Policies Towards Foreign Direct Investment

Foreign direct investment (FDI) has played a significant role in modernizing the Spanish economy during the past 40 years. Attracted by Spain’s large domestic market, export possibilities, and growth potential, foreign companies set up operations in large numbers. Spain’s automotive industry is mostly foreign-owned. Multinationals control half of the food production companies, one-third of chemical firms, and two-thirds of the cement sector. Several foreign investment funds acquired networks from Spanish banks, and foreign firms control about one-third of the insurance market.

The Government of Spain recognizes the value of foreign investment. Spain offers investment opportunities in sectors and activities with significant added value. Spanish law permits 100 percent foreign ownership in investments (limits apply regarding audio-visual broadcast licenses and strategic sectors of the economy; see next section), and capital movements are completely liberalized. Due to its degree of openness and the favorable legal framework for foreign investment, Spain has received significant foreign investments in knowledge-intensive activities

New FDI into Spain declined by 54.8 percent in 2019 from its peak in 2018, according to Spain’s Industry, Trade, and Tourism Ministry data. Compared with the average between 2015 and 2017, 2019 was only slightly lower. In 2019, 30.1 percent of total gross investments were investments in new facilities or the expansion of productive capacity, while 34.0 percent of gross investments were in acquisitions of existing companies. In 2019 the United States had a gross direct investment in Spain of EUR 609 million, accounting for 2.7 percent of total investment and representing a decrease of 38.1 percent compared to 2018. U.S. FDI stock in Spain stayed relatively steady between 2013 (USD 33.9 billion) to 2017 (USD 33.1 billion).

Limits on Foreign Control and Right to Private Ownership and Establishment

Spain has a favorable legal framework for foreign investors. Spain has adapted its foreign investment rules to a system of general liberalization, without distinguishing between EU residents and non-EU residents. Law 18/1992, which established rules on foreign investments in Spain, provides a specific regime for non-EU persons investing in certain sectors: national defense-related activities, gambling, television, radio, and air transportation. For EU residents, the only sectors with a specific regime are the manufacture and trade of weapons or national defense-related activities. For non-EU companies, the Spanish government restricts individual ownership of audio-visual broadcasting licenses to 25 percent. Specifically, Spanish law permits non-EU companies to own a maximum of 25 percent of a company holding a digital terrestrial television broadcasting license; and for two or more non-EU companies to own a maximum of 50 percent in aggregate. In addition, under Spanish law a reciprocity principle applies (art. 25.4 General Audiovisual Law). The home country of the (non-EU) foreign company must have foreign ownership laws that permit a Spanish company to make the same transaction.

The Spanish government issued new regulations on foreign investment in March 2020. In Royal Decree-Law 8/2020, subsequently modified by Royal Decree 11/2020, the government prohibited the acquisition by foreign investors of 10 percent or more of companies active in sectors listed below. Purchases of less than 10 percent are also subject to authorization if they result in participation in the control/management of the company.

The sectors covered are:

• critical infrastructures, both physical and virtual (energy, transport, water, healthcare, communications, media, data storage and processing, aerospace, defense, finance, and sensitive installations)
• critical technology and dual-use products;
• essential supplies (energy, hydrocarbons, electricity, raw materials and food);
• sectors with sensitive information such as personal data or with capacity to control such information and;
• the media.

Under these 2020 Royal Decrees, foreign investment in any industry is also required to receive approval beforehand if the foreign investor is controlled directly or indirectly by the government of another country, if the investor has invested or participated in sectors affecting the security, public order, or public health in another EU Member State, or if administrative or judicial proceedings have been initiated against the investor for exercising illegal or criminal activities. Investments under EUR 1 million are exempted, investments between EUR 1 and 5 million follow a simplified procedure.

The Spanish Constitution and Spanish law establish 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.

Other Investment Policy Reviews

Spain is a signatory to the convention on the Organization for Economic Co-operation and Development (OECD). Spain is also a member of the World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD). Spain has not conducted Investment Policy Reviews with these three organizations within the past three years.

Business Facilitation

To set up a company in Spain, the two basic requirements include incorporation before a Public Notary and filing with the Mercantile Register (Registro Mercantil). The public deed of incorporation of the company must be submitted. It can be submitted electronically by the Public Notary. The Central Mercantile Register is an official institution that provides access to companies’ information supplied by the Regional Mercantile Registers after January 1, 1990. Any national or foreign company can use it but must also be registered and pay taxes and fees. According to the World Bank’s Doing Business report, the process to start a business in Spain should take about two weeks.

