Openness to Foreign Investment
The government of Spain recognizes the value of foreign investment and the economic importance of attracting more. The government places special emphasis on attracting foreign investment to help spur recovery from the economic crisis. There have been no significant changes in Spain's regulations for investment and foreign exchange under the Socialist Party (PSOE) government that took office in March 2004 and was re-elected in March 2008. Spanish law permits foreign investment of up to 100 percent of equity, and capital movements are completely liberalized.
During the first nine months of 2010, gross new foreign direct investment in Spain was 9.1 billion euros, a decrease of 19.69 percent from the first nine months of 2009 (11.3 billion euros). According to Spanish Investment Registry data, the main foreign investors in Spain increased operations significantly during the first nine months of 2010 over the same period in 2009. The U.S. increased investment by 79 percent; the United Kingdom by 102 percent; the Netherlands by 170 percent; and, Italy by 276 percent. China also increased its investment in Spain by 500 percent. The autonomous community of Madrid received 35.1 percent of the investment and the region of Catalonia 33.65 percent. Companies invested especially in manufacturing, electric power and gas, and activities related to professional, scientific and technical activities.
In 2009, gross foreign investment suffered a negative rate of 62% compared to 2008. Disinvestments fell by 54.6 percent compared to 2008 due to a sharp deterioration in investment flows. Total liquidation of companies accounted for 5.6 percent of the total, and 35 percent were sales to residents. Spain no longer has a big wage competitiveness advantage over other major EU economies, and its labor regime suffers from rigidity. Spain has embarked on additional structural reforms in an effort to instill confidence and recover high levels of foreign investment and competitiveness. That said, the government needs to do more to provide a clear, stable and fair legal, regulatory, and policy framework if it wants to attract more foreign investment.
Some of the changes the government instituted in 2010 were perceived by the foreign investment community as unexpected, unilateral, and retroactive and thus as damaging to investor confidence. In April 1999, the adoption of royal decree 664/1999 eliminated the need for government authorization of any investments save those in activities "directly related to national defense," such as arms production. The decree abolished previous authorization requirements on investments in other sectors deemed of strategic interest, such as communications and transportation. It also removed all forms of portfolio investment authorization and established free movement of capital into Spain as well as Spanish capital out of the country. As a result, Spanish law now conforms to multi-disciplinary EU Directive 88/361, part of which prohibits all restrictions of capital movements between member states as well as between such states and other countries, and which classifies investors according to residence rather than nationality.
Registration requirements are simple and straightforward, and apply to foreign and domestic investments equally. They aim to verify the purpose of the investment, and do not block any investment.
A process of privatization of state-owned firms began in the mid-1980s and has been carried out by both Socialist and Popular Party governments in several stages. Spain’s privatization process was especially intense between 1996 and 2000, when large utilities and industrial groups, including Telefonica, Tabacalera, Repsol, and Endesa, were completely privatized. However, several of these companies maintain a de facto monopoly position under private ownership, and a high degree of sector concentration persists years after the main privatizations, reflecting the slow progress of competition in those sectors. U.S. companies have successfully participated in several purchases. In 2004 the government began the privatization of the railroad system. Effective January 1, 2005, the GOS dissolved the National Rail Network (RENFE) and formed two new companies, ADIF and RENFE-Operadora, both of which remain under state control. In November 2009, Iberia Airlines reached a preliminary agreement to merge with British Airways. The resulting conglomerate, International Airlines Group (IAG), is the third airline in the world by revenue, after Delta and American. The state-owned industrial holding SEPI has recently taken steps to sell some of the shares that it still has in listed companies. Particularly, SEPI has released its 2.71% stake in IAG, the 8.65% in Ebro Foods, and half of its 20% stake in the Spanish electricity grid, Red Electrica Espanola.
The Spanish government has liberalized the energy, electricity, and telecommunications markets to varying degrees. These efforts have opened Spain's economy to new investment, including by U.S. companies. However, many observers believe these changes have not been broad enough to fully stimulate the economy. For example, in the telecommunications sector, many analysts believe that Telefonica's dominant position undermines competition and innovation. It is frequently difficult for new entrants to gain traction in sectors dominated by former state-run monopolies such as Telefonica. Moreover, in the energy sector, the government clearly has concerns about possible foreign control of "national champion" companies.
Following are Spain's rankings on four widely accepted measures of the business and investment environment:
TI Corruption Perceptions Index
30 of 178, CPI 6.1
Heritage Economic Freedom
31 of 179, freedom score 70.2
World Bank Doing Business
49 of 183
World Economic Forum Global Competitiveness Report
42 of 139
Conversion and Transfer Policies
There are no controls on capital flows. In February 1992, Royal Decree 1816/1991 provided complete freedom of action in financial transactions between residents and non-residents of Spain. Previous requirements for prior clearance of technology transfer and technical assistance agreements were eliminated. The liberal provisions of this law apply to payments, receipts, and transfers generated by foreign investments in Spain. Capital controls on the transfer of funds outside the country were abolished in 1991. Remittances of profits, debt service, capital gains and royalties from intellectual property can all be effected at market rates using commercial banks.
