Due to the Covid-19 outbreak in Spain the liberalisation regime for foreign direct investment has been suspended for certain business activities and above certain thresholds.
For the purposes of investment control, it is understood as “foreign” any investor that resides in a country that is not part the European Union (EU) or the European Free Trade Association (EFTA). Furthermore, those investors who reside countries that are part of the EU or the EFTA but whose ultimate beneficial owner (UBO) does not, are also regarded foreign. This mechanism prevents the usage of intermediate vehicles by foreign investors to avoid being subject to this investment control.
It is understood that the UBO is that who ultimately controls the company, by whichever means, whether directly or indirectly, or holds 25% or more od the voting rights within the same.
Notwithstanding the foregoing, not all economic activities are subject to the investment control regime, only those with special relevance to public order, public safety and public health. Specifically, the following activities are subject to the regime:
- Critical infrastructure, whether physical or virtual (energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral, financial, sensitive facilities), including land and buildings necessary to carry out such activities.
- Critical technologies and dual-use products, key technologies for industrial leadership and enablement, telecommunications technologies, artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum, nuclear, nanotechnology, biotechnology and advanced materials.
- Supply of key inputs, in particular energy, hydrocarbons, strategic connectivity services, raw materials and food security.
- -Sectors with access to sensitive information and, in particular, personal data.
- Media.
Moreover, and temporarily util June 30, 2021, certain investors who reside in EU and EFTA member states will also be subject to prior control. The aforementioned investments are those which follow the following requirements:
- Investment made no later than June 30, 2021;
- the investment is made in a listed company or in an unlisted company for an amount greater than EUR 500 million, in relation to activities subject to prior control; and
- the investor acquires with such investment 10% or more of the capital of the company in which they invest or control of the same.
Regarding this temporary regime, set until June 30, 2021, it is also relevant to point out that residents in Spain whose UBO does not reside in said country are also affected.
For the execution of investments subject to prior control, it is necessary to obtain an administrative authorisation, granted by a public authority. The maximum term to grant or deny such authorisations is six months from the date of their application. However, said authorisations are often granted within a few weeks.
Investments of less than 1 million euros are excluded from this prior control regime. In addition, for investments between 1 and 5 million euros, a faster authorisation procedure than the general one is envisaged, reducing the maximum term to grant or deny it from six months to one month.
Failure to comply with these regulations may lead to the nullity of the transaction and the imposition of penalties, up to the amount of the investment.
Additionally, it is important to analyse direct investments in foreign companies with subsidiaries in Spain, as this regime, although not expressly stated, may affect indirect investments in Spanish companies.
Finally, in relation to the representations and warranties grated by the buyer/investor (R&W), it is recommended, in these cases, to include a declaration from the buyer/investor that their investment is not subject to prior authorisation or that, where appropriate, it complies with the authorisation granted.