“Invest in Spain” is the Spanish investment promotion agency to facilitate foreign investment. Services are available to all investors.

Useful web sites:

• Companies register: http://www.rmc.es/Home.aspx 
• Companies register for the Madrid region: https://www.rmercantilmadrid.com/RMM/Home/Index.aspx 
• More information on the Mercantile Registry: http://www.rmc.es/ 
• Investment promotion agency: http://www.investinspain.org/invest/es/cabecera/faq-s/establecimiento-de-una-empresa/index.html 

Outward Investment

Among the financial instruments approved by the Spanish Government to provide official support for the internationalization of Spanish enterprise are the Foreign Investment Fund (FIEX), the Fund for Foreign Investment by Small and Medium-sized Enterprises (FONPYME), the Enterprise Internationalization Fund (FIEM), and the Fund for Investment in the tourism sector (FINTUR). The Spanish Government also offers financing lines for investment in the electronics, information technology and communications, energy (renewables), and infrastructure concessions sectors.

Spain has concluded bilateral investment agreements with: Hungary (1989), the Czech Republic (1990), Russia (1990), Azerbaijan (1990), Belarus (1990), Georgia (1990), Tajikistan (1990), Turkmenistan (1990), the Kyrgyz Republic (1990), Armenia (1990), Slovakia (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), Republic of Korea (1994), Bulgaria (1995), Dominican Republic (1995), El Salvador (1995), Gabon (1995), Latvia (1995), Malaysia (1995), Romania (1995), Venezuela (1995), Turkey (1995), Lebanon (1996), Ecuador (1996), Costa Rica (1997), Croatia (1997), Estonia (1997), Panama (1997), Slovenia (1998), Ukraine (1998), the Kingdom of Jordan (1999), Trinidad and Tobago (1999), Jamaica (2002), Iran (2002), Montenegro (2002), Bosnia and Herzegovina (2002), Serbia (2002), Nigeria (2002), Guatemala (2002), Namibia (2003), Albania (2003), Uzbekistan (2003), Syria (2003), Equatorial Guinea (2003), Colombia (2005), North Macedonia (2005), Morocco (2005), Kuwait (2005), China (2005), the Republic of Moldova (2006), Mexico (2006), Vietnam (2006), Saudi Arabia (2006), Libya (2007), Senegal (2007), Bahrain (2008), the Islamic Republic of Mauritania (2008), Bolivia (2012), South Africa (2013), India (2016), and Indonesia (2016).

Spain and the United States have a Friendship, Navigation, and Commerce (FCN) Treaty, and a Bilateral Taxation Treaty (1990), which was amended on January 14, 2013, and entered into force in November 2019.

Transparency of the Regulatory System

On December 2014, the Spanish government launched a transparency website that makes over 500,000 details of public interest freely accessible to all citizens. The website offers details about the central government, public institutions such as the Royal House, the Parliament, the Constitutional Court, the Judicial Power, Ombudsman, the Audit Court, the Central Bank, and the Economic and Social Council, and other organisms such as the European Commission. http://transparencia.gob.es/transparencia/en/transparencia_Home/index.html  Regional and local authorities have developed their own transparency portals and related legislation.

International Regulatory Considerations

Spain’s local regulatory framework compares favorably with other major European countries, although permitting and licensing processes may result in significant delays. The efficacy of regulation at the regional level is uneven. With a license from only one of Spain’s 17 regional governments, companies are able to operate throughout the Spanish territory. The measures are designed to reduce business operating costs, improve competitiveness, and attract foreign investment.

Legal System and Judicial Independence

The Spanish judiciary has a well-established tradition of supporting and facilitating the enforcement of both foreign judgments and awards. For a foreign judgment to be enforced in Spain, an order declaring it is enforceable or exequatur is necessary. Once the exequatur is granted, enforcement itself is quite fast, provided that the assets are identified. Attachment of the assets will be immediate and time for realization will depend on the type of assets. First instance courts are competent for the enforcement of foreign rulings.

Local legislation establishes mechanisms to resolve disputes if they arise. The judicial system is open and transparent, although sometimes slow-moving. 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.

The number of civil claims has grown significantly over the past decade, due in part to litigation stemming from Spain’s financial 2008 crisis, resulting in an increased openness to alternative dispute resolution mechanisms. Although ordinary proceedings are relatively straightforward, due to the significant number of cases within each court, getting to trial can take years. Domestic court decisions are subject to appeal, and the average time taken for a final judgment to be issued by the Court of Appeal can be anywhere from months to years. After this, the decision may still be subject to appeal to the Supreme Court (although the grounds for this appeal are very limited) and this court generally takes between two to three years to issue a decision. Due to the uncertainty surrounding the duration of appeals, disputes involving large companies or significant amounts of money tend to be resolved through arbitration.

