7 July 2023 Mario Garcia - Jorge Toral -  Tim Castorina ForeignInvestmentLinks

Spain approves its FI Implementing Regulation: key points

On 5 July 2023, the Spanish Council of Ministers approved the FI Implementing Regulation. This formally enacts a number of rules that had been introduced - and were already being applied - by the Spanish FI authorities under the 2020 screening mechanism. But it also makes a number of further changes, including in relation to the screening of transactions involving companies in the defence sector.

The Regulation will come into force on 1 September 2023 and apply to applications filed after that date. Any existing applications as of that date will be decided under the previous rules.

Greater clarity on transactions that are in scope

The Implementing Regulation provides welcome clarity as to which transactions are caught by the Spanish FI regime. In particular: 

  • If the threshold that triggers FI screening (i.e. acquiring more than 10% or control of a qualifying Spanish target) has already been reached, a fresh filing is only required where further stake-building results in a change of control.
  • Limited partners in a fund will not be deemed as the beneficial owners of an investment if they do not hold governance rights and do not have access to information regarding the target beyond what is publicly available. In such cases, only the general partner will be considered the beneficial owner.
  • Investors owned by other governments will not be considered “state-controlled investors” if the rules regulating their governance and operation show that they are focused solely on maximising profitability and operate without any political interference.
  • The new rules set out a number of cumulative tests to determine what investments in the energy sector will be considered sensitive.
  • Investments in real estate will generally not be considered strategic, unless they are linked to critical infrastructure or indispensable and irreplaceable for the provision of essential services.
  • The Regulation introduces a new de minimis threshold for a transaction to trigger FI screening. The target’s turnover in the last full financial year must be greater than EUR 5 million. However, there are a number of exceptions to this rule.
  • Internal restructurings will not be caught by the FI screening mechanism.
  • Lastly, there will be an exemption from the FI regime for purely transitional investments (i.e. acquisitions held for only a few hours or days) where there the investor doesn’t gain the ability to influence the management of the acquired company.
Procedural reforms

Alongside clarifications to the scope of the Spanish FI mechanism, the Implementing Regulation also makes important procedural changes.

  • New voluntary consultation procedure: This process already existed informally - investors have been submitting queries to the FI authority to confirm whether their transactions required prior approval. Now, this procedure is put on a formal footing, making the response binding, and requiring the FI regulator to issue a decision within 30 business days. However, filing for a voluntary consultation prevents the investor from applying for (formal) FI approval until the deadline expires.
  • Shorter timeframes: the statutory deadline to make a decision on a formal FI approval process is reduced from the previous six-month maximum to three months. A lack of response still means that the approval is implicitly rejected.
  • Simplification of procedure for in-scope, low value investments: If the value of the investment is equal to or below EUR 5 million, approval can be granted by the Director General of International Trade and Investments instead of the Council of Ministers, which makes the granting of approval quicker.
Revamped rules for companies involved in national defence

Until now, Spain’s national defence FI regime would only be triggered if the investor acquired more than 5% of the capital of a Spanish defence company or acquired the right to take part in the target’s management. Under the Implementing Regulation, this has changed. 

A filing under the national defence FI regime will now not be required if the investor 

  • does not reach 5% or acquire the right, directly or indirectly, to take part in the management of the target, or
  • reaches between 5% and 10%, and includes with its notification a document in a public deed committing not to use, exercise or assign to a third party its voting rights nor to take part in the management bodies.
What impact will this have?

The Implementing Regulation should make it easier to assess whether a transaction is in-scope or not. To the extent that these criteria were already being applied by the FI authority, the Implementing Regulation will also create welcome legal certainty for investors. In addition, the reduction in deadlines is expected to impact on the timing of transactions. 

Finally, the upcoming 23 July 2023 elections are not expected to bring big changes to the field of FI. Investment screening has not been politically controversial in Spain. The only comment the opposition leader, Alberto Núñez Feijóo, has made about this topic (back in February) referred to the possibility of lifting the temporary regime applicable to EU or EFTA investments, which is less stringent than the general FI mechanism for non-EU or non-EFTA transactions and is set to expire at the end of 2024 anyway.

For more detail on the Implementing Regulation, read our client alert here.