Italy

Executive Summary

Italy’s economy, the eighth largest in the world, is fully diversified, and dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses.  Italy is an original member of the 19-nation Eurozone. Germany, France, the United States, the United Kingdom, Spain, and Switzerland are Italy’s most important trading partners, with China continuing to gain ground.  Tourism is an important source of external revenue, as are exports of pharmaceutical products, furniture, industrial machinery and machine tools, electrical appliances, automobiles and auto parts, food, and wine, as well as textiles/fashion.  Italy continues to attract less foreign direct investment than many industrialized nations. Italy does not share a bilateral investment treaty with the United States.

Italy’s relatively affluent domestic market, access to the European Common Market, proximity to emerging economies in North Africa and the Middle East, and assorted centers of excellence in scientific and information technology research, remain attractive to many investors.  The government remains open to foreign investment in shares of Italian companies and continues to make information available online to prospective investors. The Italian government’s efforts to implement new investment promotion policies to position Italy as a desirable investment destination have been undermined in part by Italy’s slow economic growth and lack of consistent progress on structural reforms that could reduce lengthy and often inconsistent legal and regulatory procedures, unpredictable tax structure, and layered bureaucracy.  

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 53 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 51 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 31 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (M USD, stock positions) 2017 $30,708 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $31,020 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Italy welcomes foreign direct investment (FDI).  As a European Union (EU) member state, Italy is bound by the Union’s treaties and laws.  Under the EU treaties with the United States, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.  

EU and Italian antitrust laws provide Italian authorities with the right to review mergers and acquisitions for market dominance.  In addition, the Italian government may block mergers and acquisitions involving foreign firms under the “Golden Power” law if the transactions appear to raise national security concerns.  This law was enacted in 2012 and further implemented with decrees in 2015, 2017, and 2019.  The Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors (identified as defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology).  On March 26, 2019 the GOI issued a decree expanding the Golden Power authority to cover the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  Per Italian law, Parliament must confirm the decree within 60 days. The GOI’s Golden Power authority always applies in cases involving the sectors above in which the potential purchaser is a non-EU company; it is extended to EU companies if the target of the acquisition is involved in defense/national security activities.  In this respect, the GOI has a say regarding the ownership of private companies as well as ones in which the government has a stake. This law replaced the “Golden Share” which the GOI previously held in former state-owned firms that were partially privatized in the 1990s and 2000s. The law also allows the State to maintain oversight over entire strategic sectors as opposed to individual companies, and by replacing the Golden Share legislation, has enabled Italy to address accusations the Golden Shares violated European treaties.   An interagency group led by the Prime Minister’s office reviews acquisition applications and prepares the dossiers/ recommendations for the Council of Ministers’ decision.   

According to the latest figures available from the Italian Trade Agency (ITA), foreign investors own significant shares of 12,768 Italian companies.  These companies employed 1,211,872 workers with overall sales of EUR 573.6 billion. ITA operates under the umbrella of the Italian Ministry of Economic Development.

The Italian Trade Agency (ITA) operates Invest in Italy: http://www.investinitaly.com/en/.   The Foreign Investments Attraction Department is a dedicated unit of ITA for facilitating the establishment and the development of foreign companies in Italy.  As of April 2019, ITA maintained a presence in 65 countries to assist foreign investors.  

Invitalia is the national agency for inward investment and economic development, owned by the Italian Ministry of Economy and Finance.  The agency focuses on strategic sectors for development and employment.  It places an emphasis on southern Italy, where investment and development lag in comparison to the rest of the country.  Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-added-value sectors.  For more information, see https://www.invitalia.it/eng  .  The Ministry of Economic Development also has a program to attract innovative investments: https://www.mise.gov.it  

Italy’s main business association (Confindustria) also provides assistance to companies in Italy: https://www.confindustria.it/en  

Limits on Foreign Control and Right to Private Ownership and Establishment

Under EU treaties and OECD obligations, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.  

EU and Italian antitrust laws provide Italian national local authorities with the right to review mergers and acquisitions over a certain financial threshold.  The Italian government may block mergers and acquisitions involving foreign firms if national security concerns are raised or on the principle of reciprocity if the government of the foreign firm applies discriminatory measures against Italian firms.  Foreign investors in the defense or aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions.  

Italy maintains a formal national security screening process for inbound foreign investment in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology under its “Golden Power” legislation, and where there may be market concentration (antitrust) issues.  Italy’s Golden Power legislation was expanded on March 26, 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology. (Per Italian law Parliament must confirm the law within 60 days for it to remain in force.) To our knowledge, U.S. investors have not been disadvantaged relative to other foreign investors under the mechanisms described above.

Other Investment Policy Reviews

An OECD Economic Survey was published for Italy in April 2019.  https://www.oecd.org/economy/surveys/Italy-2019-OECD-economic-survey-overview.pdf 

Business Facilitation

Italy has a business registration website, available in Italian and English, administered through the Union of Italian Chambers of Commerce: http://www.registroimprese.it.    The online business registration process is clear and complete.  Foreign companies may use the online process. Before registering a company online, applicants must obtain a certified e-mail address and digital signature, a process that may take up to five days.  A notary is required to certify the documentation. The precise steps required for the registration process depend on the type of business being registered. The minimum capital requirement also varies by type of business.  Generally, companies must obtain a value-added tax account number (partita IVA) from the Italian Revenue Agency, register with the social security agency Istituto Nazionale della Previdenza Sociale (INPS), verify adequate capital and insurance coverage with the Italian workers’ compensation agency Istituto Nazionale per L’Assicurazione contro gli Infortuni sul Lavoro (INAIL), and notify the regional office of the Ministry of Labor.  According to the World Bank Doing Business Index 2018, Italy is ranked 67 out of 190 countries in terms of the ease of starting a business: it takes six procedures and six days to start a business in Italy.  Additional licenses may be required, depending on the type of business to be conducted.

Invitalia and the Italian Trade Agency’s Foreign Direct Investment Unit assist those wanting to set up a new business in Italy.  Many Italian localities also have one-stop shops to serve as a single point of contact for potential investors and provide advice in obtaining necessary licenses and authorizations.  These services are available to all investors.

Outward Investment

Italy neither promotes, restricts, or incentivizes outward investment nor restricts domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

BITs or FTAs

The United States and Italy do not share a bilateral investment treaty (BIT).

