Clifford Chance

Spain extends the suspension of liberalisation of certain investments by EU/EFTA investors to 2022 year end, considering the measure justified due to the economic context created by the Covid-19 crisis.

As in other EU jurisdictions, the economic context arising from the Covid-19 health crisis led Spain to suspend in November 2020, on a transitional basis, the deregulation of certain foreign direct investments by residents of other EU and EFTA Members States, which became subject to the rule on authorisation by the Spanish Council of Ministers.

This transitional regime has been extended on several occasions since November 2020, the latest being the approval of Royal Decree-Law 27/2021, of 23 November, which further extends it to 31 December 2022.

This transitional regime captures those investments where the EU/EFTA investors attain a stake of at least 10% in the Spanish company's share capital or when, as a result of the relevant transaction, control over such company is acquired. This applies even when the investors act through a Spanish resident company—in which case the beneficial owner of the investment must be identified—, provided that the following applies:

1. Investments in companies operating in sectors legally defined as strategic, which generally mirror those defined in EU Regulation 2019/452 (including but not limited to critical infrastructure, critical technologies and dual-use items, essential inputs—in particular energy—, sectors with access to sensitive information and media).

2. Investments exceeding EUR 500 million, except in the case of foreign direct investments in listed companies where this threshold is not applicable.

Asset transactions are notifiable if the asset is key for the operation of critical infrastructure. Transactions involving other assets are not notifiable. However, the criteria of the Spanish FDI authority is that if those assets allow the purchaser to carry out activities that fall within the scope of legally defined strategic sectors, they might get called in for review and, therefore, it is advisable to submit a voluntary pre-filing email consultation to this authority to confirm whether formal filing is required.

Should an investment be captured by the above-summarised transitional regime for EU/EFTA investors, the relevant transaction documents will have to include the corresponding condition precedent and provide for sufficient time to obtain authorisation from the Spanish Council of Ministers, which could take up to six months (and could be subject to conditions or denied). Additionally, investors should be aware that the preparation of formal filing includes a questionnaire prepared by the Spanish FDI authority requiring substantial information (related to the investor, the target, the transaction and the future business plan for the target) and that such information must be consistent with previous filings by the same investor before the Spanish FDI authority, other Spanish authorities or other authorities of other EU member states, as the case may be. Investment transactions carried out without the mandatory authorisation will be null and void, devoided of any legal effect unless legalised by obtaining the corresponding authorisation, notwithstanding any sanctions that may apply.

Finally, in another recent development in FDI rules, the Spanish FDI authority published a draft regulation on its website in November to be approved by the Spanish Council of Ministers, implementing the foreign direct investment rules for non-EU/non-EFTA residents, with the intention of clarifying their scope and application. No information has been provided as to when this new regulation is expected to be approved.

The extension of the transitional regime in Spain for foreign direct investments by residents of other EU and EFTA members states follows recent extensions of other EU foreign direct investment regimes, such as in France. EU rules and the oversight of mergers and acquisitions in the EU are undergoing the most significant changes in decades. New and strengthened foreign direct investment screening regimes come on top of EU and domestic pre-closing merger control systems, recently strengthened by the new European Commission referrals policy. Increased scrutiny is also expected from other EU initiatives, such as the Digital Markets Act proposal or the proposal for ex ante control of certain transactions involving foreign subsidies.

As we can see in the Spanish case, these rules have significant consequences for deals and transactions, in terms of timing (due to their suspensory nature), resources (they usually require extensive information gathering and disclosure) and risk (deals could ultimately be blocked). It is essential that they are taken into timely consideration by investors in planning their deals.