The basic legal principles in relation to foreign investment in Spanish territory are found in various legislative instruments:
- Article 73 B of the treaty of the European Union — which dictates that any restriction on the movement of capital is prohibited between member states and between member states and third countries and consequently, all restrictions on payments between member states and between member states and third countries shall be prohibited
- Directive 88/361/CEE of the 24th of June for the application of article 67 of the treaty of the European Economic Community (EEC)
- Law 19/2003 of the 4th of June based on the legal structure regulating the movement of capital and economic transactions in the international market and covers certain measures against money laundering which is repealed in majority by Law 40/1979 of the 10th of December which covers the legal structure of the regulation of exchange rules
- Royal decree 54/2005 of the 21st of January in which the regulation of the Law 19/1993 of the 28th of December is modified, this law covers preventive measures against money laundering, approved by the royal decree 925/1995 of the 9th of June and other norms regulating the banking, financial and securities system
- Royal decree 664/1999 of the 23rd of April which covers foreign investment, which substitutes the royal decree 671/1992 of the 2nd of July covering foreign investment in Spain and the royal decree 672/1992 of the 2nd of July covering Spanish investments in the international market
- The Law 18/1991 of the 1st of July in which various norms are established in relation to foreign investment in Spain
The general regime of movements of capital & economic transactions in the international market is established within Law 19/2003 of the 4th of June which declares at no cost any act, business, transaction & operations between residents and non residents that supposes or their accomplishment can derive international charges and payments. The same principle is applied without any more limitations except those existent within the law and in specific sectorial legislation for those transfers from or to the international market & the variations of accounts or international financial debtor or creditor positions.
In the most concise form such measures have been regulated by the Royal Decree 664/1999 of the 23rd of April, which regulates foreign investment however subsequently developed by the OM (Ministerial order) of the 28th of May 2001, of the ministry of economy, through which the applicable procedures are determined, those being those procedures for the declaration of foreign investment and their liquidation, as well as those procedures for the admission of annual reports& authorization dossiers.
In this meaning, the stated Royal Decree establishes:
Freedom of movement of capitals of foreign investment in Spain
In general there is a complete freedom of foreign investment (Freedom also proclaimed by the community directive 88/361/CEE of the council, of the 24th of June & treaty of the European Union). This supposes that the procedures of authorization & verification necessary in order to carry out such investments in Spain disappear, leaving the legal structure characterized by an absence of preliminary administrative controls however there are exceptions.
Ex post declarations of operations
Only necessary in general for administrative, economic and statistical effects, this being the declaration procedure after effectively carrying out the investment which is lodged with the investment registry of the ministry of economics and treasury.
Exceptions to the principle of freedom of movement of capitals
There are three exceptions in relation to investment that will need a preliminary declaration or authorization:
- Investments originating from tax havens
(Includes territories or countries outlined in the Royal Decree of 1080/1991 of the 5th of July). It will be necessary to carry out a preliminary declaration in order to make the investment, this declaration should be lodged with the foreign investment register and once the declaration has been made the investment should be made without any notification from administration. Such declaration will not prejudice the subsequent required ex post declaration once the investment has been carried out effectively.
However the stated preliminary declaration of investment by tax haven residents will not be necessary when it is to do with:
- Investments in negotiable assets — issued or offered publicly even if they are negotiated in secondary markets, official or not (See article 31 of the Law 24/1988 of the 28th of July of the securities exchange) just as the participation towards funds of registered investments located at the registry of the national commission of securities exchange.
- In the situation that the foreign participation does not exceed 50% of the capital of the investment for the intended Spanish company, nor at any time before the investment realized nor as a consequence of such investment.
- In the situation where the foreign investment is a consequence of a lucrative intervivos or mortis causa
- Possibility of suspension of the liberalization regime— previous control of investments: necessity of preliminary administrative authorization by the council of ministers
- Agreement of suspension of the liberalization regime, with general or special character by the council of ministers in relation to investments that due to their nature, form or conditions in which they were carried out, affect or can affect: activities connected although only occasionally with the exercise of public authority, public order, security and public health. Therefore the liberalization regime is suspended and the investor must solicit preliminary administrative authorization.
- Suspension of the regime of liberalization in relation to foreign investments in Spain that are directly connected with the national defence. In such case there is a necessity of preliminary authorization by the council of ministers.
The procedure of suspension of the liberalization regime & of the authorization requirement in cases of suspension can be found in Article 10 & 11 of the Royal Decree 664/1999.
- Direct or indirect investments that members states of the EU carry out in Spain in relation to assets intended for their diplomatic or consular representatives (See disposition, of the Royal Decree 664/1999). There is a preliminary requirement for authorization by the council of ministers except in the case in which there exists a reciprocal international agreement.
The dispositions of the royal decree are applied without prejudice to those special regimes that regulate foreign investment in Spain in specific legislation & particular the legislations that follow: air traffic, radio, minerals & raw material specifically minerals of strategic interest & mining rights, television, games, telecommunications, private security, fabrication trade or distribution of weapons and explosives for civil use and activities related to national defense.
For these effects of Law 18/1992 of the 1st of July in which certain norms are established in relation to foreign investment in Spain, it is established in its only article that the following “sectors in relation to the law of establishment that these have their own specific regulation”:
- Activities directly connected with national defence
- Air traffic
This article is not considered as legal advice