount of technical information on all the elements involved in and potentially affected by the operation. It is advisable to provide detailed and accurate information as this may ease the subsequent handling of the investigation and obtaining clearance. As the European Commission highlights, this will also be relevant to avoid authorities in the other Member States and the European Commission requesting additional information, reserving the right to comment or issuing opinions.

Providing wrong or inaccurate information in response to information requests during the authorisation proceedings will be considered a very serious infringement according to the Spanish Act 19/2003, Article 8.

Strategic considerations, practical tips and implications for investors

First, it should be noted that the three-month term for the Council of Ministers to reach a decision is the legal maximum, but in practice the timing would depend on the complexity of the investment and the sectors affected as well as the potential intervention of other government bodies in the process. Also, if the information provided is considered to be insufficient, this could lead to a request for additional information, which would suspend the three-month resolution period.

Second, with respect to the interplay with merger control, it is important to clarify that both proceedings are different and fully independent, each with its own governing regulations and procedures, thresholds, timelines and competent authority (merger control filings are handled by the Spanish Competition Authority and governed by the Spanish Competition Act).

Notwithstanding the above, it should be noted that on the FDI notification form, the authorities also ask if the investment is subject to another assessment, authorisation or monitoring in the Member State undertaking the screening, in another Member State or in a third country (including merger control).

In any event, both regimes must be borne in mind for the purposes of the jurisdictional assessment and in terms of transaction planning. If each set of thresholds is met, the respective FDI and merger control authorisations must be requested prior to carrying out the transaction. Otherwise, the investors will be sanctioned for gun-jumping the corresponding regimes.

Furthermore, it is now clear – and was thus clarified[16] – that the concept of ‘control’ under the General Screening Mechanism is aligned with the Spanish Competition Law. Since the interpretation of the legal concept of ‘control’ can sometimes be quite complex under Spanish competition law provisions, it is also expected that the National Markets and Competition Commission’s precedents will be important in resolving possible doubts about the enforcement of the Screening Mechanism.

Insights into recent enforcement, key trends and what to expect now

Enforcement practice in Spain was being characterised by the lack of a comprehensive FDI regime and by the subsequent uncertainty at the beginning. The direct consequence was that the provisions of the Screening Mechanism were generally construed broadly and on case-by-case bases.

As highlighted, the Spanish Government has recently adopted and published the RD 571/2023, which entered into force on 1 September 2023. The RD 571/2023 develops the Spanish FDI Screening Mechanism with a view to clarifying:

  • the categories of transactions;
  • the thresholds of those transactions for exemption; and
  • the definition of strategic sectors.

Now entered into force, the RD 571/2023 represents a solid legal framework for FDI control in Spain, giving it is necessary assurance which, until now, had not been a reality (the uncertainty had been materialised with the submission before the Sub-Directorate General of Foreign Investments of the Ministry for Industry, Trade and Tourism of an important number (although decreasing) of 334 consultations in 2020, 231 in 2021 and 174 in 2022, according to data published by the Ministry).

The practical implementation of the RD 571/2023 remains to be seen. However, given the confidentiality of the proceedings and the limits on the rights of access to public information, there is only a limited amount of information available about specific FDI reviews and authorisations other than sporadic brief press releases.

Additionally, clarifications of the the RD 571/2023 by means of government ‘regulations’ are likely to be made as the casuistry and application of the decree progresses.


1 Casto González-Paramo Rodríguez is a partner and Raquel Fernández Menéndez is an associate at Hogan Lovells International LLP.

2 Thus, according to Article 7.2 of the Spanish Competition Act, ‘control shall result from the contracts, rights or any other means which, taking into account the factual and legal circumstances, confer the possibility of exercising decisive influence on a company, and in particular by means of: (a) ownership or use rights of all or part of a company’s assets; (b) contracts, rights or any other means that allow a decisive influence on the composition, deliberations or decisions of the bodies of the company’. This means that control can be acquired either by a single company (sole control) or by several companies in relation to joint ventures (joint control). Control can in turn be positive (e.g., the possibility of adopting unilateral decisions about the strategic behaviour of the target company) or negative (usually through the ability to block, or exercise veto rights on, strategic decisions).

3 By way of illustration, an acquisition of control from a competition law perspective could take place, in respect of a company whose shares have been pledged, on the basis of loan agreements that confer strategic veto rights to the lenders (even if they are not present in the shareholding). It should be noted that such atypical transactions could occur more often in times of economic crisis and for companies in an insolvency situation. Furthermore, the concept of control under Article 7.2 of the Spanish Competition Act may arise not only from the acquisition of shares or shareholders’ agreements, but also by other contractual means relating to intangible assets with access to the market (such as industrial property rights, know-how or goodwill), which could raise serious doubts as to whether they are also covered by the General Screening Mechanism.

7 The Spanish Act 19/2003, Article 8.2.

8 The RD 571/2023, Article 11.1.

9 The Spanish Act 19/2003, Article 9.2.

10 The Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (the FDI Screening Regulation). Additionally, on 26 March, the Commission Communication with guidelines for Member States on foreign direct investments and the free movement of capital from third countries as well as the protection of Europe’s strategic assets, was adopted prior to the application of the FDI Screening Regulation.

13 Under the Spanish Act 19/2003, Article 7 bis.

14 This possibility is included in the Spanish Act 19/2003, Article 7.

15 The RD 664/1999, Article 11.

16 By means of the RD 571/2023, Articles 14.5 and 16.1, and, previously, the Royal Decree-Law 34/2020, of 17 November 2020, on urgent measures to support business solvency and the energy sector as well as on taxation.

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