Expropriation and Compensation
Spanish legislation sets up a series of safeguards that virtually prohibit the nationalization or expropriation of foreign investment. No expropriation or nationalization of foreign investment has taken place in recent years. There are no outstanding investment disputes between the United States and Spain.
A. Legislation establishes mechanisms to solve disputes if they arise. The judicial system is open and transparent, although slow-moving at times. The Spanish judicial system is independent of the executive. Judges are in charge of prosecution and criminal investigation, which permits greater independence. The Spanish prosecution system allows for successive appeals to a higher Court of Justice. The European Court of Justice can hear the final appeal. In addition, the Government of Spain abides by rulings of the International Court of Justice at The Hague. Spain is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Contractual disputes between American individuals/companies and Spanish entities are normally handled appropriately. There is no U.S.-Spain agreement on the mutual recognition of judgments, so U.S. citizens seeking to execute American court judgments in Spain must follow Spanish law, in this instance a complicated procedure known as the "exequator" process. In light of the Embassy's past experience in attempting to assist American citizen claimants with the process, the Embassy recommends that Americans who conclude contracts with Spanish entities specifying the U.S. as the venue for adjudicating disputes also obtain an agreement regarding how a possible U.S. judgment will be executed in Spain.
Spain has a fair and transparent bankruptcy regime. In June 2003, the Spanish Parliament approved a new, modern bankruptcy law that entered into force on September 1, 2004.
The 2001 bankruptcy of a Spanish company previously controlled by U.S. investors led to protracted litigation after the company’s laid-off employees filed a complaint with the National Prosecutor’s Office. Prosecutors charged four U.S. investors and four Spanish managers of the company with fraudulent bankruptcy, corporate malfeasance, and tax fraud. The case has been sent to the National Court for trial, but no date has been set. However, the judge has called upon the defendants to post a prohibitive bond.
Performance Requirements and Incentives
A. Performance requirements are not used to determine the eligibility or level of incentives granted to investors. A range of investment incentives exist in Spain, and they are provided according to the authorities granting incentives and the type and purpose of the incentives.
Authorities that provide incentives in Spain:
- 1. The European Union:
-The European Union provides incentives primarily to projects that focus on economically depressed regions or that benefit the European Union as a whole.
- The European Investment Bank provides global loans for small and medium enterprises as well as individual loans based upon Innovation 2010 Initiative criteria.
- The European Investment Fund provides guarantees and venture capital to small and medium-sized enterprises, focusing on the transportation, telecommunications and energy industries.
- There are various structural funds designed to fund initiatives which reduce the wealth disparity between member states. Most autonomous regions of Spain currently qualify for these programs.
- Financial incentives are routed through major Spanish banks such as the Instituto de Credito Oficial (ICO) and Banco Bilbao-Vizcaya Argentaria (BBVA), and must be applied for through the financial intermediary.
- 2. The Central Government:
- a. Spain’s central government provides numerous financial incentives for foreign investment, generally designed to complement EU financing. The Ministry of Industry, Tourism, and Commerce runs the State Organization for the Promotion and Attraction of Foreign Investment to assist businesses seeking investment opportunities. They provide support to foreign investors in both the pre and post-investment phases. A comprehensive list of incentive programs is available at its website, www.investinspain.org. Applications for these incentives should be made directly to the relevant government agency.
- b. Spain provides generous subsidies for job training and job creation. Projects designated as Investment and Employment may be eligible for further subsidies from the Government Employment Public Service (formerly the National Employment Institute). A new agreement among business, labor, and government, which still has to pass Congress, would offer waivers or sharp reductions in Social Security contributions to employers who hire young people or the long-term unemployed to part-time jobs.
- c. There are numerous industry-specific subsidies awarded based upon the National Plan for Research &Development and Technological Innovation 2008-2011. In particular, Spain is emphasizing the development of green energy and R&D capabilities.
- d. The central government encourages the creation of small and medium-sized enterprises through the InnoEmpresa plan. This plan focuses on the industrial, construction, tourism, business, and services sectors.
- e. The state-owned corporate entity (Instituto de Crédito Oficial, ICO) attached to the Ministry of Economy and Finance, has the status of the State’s Financial Agency. Its activity seeks to boost sectors such as transportation and textiles and to encourage technological innovation and renewable energy projects as well as help to alleviate critical situations. ICO direct financing programs are aimed at financing large-scale investment projects in strategic sectors in Spain, backing large-scale investments by Spanish companies abroad, and supporting projects that are economically, financially, technologically and commercially sound and involve a Spanish interest.
