Royal Decree 571/2023, of July 4, on Foreign Investments

I. GENERAL PROVISIONS MINISTRY OF THE PRESIDENCY, RELATIONS WITH THE CORTES AND DEMOCRATIC MEMORY 15549 Royal Decree 571/2023, of July 4, on foreign investments.

I Foreign direct investment, which includes both foreign investment in Spain and Spanish investment abroad, is one of the most effective mechanisms to facilitate international economic integration. In the Spanish case, foreign investment has been, for decades, a fundamental element in driving the modernization of the economy, facilitating access to advanced knowledge and improving productivity and employment. Likewise, the intense investment activity abroad by Spanish companies in recent decades has been a determining factor for their internationalization and that of the Spanish economy as a whole. Foreign investment is also, if its social, environmental, human rights, and governance impact is observed, a fundamental pillar for achieving the Sustainable Development Goals and making the 2030 Agenda a reality, as well as for the external projection of Spanish and European values.

II The Treaty on the Functioning of the European Union (TFEU) prohibits restrictions on the movement of capital between Member States and between Member States and third countries in its Article 63. For its part, Article 65.1(b) of the Treaty allows Member States to establish procedures for the declaration of capital movements for administrative or statistical purposes and also allows taking measures justified by reasons of security and public order. For its part, Article 346.1(b) of the Treaty recognizes the right of Member States to adopt measures they deem necessary for the protection of the essential interests of their security relating to the production of or trade in arms, munitions, and war material; these measures must not affect competition conditions in the internal market with respect to products not intended for specifically military purposes.

These articles correspond to the former Articles 56 and 58.1(b) of the Treaty establishing the European Community (TEC), the provisions of which were developed through Law 19/2003, of July 4, on the legal regime of capital movements and economic transactions with the outside world. This law proclaims in its Article 1 the principle of freedom of capital movements and economic transactions with the outside world, while Article 3 stipulates the information obligations regarding them, and Articles 4, 5, 6, and 7 collect the measures referred to in Article 65.1(b) of the TFEU. For its part, Royal Decree 664/1999, of April 23, on foreign investments, prior to Law 19/2003, of July 4, sets forth the declaration obligations for foreign investment operations in Spain and Spanish investment abroad to the Investment Register, and establishes the procedure for suspending the general liberalization regime for such investments. Furthermore, it establishes the suspension of the general regime of foreign investments in Spain in activities directly related to national defense.

However, the promulgation of a new royal decree on foreign investments was necessary to repeal Royal Decree 664/1999, of April 23, introducing new provisions for various reasons mentioned below.

III First, and from a statistical point of view, the experience in managing the Investment Register and the observed innovation processes in financial markets, given the time elapsed since the entry into force of Royal Decree 664/1999, of April 23, make it necessary to adjust and update the regime for declaring foreign investments to the concept of direct investment in this new economic and financial environment. Furthermore, with regard to the regime of declarations for statistical and administrative purposes, the global standard contained in the "Benchmarks on Foreign Direct Investment" published in its fourth edition in 2008 by the Organisation for Economic Co-operation and Development (OECD) must be taken as a reference, which leads to introducing a series of changes: on the one hand, to adapt to global standards, new operations not contemplated in Royal Decree 664/1999, of April 23, are incorporated; on the other, the obligation to declare investments in negotiable securities that do not carry the intention to influence the control of a company and therefore belong to the category of portfolio investment is abolished; finally, the limits of the different statistical declarations are modified due to the experience accumulated over the twenty years of validity of the previous royal decree.

Parallel to this, in October 2020, Regulation (EU) 2019/452 of the European Parliament and of the Council of March 19, 2019, establishing a framework for the screening of foreign direct investments into the Union, entered into force. Furthermore, the Regulation is anchored in Article 65.1(b) of the TFEU and, without prejudice to the provisions of Articles 4.2 and 346 of the TFEU itself, establishes a regulatory framework for mechanisms for controlling foreign direct investments from outside the EU in Member States for reasons of security and public order. Its Article 4 establishes that to assess whether a foreign direct investment may affect security or public order, Member States may take into account its potential effects in certain areas, including critical infrastructure and technologies, supply of essential inputs such as energy, or access to sensitive information. Similarly, that same article provides that, for the same purpose, Member States may consider certain characteristics of the investor, such as possible control by foreign governments, that their investment affects or may affect security or public order in another Member State, or the possible exercise of criminal or illegal activities.