Italy has bilateral investment agreements with the following countries (for more information and text of the agreements, see http://investmentpolicyhub.unctad.org/IIA/CountryBits/103  ):

Albania, Algeria, Angola, Argentina, Armenia, Bahrain, Bangladesh, Barbados, Belarus, Belize (signed, not in force), Bolivia, Bosnia and Herzegovina, Brazil (signed, not in force), Cameroon, Cape Verde (signed, not in force), Chad, Chile, China, Congo, Cote d’Ivoire (signed, not in force),  Cuba, Democratic Republic of Congo (signed, not in force), Djibouti, Dominican Republic, Ecuador, Egypt, Eritrea, Ethiopia, Gabon, Georgia, Ghana (signed, not in force), Guatemala, Guinea, Hong Kong, Iran, Jamaica, Jordan, Kazakhstan, Kenya, DPR of Korea (signed, not in force), Republic of Kuwait, Lebanon, Libya, Macedonia FYR,  Malawi, Malaysia, Malta (signed, not in force), Mauritania, Mexico, Moldova, Republic of Mongolia, Morocco, Mozambique, Namibia, Nicaragua, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Senegal, Serbia (signed, not in force), South Africa, Sri Lanka, Sudan (signed, not in force), Syrian Arab Republic, Tanzania, United Republic of Tunisia, Turkey, Turkmenistan (signed, not in force), United Arab Emirates, Uruguay, Uzbekistan, Venezuela (signed, not in force), Vietnam, Yemen, Zambia, Zimbabwe (signed, not in force).

Italy has not ratified a BIT since 2009 and has not negotiated a BIT since 2014.  Since 2009, investment treaty negotiations fall within the competence of the EU: http://ec.europa.eu/trade/policy/accessing-markets/investment/  .

As an EU member, Italy’s FTA negotiations are likewise handled at the EU level:  http://ec.europa.eu/trade/policy/  .

Bilateral Taxation Treaties:

Italy shares a bilateral taxation treaty with the United States.  The text of the treaty is available at https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z  .

Italy ranked 51 out of 190 countries in the World Bank’s 2018 Ease of Doing Business Report.  Several U.S. multinationals have sought U.S. Embassy assistance in dealing with Italy’s tax enforcement, with some expressing concerns that the Italian Revenue Agency unfairly targets large companies.  According to the companies, Italian tax investigations may question corporate accounting practices deemed legitimate in other EU Member States, creating inconsistencies and uncertainty.

3. Legal Regime

Transparency of the Regulatory System

Regulatory authority exists at the national, regional, and municipal level.  All applicable regulations could potentially be relevant for foreign investors.  Regulations are developed at the national level by the GOI and individual ministries, as well as independent regulatory authorities.  Regional and municipal authorities issue regulations at the sub-national level.  Draft regulations may be posted for public comment, but there is generally no requirement to do so. Final national-level regulations are in general published in the Gazzetta Ufficiale (and only become effective upon publication).  Regulatory agencies may publish summaries of received comments.  No major regulatory reform was undertaken in 2018.  Aggrieved parties may challenge regulations in court.  Public finances and debt obligations are transparent and are publicly available through banking channels such as the Bank of Italy.

International Regulatory Considerations

Italy is a member of the European Union (EU).  EU directives are brought into force in Italy through implementing national legislation.  In some areas, EU procedures require member states to notify the European Commission (EC) before implementing national-level regulations.  Italy has on occasion failed to notify the EC and/or WTO of draft regulations in a timely way. For example, in 2017 Italy adopted Country of Origin Labelling requirements for a range of products including rice, wheat used to make pasta, and certain tomato-based products.  Italy’s Economic Development Minister and Agriculture Minister publicly stated these measures would support the “Made in Italy” brand and make Italian products more competitive. Though the requirements were widely regarded as a Technical Barrier to Trade (TBT), Italy failed to notify the WTO in advance of implementing these regulations.  Italy is a signatory to the WTO’s Trade Facilitation Agreement (TFA) and has implemented all developed-country obligations.

Legal System and Judicial Independence

Italian law is based on Roman law and on French Napoleonic Code law.  The Italian judicial system consists of a series of courts and a body of judges employed as civil servants.  The system is unified; every court is part of the national network. Though notoriously slow, the Italian civil legal system meets the generally recognized principles of international law, with provisions for enforcing property and contractual rights.  Italy has a written and consistently applied commercial and bankruptcy law. Foreign investors in Italy can choose among different means of alternate dispute resolution (ADR), including legally binding arbitration, though use of ADR remains rare. The GOI has over recent years introduced justice reforms to reduce the backlog of civil cases and speed newly filed cases to conclusion.  These reforms also included a new emphasis on ADR and methods to make collecting judgments easier.

Regulations can be appealed in the court system.  

Laws and Regulations on Foreign Direct Investment

Italy is bound by EU laws on FDI.

Competition and Anti-Trust Laws

The Italian Competition Authority (AGCM) is responsible for reviewing transactions for competition-related concerns.  AGCM may examine transactions that restrict competition in Italy as well as in the broader EU market. As a member of the EU, Italy is also subject to interventions by the European Commission Competition Directorate (DG COMP).

Expropriation and Compensation

The Italian Constitution permits expropriation of private property for “public purposes,” defined as essential services or measures indispensable for the national economy, with fair and timely compensation.  Expropriations have been minimal.

Dispute Settlement

ICSID Convention and New York Convention

Italy is a member state of the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID convention).  Italy has signed and ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  Italian civil law (Section 839) provides for and governs the enforcement of foreign arbitration awards in Italy;

Italian law recognizes and enforces foreign court judgments.   

Investor-State Dispute Settlement

Italy is a contracting state to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (entered into force on 28 April 1971).

Italy has had very few investment disputes involving a U.S. person in the last 10 years.  The U.S. Embassy identified less than five such active disputes at the time of the drafting of this report.  No cases have been terminated or resolved; all remain pending. Italy does not have a history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Italy is a party to the following international treaties relating to arbitration:

  • The 1927 Geneva Convention on The Execution of Foreign Arbitral Awards (entered into force on 12 February 1931);
  • The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (entered into force on 1 May 1969); and
  • The 1961 European Convention on International Commercial Arbitration (entered into force on 1 November 1970).

Italy’s Code of Civil Procedure (Book IV, Title VIII, Sections 806-840) governs arbitration, including the recognition of foreign arbitration awards.  Italian law is not based on the UNCITRAL Model Law; however, many of the principles of the Model Law are present in Italian law. Parties are free to choose from a variety of Alternative Dispute Resolution methods, including mediation, arbitration, and lawyer-assisted negotiation.

