A legislative change affecting Spain´s Foreign Direct Investment Regulation was proposed in recent weeks, changing the process of approval and control of foreign investment in the country. This new regulatory framework, which provides more clarity and legal certainty, was urgently approved and lays the foundation for the administration of foreign investment in the country.
This legislative project aims to regulate the so-called “anti-takeover shield”, a defence system established to prevent the acquisition of strategic companies by foreign investors when market conditions are adverse. The original regulation was formulated in response to economic challenges and market volatility caused by the COVID-19 pandemic in 2020.
Among the updated legal timeframe´s objectives is the speeding up of smaller transactions- to this end, significant exemptions have been established for foreign investors seeking to obtain stakes in Spanish companies.
On the one hand, short-term temporary investments where the investor does not have an impact on the management of the acquired company will be exempt from obtaining authorisation. This is a considerable improvement for investment banks which, as part of their business, purchase temporary stakes in listed companies.
In addition, acquisitions of companies with a turnover below EUR5 million will be outside of the control system, except in the critical technology and mining sectors. In the energy sector, certain purchases will be exempt from the authorisation regime- specifically, when they do not exceed 5% of the business´s generation capacity or where the target is an unregulated entity.
On the other hand, the new legislative framework adds artificial intelligence as a strategic area within the technology sector. It also confirms the renewal of the Foreign Investment Board, an inter-ministerial committee which assesses authorisation requests and brings them before the Ministerial Council. With this update, a member of the National Intelligence Committee and a member of the National Security Secretariat are added to the committee.
Another significant change applies to additional share purchases by shareholders who already own more than 10% of the company. Under previous regulations, these investors were required to file an authorisation request, but according to the new law the purchase will not be subject to supervision if it does not result in corporate control.
This detail is particularly relevant in the context of investment banking, where banks are often forced to keep shares for a longer period than anticipated. This generates uncertainty, as the law does not specify whether authorisation will have to be requested when shares are held for a few days longer than planned. Such an exemption could promote investment, by financial entities, in public offerings currently being prepared in Spain.
As well as these changes, the new law also includes a number of measures to protect the national interest. Artificial Intelligence is considered a strategic sector, which makes foreign investment in this sector subject to additional scrutiny and controls. The Government has also decided to include the National Intelligence Committee and the National Security Secretariat in the Foreign Investment Board. Thanks to this change, security concerns will be considered in the analysis of foreign investments and the related decision-making process.
The Spanish Government has demonstrated its commitment to attracting foreign investment as a key tool for modernising the economy and creating jobs. According to the Minister for Industry, Commerce and Tourism, the new law will allow foreign investors to “reduce burdens and possible administrative barriers”, while response and resolution times are reduced. The latter was one of the main demands by companies and investors.
In addition, regulations have been adapted to bring the Foreign Investment Register´s statistical reporting in line with the OECD´s world standard for collecting direct investment statistics.
The new legislation goes a significant way towards improving clarity, predictability and legal certainty in the control of foreign investments in Spain, even if there is still some uncertainty in terms of its implementation and practical implications. One thing is clear: foreign investment regulations are evolving in response to changing conditions in global markets, as well as the need to protect the national interest.
The new legal framework is an important step towards the modernisation and easing of the foreign investment system in Spain. The debate on the right balance between the necessary openness to foreign investment and the defence of the national interest is sure to continue. With these reforms, foreign investors will be able to reduce burdens and administrative barriers, while response and resolution times are reduced.