Laws and Regulations on Foreign Direct Investment

In 2015, changes to the Personal Income Tax Law affected the transfer of investments outside of Spain by creating a tax on unrealized gains from investment. Spanish tax residents who have resided in Spain for at least 10 out of the previous 15 years are subject to a tax of 19-23 percent if they relocate their holdings or investments outside of Spain—if the market value of the shares held exceeds EUR 4 million or if the individual holds shares of 25 percent or more in a venture whose market value exceeds EUR 1 million.

Some U.S. and other foreign companies operating in Spain say they are disadvantaged by the Tax Administration’s (AEAT) interpretation of Spanish legislation designed to attract foreign investment. In the past several years, AEAT has investigated and disallowed deductions based on operational restructuring at the European level involving a number of U.S.-owned Spanish holding companies for foreign assets (Empresas de Tenencia de Valores Extranjeros or ETVEs), claiming the companies are committing “an abuse of law.” This situation disadvantages FDI in Spain; as a result, many U.S. companies channel their Spanish investments and operations through third countries.

A Protocol to the 1990 Income Tax Convention between the United States and Spain entered into force in November 2019. The Protocol will significantly reduce taxes on interest, royalties, certain direct dividends, and capital gains. It will also provide for mandatory binding arbitration to streamline dispute resolutions between the two countries’ tax administrations.

Spanish law conforms to multi-disciplinary EU Directive 88/361, which prohibits all restrictions of capital movements between Member States as well as between Member States and other countries. The Directive also classifies investors according to residence rather than nationality.

The Spanish government issued new regulations on foreign investment in March 2020. Through Royal Decree-Law 8/2020 and subsequently modified by Royal Decree 11/2020, the government prohibited the acquisition by foreign investors of 10 percent or more of companies active in sectors listed below. Purchases of less than 10 percent are also subject to authorization if they result in participation in the control/management of the company.

The sectors covered are:

• critical infrastructures, both physical and virtual (energy, transport, water, healthcare, communications, media, data storage and processing, aerospace, defense, finance, and sensitive installations)
• critical technology and dual-use products;
• essential supplies (energy, hydrocarbons, electricity, raw materials and food);
• sectors with sensitive information such as personal data or with capacity to control such information and;
• the media.

Under these new Royal Decrees, foreign investment in any industry is also required to receive approval beforehand if the foreign investor is controlled directly or indirectly by the government of another country, if the investor has invested or participated in sectors affecting the security, public order, or public health in another EU Member State, or if administrative or judicial proceedings have been initiated against the investor for exercising illegal or criminal activities. Investments under EUR 1 million are exempted, investments between EUR 1 and 5 million follow a simplified procedure.

Registration requirements are straightforward and apply equally to foreign and domestic investments. They aim to verify the purpose of the investment and do not block any investment. On September 1, 2016, a new Resolution of the Directorate General for International Trade and Investments at the Ministry of Economy, Industry and Competitiveness came into force. This established new forms for declaration of foreign investments before the Investment Registry, which oblige the investor(s) to declare foreign participation in the company.

Useful websites:

• Ministry of Industry, Trade, and Tourism page on Foreign Investment: http://www.comercio.gob.es/en/inversiones-exteriores/Pages/default.aspx 
• Invest in Spain (investment promotion agency): http://www.investinspain.org/invest/en/index.html 
• Investment aid and incentives in Spain: https://guidetobusinessinspain.com/en/ 

Competition and Anti-Trust Laws

The parliament passed Act 3/2013 on June 4, 2013, by which the entities that regulated energy (CNE), telecoms (CMT), and competition (CNC) merged into a new entity—the National Securities Market and Competition Commission (CNMC). The law attributes practically all of the functions entrusted to the National Competition Commission under the Competition Act 15/2007, of July 3, 2007 (LDC), to the CNMC.

Expropriation and Compensation

Spanish legislation has set up a series of safeguards to prevent the nationalization or expropriation of foreign investments. Since the economic crisis starting in 2008, Spain has altered its renewables policy several times, creating a high degree of regulatory uncertainty and resulting in losses to U.S. companies’ earnings and investments. As a result, Spain accumulated more than 30 lawsuits, totaling about EUR 7.6 billion in claims. Spain now faces an array of related international claims for solar photovoltaic and other renewable energy projects. Spain registered three new cases with ICSID in 2019, all are related to renewable energy.

