Buying a company in Spain as a foreign investor: when the transaction requires administrative authorisation
Not every acquisition of a company in Spain can be treated as a purely private transaction between buyer and seller. The investor's identity, its country of residence or of beneficial ownership, the target company's sector of activity, the nature of the assets acquired and the degree of control sought may trigger mechanisms for the supervision and prior authorisation of foreign investment. The “Ley 19/2003 sobre movimientos de capitales” —Law 19/2003 on capital movements— and its implementing regulations, together with specific sector-based regimes, have built a system in which certain foreign direct investments are subject to suspension of the liberalisation regime and to administrative authorisation. Identifying this issue at the initial stage of the transaction is essential, because it may determine the signing, the closing, the conditions precedent and the parties' cooperation obligations.
1.From the principle of freedom to control over certain foreign investments
The starting point of the Spanish regime is the principle of freedom of capital movements and of economic transactions with other countries. Law 19/2003 provides that acts, dealings, transactions and operations between residents and non-residents involving cross-border receipts and payments, transfers to or from abroad and changes in accounts or financial positions abroad are free, subject to no restrictions other than those laid down in the Act itself and in specific sector legislation. On this general principle a system has been built, particularly since 2020, for the control of certain foreign direct investments capable of affecting security, public order or public health.
Article 7 bis of Law 19/2003 defines foreign direct investment as investment by which the investor comes to hold a stake equal to or greater than ten per cent of the share capital of a Spanish company, or acquires control of all or part of it under the criteria of the “Ley de Defensa de la Competencia”, Spain's Competition Act. Such investment is subject to the suspension of the liberalisation regime where it is made by residents of countries outside the European Union and the European Free Trade Association, or by residents of the EU or EFTA whose beneficial ownership lies with residents of third countries, beneficial ownership being taken to exist where the latter ultimately own or control more than twenty-five per cent of the investor's capital or voting rights, or exercise control by other means.
2.Strategic sectors and the cases that trigger prior authorisation
The suspension of the liberalisation regime applies to foreign direct investment in sectors regarded as strategic. The Act mentions, among others, critical physical or virtual infrastructure, including infrastructure for energy, transport, water, health, communications, the media, data processing or storage, aerospace, defence, electoral and financial infrastructure, as well as land and buildings that are key to their use. It also covers critical and dual-use technologies, technologies that are key to industrial leadership, telecommunications, artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy-storage, quantum and nuclear technologies, nanotechnologies, biotechnologies, advanced materials and advanced manufacturing systems. Equally strategic are the supply of critical inputs, in particular energy and raw materials, sectors with access to sensitive information, especially personal data, and the media.
In addition to these sectors, the Act suspends liberalisation in cases linked to the investor's identity and conduct. Authorisation is required where the investor is directly or indirectly controlled by the government of a third country, including public bodies or armed forces, where it has made investments in or taken part in activities in sectors affecting security, public order or public health in another Member State, or where there is a serious risk that it may engage in criminal or unlawful activities affecting security, public order or public health in Spain.
The Government may extend the suspension to other sectors not initially covered where they may affect security, public order or public health, by a decision of the “Consejo de Ministros”, Spain's Council of Ministers. The consequence of suspension is clear: investment transactions become subject to prior authorisation, and those carried out without it are devoid of validity and legal effect until they are regularised.
3.Exemptions and qualifications: not every foreign investment in sensitive sectors requires authorisation
The implementing regulations have introduced significant exemptions. In the energy sector, for example, foreign investment in energy supply is exempt from prior authorisation where the investor displays none of the risk features set out in article 7 bis and certain conditions are met. The companies or assets acquired must not carry on regulated activities such as operation of the electricity system and market, energy transmission and distribution, supply in non-peninsular territories, technical management of the gas system, regasification, basic storage, or the transmission and distribution of natural gas, nor any other regulated activity laid down in sector legislation. It is also required that the resulting company should not become a dominant operator in electricity generation and supply, in the production, storage, transport and distribution of fuels or biofuels, or in the production and supply of liquefied petroleum gases or natural gas, and that the resulting share of installed capacity by technology should be below five per cent, calculated in accordance with specific criteria. In electricity retail supply, the exemption applies where the acquired company has fewer than twenty thousand customers.
In other strategic sectors, prior authorisation is not required where the turnover of the companies acquired does not exceed five million euros in the last financial year, provided that their technologies have not been developed under programmes and projects of particular interest to Spain. Authorisation requirements nevertheless remain for electronic communications operators holding concessions over publicly owned radio spectrum in harmonised bands, titles for orbit-spectrum resources or the status of operator with significant market power, and for activities involving the exploration and exploitation of deposits of strategic raw materials.
In national defence the regime is stricter. Investment in activities directly related to defence, such as industrial capacity for supplying equipment, systems and services to the Spanish armed forces, or intended for the production, maintenance or trade of defence material, requires prior authorisation. Exceptions are made for investments that do not reach five per cent of the share capital and do not allow the investor to sit on the management body, and for those between five and ten per cent where the investor gives a formal undertaking not to exercise voting rights or to sit on management bodies, subject to prior notification.
