Legal regime for foreign investment in Spain

Royal Decree 664/1999 of 23 April 1999 on Foreign Investment  (the RDFI) establishes the legal regime for foreign investment in Spain.

According to Article 2 of the RDFI, to classify an investment in Spain as foreign, the non-residence of the individual or legal entity investing must be considered, irrespective of nationality.

Categories of foreign investment

In light of Article 3 RDFI, foreign investment in Spain is feasible through different types of operations:

• Participation in Spanish companies: incorporation of a company, subscription and acquisition of all or part of its shares or holdings, investment on securities (rights to subscribe shares, convertible bonds in shares or other similar securities which by their nature entitles them to participate in the capital), or any legal transaction conferring voting rights.
• Constitution and extension of the branch office.
• Subscription and acquisition of marketable securities issued by residents.
• Participation in investment funds entered in the National Securities Market Commission Records (NSMCR).
• Acquisition of real estate located in Spain exceeding 500,000,000 pesetas, or its equivalent value in euros or where, regardless of the amount it proceeds from tax havens
• Constitution, formalisation or participation in contracts of participation, foundations, economic interest groupings, cooperatives and communities of property, when the total value corresponding to the participation of foreign investors exceeds 500,000,000 pesetas or its equivalent value in euros, or when, regardless of the amount, it comes from tax havens.

Once the investment is classified as foreign (i.e., from an individual or a legal entity not resident in Spain), it is common for the investor to ask the following question: do I need to obtain authorisation to invest in Spain?

Authorisations for foreign investment in Spain

The general principle set out in the RDFI is the liberalisation of foreign investments in Spain, and the freedom to liquidate them, regardless of the act of disposition by which they are made, provided they comply with the provisions of the RDFI and its implementing regulations.

Therefore and without prejudice to the special regimes established in specific sectoral legislation, no authorisation is required to invest in Spain from abroad.

In any case, although authorisation is not generally required, foreign investment in Spain must comply with the regulations of the RDFI and its implementing regulations. Specifically, Article 4 of the RDFI demands the declaration of foreign investment in the Ministry of Economy and Finance Investment Registry for administrative, statistical, or economic purposes.

It is sufficient to make the declaration after the investment in Spain unless it comes from tax havens, in which case it should be prior, unless:

• The investment from tax havens is made in transferable securities, whether issued or offered publicly, whether traded on an official secondary market or not, as well as in units in investment funds registered in the NSMCR Registers; or if
• The investment from tax havens does not exceed 50% of the capital of the Spanish company receiving the investment.

The non-resident holder is obliged to make the declaration. In addition, when the transaction has been intervened by a Spanish notary public, either as a consequence of its legal regime or by agreement between the parties, the latter shall send the transaction information to the Investment Registry.

On an exceptional basis, and depending on the type of investment, there will be additional obligors when making the declaration, namely:

Additional requirements

• In the case of investments made in negotiable securities, whether issued or offered publicly, whether traded on an official secondary market or not, the investment services company, credit institution or other financial institutions which, under the Securities Market Law, have as their activities the deposit or administration of securities represented by book entries that are the object of the investment, or whose intervention is mandatory for the subscription or transfer of securities, following the rules that apply to them, shall be obliged to declare the investment.
• In the case of investments made in securities not traded on secondary markets, deposited or registered by the parties voluntarily, the depositary or administrator of the securities is obliged to make the declaration, unless a company, securities agency or credit institution was involved in the transaction, in which case the declaration must be made by one of these.
• In the case of investments made in nominative actions, the person obliged to declare will be the Spanish company that is the object of the investment, once it knows about the transfer through the corresponding entry in the book registration.
• Finally, if the investment is in Spanish investment funds, the management company of the receiving fund must make the declaration.

Failure to declare foreign investment in Spain does not render the act null and void, even when this is mandatory. It is, therefore, an administrative requirement that does not affect the validity of the investment without prejudice to any penalties that may be applicable.

A different issue is an investment in a sector where the liberalisation regime for foreign investment in Spain is not applicable.

Sectors where the liberalisation regime does not apply:

• Aviation
• Radio broadcasting
• Minerals
• Raw materials of strategic importance
• Mining
• Television
• Sports
• Telecommunication
• Private security
• Manufacture, trade or distribution of arms and explosives for civilian use
• Activities related to national defence.

Investment in Spain is profitable for foreign investors as it offers optimal conditions and competitive advantages.

If you need additional information regarding the legal regime for foreign investment in Spain,