Dispute Settlement

ICSID Convention and New York Convention

Spain is a member state to the International Centre for the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and a signatory to the 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Therefore, the recognition and enforcement of awards is straightforward and implies the same guarantees and practicalities sought by the New York Convention and arbitration practitioners worldwide, with the additional advantage of the existence of a court specialized only in arbitration issues.

Investor-State Dispute Settlement

Contractual disputes between U.S persons and Spanish entities are handled accordingly. U.S. citizens seeking to execute American court judgments within Spain must follow the Exequatur procedure established by Spanish law.

International Commercial Arbitration and Foreign Courts

Law 11/2011 of May 2011 (amending Law 60/2003 of December 2003) on Arbitration applies to national and international arbitration conducted in Spanish territory and aims to promote alternative dispute resolution (ADR) methods, particularly arbitration. The Arbitration Act says that the Civil Court and Criminal Court of Justice are competent to recognize foreign arbitral awards. The Spanish Arbitration Act is based on the UNCITRAL Model law.

There are two main arbitration institutions in Spain, the Court of Arbitration of the Official Chamber of Commerce of Madrid (CAM), and the Civil and Commercial Arbitration Court of Madrid (CIMA). Both institutions have modern and flexible rules that facilitate successful arbitration outcomes. Proceedings in the CAM are resolved swiftly, allowing the parties to obtain an award in as few as six months. In December 2017, the Chamber of Commerce of Spain, the Chamber of Commerce of Madrid, and the Civil and Commercial Court of Arbitration Court of Madrid signed a memorandum of understanding (MOU) to unify their arbitration activities and to create a unified Arbitration Court to administer international arbitrations. The MOU created a commission to settle the bases of this unified international court. In addition, the new institution’s primary objectives will be the resolution of conflicts related to Latin America, under the principles of autonomy, independence, and transparency. Another arbitration organization in Spain is the Barcelona Court of Arbitration (TAB), which offers services in the field of dispute resolution through arbitration or other similar mechanisms such as conciliation.

Bankruptcy Regulations

Spain has a fair and transparent bankruptcy regime. In 2014, the government approved a reform of the bankruptcy law to promote Spain’s economic recovery by establishing mediation mechanisms. These reforms—nicknamed the Second Chance Law—aimed to avoid the bankruptcy of viable companies and to preserve jobs by facilitating refinancing agreements through debt write-off, capitalization, and rescheduling. However, declaring bankruptcy remains much less prevalent in Spain than in other parts of the world.

Investment Incentives

A range of investment incentives exist in Spain, and they vary according to the authorities granting incentives and the type and purpose of the incentives. The national government provides financial aid and tax benefits for activities pursued in certain industries that are considered priority industries (e.g., mining, technological development, research and development, etc.), given these industries’ potential effect on the nation’s overall economy. Regional governments also provide similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by beneficiaries—or combinations of the two.

Since Spain is a European Union (EU) Member State, potential investors are able to access European aid programs, which provide further incentives for investing in Spain. Spain’s central government provides numerous financial incentives for foreign investment, which are designed to complement European Union financing. The Ministry of Economy and Digital Advancement assists businesses seeking investment opportunities through the Directorate General for International Trade and Investments and the Directorate General for Innovation and Competitiveness. These directorates provide support to foreign investors in both the pre- and post-investment phases. Most grants seek to promote the development of select economic sectors; however, while these sectoral subsidies are often preferential, they are not exclusive.

A comprehensive list of incentive programs is available at the website:

www.investinspain.org 

In 2013, Spain passed the “Law of Entrepreneurs,” which established an entrepreneur visa for investors and entrepreneurs. Entrepreneurs may apply for the visa with a business plan that has been approved by the Spanish Commercial Office. Entrepreneurs must also demonstrate the intent to develop the project in Spain for at least one year. Investors who purchase at least EUR 2 million in Spanish bonds or acquire at least EUR 1 million in shares of Spanish companies or Spanish banks deposits may also apply. Foreigners who acquire real estate with an investment value of at least EUR 500,000 are also eligible.

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 central government and the EU, but they are not all compatible. Additionally, some autonomous community governments grant investment incentives in areas not covered by state legislation but which are included in EU regional financial aid maps. Royal Decree 899/2007, of July 6, 2007, sets out the different types of areas that are entitled to receive aid, along with their ceilings. Each area’s specific aspects and requirements (economic sectors, investments which can be subsidized, and conditions) are set out in the Royal Decrees determining the different areas. Most are granted on an annual basis.