Bankruptcy Regulations

Italy’s bankruptcy regulations are somewhat analogous to U.S. Chapter 11 restructuring, and allow firms and their creditors to reach a solution without declaring bankruptcy.  In recent years, the judiciary’s role in bankruptcy proceedings has been reduced in an attempt to simplify and expedite proceedings. In 2015, the Italian parliament passed a package of changes to the bankruptcy law, including measures to ease access to interim credit for bankrupt companies and to restructure debts.  Additional changes were approved in 2017 (juridical liquidation, early warning, simplified process, arrangement with creditors, insolvency of affiliated companies as a group, and reorganization of indebtedness rules). The measures aim to reduce the number of bankruptcies, limit the impact on the local economy, and facilitate the settlement of corporate disputes outside of the court system.  The reform follows on the 2015 reform of insolvency procedures. The legislative “implementation decree” for the 2017 bankruptcy reform was issued in early 2019. In the World Bank’s Doing Business Report 2018, Italy ranks 22 out of 190 economies in the category of Ease of Resolving Insolvency.

4. Industrial Policies

Investment Incentives

The GOI offers modest incentives to encourage private sector investment in targeted sectors (e.g., innovative companies) and economically depressed regions, particularly in southern Italy. The incentives are available to eligible foreign investors as well.  Incentives include grants, low-interest loans, deductions and tax credits. Some incentive programs have a cost cap, which may prevent otherwise eligible companies from receiving the incentive benefits once the cap is reached. The GOI applies cost caps on a non-discriminatory basis, typically based on the order that applications were filed.  The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Italy provides an incentive for investments by SMEs in new machinery and capital equipment (“New Sabatini Law”), available to eligible companies regardless of nationality.  This investment incentive provides financing, subject to an annual cost cap. Sector-specific investment incentives are also available in targeted sectors.

In January 2018, the GOI also provided “super amortization” and “hyper amortization” (essentially, generous tax deductions) on investments in special areas of the economy.  Of these only “hyper amortization” was renewed in the 2019 budget law. The GOI is considering reintroducing the “super amortization” by decree law in the second half of 2019 in order to stimulate investment.  The GOI has not yet renewed the broader “Industry 4.0” initiative launched by the previous government in 2017 to improve the Italian industrial sector’s competitiveness through a combination of policy measures and research and infrastructure funding.

The Italian tax system does not generally discriminate between foreign and domestic investors, though a digital services tax approved in principle by the Parliament in December 2018, but not yet implemented, would primarily impact U.S. companies.  The corporate income tax (IRES) rate is 24 percent. In addition, companies may be subject to a regional tax on productive activities (IRAP) at a 3.9 percent rate. The World Bank estimates Italy’s total tax rate as a percent of commercial profits at 53.1 percent in 2018, higher than the OECD high-income average of 39.8 percent.  

Several U.S. multinationals have sought U.S. Embassy assistance in dealing with Italy’s tax enforcement, with some expressing concerns that the Italian Revenue Agency unfairly targeted large companies.  According to the companies, Italian tax investigations may focus on corporate accounting practices deemed legitimate in other EU Member States, creating inconsistencies and uncertainty.

Foreign Trade Zones/Free Ports/Trade Facilitation

The main free trade zone in Italy is located in Trieste, in the northeast.  The goods may undergo transformation free of any customs restraints. An absolute exemption is granted from any duties on products coming from a third country and re-exported to a non-EU country.  Legislation to create other FTZs in Genoa and Naples exists, but has yet to be implemented. A free trade zone operated in Venice for a period but is currently being restructured.

Italy’s “Decree for the South” law (Law 91 of 2017) foresees eight Special Economic Zones (ZES – Zone Economica Speciale) managed by port authorities in Italy’s less-developed south and islands (the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily).  Investors will be able to access up to EUR 50 million in tax breaks, hiring incentives, reduced bureaucracy, and reimbursement of the IRAP regional business tax, covered by national allotments of EUR 250 million for 2019 and 2020.  The GOI announced plans to increase the allotment by another EUR 300 million, but the increase has not passed into law yet. The Region of Campania approved the strategic plan for implementing the law on March 28, 2018, but the plan still awaits final approval from the Chamber of Deputies to become operational. The Naples ZES will encompass over 54 million square meters of land in the ports of Naples, Salerno and Castellamare di Stabia, as well as industrial areas and transport hubs in 37 cities and towns in Campania.  Incentives are not automatic, as investments will be approved by local government bodies in a procedure governed by the Port Authority of the Central Tyrrhenian Sea.  The Campania Region forecasts that the ZES will create and/or save between 15 and 30 thousand jobs. A proposed ZES encompassing the port cities of Bari and Brindisi on the Adriatic is expected to finish the approval procedure in 2019, followed by a ZES planned around the transshipment port of Gioia Tauro in Calabria and the other five zones: eastern Sicily (Augusta, Catania, and Siracusa), western Sicily (Palermo), Sardinia (Cagliari), ZES Ionica (Taranto in Puglia and the region of Basilicata), and a ZES to be shared between the ports in Abruzzo and Molise.

A special free trade zone was established in late 2015 in the areas within the Emilia-Romagna region that were hit by a May 2012 earthquake and by a January 2014 flood.  The measure aimed to assist the recovery of these areas through tax exemptions amounting to EUR 39.6 million for the years 2015 and 2016 for small enterprises headquartered in these areas.

Currently, goods of foreign origin may be brought into Italy without payment of taxes or duties, as long as the material is to be used in the production or assembly of a product that will be exported.  The free-trade zone law also allows a company of any nationality to employ workers of the same nationality under that country’s labor laws and social security systems.

Performance and Data Localization Requirements

Italy does not mandate local employment.  Non-EU nationals who would like to establish a business in Italy must have a valid residency permit or be nationals of a country with reciprocal arrangements, such as a bilateral investment agreement, as described at: https://www.esteri.it/mae/en/servizi/stranieri/  .

Work permits and visas are readily available and do not inhibit the mobility of foreign investors.  As a member of the Schengen Area, Italy typically allows short-term visits (up to 90 days) without a visa.  The Italian Ministry of Foreign Affairs has specific information about visa requirements: http://vistoperitalia.esteri.it/home/en  .

As a member of the EU, Italy does not follow forced localization policies in which foreign investors must use domestic content in goods or technology.  Italy does not have enforcement procedures for investment performance requirements. Italy does not require local data storage. Companies transmitting customer or other business-related data within or outside of the EU must comply with relevant EU privacy regulations.