4.The authorisation procedure and its effects on signing and closing
Where an M&A transaction falls within the scope of the suspension of liberalisation, prior authorisation becomes a necessary condition for it to take effect. The common authorisation regime provides that acts subject to authorisation may be carried out only once it has been obtained, and that investments made without it are devoid of validity and legal effect, the investor being unable to exercise economic or voting rights in the Spanish company until authorisation is obtained. Authorised investments must be completed within the period stated in the authorisation or, failing that, within six months, with the possibility of a single further extension of six months.
The decision may take the form of unconditional authorisation, refusal, authorisation subject to conditions imposed by the deciding authority or to commitments given by the investor, or closure of the file on withdrawal or on the view that the transaction is not subject to suspension. The assessment takes account of the information supplied by the investor, of any information provided by the European Commission and other Member States under the mechanism for the exchange of information on foreign direct investment, and of information supplied by other public authorities, economic operators and civil society organisations. Refusals and conditional authorisations may be challenged by an application for reconsideration, the Spanish “recurso de reposición”, or before the administrative courts.
Where suspensions have been decided by the Council of Ministers for additional sectors, applications for authorisation are addressed to the “Dirección General de Comercio Internacional e Inversiones”, the directorate-general for international trade and investment, and the decision rests with the Council of Ministers itself. The maximum period for deciding and notifying is three months, and silence amounts to refusal.
From a contractual standpoint, this has direct consequences for signing and closing. In transactions subject to authorisation, the sale and purchase agreement must include conditions precedent relating to obtaining foreign investment authorisation. Signing may take place before authorisation, but closing must be made conditional upon it. The parties must agree cooperation obligations in preparing and pursuing the application, the allocation of costs and, where appropriate, of the sacrifices flowing from any conditions imposed. The allocation of regulatory risk, that is, who bears the burden of offering commitments or accepting conditions, and what happens if authorisation is refused or made subject to conditions that substantially alter the transaction, becomes a central clause.
5.Interaction with other controls: competition and regulated sectors
Foreign investment control does not operate in a vacuum. It may coexist with other administrative controls, such as merger control and specific sector-based regimes. In energy, for example, the acquisition of shareholdings in companies carrying on regulated activities or holding strategic assets may require notification to the “Secretaría de Estado de Energía”, the state secretariat for energy, and may allow the Ministry to impose conditions on the conduct of the activity in order to safeguard the security and quality of supply, the adequacy of investment and compliance with requirements of legal, technical, economic and financial capacity. In electronic communications, the acquisition of operators holding spectrum concessions or significant market power may trigger specific controls. In defence, in addition to the foreign investment regime, authorisations exist for transfers of defence material.
In competition matters, the acquisition of control over undertakings exceeding certain market-share or turnover thresholds may require notification to the competition authority and be subject to authorisation, with the possible imposition of conditions or an outright prohibition. The foreign investor must therefore assess competition risk and foreign investment risk at the same time, because both may determine the timetable and the structure of the transaction.
6.Early detection of foreign investment risk and the design of the transaction
The central point is that the question of administrative authorisation on foreign investment grounds must be identified at the initial stage of the transaction. Before taking the negotiation further, the foreign buyer must analyse whether its identity, its beneficial ownership, the target company's sector of activity, the assets involved and the degree of control it intends to acquire fall within any of the cases of suspension of liberalisation. That analysis must form part of the regulatory due diligence and of the planning of the transaction.
If foreign investment risk is identified, the parties may adjust the perimeter of the transaction, exclude particularly sensitive assets, moderate the degree of control acquired or structure the transaction so as to minimise the need for authorisation. They may also decide whether signing takes place before or after authorisation, how the conditions precedent are framed, what cooperation obligations are imposed and how the risk of refusal or of conditional authorisation is allocated.
7.Conclusion: an M&A transaction with a foreign investor is not always purely private
Buying a company in Spain as a foreign investor is not always a purely private matter between buyer and seller. The investor's identity, its country of residence or of beneficial ownership, the sector of activity, the assets acquired and the ability to exercise control may trigger mechanisms for the supervision and prior authorisation of foreign investment, particularly in strategic sectors or where risk factors are present. Those mechanisms form part of a system that starts from the freedom of capital movements but suspends that freedom in cases affecting security, public order or public health.
For buyers and sellers, integrating this analysis at the initial stage of the transaction is essential. Identifying foreign investment risk makes it possible to adjust the design of the transaction, to plan the timetable, to include appropriate conditions precedent and to agree cooperation obligations and the allocation of risk. Ignoring this dimension may lead to transactions that are legally ineffective, to significant delays, to onerous conditions or even to the impossibility of completing. In an environment in which Spain has strengthened its control of foreign direct investment, the ability to anticipate and manage the need for administrative authorisation has become a key element of any M&A transaction with an international dimension.