This Regulation, in addition to establishing common criteria for controlling foreign direct investments within the Union for reasons of security or public order, creates cooperation mechanisms between Member States and between them and the European Commission, in order to guarantee that they share a minimum of information that must be accurate, exhaustive, and reliable.

On the other hand, at the national level, the modification of Law 19/2003, of July 4, carried out by Royal Decree-Law 8/2020, of March 17, on urgent extraordinary measures to face the economic and social impact of COVID-19; by Royal Decree-Law 11/2020, of March 31, adopting urgent complementary measures in the social and economic field to face COVID-19; and by Royal Decree-Law 34/2020, of November 17, on urgent measures to support corporate solvency and the energy sector, and in tax matters. Such norms, and in particular the provisions contained in Regulation (EU) 2019/452 of the European Parliament and of the Council of March 19, 2019, which were developed in our legal order through Royal Decree-Law 8/2020, of March 17, resulted in the incorporation of a new Article 7 bis in Law 19/2003, of July 4, relating to the suspension of the liberalization regime for certain foreign direct investments in Spain and the consequent modification of the regime of offenses and sanctions. In this context, Royal Decree-Law 11/2020, of March 31, in its second transitional provision, completed the regime applicable by articulating the possibility of resorting to a simplified notification and processing procedure in foreign investment operations subject to the suspension regime established in Article 7 bis of Law 19/2003, of July 4.

All these legal reforms, added to the changes that occurred in the more than twenty years elapsed since the entry into force of Royal Decree 664/1999, of April 23, make it necessary to articulate a new development that adapts the regulatory norm to the new legal structure and to Regulation (EU) 2019/452 of the European Parliament and of the Council of March 19, 2019, improves the quality and international comparability of statistics, reduces administrative burdens for investors, and specifies, with greater precision, the cases of suspension of the foreign investment regime, to offer greater legal certainty to investors. Likewise, the norm observes what is provided by Law 10/2010, of April 28, on the prevention of money laundering and the financing of terrorism, and abstains from regulating the regime of receipts and payments from or to the outside world, which continues to be developed in accordance with the procedures established in Royal Decree 1816/1991, of December 20, on Economic Transactions with the Outside World, and its development provisions.

IV This royal decree is structured in twenty-six articles distributed in five chapters, two transitional provisions, one repealing provision, and three final provisions.

Chapter I (Articles 1 and 2) provides for the object and scope of application.

Chapter II (Articles 3 to 5) is dedicated to the declaration of foreign investments in Spain regarding their subjective and objective aspects, as well as to the declaration of investments to the Investment Register, mandatory and obligatory, for administrative or statistical purposes, with a character subsequent to their realization.

Chapter III (Articles 6 to 8) contemplates these same aspects, referred to the regime of Spanish investments abroad.

Essentially, in both cases, it is a matter of limiting and updating the declarable investments to the information necessary to prepare Foreign Direct Investment statistics.

Chapter IV (Articles 9 to 20) develops the regime applicable in the event of suspension of the liberalization regime of foreign investments in accordance with what is provided in Regulation (EU) 2019/452 of the European Parliament and of the Council of March 19, 2019, and Law 19/2003, of July 4, through four sections.

Section 1st (Articles 9 to 12) develops the common provisions to apply in the event that the general liberalization regime for investments provided for by default in the applicable legal framework is suspended. In this sense, a voluntary consultation procedure is regulated ex novo to clarify whether a specific operation is or is not subject to authorization under the current regime. Likewise, the common regime applicable to the suspension of the liberalization regime is developed, as well as the subjects subject to authorization a priori, under the aforementioned legal framework, as well as the obligation of notaries to inform interested parties of the regime applicable to foreign investments, in accordance with what is provided in the Notary Law of May 28, 1862. Section 2nd (Article 13) develops the regime for prior authorization of foreign investments in Spain and Spanish investments abroad by agreement of the Council of Ministers, in application of Article 7 of Law 19/2003, of July 4.