5. Protection of Property Rights

Real Property

According to the World Bank, Italy ranks 23 worldwide out of 190 economies for the ease of registering property.  Real property registration takes an average of 16 days, requires four procedures, and costs an average of 4.4 percent of the value of the property.  Real property rights are enforced in Italian courts. Mortgages and judgment liens against property exist in Italy and the recording system is reliable.  Although Italy does not publish official statistics on property with titling issues, Post estimates that less than 10 percent of the land in Italy does not have clear title.  Italian law includes provisions whereby peaceful and uninterrupted possession of real property for a period of 20 years can, under certain circumstances, allow the occupying party to take title to a property.

Intellectual Property Rights

Italy was removed from the USTR’s Special 301 Watch List in 2014 after the Italian Communications Authority’s (AGCOM’s) issuance of a new regulation to combat digital copyright theft.  The regulation created a process by which rights holders can report online infringements to AGCOM, which can then block access to domestic and international sites hosting infringing content.  This negated the need for lengthy litigation, which had been required previously. The system was further strengthened in 2018, when authorities adopted new measures to prevent previously blocked websites from becoming accessible again under different domain names.

Authorities also continue to pursue trademark violations.  In 2017, the last year for which statistics are available, customs and the tax police jointly seized almost 32 million counterfeit items (excluding food and beverages, tobacco, and medical products), worth almost EUR 295 million.

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

6. Financial Sector

Capital Markets and Portfolio Investment

The GOI welcomes foreign portfolio investments, which are generally subject to the same reporting and disclosure requirements as domestic transactions.  Financial resources flow relatively freely in Italian financial markets and capital is allocated mostly on market terms. Foreign participation in Italian capital markets is not restricted.  In practice, many of Italy’s largest publicly-traded companies have foreign owners among their primary shareholders. While foreign investors may obtain capital in local markets and have access to a variety of credit instruments, access to equity capital is difficult.  Italy has a relatively underdeveloped capital market and businesses have a long-standing preference for credit financing. The limited venture capital available is usually provided by established commercial banks and a handful of venture capital funds.

Italy’s conservative regulatory system somewhat limits portfolio investment.  Italy’s financial markets are regulated by the Italian securities regulator (CONSOB), Italy’s central bank (the Bank of Italy), and the Institute for the Supervision of Insurance (IVASS).  CONSOB supervises and regulates Italy’s securities markets (e.g., the Milan Stock Exchange). The European Central Bank (ECB) assumed direct supervisory responsibilities for the 12 largest Italian banks in 2019 and indirect supervision for less significant Italian banks through the Bank of Italy.  IVASS supervises and regulates insurance companies. Liquidity in the primary markets (e.g., the Milan exchanges) is sufficient to enter and exit sizeable positions, though Italian capital markets are small by international standards. Liquidity may be limited for certain less-frequently traded investments (e.g., bonds traded on the secondary and OTC markets).  

Italian policies generally facilitate the flow of financial resources to markets.  Dividends and royalties paid to non-Italians may be subject to a withholding tax, unless covered by a tax treaty.  Dividends paid to permanent establishments of non-resident corporations in Italy are not subject to the withholding tax.  

In 2009, the United States and Italy enacted an income tax agreement to prevent double-taxation of each other’s nationals and firms, and to improve information sharing between tax authorities.

In 2014 the United States and Italy signed an intergovernmental agreement to implement provisions of the U.S. law known as FATCA (Foreign Account Tax Compliance Act), that allows for the automatic exchange of information between tax authorities.  This automatic exchange of information takes place on the basis of reciprocity, and includes accounts held in the United States by persons resident in Italy and those held in Italy by U.S. citizens and residents.

Italy imposed a financial transactions tax (FTT, a.k.a. Tobin Tax) beginning in 2013.  Financial trading is taxed at 0.1 percent in regulated markets and 0.2 percent in unregulated markets.  The FTT applies to daily balances rather than to each transaction. The FTT applies to trade in derivatives as well, with fees ranging from EUR 0.025 to EUR 200.  High-frequency trading is also subject to a 0.02 percent tax on trades occurring every 0.5 seconds or faster (e.g., automated trading). The FTT does not apply to “market makers,” pension and small-cap funds, transactions involving donations or inheritances, purchases of derivatives to cover exchange/interest-rate/raw-materials (commodity market) risks, and financial instruments for companies with a capitalization of less than EUR 500 million.  

Italy has sought to curb widespread tax evasion by improving enforcement and changing popular attitudes.  GOI actions include a public communications effort to reduce tolerance of tax evasion; increased and visible financial police controls on businesses (e.g., raids on businesses in vacation spots at peak holiday periods); and audits requiring individuals to document their income.  In 2014 Italy’s Parliament approved the enabling legislation for a package of tax reforms, many of which entered into force in 2015. The tax reforms aim to institutionalize OECD best practices to encourage taxpayer compliance, including by reducing the administrative burden for taxpayers through the increased use of technology such as e-filing, pre-completed tax returns, and automated screenings of tax returns for errors and omissions prior to a formal audit.  The reforms also offer additional certainty for taxpayers through programs such as cooperative compliance and advance tax rulings (i.e., binding opinions on tax treatment of transactions in advance) for prospective investors.

The GOI and the Bank of Italy have accepted and respect IMF obligations, including Article VIII.  

Credit is allocated on market terms, with foreign investors eligible to receive credit in Italy.  In general, credit in Italy remains largely bank-driven. In practice, foreigners may encounter limited access to finance, as Italian banks may be reluctant to lend to prospective borrowers (even Italians) absent a preexisting relationship.  Although a wide array of credit instruments are available, bank credit remains constrained following the financial crisis. Weak demand, combined with risk aversion by banks, continues to constrain lending. The latest business surveys indicate that credit conditions are easing, yet availability of credit remains constrained, especially for smaller firms.    

Money and Banking System

Despite isolated problems at individual Italian banks, the banking system remains sound and capital ratios exceed regulatory thresholds.  However, Italian banks’ profit margins have suffered since 2011 as a result of tightening European supervisory standards and requirements to increase banks’ capital.  The recession brought a pronounced worsening of the quality of banks’ assets, which further dampened banks’ profitability. The ratio of non-performing loans (NPLs) to total outstanding loans decreased significantly since its height in 2017.  Currently net NPLs stand at EUR 33 billion. The GOI is also taking steps to facilitate acquisitions of NPLs by outside investors. In December 2016, the GOI created a EUR 20 billion bank rescue fund to assist struggling Italian banks in need of liquidity or capital support.  Italy’s fourth-largest bank, Monte dei Paschi di Siena (MPS), became the first bank to avail itself of this fund in January. The GOI also facilitated the sale of two struggling “Veneto banks” (Banca Popolare di Vicenza and Veneto Banca) to Intesa San Paolo in mid-2017. In January 2019, Banca Carige, the smallest Italian bank under ECB supervision, was put under special administration.  