- 3. The Regional Governments:
Spain’s 17 regional governments, known as Autonomous Communities, provide additional incentives for investments in their region. Many are similar to the incentives offered by the national government and the EU, but they are not all compatible. Most are granted on an annual basis. Incentives include: Nonrefundable subsidies; special loan and credit terms and conditions; technical counseling and training courses; tax incentives; guarantees; and social security deductions.
a) Generally, the regional governments are responsible for the management of each type of investment. This provides a benefit to investors as each autonomous community has a specific interest in attracting investment that enhances its economy.
b) Types of incentives available:
-- Financial subsidies
-- Exemption from certain taxes
-- Preferential access to official credit
-- Reduction of burdens, with social security discounts
-- Bonuses for acquisition of certain material
-- Customs exemption for certain imported goods
-- Real estate grants, and gratuitous or favorable land
-- Guarantees granted in credit operations
-- Loans with low interest, long maturities, and grace
-- Guarantee of dividends
-- Professional training and qualification
-- Indirect aid by means of supplying infrastructure
facilities (accesses, services, communications,
c) Incentives from national, regional or municipal governments and the EU are granted to Spanish and foreign companies alike without discrimination.
d) Spain is in compliance with its WTO TRIMS [Trade-Related Investment Measures] obligations.
- 4. Municipalities:
- a. Municipal corporations offer incentives to direct investment by facilitating infrastructure needs, granting licenses, and allowing for the operation and transaction of permits. Municipalities such as Madrid offer numerous support services for potential foreign investors. Local economic development agencies often provide free advice on the local business environment and relevant laws, administrative support, and connections to human capital in order to facilitate the establishment of new businesses. Usually they are designed to help ease the initial operations of direct investment.
Right to Private Ownership and Establishment
The Constitution protects private ownership. Spanish law establishes clear rights to private ownership, and foreign firms receive the same legal treatment as Spanish companies.
There is no discrimination against public or private firms with respect to local access to markets, credit, licenses and supplies. American construction companies note, however, that they have not been able to win public sector construction contracts. They have, however, won private sector construction contracts.
Protection of Property Rights
Spanish law protects property rights, with enforcement carried out at the administrative and judicial levels. Any decision by the Administration pertaining to property rights can be appealed first at the administrative level and then at the judicial level, which has three levels of court appeals. Property protection is effective in Spain, although the system is slow. The Spanish legal system fully recognizes property rights and facilitates their acquisition and disposition. Mortgages are common in Spain.
Spanish patent, copyright, and trademark laws all approximate or exceed EU levels of intellectual property protection. Spain is a party to the Paris Convention, Bern Convention, the Madrid Accord on Trademarks, and the Universal Copyright Conventions. Spain has ratified the World Intellectual Property Organization's (WIPO) Copyright Treaty (WCT) and the WIPO Phonograms and Performances Treaty (WPPT), the so-called Internet treaties. In 2006, Spain passed legislation implementing the EU Copyright Directive, thereby also making the Internet treaties part of Spanish law. The GOS unveiled an anti-piracy action plan in April, 2005 which has enjoyed only limited success. The Internet presents the most problematic area in terms of respect for intellectual property rights in Spain. While law enforcement agencies are combating street piracy, Internet piracy has increased sharply over the past several years. U.S. copyright-dependent industries - music, movies, and entertainment software - continue to report a steady decline in sales attributable to digital piracy and cite Spain as having one of the worst problems in the world in this regard. Spanish cultural industries have also been hit hard by piracy. Negotiations between Internet Service Provider (ISP) and rights-holder groups on measures to curb and punish illegal file-sharing and downloading of protected content broke off in April 2009 and did not resume, despite the government’s efforts to bring the parties together. In February 2011, more than a year after the government introduced it, Congress passed the Sustainable Economy Law (LES), which contains controversial provisions giving the government authority to shut down or block websites found to host or link to infringing content. The law provides for an administrative process with two separate judicial interventions before action could be taken against a site. The government is developing implementing regulations. However, a "Circular" issued in 2006 by the Prosecutor General's Office to guide prosecutors stated that peer-to-peer (P2P) downloading of protected content should not be prosecuted as a criminal offense unless a commercial profit motive can be established. While the Circular defines such activity as a civil wrong, it contributes to a widespread public perception that P2P activity is legal. A number of legal obstacles also impede copyright holders from obtaining redress via civil litigation.
Public and private sector enforcement actions (especially private sector initiatives) using Spain's patent, copyright and trademark legal framework have increased, though less so in cases involving alleged Internet piracy. Industry groups praise police enforcement actions; their concerns have to do more with the judiciary than with Spain's police forces. Despite enforcement efforts, piracy remains a significant problem. Industry sources estimate that illegal CDs constitute 30 percent of the Spanish market, with pirated versions of new releases approaching 50 percent. More than 97 percent of music downloads are illicit. Pirated software, videogames and DVDs are also sold widely, though the government, working closely with industry, has succeeded in reducing business software piracy. In June 2010, the government modified the penal code to provide alternatives to prison sentences for persons of modest means who sell counterfeit or pirated merchandise at a profit of less than 400 euros. Right-holders have expressed concern that by reducing such activity from a crime to a misdemeanor, the government is sending a signal that it is not deemed a serious offense. Furthermore, they note that the new penal code provisions may make it harder for law enforcement authorities to pursue retail sales of IPR-protected merchandise (especially fake brand-name products) over the Internet.
