The Legal Structure of foreign investment in Spain: basic legal principals

The basic legal principles about foreign investment in Spanish territory are found in various legislative instruments:

• Article 73 B of the treaty of the European Union — 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and economic transactions in the international market and covers certain measures against money laundering which is repealed in majority by Law 40/1979 of the 10th of December which covers the legal structure of the regulation of exchange rules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 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, substitutes Royal Decree 671/1992 of the 2nd of July covering foreign investment in Spain and 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 concerning 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 Capital for Foreign Investments in Spain

In general, there is 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 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 Economy and Treasury.

Exceptions to the Principle of Freedom of Movement of Capitals

There are three exceptions concerning 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 to invest, this declaration should be lodged with the Foreign Investment register and once the declaration has been invested should be made without any notification from the administration. Such declaration will not prejudice the subsequently 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 has to do with:

1. 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.
2. 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 is realized nor as a consequence of such investment.
3. In the situation where the foreign investment is a consequence of a lucrative intervivos or mortis causa

Possibility of Suspension of the Liberalization Regime — Prior Control of Investments: The Necessity of Preliminary Administrative Authorization by the Council of Ministers

1. Agreement of suspension of the liberalization regime, with general or special character by the council of ministers about 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.
2. Suspension of the regime of liberalization to foreign investments in Spain that are directly connected with the national defence. In such cases, there is a necessity for 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 Articles 10 & 11 of the Royal Decree 664/1999.

EU Member States’ Investments in Spain for Diplomatic or Consular Assets: Authorization and Exceptions

Direct or indirect investments made by member states of the European Union in Spain for assets designated for their diplomatic or consular representatives are subject to a preliminary authorization requirement by the Council of Ministers, as outlined in the provisions of Royal Decree 664/1999. However, an exception to this requirement exists when there is a reciprocal international agreement in place.

The dispositions of the royal decree are applied without prejudice to those special regimes that regulate foreign investment in Spain in specific legislation & particularly the legislations that follow: air traffic, radio, minerals & raw materials 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 defence.

For these effects of Law 18/1992 of the 1^st of July in which certain norms are established concerning foreign investment in Spain, it is established in its only article that the following sectors about the law of establishment have their specific regulation:

• Games
• Activities directly connected with national defence
• Television
• Radio
• Air traffic

Continues on The Legal Structure of foreign investment in Spain (2)

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