Incentives from national, regional or municipal governments and the European Union are granted to Spanish and foreign companies alike without discrimination. The most notable incentives include those aimed at fostering innovation, technological improvement, and research and development projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Both the mainland and islands (and most Spanish airports and seaports) have 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. Spain’s seven free zone ports are located in Vigo, Cadiz, Barcelona, Santander, Seville, Tenerife, and the Canary Islands—all of which fall under the EU Customs Union, permitting the free circulation of goods within the EU. The entire province of the Canary Islands is a Special Economic Zone (SEZ), offering fiscal benefits that include a reduced corporate tax rate, a reduced Value-Added Tax (VAT) rate, and exemptions for transfer taxes and stamp duties. The Spanish territories of Ceuta and Melilla also offer unique tax incentives; they do not impose a VAT but instead tax imports, production, and services at a reduced rate. Spanish customs legislation also allows companies to have their own free trade areas. Duties and taxes are payable only on those items imported for use in Spain. These companies must abide by Spanish labor laws.

Performance and Data Localization Requirements

Spain does not have performance and localization requirements for investors.

The Spanish Data Protection Agency and the Spanish Police request data from companies, although the companies may refuse unless required by court order.

Real Property

There are generally no restrictions on foreign ownership of real estate. The buyer must fill out a Declaration to the Foreign Investment Register form before buying the property if the funds for the purchase come from a country or territory considered to be a tax haven. The declaration lasts six months. Foreign individuals require an identification card for foreigners (NIE for individuals). Other foreign legal persons require an identification card known as a CIF. Apart from money laundering regulations, no special restrictions or limitations apply to foreign mortgage guarantees and loans.

The Land Register provides evidence of title. It provides legal certainty to all parties involved in a transaction. Public or private acts that affect the property are included in the land register. The Property Registry is responsible for managing the Land Register. A right or title recorded in the registry prevails over any other right or title. Certain administrative concessions (licenses for individuals to use or develop publicly-owned property for a particular purpose) may also be registered. Anyone who can prove a legitimate interest in the information contained in the register may access the register. It is not possible to make changes to the ownership of the real estate by electronic means. The transfer of real estate or the grant of rights over property should be executed by public deed in front of a notary before being registered with the Land Registry. A registered title includes the plot of land and the buildings attached to the land. Each plot constitutes a registered property. Each registered property is a legal object and has its own separate entry in the registry in which all related data is registered. There are rules that determine whether a parcel of land, a building, farm, spring or other type of property has a separate entry in the registry system.

Lenders generally use mortgages as security. Mortgages are made by public deed and registered at the land registry. Once registered, the mortgage takes priority over the interest of any third party. Anyone with a legitimate interest in a property can find out whether it is mortgaged by consulting the register. Sale and leaseback is another form of real estate financing that has been used by some Spanish financial institutions. These institutions raised finance through the sale of their offices to their clients and subsequently leased them back. The institution raised funds and their clients received a stream of rental income.

Intellectual Property Rights

Spanish law protects intellectual property rights (IPR), and enforcement is carried out at the administrative and judicial levels.  Spanish patent, copyright, and trademark laws all approximate or exceed EU standards for IPR protection.  Spain is a member of the World Intellectual Property Organization (WIPO) and party to many of its treaties, including the Berne Convention, the Paris Convention, the Madrid Accord on Trademarks, the WIPO Copyright Treaty, and the WIPO Phonograms and Performances Treaty .

Since its removal from the United States Trade Representative (USTR) Special 301 Watch List in 2012, Spain has undertaken extensive, multi-year reform measures to strengthen its framework for intellectual property rights (IPR) protections.  The latest legislative changes to the 1996 Law on Intellectual Property, in force as of March  2019, streamline anti-piracy and anti-counterfeit measures.  As a result, Spain now has a stronger legal framework and corresponding criminal procedures to address IPR violations.

Spanish authorities published a new Patents Law in 2015 (Law 24/2015), which entered into force in April 2017.  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.

Spanish law extends copyright protection to all literary, artistic, or scientific creations, including computer software.

Although physical and online marketplaces for counterfeit goods persist in Spain, sales of fake goods in high-density tourist areas and major cities declined in 2019 due to increased policing.

Amendments to the 2001 Trademark Law (17/2001), which amend the regulations for the 2001 law, entered in force in April 2019.  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 and may be renewed.  Protection is not granted for generic names, names that violate Spanish customs, or other inappropriate trademarks.  The Spanish parliament passed a reform of the penal code that entered into force in July 2015 (Ley Organica 1/2015).  The revised penal code removed the condition that certain IPR crimes related to the sale of counterfeit items meet a threshold of EUR 400 in order to merit prosecution, and it changed the procedure for destruction of counterfeit items seized by law enforcement.  Counterfeit items may now be destroyed once an official report is filed unless a judge formally requests the items be retained.

