Spain Approves New Foreign Direct Investment Regulation

Entry into Force 

The General Directorate of International Commerce and Investments will begin enforcing the new Regulation on September 1, 2023. The authority will review transactions already filed by that date under the existing regulation. However, since the new Regulation captures the practice of the FDI authority in recent years, companies should already consider it in their filing analysis. 

Investments Subject to FDI Screening 

The Regulation defines the types of investments that could lead to a reportable event. In addition to traditional share deals, transactions involving preferred subscription rights, convertible bonds, and temporary combinations of companies also could be reportable. Unlike the recent Belgian FDI regulation, Spain's Regulation excludes FDI reporting of intracompany restructurings. The Regulation also exempts increases in corporate shareholdings by a shareholder already holding more than 10% provided that it is not accompanied by a change of control.  

Investor 

The Regulation improves legal certainty by defining the investments subject to authorization and the type of investors subject to screening. The Regulation also clarifies that it considers investment fund managers, not the funds themselves, the holders of the investment, similar to the approach under merger control rules.  

Clarification of Strategic Sectors 

Industry coverage and marketplace activities subject to FDI review are a central element of any FDI regulation. The Regulation increases clarity by defining the activities subject to notification as strategic sectors by drawing on, for instance, definitions included in the EU's regulation (as is the case with the regulation on critical and dual-use technologies). However, there is still much uncertainty as the Regulation continues to rely on broad terms or unquantified amounts when it comes to listing sectors caught by the FDI screening, such as "advanced materials" or "programs of particular interest for Spain encompassing a significant amount of state financing."  

Exemption 

The Regulation provides a number of exemptions from filing and reviewing transactions. For example, there is an exemption for the energy sector, unless the target is active in certain activities or holds market shares above certain thresholds, regardless of the amount of the investment. There is also an exemption for real estate deals regardless of the amount of the investment, unless it involves critical infrastructure or assets that are indispensable and not replaceable and used to provide essential services.  

For remaining sectors, the Regulation creates an exemption for transactions involving a target with less than €5 million in sales unless the target holds technologies that have been developed under programs or projects of particular interest to Spain. The Regulation clarifies that such €5 million exemption, however, does not apply to certain telecom and mining activities. The new exemption increases the de minimis threshold (from €1 million) and also provides more clarity because the prior exemption applied to the investment value in Spain, a figure that parties rarely developed on their own, particularly in pan-European or global transactions. 

Procedure 

One of the most positive aspects of the Regulation is the reduction of the review period from six to three months. Another positive change is the introduction of a formal voluntary prefiling consultation process. Under the new procedure, parties may submit an application to the Spanish FDI authority to receive a determination about whether an FDI filing is required, which may prove useful given the lack of clarity on some concepts of the FDI regulation. The Spanish FDI authority has 30 business days to issue a decision, which is binding on the authority. While the Spanish antitrust authority "strongly recommends" a prefiling consultation in merger control, to date, the FDI authority has not stated whether it will take a similar approach.  

The Regulation lacks an obligation to release FDI decisions publicly—to the contrary, confidentiality seems to be the standard rule. Although FDI reviews may cover sectors involving sensitive industries, public release of authority decisions, even if redacted for confidentiality, is an element of many merger control regimes worldwide and improves clarity for business. 

In addition, the Regulation states that two or more foreign investment transactions taking place within a period of two years between the same buyers and sellers are a "single transaction" carried out on the date of the last transaction. That rule mirrors the merger regulation, which aims to avoid the artificial split of a transaction to avoid meeting the thresholds. Also, transactions carried out through the agreement of two or more investors will require a single filing.  

Finally, authorized investments must be executed within the period specifically indicated in the authorization or, if not specified, within six months. This deadline can be extended for an additional six-month period, which may be important for global deals in which multiple regulatory fillings (e.g., FDI, merger control) are required. However, dealmakers should consider whether the extension provides enough time to obtain other clearances.