Section 3rd (Articles 14 to 17) develops the regime for prior authorization of foreign investments in Spain and Spanish investments abroad by Agreement of the Council of Ministers, in application of Article 7 bis of Law 19/2003, of July 4. In this sense, the authorization regime for certain foreign investments coming from countries that are not members of the European Union or the European Free Trade Association is regulated, addressing general issues of the procedure, the investment areas to which this regime applies, the characteristics of the investor that must be taken into account for its application, and the exemptions to it.

Section 4th (Articles 18 to 20) specifies the prior authorization regime for foreign investments in Spain in certain material areas; first, in Articles 18 and 19, the regime applicable to investments in activities directly related to National Defense and the regime applicable to investments in activities directly related to arms, ammunition, pyrotechnic articles, and explosives for civil use or other material used by the Corps and Forces of the State Security are developed, in development of the provision contained in the single article of Law 18/1992, of July 1, establishing certain rules on foreign investments in Spain. Finally, Article 20 specifies the prior authorization regime to which the acquisition of real estate of diplomatic destination by states that are not members of the European Union would be subject, on the basis that it is the foreign state and not the foreign natural person who may be residing in Spain when carrying out the management, who, ultimately, proceeds to the acquisition thereof.

Chapter V (Articles 21 to 26) collects a series of general scope issues that specify the bodies and obligations that complete the regulatory framework applicable in matters of foreign investments; thus, in Article 21, the Foreign Investment Board is presented as an interministerial collegiate body, one of those provided for in Law 40/2015, of October 1, on the Legal Regime of the Public Sector, with functions of reporting on foreign investments; in Article 22, the report to be published annually by the Ministry of Industry, Commerce and Tourism with information on foreign investments and the control mechanisms applied, in application of Regulation (EU) 2019/452 of the European Parliament and of the Council of March 19, 2019, is collected; Articles 23 and following collect common provisions regarding the monitoring of what is provided in this royal decree, the effect of changes in social domicile or residence, and the effect of non-compliance with the established obligations, as well as the treatment of personal data and the confidentiality of transmitted information.

Finally, there are three transitional provisions whose objective is to maintain the continuity of investment declarations and the correct functioning of the Investment Register, one repealing provision, and three final provisions.

On the other hand, with regard to the procedures of Articles 9.1.a), 13, and 14, the obligation to relate to the Administration by electronic means is established. Taking into account the specific characteristics of the investment operations analyzed, it is considered proven that the intervening natural persons have access and availability of the necessary electronic means.

V This royal decree adheres to the principles of good regulation, in accordance with Article 129 of Law 39/2015, of October 1, on the Common Administrative Procedure of Public Administrations, in particular the principles of necessity and effectiveness, proportionality, legal certainty, transparency, and efficiency. From the point of view of the principles of necessity and effectiveness, with this provision, the declaration obligations for foreign investment operations in Spain and Spanish investment abroad to the Investment Register are fixed. The procedure for suspending the general liberalization regime of such investments is also established, adapting them to the new economic and financial environment. As for the principle of proportionality, the provision contains the essential regulation to attend to the pursued need, simplifying administrative procedures for statistical declaration purposes. Likewise, the norm will increase the legal certainty of operators for declaration and control of investments, and will enable administrative authorities to fulfill their functions of suspending the liberalization regime of foreign investment more effectively. Finally, it is in accordance with the requirements of the principles of transparency and efficiency, not only because a clear framework of action is established for all operators, but because administrative burdens derived from the proposed actions are reduced, when possible.

The approval of this royal decree is coherent with the relevant requirements for the imposition of restrictive measures for reasons of security and public order established in the agreements of the WTO, in particular, Articles XIV(a) and XIV bis of the General Agreement on Trade in Services (GATS). It is also coherent with Union Law and with commitments acquired in other commercial and investment agreements in which the Union or Spain are parties or commercial and investment provisions to which both have adhered.

