The foreign direct investment (FDI) regime is essential in the context of mergers and acquisitions because it creates control and cooperation mechanisms between EU Member States. The recent Royal Decree 571/2023 creates a new regulatory framework for foreign investments in Spanish companies. Therefore, it has a determining weight in M&A operations.
What is foreing direct investment?
A foreign direct investment is an investment of any kind by a foreign investor for the purpose of creating or maintaining lasting and direct links between the foreign investor and the company to which the funds are allocated for the exercise of an economic activity in Spain. Also included in this classification are investments that allow an effective participation in the management or control of a company.
Royal Drecree 571/2023 on foreign investments
Royal Decree 571/2023 of 4 July on foreign investment, which came into force on 1 September 2023, has modified and developed the foreign direct investment (FDI) regime in Spain. These are some of its new features:
Reduces the resolution period
The time limit for deciding on applications for authorisation is reduced from 6 to 3 months.
Creates a new system of exemptions
It introduces new transactions exempt from the prior authorisation regime. Exceptions are made for investments of foreign origin in companies in strategic sectors whose turnover does not exceed 5,000,000 euros in the last financial year for which accounts have been closed.
Sets out investor profiles subject to ahthorisation
It delimits the activities included in certain strategic sectors subject to authorisation in the case of foreign direct investment. For example, inputs provided by companies that develop and modify software used in the operation of critical infrastructure in sectors such as energy or telecommunications and inputs that are indispensable and non-substitutable to ensure the integrity, security or continuity of activities affecting critical infrastructure are now considered essential. For example, water supply, energy, strategic raw materials, health services, food safety, financial and taxation systems…
Authorisation is also required, irrespective of the sector in which they invest, for all non-EU resident investors or those residents whose beneficial ownership is held by a non-resident, when they acquire a holding equal to or greater than 10% of the capital of a Spanish company or, when they acquire control of all or part of it in accordance with the criteria established in Article 7 of the Law on the Defence of Competition, if they are in any of these three situations:
- It is controlled by the government of a third country.
- It has previously intervened in sectors affecting public policy, public security or public health in another Member State.
- There is a serious risk that the investor engages in criminal activities affecting public safety, public order or public health.
Implements new sanctions
It is considered a very serious infringement to carry out a transaction without prior authorisation. As a result, the minimum fine is €30,000 and may amount to up to the economic content of the transaction.
Conclusion
In short, Royal Decree 571/2023 of 4 July on foreign investments significantly changes the rules of the game as far as foreign investments in M&A are concerned. If your company is facing an operation of this type, you can count on the expert advice of the Confianz team specialised in mergers and acquisitions.