A non-renewable 20-year period for working patents is available if the patent is used within the first three years. Spain permits both product and process patents.
Spain has ratified the 1973 Munich European Patent Convention allowing Spain to be designated in a European patent application. European patents are administered by the European Patent Office, based in Munich (Germany). Spain continues to oppose the proposal to implement a new European patent on the grounds that Spanish is not included among languages in which a patent may be registered. Pharmaceutical companies have expressed concern over recent government cost-cutting measures that affect market access and reference pricing for brand-name medications, as well as practices by the governments of several of Spain’s 17 autonomous communities (regions) which they assert are incompatible with central government policies and which further limit what medications are available to patients in the public health system.
The law extends copyright protection to all literary, artistic or scientific creations, including computer software. Spain and the United States are members of the Universal Copyright Convention.
There are various procedures to register a trademark in Spain. The Spanish Office of Patents and Trademarks oversees protection for national trademarks. Trademarks registered in the Industrial Property Registry receive protection for a 10-year period from the date of application, which may be renewed. Protection is not granted for generic names, geographic names, those that violate Spanish customs or other inappropriate trademarks. Spanish authorities published a new Trademark law in 2001 (Law 17/2001), which came into effect in July 2002.
Applicants must designate the countries where they wish to obtain protection. The World Intellectual Property Organization (WIPO, headquartered in Geneva) oversees an international system of registration. However, this system only applies to U.S. firms with an establishment in a country that is a party of the Agreement or the Protocol.
Businesses may seek a trademark valid throughout the EU. The Office for Harmonization in the Internal Market (OHIM) for the registration of community trademarks in the European Union started its operations in 1996. Its headquarters are located in Alicante:
Oficina de Harmonizacion del Mercado Interior (Office for
Harmonization in the Internal Market)
Avenida Aguilera, 20
Tel: (34) 96-513-9100
Fax: (34) 96-513-9173
Transparency of Regulatory System
Spain modernized its commercial laws and regulations following its 1986 entry into the EU. Its local regulatory framework compares favorably with other major European countries. Bureaucratic procedures have been streamlined and much red tape has been eliminated, though permitting and licensing processes can still suffer delays. Efficacy of regulation at the regional level is uneven.
Quasi-independent regulatory bodies exist in several sectors; however, they are for the most part still finding their role and fighting to assert their independence. Making the transition from state-owned monopolies to promoting full and open competition has been a slow, but steady, process.
The comment process for proposed rule-making changes is not as formal as in the United States. Spain does not have an official comment procedure for government regulations similar to what exists in the U.S. system. Most new laws and regulations are published as drafts before they go into force, but by the time they are published, there are often limited opportunities to change them. Government officials do seek out stakeholder comments before finalizing significant regulations, but the comment system is geared towards collecting input from officially recognized industry sector associations or consumer organizations. The general public will not necessarily be aware of a regulation until it is finalized and published.
Efficient Capital Markets and Portfolio Investment
The convergence of monetary policy following the adoption of the euro has led to a significant lowering of interest rates in recent years; however, the recent downgrade of Spanish sovereign debt has had an impact on public financing costs. Foreign investors do not face discrimination when seeking local financing for projects. There is a large range of credit instruments available through Spanish and international financial institutions. Many large Spanish companies rely on cross-holding arrangements and ownership stakes by banks rather than pure loans. However, these arrangements do not act to restrict foreign ownership. Several of the largest Spanish companies that engage in this practice are also traded publicly in the U.S. There is a significant amount of portfolio investment in Spain, including by American entities. During 2009, Spain saw an increase in foreign investment stock in negotiable securities of 20.83 percent over the previous year, so that accumulated foreign investment amounted to USD 1,063.33 billion (€762.4 billion.) 99.7 percent of this amount was in equity securities, and 0.33 percent in shares of investment funds. Investors were mostly from EU countries (90.13 percent) and the United States (7.52 percent.)
Corporate scandals in the U.S. and Europe, further integration of European capital markets, and efforts to make Spain a more attractive destination for foreign investment have led to several new initiatives to improve the transparency of capital markets and corporate governance. Spanish business organizations and private economic think tanks are proactive on corporate governance issues. In 2003 and 2004, Spanish business leaders created a progressive code of business practices and ethics. In 2004, Spanish regulatory agencies and lawmakers codified the business codes and required Spain's listed companies to follow a rigorous set of corporate governance and transparency rules.
