[Warning: this report is for information purposes only and does not constitute a legal opinion under any circumstances]
Regulation and entry into effect
On 1st April 2020, Royal Decree Law 11/2020 of 31st March was BOE published in the BOE, adopting urgent complementary actions in the social and economic field to deal with COVID-19, which comes into effect on the 2nd of April 2020
Subject: Capital movement and foreign transactions
Among other things, it reinforces some of the measures adopted in Royal Decree-Law 8/2020 of 17th March on extraordinary urgent measures to deal with the economic and social impact of COVID-19, in relation to the amendments made to Law 19/2003 of 4th July on the legal regime of capital movements and economic transactions abroad.
Purpose: Protection of Spanish companies in a vulnerable situation
The amendment made to the aforementioned Law 19/2003, of 4th July, was based on the urgent need to “introduce mechanisms for prior authorization of certain foreign investments, in order to avoid the threat of operations to acquire Spanish companies carried out by foreign investors taking advantage of the decrease in value of those companies due to the impact of the global crisis triggered by the COVID-19.
The purpose remains the same, to mitigate the economic and social impact of the extension of the state of alarm due to the spread of the disease, maintaining as a priority the protection of the families, freelancers and companies most directly affected, which is justified as this situation of vulnerability of Spanish companies continues, making it necessary to introduce new amendments to Law 19/2003 of 4th July.
Modifications
- Procedure for Administrative Application Processing.
The first of these is regulated by the Second Transitional Provision ” Procedure for the authorisation of transactions in progress and transactions of a reduced amount included in Article 7 bis of Law 19/2003 of 4th July on the legal regime of capital movements and economic transactions abroad and on certain measures for the prevention of money laundering”.
This provision establishes that, on a transitional basis, the procedure for processing applications for prior administrative authorisation will be through the simplified processing of the procedure provided for in Article 96 of Law 39/2015, of 1 October, on the Common Administrative Procedure of Public Administrations, for foreign direct investment operations in respect of
- that there is an agreement between the parties or a binding offer in which the price was fixed, determined or determinable prior to the entry into force of Royal Decree Law 8/2020 of 17 March,
- 1 million and less than EUR 5 million until the regulations implementing Article 7(a) enter into force. Law 19/2003, therefore not requiring prior authorization for operations of less than 1 million euros.
- Extension of the scope of the suspension of the foreign investment liberalization regime and duration of the suspension
The second amendment contained in the Third Final Provision, entitled “Amendment of Law 19/2003, of 4 July, on the legal regime of capital movements and economic transactions abroad and on certain measures to prevent money laundering”, refers to the extension of the suspension of the regime for the liberalization of certain foreign direct investments in Spain made by investors resident in European Union and European Free Trade Association countries, in those cases where investors are controlled by entities resident outside that territorial area and for those investments made in the main strategic sectors of our country for reasons of public security, public order and public health.
- By this provision, section 1 of article 7 bis of Law 19/2003 is amended to include as foreign direct investment in Spain all those made by residents of European Union or European Free Trade Association countries who own or ultimately control more than 25% of the capital or voting rights of the investor, or when they exercise control over the investor by other means, whereby “the investor becomes a shareholder of 10% or more of the share capital of the Spanish company, or when as a result of the corporate transaction, act or legal business, he effectively participates in the management or control of that company”,
- It is also established the possibility of regulating the amount below which foreign direct investment operations would be exempted from the prior authorization regime.
- Lastly, it was a resolved to eliminate the paragraph 6 of the aforementioned Article 7a, which stipulated that the suspension would remain in force until it was lifted by agreement of the Council of Ministers.