The Spanish Tax Agency releases statistics on seizures of counterfeit goods sporadically via its website.  In 2017—the most recent data available—Spain confiscated 3.1 million counterfeit products in nearly 3,000 operations.

Businesses may seek a trademark valid throughout the EUvia the Office for Harmonization in the Internal Market (OHIM) , which has been operating since 1996 and is located in Alicante:

Office for Harmonization in the Internal Market (Trade Marks and Designs)
Avenida de Europa, 4
E-03008 Alicante
Tel: (34) 96-513-9100
http://oami.europa.eu/ows/rw/pages/OHIM/contact.en.do 

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ 

Capital Markets and Portfolio Investment

The Spanish government welcomes all forms of investment, including portfolio investment. Foreign investors do not face discrimination when seeking local financing for projects. Credit is allocated on market terms, and foreign investors are eligible to receive credit in Spain. A large range of credit instruments are 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 publicly traded in the United States. There is a significant amount of portfolio investment in Spain, including by American entities. Spain has an actively traded and liquid stock market, the IBEX 35.

In 2019, the United States and Spain amended their bilateral tax agreement to prevent double-taxation of each other’s nationals and firms and to improve information sharing between tax authorities.

Spain has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange rate system free of restrictions on payments and transfers for current international transactions, other than restrictions notified to the Fund under Decision No. 144 (52/51).

Spain’s Council of Ministers on February 28, 2020 voted to approve a new Financial Transactions Tax (FTT) or “Tobin tax,” which would tax transfers of shares in large listed Spanish companies. The measure must be approved by the Spanish Congress before being implemented. The FTT would be an indirect tax of 0.2 percent on the acquisition of Spanish companies with a market capitalization of at least EUR 1 million EUR. The taxed entity would not be the seller or acquirer of the shares but rather the financial intermediary executing the transaction.

Money and Banking System

There were 24,004 financial institution branches as of December 2019, according to the Bank of Spain. Spain’s domestic housing crisis, which began in 2007, was linked to poor lending practices by Spanish savings banks (cajas de ahorros). The government subsequently created a Fund for Orderly Bank Restructuring (FROB) through Royal Decree-law 9/2009 of June 26, which restructured credit institutions in an effort to bolster capital and provisioning levels. The number of Spanish financial entities has shrunk significantly since 2009 through consolidation as banks have faced increased capital requirements and shrinking profit margins. The number of Spanish banking institutions decreased by decreased by 10.9 percent between 2012 and 2018, and Spain’s correspondent banking relationships fell by 8.9 percent during the same time period, according to SWIFT data.

The COVID-19 pandemic has adversely affected the outlook for the Spanish banking sector, as nonperforming loans (NPLs) are expected to rise as profit margins shrink even further. The NPL ratio in Spain—4.8% in December 2019—was a marked improvement from 2014 levels but is likely to rise again due to current economic strains. The sector has substantial capital buffers to absorb the unexpected losses associated with this crisis, but there is also significant disparity between institutions. Slim profit margins for the Spanish financial sector are also likely to persist due to slowing growth and low (or negative) interest rates. Net profit for the Spanish banking system as a whole was about EUR 19 billion in 2019, 13.1% less than in 2018.

Spain’s nationwide lockdown in response to COVID-19 has increased risks for banks with respect to NPLs and investment losses, according to the Bank of Spain. As of April 2020, Spain’s banks had the slimmest capital reserves of all eurozone members, including Italy. The dramatic slowdown in Spain’s economy is likely to have a direct impact on banks’ books, as mortgages account for around 40% of loans and consumer loans make up 8% of lending.

On a positive note, the Spanish banking sector is in a much more robust position than ten years ago, prior to the financial crisis, and does not have the same solvency problems. The Spanish government also has committed more than EUR 200 billion in loan guarantees to facilitate continued access to credit, particularly for Spain’s self-employed and SMEs. Moreover, Spanish financial institutions have significantly higher capital levels than the minimum regulatory requirements, which can be used to absorb unexpected losses during the pandemic.

The Bank of Spain, Spain’s central bank, is a member of the euro system and the European System of Central Banks.  Within the framework of the Single Supervisory Mechanism (SSM), the Bank of Spain and European Central Bank (ECB) jointly supervise the Spanish banking system.