This royal decree is approved by virtue of the competences recognized to the State by Article 149.1 of the Constitution, in its subsections 10 and 13, which reserve to the State exclusive competence in matters of foreign trade and bases and coordination of the general planning of economic activity, as well as under the support of the regulatory development faculties recognized to the Government and collected in the first subsection of the single final provision of Law 19/2003, of July 4, without prejudice to Articles 19 and 20, which are issued in development of the regulatory authorization contained in the single article of Law 18/1992, of July 1.

By virtue thereof, upon proposal of the Minister of Industry, Commerce and Tourism, the Minister of Foreign Affairs, European Union and Cooperation, the Minister of Defense, the Minister of the Interior, and the Minister of Economic Affairs and Digital Transformation, with the prior approval of the Minister of Finance and Public Function, in agreement with the Council of State, and after deliberation of the Council of Ministers in its meeting of July 4, 2023,

I HEREBY ORDER:

CHAPTER I Object and Scope of Application

Article 1. Object. This royal decree aims to develop, with regard to investments, Law 19/2003, of July 4, on the legal regime of capital movements and economic transactions with the outside world.

Article 2. Scope of Application.

1. This royal decree shall apply to foreign direct investments; foreign direct investments are considered those made in Spain coming from abroad and those made abroad coming from Spain.
2. The provisions of this royal decree shall be understood without prejudice to special regimes affecting foreign investments in Spain in those sectors with specific regulation. In such cases, and without prejudice to what is provided in this royal decree, investments shall comply with the requirements demanded by the applicable sectoral legislation.
3. Regardless of the type of contribution in which foreign investments are materialized, the receipts and payments derived from the operations, investments, or transactions regulated by this royal decree shall be carried out in accordance with the procedures established in Royal Decree 1816/1991, of December 20, on Economic Transactions with the Outside World, and its development provisions.

CHAPTER II Declaration of Foreign Investments in Spain to the Investment Register

Article 3. Subjects of Foreign Investment in Spain. For the purposes of declaring Investments to the Investment Register of the Ministry of Industry, Commerce and Tourism, foreign investors in Spain are considered "non-residents" according to the definition of Article 2 of Law 19/2003, of July 4.

Article 4. Object of Foreign Investments in Spain. Foreign investments in Spain, for the purposes established in the following article, shall have as their object: a) Participation in the capital of Spanish companies, provided that it is carried out by a non-resident investor who holds or achieves, through this operation, a participation equal to or greater than 10 percent of the share capital of the issuer or their voting rights. It is understood that this modality includes both the incorporation of the company, as well as the subscription or total or partial acquisition of its shares and the assumption or total or partial acquisition of social participations. Likewise, the acquisition of securities issued by resident public or private persons or entities is included, such as share subscription rights, bonds convertible into shares, or other analogous securities that by their nature give the right to participation in the capital, as well as any legal transaction by virtue of which political rights in a resident company are acquired. b) The acquisition of participations and shares in collective investment institutions and closed collective investment entities (free investment funds, real estate funds, venture capital funds, alternative investment funds, and other figures of similar nature), provided that the management company is resident and as a result a participation equal to or greater than 10 percent of the assets or share capital of the entity is to be acquired, or has the right to acquire, as the case may be. c) Contributions by partners to the net equity of Spanish companies that do not constitute an increase in the share capital, provided that the partner has a participation in the capital equal to or greater than 10 percent. d) The incorporation and expansion of the endowment in Spain of branches of non-residents. e) Financing to Spanish companies or branches coming from companies of the same group through deposits, credits, loans, negotiable securities, or any other debt instrument, whose amount exceeds 1,000,000 euros and, furthermore, its amortization period is greater than one natural year. f) The reinvestment of profits in Spanish companies, provided that they are carried out by a non-resident investor who holds a participation equal to or greater than 10 percent of the share capital of the Spanish company. g) Other forms of investment such as the incorporation or formalization of contracts for participation accounts, temporary business unions, foundations, grouping