Due to extensive cross-ownership within a small universe of dominant companies, Spanish corporations have traditionally not had truly independent board members. This situation is slowly changing, with several leading Spanish companies introducing independent members to their boards in an effort to improve transparency. Hostile takeover rules and in the past the threat of a government "Golden Share" veto have been used to prevent takeovers of companies. While surfacing on occasion in purely Spanish transactions, these defenses are most often used when the acquiring company is partially or wholly owned by other governments, with the Spanish government and securities regulators acting to prevent what they interpret as another government taking over a privatized Spanish company. A European Court of Justice decision has ruled such practices illegal. In 2006, parliament passed legislation abolishing the "Golden Share" whereby the government had to approve the sale of more than 10 percent of the shares in strategically important companies such as Telefonica, Endesa, Iberia and Repsol. Total assets for the six biggest banks in Spain by the end of 2010 were 2,472.1 billion euros:
Banco Santander Central Hispano: 1,217.5 billion euros
Banco Bilbao Vizcaya Argentaria: 552.7 billion euros
La Caixa: 285.7 billion euros
Caja Madrid: 189.0 billion euros
Banco Popular: 130.1 billion euros
Banco Sabadell Atlantico: 97.1 billion euros
As a result of conservative banking regulation and practices, Spain’s banking system was not directly affected by the U.S. subprime mortgage crisis that affected many banks in other European countries in 2008, although the system was hurt by the resulting international liquidity crisis. In response, the government increased deposit insurance, issued guarantees for some financial instruments, and purchased others; in 2010 it injected 14 bilion euros into financial institutions. A domestic housing slump that began in 2007 has had a greater impact, particularly on savings banks (“cajas de ahorro”), many of which are heavily exposed to troubled construction and real estate companies. The authorities intervened in one caja in March 2009 and another in May 2010. The government created a fund that is able to use up to 90 billion euros to help finance mergers; a number of financial institutions have sought such assistance. Much concern remains, however, about the viability of some cajas due in large part to uncertainty over the true value of many real estate assets on their books. A 2010 decree enables cajas to raise capital in private markets and provides incentives for them to convert to tradiational banks; a 2011 Bank of Spain regulation requires them to reveal the value of all their assets. The Spanish “cajas” began work to merge operations and establish themselves as new banks following new regulations issued by the government to raise core capital by attracting new investors and to reveal its exposure to bad debt with greater transparency. Currently there are 17 savings banks, down from 45 a year ago.
In 2009, new Spanish gross investment abroad was USD 24.07 billion, a 60.4 percent decline from the 2008 annual level. During the first nine months of 2010, Spanish authorities recorded USD 7.6 billion in new foreign direct investment, a decline of more than 48.7 percent compared with investment in the first nine months of 2009. For the year 2010, the Spanish government expects a smaller decline (between 15 and 20 percent) in investment abroad. (Note: Detailed statistics on Spanish overseas investments and foreign investments in Spain for 2010 will be available by the end of March 2011.) The decrease in Spanish overseas investment reflects the impact of both the domestic and global economic crises on Spanish companies.
Competition from State-owned Enterprises
Iberia, Spain’s national airline, which was a state-owned company for most of its history, faces fierce competition from the still state-owned railway company Renfe-Operadora, which offers high speed passenger service (“AVE”) between Madrid and Barcelona and three other domestic routes. Private passenger bus companies also face competition from the AVE in pricing. Airlines and private bus companies have complained about unfair competition from the state-owned rail company, claiming that AVE tickets are being sold below cost for political reasons in a manner “that can be considered state aid.” Competition from the AVE, combined with the general economic crisis and concomitant decline in tourism, has caused a drop in passenger demand of 20% for bus transportation and about 10% for air travel over the last two years. RENFE announced that in 2010 it has for the first time turned a small profit on its commercial and long-distance and that, in keeping with European regulations, it no longer receives a state subsidy.
Corporate Social Responsibility (CSR)
Though it began later in Spain than in other advanced European economies, there is now a growing movement in favor of corporate social responsibility (CSR). Spanish companies consider corporate reputation, competitive advantage, and industry trends to be the major driving forces of CSR. Initiatives undertaken by the EU and international organizations have influenced companies' decision to implement CSR, and companies are increasingly adhering to its principles. Associations and fora that bring together the heads of leading corporations, business schools and other academic institutions, NGOs and the media are actively contributing to implementation of CSR in Spain. Although the amount of CSR is still moderate by international standards, in the last two decades there has been a growing interest in adopting CSR. Today, Spain’s largest energy, telecommunications, infrastructure, transport, financial services and insurance companies, among many others – including such companies as Repsol, Telefonica, Vodafone, Ferrovial, Renfe-Operadora, Unión Fenosa, Endesa, BBVA, BSCH and Mapfre - have increasingly undertaken CSR projects, and such practices are spreading throughout the economy. Regional savings banks (“cajas”), prohibited by law from distributing profits, funnel their earnings into social and cultural activities. The Spanish government has taken some measures to promote CSR. In July 2002, the government set up a special commission to prepare a report to promote transparency among listed companies. The so-called Aldama Report of January 2003 focused attention on the duties and responsibilities of directors and proposed changes to the law to improve transparency in corporate governance that were included in a new law on transparency. The government endorsed the OECD Guidelines for Multinational Enterprises, and the national point of contact is the Ministry of Industry, Tourism and Commerce.