Foreign banks are able to establish themselves in Spain and are subject to the same conditions as Spanish banks to access the Spanish financial system. Foreign banks with authorization in another EU member state do not need to get authorization from the Bank of Spain to establish a branch or representative office in Spain.

The National Securities Market Commission (CNMV), is responsible for the supervision and inspection of Spanish securities markets. Since its creation in 1988, the CNMV’s regime has been updated to adapt to the evolution of financial markets and to introduce new measures to protect investors.

Total assets for the five biggest banks in Spain at the end of 2019 were EUR 2.95 trillion:

1. Banco Santander: EUR 1.523 trillion
2. Banco Bilbao Vizcaya Argentaria (BBVA): EUR 699 billion
3. CaixaBank: EUR 391.4 billion
4. Banco Sabadell: EUR 223.7 billion
5. Bankia: 208.5 EUR billion

To open a bank account as a non-resident, a foreigner needs a proof of identity, proof of address in Spain, and proof of employment status or where the funds originated. All documents that are not in Spanish or issued by Spanish authorities need to be translated into Spanish.

Foreign Exchange and Remittances

Foreign Exchange

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.

Remittance Policies

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 affected at market rates using commercial banks.

Sovereign Wealth Funds

Spain does not have a sovereign wealth fund or similar entity.

The size of the public enterprise sector in Spain is relatively small. The role and importance of state-owned enterprises (SOE) in Spain decreased notably due to the privatization process that started in the early 1980s. The reform of SOE oversight in the 1990s led the government to create the State Holding for Industrial Participations, (Sociedad Estatal de Participaciones Industriales, SEPI). SEPI was created as a public-law entity by decree in 1995; its status was then protected by law in 1996. SEPI has direct majority participation in 15 SOEs, which make up the SEPI Group, with a workforce of more than 78,000 employees in 2018, is a direct minority shareholder in nine SOEs (five of them listed on stock exchanges), and participates indirectly in ownership of more than a hundred companies. Either legislative chambers and any parliamentary group may request the presence of SEPI and SOE representatives to discuss issues related to their performance. SEPI and the SOEs are required to submit economic and financial information to the legislature on a regular basis. The European Union, through specialized committees, also controls SOEs’ performance on issues concerning sector-specific policies and anti-competitive practices.

Companies with a majority Interest: Agencia Efe, Cetarsa, Ensa, Grupo Cofivacasa, Grupo Correos, Grupo, Enusa, Grupo Hunosa, Grupo Mercasa, Grupo Navantia, Grupo Sepides, GrupoTragsa, Hipodromode la Zarzuela, Mayasa, Saeca

Companies with a minority Interest: Airbus Group, Alestis Aerospace, Enagas, Enresa, Hispasat, Indra, International Airlines Group, Red Electrica Corporacion, Ebro Foods

Attached companies: RTVE, Corporacion de Radio y Television Espanola

Corporate Governance of Spain’s SOEs uses criteria based on principles and guidelines from the Organization for Economic Co-operation and Development (OECD). These include the state ownership function and accountability, as well as issues related to performance monitoring, information disclosure, auditing mechanisms and the role of the board in the companies.

Privatization Program

As the size of its public enterprise sector is relatively small, Spain does not have a formal privatization program.

Although the visibility of responsible business conduct (RBC) efforts is still moderate by international standards, in the last two decades there has been a growing interest in it. Today, almost all of Spain’s largest energy, telecommunications, infrastructure, transport, financial services and insurance companies, among many others, have undertaken RBC projects, and such practices are spreading throughout the economy.

Spain endorsed the Organization for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, and the national point of contact is the Ministry of Industry, Trade, and Tourism.

Spain has a wide variety of laws, regulations, and penalties to address corruption. The legal regime has both civil and criminal sanctions for corruption, bribery, financial malfeasance, etc. 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. There are laws against tax evasion and regulations for banks and financial institutions to fight money laundering terrorist financing. In addition, the Spanish Criminal Code provides for jail sentences and hefty fines for corporations’ (legal persons) administrators who receive illegal financing.

The Spanish government continues to build on its already strong measures to combat money laundering. After the European Commission threatened to sanction Spain for failing to bring its anti-money laundering regulations in full accordance with the EU’s Fourth Anti-Money Laundering Directive, in 2018, Spain approved measures to modify its money laundering legislation to comply with the EU Directive. These measures establish new obligations for companies to license or register service providers, including identifying ultimate beneficial owners; institute harsher penalties for money laundering offenses; and create public and private whistleblower channels for alleged offenses.