Italy’s central bank, the Bank of Italy (BOI), is a member of the euro system and the European Central Bank (ECB).  In addition to ECB supervision of larger Italian banks, BOI maintains strict supervisory standards. The Italian banking system weathered the 2007-2013 financial crisis without resorting to government intervention.

The banking system in Italy has consolidated since the financial crisis, though additional consolidation is needed, according to the OECD and ECB.  In 2017, the Italian banking landscape included 70 banking groups (comprising 129 banks), 393 banks not belonging to a banking group, and 82 branches of foreign banks.  The GOI is taking further steps to encourage consolidation and facilitate acquisitions by outside investors. The Italian banking sector remains overly concentrated on physical bank branches for delivering services, further contributing to sector-wide inefficiency and low profitability.  Electronic banking is available in Italy, but adoption remains below euro-zone averages and non-cash transactions are relatively uncommon.

The London Stock Exchange owns Italy’s only stock exchange: the Milan Stock Exchange (Borsa Italiana).  The exchange is relatively small — 357 listed companies and a market capitalization of only 33.5 percent of GDP as of December 2018.  Although the exchange remains primarily a source of capital for larger Italian firms, Borsa Italiana created “AIM Italia” in 2012 as an alternative exchange with streamlined filing and reporting requirements to encourage SMEs to seek equity financing.  Additionally, the GOI recognizes Italian firms remain overly reliant on bank financing, and has initiated some programs to encourage alternative forms of financing, including venture capital and corporate bonds. While financial experts have held that slow CONSOB processes and cultural biases against private equity have limited equity financing in Italy, panelists at the March 2019 annual meeting of the Italian Association of Private Equity, Venture Capital, and Private Debt (AIFI) said investment by private equity funds in Italy rose by 98 percent from 2017 to 2018, totaling EUR 9,788 million —still a low figure given the size of Italy’s economy.

The Italian Companies and Stock Exchange Commission (CONSOB), is the Italian securities regulatory body: http://www.consob.it  .

Most non-insurance investment products are marketed by banks, and tend to be debt instruments.  Italian retail investors are conservative, valuing the safety of government bonds over most other investment vehicles.  Less than ten percent of Italian households own Italian company stocks directly. Several banks have established private banking divisions to cater to high-net-worth individuals with a broad array of investment choices, including equities and mutual funds.

There are no restrictions on foreigners engaging in portfolio investment in Italy.  Financial services companies incorporated in another EU member state may offer investment services and products in Italy without establishing a local presence.

Any investor (Italian or foreign) acquiring a stake in excess of two percent of a publicly traded Italian corporation must inform CONSOB, but does not need its approval.  Any Italian or foreign investor seeking to acquire or increase its stake in an Italian bank equal to or greater than ten percent must receive prior authorization from the Bank of Italy (BOI).  Acquisitions of holdings that would change the controlling interest of a banking group must be communicated to the BOI at least 30 days in advance of the closing of the transactions. Approval and advance authorization by the Italian Insurance Supervisory Authority IVASS are required for any significant acquisition in ownership, portfolio transfer, or merger of insurers or reinsurers.   Regulators retain the discretion to reject proposed acquisitions on prudential grounds (e.g., insufficient capital in the merged entity).

The Ministry of Economy and Finance has indicated its interest in blockchain technologies, but this discussion remains in the formative stages.  Blockchain technologies are not currently being used in banking transactions, nor have any banks announced their intention to start using them.  However, in late 2018, the Association of Italian Banks (ABI) tested blockchain technology in a project associated with check clearing.

Foreign Exchange and Remittances

Foreign Exchange Policies

In accordance with EU directives, Italy has no foreign exchange controls.  In December 2018 Parliament passed a decree which imposed a 1.5 percent tax on remittances sent outside of the EU via money transfer.  The government estimates that the tax on remittances to countries outside of the EU will raise several hundred million euros per year. There are no restrictions on currency transfers; there are only reporting requirements.  Banks are required to report any transaction over EUR 1,000 due to money laundering and terrorism financing concerns. Profits, payments, and currency transfers may be freely repatriated. Residents and non-residents may hold foreign exchange accounts.  In 2016, the GOI raised the limit on cash payments for goods or services to EUR 3,000. Payments above this amount must be made electronically. Enforcement remains uneven. The rule exempts e-money services, banks, and other financial institutions, but not payment services companies.

Italy is a member of the European Monetary Union (EMU), with the euro as its official currency.  Exchange rates are floating.

Remittance Policies

There are no limitations on remittances, though transactions above EUR 1,000 must be reported.

According to the Financial Action Task Force, Italy has a strong legal and institutional framework to fight money laundering and terrorist financing and authorities have a good understanding of the risks the country faces.  There are areas where improvements are needed, such as its money-laundering investigative and prosecutorial action on risks associated with self-laundering, stand-alone money laundering, and foreign predicate offenses, and the abuse of legal persons.

Sovereign Wealth Funds

The state-owned national development bank Cassa Depositi e Prestiti (CDP) launched a strategic wealth fund in 2011, now called CDP Equity (formerly Fondo Strategico Italiano – FSI).  CDP Equity has EUR 3.5 billion in capital, and has invested EUR 3.7 billion in eleven portfolio companies.  CDP Equity generally adopts a passive role by purchasing minority interests as a non-managerial investor. It does not hold a majority stake in any of its portfolio companies.  CDP Equity invests solely in Italian companies with the goal of furthering the expansion of companies in growth sectors—though some of these investment decisions are political. CDP Equity provides information on its funding, investment policies, criteria, and procedures on its website (http://en.cdpequity.it/  ).  CDP Equity is open to capital investments from outside institutional investors, including foreign investors.  CDP Equity is a member of the International Working Group of Sovereign Wealth Funds and follows the Santiago Principles.  