The Government of Spain is involved in a long-running campaign against Basque Fatherland and Liberty (ETA), a terrorist organization founded in 1959 and dedicated to promoting Basque independence. ETA has traditionally targeted Spanish government officials, members of the military and security forces, journalists, and members of the Popular Party and Socialist Party for assassination. More broadly, symbolic targets include representatives of the Spanish state, security forces, and prominent industrialists. U.S. citizens and U.S. companies have not been ETA targets. ETA's main methods are car bombs and assassinations with firearms. ETA has killed more than 40 persons since January 2000 and more than 850 persons since its campaign began in 1968.
Suspected ETA operatives extort "revolutionary taxes" from businesspersons and professionals living in the Basque region, sometimes bombing their property or sending the demands to their children to intimidate them into paying extortion demands. ETA supporters also engage in street violence and vandalism against government facilities, economic targets (particularly banks), and the homes and property of persons opposed to ETA's cause. ETA gunmen, in late 2008, killed a Basque businessman whose construction company is involved in the construction of a high-speed rail linking Basque cities to Madrid. In mid-2009, the group marked its 50th anniversary with a series of high-profile and deadly bombings. There were no terrorist attacks within Spain in 2010.
Arrests and seizures in 2010, combined with the cumulative effect of years of intense crackdown, effectively decapitated ETA’s leadership and neutralized its capacity to sustain a prolonged operational campaign. Nevertheless, the group retains the capacity to kill. The lone fatality attributed to ETA in 2010 occurred outside Paris, France in March, when ETA members shot a French policeman during a botched car-theft attempt. In September 2010, ETA issued several statements announcing variously-defined ceasefires, but refusing to definitively renounce violence. In January 2011, ETA announced a “permanent” ceasefire; however, similar declarations by the group in the past, followed by new terrorist attacks, have given rise to skepticism on the part of Spanish government officials.
On March 11, 2004, terrorists linked to Islamic extremist groups killed 191 people on commuter trains headed for Madrid's central Atocha train station. Several foreign nationals died in the attack, although there were no American citizen casualties. Although U.S. citizens and companies in Spain have not been direct targets of terrorists, the potential for violent extremism exists in Spain. In the aftermath of the train bombings, the Spanish government mobilized against the threat and continues to fight aggressively against international terrorism.
Giving or accepting a bribe is a criminal act. Under Section 1255 of the Spanish civil code, corporations and individuals are prohibited from deducting bribes from domestic tax computations.
Spain has a wide variety of laws, regulations, and penalties dealing with corruption. The legal regime has both civil and criminal sanctions for corruption, bribery, financial malfeasance, etc. The Spanish legal regime is hampered, however, by the fact that only natural persons (i.e., individuals), as opposed to legal persons (i.e., companies), can be held criminally liable for the actions of a company. Furthermore, civil and administrative proceedings cannot begin until there is a finding of criminal liability against a natural person. Although the Ministry of Justice has initiated an amendment process to provide for sanctions of legal persons, it has not yet become law.
On November 29, 2006, Parliament passed a tough law against tax evasion that is designed, in part, to combat corruption. The government also issued two regulations imposing new requirements on banks and financial institutions to fight money laundering. In April 2010 Spain’s Parliament passed a new law, Law 10/2010, aimed at protecting the integrity of the financial and other economic sectors through the establishment of obligations to prevent money laundering and terrorist financing. With this law, Spain has successfully transposed the third EU money laundering Directive (Directive 2005&60/CE) of the European Parliament and the Council of October 26, 2005. Banks and other financial institutions, investment services firms, collective investment institutions, management companies of private equity and venture capital firms are all obliged to comply with the law. Some portions of the new law entered into force immediately, but others are awaiting implementing regulations, which are expected to be approved in the course of 2011.
Spain is a signatory of the OECD Convention on Combating Bribery, and Spanish officials attach importance to combating corruption. The government is working to amend domestic law to make the Convention a more useful investigative and prosecutorial tool.
The General State Prosecutor is authorized to investigate and prosecute corruption cases involving funds in excess of roughly USD 500,000. The Office of the Anti-Corruption Prosecutor, a subordinate unit of the General State Prosecutor, has 15-20 prosecutors in Madrid, Barcelona, and Valencia who are tasked with investigating and prosecuting domestic and international bribery allegations. There is also the "Audiencia Nacional," a corps of magistrates whose attributes include broad discretion to investigate and prosecute alleged instances of Spanish businesspeople bribing foreign officials.
Spain enforces anti-corruption laws on a generally uniform basis. Public officials are probably subjected to more scrutiny than private individuals, but several wealthy and well-connected business executives have been successfully prosecuted for corruption. There is no obvious bias for or against foreign investors. U.S. firms have not identified corruption as an obstacle to investment in Spain. Although no formal corruption complaints have been lodged, U.S. companies have indicated that they have been disqualified at times from public tenders based on reasons that these companies’ legal counsels did not consider justifiable.