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, investigates and prosecutes domestic and international bribery allegations. The Audiencia Nacional, a corps of magistrates has 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 subjected to more scrutiny than private individuals, but several wealthy and well-connected business executives have been successfully prosecuted for corruption. In 2019, Spanish courts conducted 42 corruption cases involving 170 defendants. The courts issued 102 sentences, with 39 including a full or partial guilty verdict.

There is no obvious bias for or against foreign investors. U.S. firms have rarely identified corruption as an obstacle to investment in Spain, although entrenched incumbents have frequently attempted and at times succeeded in blocking the growth of U.S. franchises and technology platforms in both Madrid and Barcelona. As a result, Spain is among the least welcoming countries in Europe for some of the U.S.’s leading technology companies. 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 slightly in 2019, with the country climbing to position 30 (from 41 in 2018); however, its overall score (62) is one of the lowest among Western European countries.

Spain is a signatory of the Organization for Economic Co-operation and Development (OECD) Convention on Combating Bribery and the UN Convention Against Corruption. It has also been a member of the Group of States Against Corruption (GRECO) since 1999. The OECD has noted concerns about the low level of foreign bribery enforcement in Spain and the lack of implementation of the enforcement-related recommendations. In a 2019 report, GRECO highlighted that of the group’s 11 recommendations to combat corruption from 2013, only two had been fully implemented, eight had been partly implemented, and one had not been implemented.

Resources to Report Corruption

Ministry of Finance
Alcala, 9
28071 Madrid, Spain
Telephone: +34 91 595 8000
Email: informacion.administrativa@minhap.es
Website: https://ssweb.seap.minhap.es/ayuda/consulta/PTransparencia 

Transparency International
National Chapter – Spain
Fundacion Jose Ortega y Gasset
Calle Fortuny, 53
28010 Madrid, Spain
Telephone: +34 91 700 4105
Email: transparency.spain@transparencia.org.es
Website: http://www.transparencia.org.es/ 

There have been periodic peaceful demonstrations calling for pension increases and other social or economic reforms. Public sector employees and union members have organized frequent small demonstrations in response to service cuts, privatization, and other government measures.

Spain’s unemployment rate fell to 13.8 percent at the end of 2019, down from 14.7 percent at the beginning of the year, and continued its downward trend from a peak of 26.9 percent in 2013. The youth unemployment rate fell to 30.5 percent at the end of 2019, an improvement of almost three percentage points from 2018, but still representing 454,400 unemployed people under the age of 25. Spain’s economically active population totaled 23.1 million people, of whom 19.9 million were employed and 3.2 million unemployed. Foreign nationals represented 12.4 percent of Spain’s workforce in 2019. In 2020, employment numbers worsened significantly due to the global pandemic.

The labor market is mainly divided into permanent workers with full benefits and temporary workers with many fewer benefits. In the event of dismissal for an objective reason (e.g. economic reasons), severance pay is made available to the worker and amounts to 20 days’ wages per year of service with a maximum of 12 months’ wages. A worker dismissed for disciplinary reasons is not entitled to severance pay. For termination of a fixed term contract (either its term expiration or completion of the work), the worker is entitled to a severance payment of 12 days per year of service. Under Spanish Labor law, an employee may bring a claim against the employer for unfair dismissal within 20 days of receiving a termination letter.

Mechanisms for the prevention and resolution of individual labor disputes in Spain are developed by labor laws and alternative dispute resolution (ADR) systems through collective bargaining agreements. Each of Spain’s 17 autonomous communities has a different ADR system at different levels generally dealing with collective disputes. Spanish law stipulates that, before taking individual labor disputes to court in search of a solution, parties must first attempt to reach agreement through conciliation or mediation.

The Spanish Public Employment Service (SEPE) under the Ministry of Employment, and Social Economy administers unemployment benefits called the Contributory Unemployment Protection. This benefit protects those who can and wish to work but become unemployed temporarily or permanently, or those whose normal working day is reduced by a minimum of 10 percent and a maximum of 70 percent.

Collective bargaining is widespread in both the private and public sectors. A high percentage of the working population is covered by collective bargaining agreements, although only a minority (generally estimated to be about 10 percent) of those covered are actually union members. Large employers generally have individual collective agreements, while smaller companies use industry-wide or regional agreements. Business-level agreements currently hold primacy over sectoral and regional agreements. Collective labor agreements must be renegotiated within one year of expiration.

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.

As Spain is a member of the European Union, DFC products are generally 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).

*Ministry of Industry, Trade, and Tourism, http://www.comercio.gob.es/es-ES/inversiones-exteriores/informes/Paginas/presentacion.aspx 

Ana Maria Waflar, Economic Specialist, tel.: (34) 91 587229