7. State-Owned Enterprises

The Italian government has in the past owned and operated a number of monopoly or dominant companies in certain strategic sectors.  However, beginning in the 1990s and through the early 2000s, the government began to privatize most of these state-owned enterprises (SOEs).  Notwithstanding this privatization effort, the GOI retains 100 percent ownership of the national railroad company (Ferrovie dello Stato) and road network company (ANAS), both of which merged in January 2018.  The GOI holds a 99.56 percent share of RAI, the national radio and television broadcasting network; and retains a controlling interest, either directly and/or through the state-controlled sovereign wealth fund Cassa Depositi e Prestiti (CDP), in companies such as shipbuilder Fincantieri (71.6 percent), postal and financial services provider Poste Italiane (65 percent), electricity provider ENEL (23.6 percent), oil and gas major Eni (30 percent), defense conglomerate Leonardo-Finmeccanica (30.2 percent), natural gas transmission company Snam (30.1 percent), as well as electricity transmission provider Terna (29.85 percent).

However, these companies are operating in a competitive environment (domestically and internationally) and are increasingly responsive to market-driven decision-making rather than GOI demands.  In addition, many of the state-controlled entities are publicly traded, which provides additional transparency and corporate governance obligations, including equitable treatment for non-governmental minority shareholders.  Italy’s parastatals (CDP, Ferrovie dello Stato, Eni, ENEL, ENAV, Poste Italiane and Leonardo) generated EUR 2.4 billion return on investment in 2018 for the GOI. The largest contributor was CDP (EUR 1.256 billion) and the second largest was Eni (EUR 671 million).

SOEs are subject to the same tax treatment and budget constraints as fully private firms.  Additionally, industries with SOEs remain open to private competition.

As an EU member, Italy is covered by EU government procurement rules.  

Privatization Program

The Italian government committed to privatize EUR 16 billion in state-owned assets in 2016 and 2017, planning for EUR 8 billion in each year, although privatizations have not reached these targets.  The privatizations fall into two categories: minority stakes in SOEs and underutilized real estate holdings. In 2016, the GOI sold a minority stake in the air traffic controller (ENAV). Revenues in 2016 were well below expectations due to the unfavorable markets that discouraged other privatizations and resulted in the postponement of the planned privatization of a minority share of the national rail network (Ferrovie dello Stato) as well as the national postal provider (Poste Italiane).  At the end of 2018, the government set a revenue target for 2019 equal to 1 percent of GDP (approximately EUR 18 billion).

The GOI solicits and actively encourages foreign investors to participate in its privatizations, which are non-discriminatory and transparent.  The GOI sells SOE shares through the Milan Stock Exchange (Borsa Italiana), while real estate sales are conducted through public bidding processes (typically online).  The Italian Public Property Agency (Agenzia del Demanio) administers real estate sales: https://venditaimmobili.agenziademanio.it/AsteDemanio/sito.php  .  The Agency has created a centralized registry with information on individual parcels for sale or long-term lease: http://www.investinitalyrealestate.com/en/  .

8. Responsible Business Conduct

There is a general awareness of societal expectations and standards for responsible business conduct (RBC).  Enforcement is generally fair, though the slow pace of civil justice may delay individuals’ ability to seek effective redress for adverse business impacts.  In addition, EU laws and standards on RBC apply in Italy. In the event Italian courts fail to protect an individual’s rights under EU law, it is possible to seek redress to the European Court of Justice (ECJ).

CONSOB has enacted corporate governance, accounting, and executive compensation standards to protect shareholders.  Information on corporate governance standards is available at: http://www.consob.it/c/portal/layout?p_l_id=892052&p_v_l_s_g_id=0  .  

As an OECD member Italy supports and promotes the OECD Guidelines for Multinational Enterprises (“Guidelines”), which are recommendations by governments to multinational enterprises for conducting a risk-based due diligence approach to achieve responsible business conduct (RBC).  The Guidelines provide voluntary principles and standards in a variety of areas including employment and industrial relations, human rights, environment, information disclosure, competition, consumer protection, taxation, and science and technology. (See: OECD Guidelines: http://www.oecd.org/dataoecd/12/21/1903291.pdf )

The Italian National Contact Point (NCP) for the Guidelines is located in the Ministry of Economic Development.  The NCP promotes the Guidelines; disseminates related information; and encourages collaboration among national and international institutions, the business community, and civil society.  The NCP also promotes Italy’s National Action Plan on Corporate Social Responsibility which is available online. For the key link, see: Italian NCP: http://pcnitalia.sviluppoeconomico.gov.it/en  /.

Independent NGOs are able to operate freely in Italy.  Additionally, Italy’s three largest trade union confederations actively promote and monitor RBCs.  They serve on the advisory body to Italy’s National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises.  Unions are able to work freely in Italy.

Italy encourages responsible supply chains and has provided operational guidelines for Italian businesses to assist them in supply chain due diligence.  Italy is a member of the Extractive Industries Transparency Initiative (EITI). The Italian Ministry of Foreign Affairs works internationally to promote the adoption of best practices.

9. Corruption

Corruption and organized crime continue to be significant impediments to investment and economic growth in parts of Italy, despite efforts by successive governments to reduce risks. Italian law provides criminal penalties for corruption by officials.  The government has usually implemented these laws effectively, but officials sometimes have engaged in corrupt practices with impunity.  While anti-corruption laws and trials garner headlines, they have been only somewhat effective in stopping corruption.  Italy has steadily improved in Transparency International’s Corruption Perceptions Index, in overall rank and score every year since 2014, yet ranked 53 in the 2018 index.

In October 2012, as part of an anti-corruption package, a new National Anti-Corruption Authority (ANAC) was created.  The 2012 anti-corruption law has subsequently been strengthened by further provisions. In November 2017 the government approved legislation to protect both public and private sector employees who report illicit conduct in the workplace (i.e. whistleblowing).  The legislation helped protect employees who denounce illicit conduct to the National Anti-Corruption Authority or to enforcement agencies from retaliation. In December 2018 Italy’s Parliament passed an anti-corruption bill that introduced new provisions to combat corruption in the public sector and regulate campaign finance.  The measures in the bill changed the statute of limitations for corruption-related crimes as well as other crimes and made it more difficult for a person to “run out the clock” on their case.  Italy’s anti-money-laundering laws also apply to public officials, defined as any person who has been entrusted with important political functions, as well as their immediate family members. (This encompasses anyone from the head of state to members of the executive body in state-owned companies.)

U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the anticorruption laws of both the foreign country and the United States in order to comply with them and, where appropriate, they should seek the advice of legal counsel.  While the U.S. Embassy has not received specific complaints of corruption from U.S. companies operating in Italy, commercial and economic officers are familiar with high-profile cases that may impact U.S. companies. The Embassy has received requests for assistance from companies facing a lack of transparency and complicated bureaucracy, particularly in the sphere of government procurement and specifically in the aerospace industry.  There have been no reports of government failure to protect NGOs that investigate corruption (such as Transparency International Italy).

