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8. Legislation on foreign investment and exchange control

8.5 Exceptional measures in response to COVID-19

As a result of the appearance of the so-called "coronavirus" (COVID-19) in the international arena and the extraordinary effects it has had in all aspects, the Spanish Government has approved a series of measures that aim to respond to the pandemic.

Among the various measures adopted, stand out the ones adopted to control foreign investment established in Royal Decree-Law 8/2020, of 17 March, on urgent extraordinary measures to deal with the economic and social impact of COVID-19.

In this sense, the regime for deregulation of direct foreign investment in Spain is suspended (i.e., investments made by residents of countries outside of the European Union and of the European Free Trade Association where the investor comes to hold a stake equal to or greater than 10% of the share capital of the Spanish company, or where, as a result of the corporate transaction, act or legal transaction, they effectively participate in the management or control of that company), if:

    • The investment is made in certain sectors affecting public policy, public security and public health.
    • The foreign investor is directly or indirectly controlled by the government, including the public agencies or armed forces, of a third country; has made investments or participated in activities in sectors affecting security, public policy and public health in another member state; or if an administrative or judicial proceeding has been brought against the foreign investor in another member state or in the state of origin or in a third state due for carrying on criminal or illegal activities.

In order to carry out these investments, authorization must be obtained on the terms provided for in the applicable legislation (Law 19/2003, of July 4th, 2003).

In addition, Royal Decree-Law 11/2020 of 31 March, adopting additional urgent social and economic measures to address COVID-19, came to alter the above regime established by Royal Decree-Law 8/2020 in two ways:

  • On the one hand, it is clarified that the suspension of the liberalization of direct foreign investments regime applies to any investments which are made by residents outside the European Union and the European Free Trade Association or by residents of countries of the European Union or of the European Free Trade Association the beneficial owners of which are residents of countries outside the European Union and the European Free Trade Association. Such beneficial ownership will be deemed to exist where the latter ultimately hold or control, directly or indirectly, a percentage exceeding 25% of the capital or voting rights of the investor, or when by other means they exercise direct or indirect control of the investor.
  • On the other hand, a simplified authorization process is permitted for foreign investments with respect to which (i) it is proven that there is an agreement between the parties or a binding offer in which the price, fixed or determinable, was established before March 18, 2020 or (ii) their amount is equal to or greater than 1 million euros and less than 5 million euros.

Provisionally and until the minimum amount is established by regulations, investment operations the amount of which is less than 1 million euros will be deemed to be exempt from the prior authorization obligation.