New Spanish Royal Decree on Foreign Investments implementing Law 19/2003 and repealing Royal Decree 644/1999

The new Royal Decree 571/2023 of 4^th July on foreign investments was published on 5^th July 2023 and entered into force on 1^st September 2023 (the “Royal Decree”), applying on a transitional basis until that date the transitional provisions of the Royal Decree.

The Royal Decree updates the current rules and brings the foreign investment declaration regime into line with world standards, thus providing greater clarity and developing, among others, Law 19/2003 of 4^th July on the legal regime for movements of capital and cross-border economic transactions.

The most relevant aspects of the Royal Decree are highlighted below.

• A. Declarations of foreign investments in Spain to the Investment Register:New additional events are included in the object of foreign investments in Spain that must be declared to the Investment Register of the Ministry of Industry, Trade and Tourism on a mandatory basis.

1. In addition, the Royal Decree modifies the minimum investment thresholds so that the declaration obligation only applies to certain investments.
2. The Royal Decree establishes, in particular, new obligations for management companies of collective investment undertakings, entrusting them with the task of making declarations which, until now, were the responsibility of investors, and at the same time it establishes new obligations for notaries.
3. Finally, the Royal Decree obliges companies’ resident in Spain, branches in Spain of non-residents and management companies of Spanish collective investment undertakings and closed-end collective investment undertakings with foreign holdings to submit an annual report on investment performance to the Investment Register.

• B. Declarations of Spanish investments abroad to the Investment Register:

1. With regard to declarations of Spanish investments abroad, the Royal Decree modifies the minimum investment thresholds so that the obligation to declare is only applicable to, among others, investments in the acquisition of real estate abroad for an amount exceeding 300,000 euros.
2. In addition, the Royal Decree establishes new obligations for management entities of collective investment undertakings, entrusting them with the task of making declarations which, until now, were the responsibility of investors.
3. Finally, the Royal Decree introduces the obligation for holders of Spanish investments abroad and resident management companies of foreign investment funds to submit an annual report on the performance of the investment to the Investment Register.

• C. Suspension of the general liberalisation regime for certain foreign investments:

1. With the implementation of the Royal Decree, a single general framework is established for all areas of suspension of the general liberalisation regime, previously regulated by Royal Decree 644/1999 of 23^rd April 1999 and Article 7bis of Law 19/2003 of 4^th July 2003 on the legal regime governing the movement of capital and economic transactions abroad and on certain measures to prevent money laundering.
2. The Royal Decree configures and gives full legal effect to voluntary requests that the team of the Directorate General for International Trade and Investment of the Ministry of Industry, Trade and Tourism had been responding to since the above-mentioned article 7 bis came into force, thus providing for the regulation for such voluntary requests.
3. As regards the regime of foreign investment authorisations, the following issues have been clarified and developed: (i) The unauthorised investor may not exercise economic and political rights in the Spanish company until the required authorisation is obtained, if any; (ii) When two or more foreign investment transactions take place within a period of two years between the same buyers and sellers, these will be considered as a single transaction carried out on the date of the last transaction; (iii) Investments carried out with two or more investors, for the purpose of exercising joint control over the object of the investment, a single application for prior authorisation by all investors shall be required.
4. With regard to non-subject transactions and the specific regime for suspending the liberalisation of certain foreign direct investments in Spain under the terms established in article 7 bis of Law 19/2003, the Royal Decree includes the interpretation already adopted by the authorities and the following new features: (i) The deadline for resolving applications for authorisation is reduced from 6 to 3 months, although the body competent to resolve will vary depending on the amount of the operation and; (ii) A generic provision is included for those transactions not subject to the regime of liberalisation of foreign direct investment in Spain.
5. The Royal Decree establishes a new system of exemptions in Article 17. Previously, investments of less than one million euros were exempt. However, as of the Royal Decree this generic threshold disappears and exemptions may vary depending on the sector of the company in which the investment is made:

• In the energy sector, foreign direct investments in which the investor does not fall within the subjective scope of Article 7bis (3) of Law 19/2003 are exempt from authorisation, i.e., they meet a number of requirements, including that no regulated activities are carried out or that the company does not become a dominant operator.

• The acquisition of real estate which is not assigned to any critical infrastructure or which is not indispensable and not substitutable for the provision of essential services is exempted.

• In all other sectors referred to in Article 7 bis.2 of Law 19/2023, foreign investments in companies where the revenues of the acquired companies do not exceed EUR 5,000,000 in the last closed accounting year are exempt.

• Transitory investments, i.e., investments of a short duration where the investor does not have the ability to influence the management of the acquired company.

• D. Specific provisions for the suspension of the general liberalisation regime in certain sectorial fields.

1. With regard to the prior authorisation regime for foreign investment in Spain in activities directly related to national defence, the Royal Decree establishes important new features:

• As regards potentially subject investors, the subjective scope is extended to foreign individuals’ resident in Spain, regardless of their nationality.
• New exceptions to the cases of application are established.

2. Finally, the new Royal Decree creates a new system of prior authorisation for foreign investment in Spain in activities directly related to arms, cartridges, pyrotechnic articles and explosives for civilian use and other material for use by the State Security Forces.

The information contained in this note should not in itself be considered as specific advice on the matter under discussion, but only as a first approach to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their specific case before taking specific measures or actions.

BUIGAS

September 2023