Italy has signed and ratified the UN Anticorruption Convention and the OECD Convention on Combatting Bribery.

Resources to Report Corruption:

Autorità Nazionale Anticorruzione (ANAC)
Via Marco Minghetti, 10 – 00187 Roma
Phone: +39 06 367231
Fax: +39 06 36723274
Email: protocollo@pec.anticorruzione.it
Contact Info page: http://www.anticorruzione.it/portal/public/classic/MenuServizio/Contatti  
ANAC’s whistleblowing web page is:  http://www.anticorruzione.it/portal/public/classic/Servizi/ServiziOnline/SegnalazioneWhistleblowing  

Transparency International Italia
P.le Carlo Maciachini 11
20159 Milano – Italy
T: +39 02 40093560
F: +39 02 406829
Email: info@transparency.it
General web site: www.transparency.it  
Corruption Specific: https://www.transparency.it/alac/  

10. Political and Security Environment

Politically motivated violence in Italy is rare and most often connected to Italian internal developments or social issues.  Italian authorities and foreign diplomatic facilities have found bombs outside public buildings, have received bomb threats, and have been targets of letter bombs, fire bombs and Molotov cocktails in the past several years. These attacks have generally occurred at night, and they have not targeted or injured U.S. citizens.  Political violence is not a threat to foreign investments in Italy, but corruption, especially associated with organized crime, can be a major hindrance, particularly in the south.

Italy-specific travel information and advisories can be found at: https://www.travel.state.gov/.

11. Labor Policies and Practices

As a result of its longest and deepest recession since World War II, Italy’s unemployment rate peaked at 13.1 percent in November 2014.  Italy’s unemployment rate has since ebbed, but has remained high at 10.5 percent in January 2019 and above the Eurozone average of 7.6 percent.  Despite the recent improvement, the GOI and the European Commission continue to forecast Italy’s unemployment rate will remain in double digits until 2020, as employers increasingly seek to improve worker productivity and increase hours for existing workers, rather than hire additional workers.  The youth unemployment rate more than doubled during the financial crisis, exceeding 43 percent in 2014. Though youth unemployment has since declined, it remains elevated at 33.0 percent in January 2019 and is one of the highest among EU members. The Central Institute of Statistics estimates there are 2.2 million young Italians not enrolled in education, employment or training (NEETs), more than 22 percent of all young Italians, which is one of the highest percentages in the EU.  Long-term unemployment is also elevated, leading to a permanent reduction in human capital and earnings potential.

Italy’s labor force participation rates are among the lowest in the EU, particularly among women, the young, and the elderly, and in the south.  Low labor force participation has been partially attributable to the informal economy, which Italy’s statistics agency estimates as at least 12 percent of Italian GDP.  January 2019 marked the highest labor force participation rate in Italy since the data series began in 2004: 65.7 percent of working-age Italians. 

The productivity of Italy’s labor force is also below the EU average.  Many Italian employers report an inability to find qualified candidates for highly-skilled vacancies, demonstrating significant skills mismatches in the Italian labor market.  Many well-educated Italians find more attractive career opportunities outside of Italy, with large numbers of Italians taking advantage of EU agreements on freedom of movement to work in the United Kingdom, Switzerland, or Germany.  There is no reliable measure of Italians working overseas, as many expatriate workers do not report their whereabouts to the Italian government. Skilled labor shortages are a particular problem in Italy’s industrialized north.

On paper, companies may bring in a non-EU employee after the government-run employment office has certified that no qualified, unemployed Italian is available to fill the position.  In reality, the cumbersome and lengthy process acts as a deterrent to foreign firms seeking to comply with the law; language barriers also prevent outsiders from competing for Italian positions.  Work visas are subject to annual quotas, although intra-company transfers are exempt from quota limitations.

In 2018 the newly-elected government majority introduced the so-called “Dignity Decree,” which rolled back some key structural reforms to Italy’s labor market adopted as part of the Jobs Act by the previous center-left government.  The Dignity Decree extended incentives to hire people under 35 years old, set limits on short-term contracts, and made it more costly to fire workers. 

Indefinite employment contracts signed before March 2015 are governed by the June 2012 labor regime, which allows firms to conduct layoffs and firings with lump sum payments.  Under the 2012 system, according to Article 18 of the workers’ statute of 1970, judges can order reinstatement of dismissed employees (with back pay) if they find the dismissal was a pretext for discriminatory or disciplinary dismissal.  In practice, dismissed employees reserved the right to challenge their dismissal indefinitely, often using the threat of protracted legal proceedings or an adverse court ruling to negotiate additional severance packages with employers.

However, indefinite employment contracts signed after March 2015 are governed by the rules established under the “Jobs Act” labor market reforms, which provide for employment contracts with protections increasing with job tenure.  During the first 36 months of employment, firms may dismiss employees for bona fide economic reasons.  Under the Jobs Act regime, dismissed employees must appeal their dismissal within 60 days and reinstatements are limited. 

Regardless of the reason for termination of employment, all former employees are entitled to receive mandatory severance payments from their employer (TFR – trattamento di fine rapporto), equal to 7.4 percent of the employee’s annual gross compensation for each year worked.

Other Jobs Act measures enacted in 2015 include universal unemployment and maternity benefits, as well as a reduced number of official labor contract templates (from 42 to six).  The GOI’s unemployment insurance (NASPI) provides up to six months of coverage for laid-off workers.  The GOI also provides worker retraining and job placement assistance, but services vary by region and implementation of national active labor market policies remains in progress.

Italy also offers other social safety net protections to all residents, designed to tackle poverty.  The previous government implemented an anti-poverty plan (Reddito di Inclusione, or “Inclusion Income”) aimed at providing some financial relief and training to homeless individuals and people with income below the poverty level.  In the 2019 budget, the current government introduced the so-called Citizenship Income (Reddito di Cittadinanza), which will replace and broaden the Inclusion Income program. The Citizenship Income program is aimed at providing a basic income of €780 a month to eligible citizens; the GOI estimates that one million workers are potentially eligible for this benefit.  The program also gives active support in finding a job to a portion of those receiving the Citizenship Income. The annual cost of the program is estimated to be €6 billion a year.

The 2019 budget and the associated decree and law also implemented an early retirement scheme (a.k.a. Quota 100) changing the  pension law and permitting earlier retirement for eligible workers with 62 years of age and 38 years of work seniority.