Spain’s rank in Transparency International’s annual Corruption Perceptions Index improved by two places in 2010 after three years of decline. However, its overall score has remained stable in recent years.
Conversations with representatives of the Spanish legal community indicate that the Convention is increasingly being taken into account in the drafting of contracts. Spanish companies, both domestic and multinational, are insisting that clauses protecting them against requests for bribes be inserted into business contracts. Tax evasion, particularly by those who work in cash-based sectors, has reportedly been heavy.
Bilateral Investment Agreements
Spain has concluded bilateral investment agreements with Hungary (1989), the Czech Republic (1990), Russia (1990), Argentina (1991), Chile (1991), Tunisia (1991), Egypt (1992), Poland (1992), Uruguay (1992), Paraguay (1993), Philippines (1993), Algeria (1994), Honduras (1994), Pakistan (1994), Kazakhstan (1994), Peru (1994), Cuba (1994), Nicaragua (1994), Lithuania (1994), Bulgaria (1995), Dominican Republic (1995), El Salvador (1995), Gabon (1995), Latvia (1995), Malaysia (1995), Romania (1995), Indonesia (1995), Venezuela (1995), Turkey (1995), Lebanon (1996), Ecuador (1996), Costa Rica (1997), Croatia (1997), Estonia (1997), India (1997), Panama (1997), Slovenia (1998), South Africa 1998), Ukraine (1998), the Kingdom of Jordan (1999), Trinidad and Tobago (1999), Bolivia (2001), Jamaica (2002), Iran (2002), the Federal Republic of Yugoslavia (2002), Bosnia and Herzegovina (2002), Nigeria (2002), Namibia (2003), Albania (2003), Uzbekistan (2003), Syria (2003), Colombia (2005), Macedonia (2005), Morocco (2005), Kuwait (2005), China (2005), the Republic of Moldova (2006), Mexico (2006), Libya (2007), Bahrain (2008), and Senegal (2008.)
Spain and the United States have a Friendship, Navigation and Commerce (FNC) Treaty and a Bilateral Taxation Treaty (1990). Spanish officials indicated that they would like to keep the FNC, despite indications in 2004 that the European Commission wanted Member States to terminate bilateral FCN agreements. In July 2010, in response to recommendations by some U.S. and Spanish companies and business groups, the Governments of the U.S. and Spain held the first round of negotiations in Madrid on a new Double Taxation Treaty. Many investors from both countries have labeled the 1990 Treaty outmoded and inadequate and an obstacle to increased investment. A second round was held in Washington in early December 2010. Separately, some U.S. and other foreign companies operating in Spain say they are disadvantaged by the Tax Administration’s interpretation of Spanish legislation designed to attract foreign investment. For the past several years, the Tax Administration has been investigating and disallowing deductions based on operational restructuring at the European level of a number of foreign-owned holding companies (Empresas de Tenencia de Valores Extranjeros or ETVEs) with a presence in Spain, claiming the companies are committing “an abuse of law.” This situation disadvantages foreign direct investment in Spain; many U.S. companies now channel their Spanish investments and operations through third countries. Some companies assert that this practice conflicts with Spain’s obligations under the existing Double Taxation Treaty and suggest that the USG consider invoking the Treaty’s mutual agreement procedure and request government-to-government negotiations. In 2010, the Prosecutor General’s Office opened a criminal investigation into one U.S.-origin, Spain-based multinational holding company and several of its employees, eventually forcing the company to settle by paying a large fine and significant alleged tax arrears.
OPIC and Other Investment Insurance Programs
As Spain is a member of the European Union, OPIC insurance is not offered. Various EU directives, as adopted into Spanish law, adequately protect the rights of foreign investors. Spain is a member of the World Bank's Multilateral Investment Guarantee Agency (MIGA).
The economic crisis continues to have a significant adverse impact on employment in Spain. After having substantially reduced unemployment in the first seven years of the last decade, Spain is suffering one of the highest unemployment rates recorded in the last 20 years. The unemployment rate climbed from 8 percent in the third quarter of 2007 and to 20.3 percent in the fourth quarter of 2010. More than 4.7 million people are reported jobless. According to 2010 statistics, there are about 18.4 million people in the work force. This figure declined by about 432,000 people over the past year. Unemployment for women remains slightly higher than the male average, at 20.8 percent compared to 19.9 percent. Unemployment among youth (ages 18-30) is an exceptionally high 40 percent.
Spain faces a shortage of high-tech workers for its IT sector and of unskilled workers for its fishing and agricultural industries. Immigration has slowed down significantly as a result of the severe employment crisis, which disproportionately affects the immigrant community. A number of immigrant workers, especially from Latin America, have returned home. The Cabinet introduced an initiative, in September 2008, whereby it would pay jobless immigrants their unemployment benefits in a lump sum provided they return to their home countries and promise not to return to Spain for three years. Only a very small number of immigrants are reported to have taken advantage of this program.
