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Spanish Legal Regulations on Foreign Direct Investment

posted 3 years ago

Foreign direct investment (FDI) (Inversión Extranjera Directa) involves the transfer of capital by economic entities from one country to another country, with the intention of establishing businesses or subsidiaries there, as well as acquiring or obtaining a relevant shareholding in foreign companies. 

Spain’s economy continues to be one of the most rapidly growing economies in Europe, notwithstanding the fact that Europe is facing the consequences of the twin crises of coronavirus and Brexit. FDI is considered one of the most important factors of productivity and a pillar of international cooperation between economies. Through FDI, a long-term economic network is created in order to foster and drive the progress of countries and provides the opportunity for economic expansion with the critical objective of boosting competitiveness within an economy, as well as a capital injection which brings benefits, for example, related to technology, as well as managerial expertise and skills of the investor.  

FDI also includes the type of investment that a country receives from domestic companies whose investment capital is of foreign origin. However, FDI is distinct from portfolio investment where an investor merely purchases equities of foreign-based companies.

Investors interested in developing a foreign business in Spain should be fully aware of all aspects surrounding their proposed investment including the laws related to FDI and an in-depth understanding of the opportunities and benefits that they recognise may be available, whilst cautiously ensuring the possibilities that open up are a suitable match to their existing commercial aims and objectives.

The Spanish legal framework relating to FDI

The legal background, relating to foreign investments in Spain, since 6 July 2003, has been regulated by the Law 19/2003 of 4 July 2003 regarding the rules of capital movements and economic transactions abroad (sobre régimen jurídico de los movimientos de capitales y de las transacciones económicas con el exterior), which replaced, the now obsolete, Law 40/1979 dated 10 December 1979, (after the entry into the European Economic Community and the introduction of the Euro) on the legal regime of exchange control (sobre régimen jurídico del control de cambios).

This law is structured into two distinct sections and it defines the general regime for capital movements and foreign economic transactions. In line with the Treaty establishing the European Community and the International Agreement compulsory for Spain, this law confirms the principle of freedom of capital movements, setting out, from an objective and subjective point of view, what is to be done in case of foreign economic transactions from non-resident in Spain.

The new FDI legal system is grounded in a declaration mechanism, both for the purposes of administrative and statistical information on operations, identifying the parties obliged to make a declaration and the recipients of such information.

This system of control around the use of some application and declaration models (e-Aforix), made available by the Spanish government, the compilation of which is essential for the legitimacy and the proper execution of the investment in Spain. In order to understand and correctly complete the documents required, the first step to be fully aware and confident about the correct execution of the investment, thereby avoiding possible penalties or administrative and criminal responsibilities.

Covid-19 emergency changes

It should be borne in mind that the original system has now been changed with two recent major amendments, due to the COVID-19 pandemic measures.

The first modification came about through Final Provision four of Royal Decree-Law 8/2020, of 17 March, related to extraordinary urgent measures to address the economic and social impact of coronavirus (Disposición final cuarta del Real Decreto-ley 8/2020, de 17 de marzo, de medidas urgentes extraordinarias para hacer frente al impacto económico y social del COVID-19), coming into force on 18 March 2020. This amendment entailed the introduction of a new Article, concerning the suspension of the liberalisation regime for certain foreign direct investments in Spain (suspensión del régimen de liberalización de determinadas inversiones extranjeras directas en España).

The second modification to Law 19/2003 was made through the third final provision of Royal Decree-Law 11/2020 of 31 March 2020, which adopted urgent complementary measures in the social and economic sphere, in order to deal with coronavirus emergency (por el cual se adoptan medidas urgentes complementarias en el ámbito social y económico para hacer frente al COVID-19), which came into force on 20 April 2020. This amendment involves the modification of the section related to the suspension of the regime of liberalisation of certain foreign direct investments in Spain, created by RDL 8/2020, of 17 March, on extraordinary urgent measures to address the economic and social impact of coronavirus.

As mentioned above, the legal regime of FDI has been substantially modified due to the exceptional situation of the coronavirus. The current situation, in which the ordinary legal regime is now suspended, is related to those areas which have an impact on public order, public safety and public health, could be changed soon. In order to avoid potential all parties should ensure that they are updated and aware of any changes, not only could avoid any possible problems but also to ensure that no opportunities to optimise investments are missed.

Giambrone’s Spanish legal team can advise and guide you through the changes to the laws ensuring that you maintain compliance during the crisis.

For more information on managing foreign direct investment in Spain please click here


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