Labor market reforms in 1994 and 1997 eased Spain's well-known labor market rigidities but did not fundamentally change the difficult labor situation. The labor market is divided into permanent workers with full benefits and temporary workers with few benefits. Labor market reform legislation enacted by Congress in September 2010 aims to encourage the use of indefinite labor contracts by reducing the number of days of severance pay under these contracts. It is too early to tell how much tangible impact it will have in stimulating employers to hire more workers to indefinite contracts.
In January 2011, government, business, and labor agreed to a pension reform that includes increasing the legal retirement age from 65 to 67 over a 15-year period beginning in 2013, and gradually increasing the number of years of contributions on which pensions are calculated. They followed with a broader Social and Economic Agreement that, in addition to pension reform, includes new job creation, facilitation, and retraining programs; general principles to guide reform of the framework for negotiating collective bargaining agreements; a commitment to design approaches to implementing the 2007 public employment statute; and a range of industrial, energy, and innovation policy reforms.
Collective bargaining is widespread in both the private and public sectors. Sixty percent of the working population is covered by collective bargaining agreements (“convenios colectivos”), although only a minority (generally estimated to be about 10 percent) of those are actually union members. Under the Spanish system, workers elect delegates to represent them before management every four years. If a certain proportion of those delegates are union-affiliated, those unions form part of the workers' committees. Large employers generally have individual collective agreements. In industries characterized by smaller companies, collective agreements are often industry-wide or regional. Labor unions and business organizations are in the process of negotiating a new legal framework for future collective bargaining agreements. Slightly more than half of all collective bargaining provide for wage adjustments based on anticipated inflation, a system that has been criticized by the Bank of Spain as inimical to the goals of increasing productivity and improving competitiveness.
The Constitution guarantees the right to strike, and this right has been interpreted to include the right to call general strikes to protest government policy.
Foreign-Trade Zones/Free Ports
Both on the mainland and islands (and in most Spanish airports and seaports) there are numerous free trade zones where manufacturing, processing, sorting, packaging, exhibiting, sampling and other commercial operations may be undertaken free of any Spanish duties or taxes. The largest free trade zones are in Barcelona, Cadiz and Vigo. Others vary in size from a simple warehouse to several square kilometers. Spanish customs legislation allows for companies to have their own free trade areas. Duties and taxes are payable only on those items imported for use in Spain. These companies have to abide by Spanish labor laws.
Foreign Direct Investment Statistics
2007 2008 2009
(In Million euros)
Total new foreign
in Spain 37,588 38,659 14,694
U.S. new direct investment
in Spain 1,779 393 1,073
U.S. share of total new
direct investment (%) 4.7 1.0 7.3
Total new Spanish
investment abroad 110,092 46,015 21,188
New Spanish investment in U.S. 11,936 7,898 5,458
U.S. share of total
New Spanish investment (%) 10.8 17.3 25.8
New Foreign Direct Investment in Spain (2009): by country of origin
United Arab Emirates 28.3 percent
France 19.8 percent
United Kingdom 8.5 percent
U.S. 7.3 percent
The Netherlands 5.5 percent
Germany 3.7 percent
Italy 3.3 percent
Luxembourg 3.1 percent
Portugal 3.0 percent
New Foreign Direct Investment in Spain (2009): by industry sector destination
Petroleum refining 28.3 percent
Telecommunications 13.8 percent
Financial Services 10.6 percent
Wholesale trade 9.7 percent
Transportation and Storage 7.7 percent
Real Estate Promotion 4.6 percent
Construction 3.9 percent
Machinery manufacturing 4.4 percent
Electric power and gas 2.4 percent
Source: Directorate General of Trade and Investment, Ministry of Industry, Tourism and Trade.
Major Foreign Investors
Foreign investment has played a significant role in modernizing the Spanish economy over the past 35 years. Attracted by Spain's large domestic market, export possibilities and growth potential, foreign companies in large numbers have set up operations. Spain's automotive industry is almost entirely foreign-owned.
Multinationals control half of the food production companies, a third of chemical firms, and two-thirds of the cement sector. Several foreign banks acquired networks from Spanish banks, and foreign firms control close to one third of the insurance market. In 2009 there was an absence of large mergers and acquisitions compared to those recorded in 2007 and 2008 that partially explain the decline in direct investment flows. In 2009, Spain recorded USD 20.5 billion in new foreign direct investment (FDI), a decrease of 62 percent compared with investment in 2008. It represents 1.6% of GDP, almost three points less than in 2008. In 2009, Spain continued as the seventh recipient of new FDI in the world (4.25 percent of the total) and the fourth in the European Union. As noted in paragraph A1, new investment declined significantly in the first nine months of 2010.
Note: FDI numbers provided in this section do not include portfolio investment.