Other Jobs Act measures, including a statutory minimum wage, have not yet been implemented, although in July 2018 a national minimum wage bill was introduced in Parliament.  Italy does not currently have a national minimum wage, as wages are set through sector-wide collective bargaining. An agency for Job Training and Placement (ANPAL) was established in 2016 to coordinate with Italian regions, which after the defeat of the December 2016 constitutional reform referendum, remain in charge of implementation of many labor policies.  ANPAL is following the implementation of the Assegno di Riallocazione (the “reallocation check”, an initiative related to the Jobs Act aimed at providing unemployment benefits to workers willing to move to a different part of the country), and the related special wage guarantee fund (Cassa Integrazione Straordinaria) and retraining to find a new job.  The “reallocation check” funds are disbursed to the agency in charge of the retraining and job placement only after the candidate gets a new job.  Citizenship Income and ANPAL are expected to play a key role in helping eligible workers who are willing to work to find a job.

Historical regional labor market disparities remain unchanged, with the southern third of the country posting a significantly higher unemployment rate (e.g., more than 25 percent in Calabria) than northern and central Italy (e.g., approximately 4 percent in Bolzano).  Despite these differences, internal migration within Italy remains modest, while industry-wide national collective bargaining agreements set equal wages across the entire country. Immigrants from Eastern Europe and North Africa often are drawn to the north by the opportunities created there by shortages of unskilled and semi-skilled labor.

Italy is an International Labor Organization (ILO) member country.  Italy does not waive existing labor laws in order to attract or retain investments.  Terms and conditions of employment are periodically fixed by collective labor agreements in different professions.  Most Italian unions are grouped into four major national confederations: the General Italian Confederation of Labor (CGIL), the Italian Confederation of Workers’ Unions (CISL), the Italian Union of Labor (UIL), and the General Union of Labor (UGL).  The first three organizations are affiliated with the International Confederation of Free Trade Unions (ICFTU), while UGL has been associated with the World Confederation of Labor (WCL). The confederations negotiate national-level collective bargaining agreements with employer associations, which are binding on all employers in a sector or industry irrespective of geographical location.

Collective bargaining is widespread in Italy, occurring at the national-level (primarily to reflect inflation and cost-of-living adjustments) and industry-level (to reflect productivity and profitability).  Firm-level collective bargaining is limited.  The Italian Constitution provides that unions may reach collective agreements that are binding on all workers.  There are no official estimates of the percentage of the economy covered by collective bargaining agreements.  A 2014 estimate from union officials projected collective bargaining coverage at 80 percent (for national-level bargaining), with less coverage for industry-level agreements and minimal coverage for company-level agreements.

Collective agreements may last up to three years, though recent practice is to renew collective agreements annually.  Collective bargaining establishes the minimum standards for employment, though employers retain the discretion to apply more favorable treatment to some employees covered by the agreement. 

Labor disputes are handled through the civil court system, though they are subject to specific procedures.  Before entering the civil court system, parties must first attempt to resolve their disputes through conciliation (administered by the local office of the Ministry of Labor) and/or through specific union-agreed dispute resolution procedures.

In cases of proposed mass layoffs or facility closures, the Ministry of Economic Development may convene a tripartite negotiation (Ministry, company, and union representatives) to attempt to reach a mutually acceptable agreement to avoid the layoff or closure.

There have been no recent strikes that posed investment risks.  The Italian Constitution recognizes an employee’s right to strike.  Strikes are permitted in practice, but are typically short-term (e.g., one working day) to draw attention to specific areas of concern.  In addition, workers (or former employees) commonly participate in demonstrations to show opposition to proposed job cuts or facility closings, but these demonstrations have not threatened investments.  In addition, frequent strikes by employees of local transportation providers may limit citizens’ mobility. 

12. OPIC and Other Investment Insurance Programs

OPIC does not currently operate programs in Italy.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 €1,757,000 2017 $1,935,000 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $12,203 2017 $30,708 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Host country’s FDI in the United States ($M USD, stock positions) 2017 $33,430 2017 $35,672 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Total inbound stock of FDI as % host GDP 2017 24.8% 2017 21.7% N/A

* Italian GDP data are taken from ISTAT, the official statistics agency.  ISTAT publishes preliminary year end GDP data in early February and issues revised data in early March.  Italian FDI data are from the Bank of Italy and are the latest available; new data are released in May.


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $420,437 100% Total Outward $557,022 100%
Luxembourg $88,638 21% Netherlands $63,550 11%
Netherlands $80,143 19% Luxembourg $47,074 9%
France $70,327 17% Germany $43,195 8%
United Kingdom $53,678 13% United States $40,279 7%
Germany $37,285 9% Spain $36,247 7%
“0” reflects amounts rounded to +/- USD 500,000.

The 2017 IMF statistics above show Italy’s largest investment partners to be within the European Union and the United States.  This is consistent with Italy being fully integrated with its EU partners and the United States. Note: Foreign direct investment data can vary widely by source, reflecting different definitions used.  End note.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Coun-tries $1,658,786 100% All Countries $1,018,524 100% All Countries $640,262 100%
Luxem-bourg $690,512 42% Luxem-bourg $665,672 65% France $104,049 16%
France $183,100 11% Ireland $131,735 13% Spain $99,870 16%
Ireland $148,185 8% France $79,051 8% United States $93,628 15%
United States $130,736 6% United States $37,108 4% Germany $61,778 10%
Spain $104,489 5% United Kingdom $32,263 3% Nether-lands $48,967 8%

The statistics above show Italy’s largest investment partners to be within the European Union and the United States.  This is consistent with Italy being fully integrated with its EU partners and the United States.

14. Contact for More Information

Unit 9500
Attn:  Economic Section
DPO AE 09624
Tel:  +39 06 4674 2107
Email:  
RomeECON@state.gov  

Spain

Executive Summary

Spain is open to foreign investment and is actively seeking to attract additional investment to sustain its strong economic growth. Spain had a GDP growth rate in 2018 of 2.6 percent—one of the highest in the EU. Spain’s excellent infrastructure, large domestic market, well-educated workforce, and robust export possibilities are key selling points for foreign investors. Spanish law permits foreign ownership in investments up to 100 percent, and capital movements are completely liberalized. According to Spanish data, in 2018, foreign direct investment flow into Spain was EUR 52.8 billion, 31.6 percent more than in 2017. Of this total, EUR 948 million came from the United States, the eighth-largest investor in Spain in new foreign direct investment. Foreign investment is concentrated in the energy, real estate, finance and insurance, engineering, and construction sectors.

The Spanish economy sustained its strong and balanced growth in 2018, due in large part to strong domestic consumption, although Spain maintains a relatively high unemployment rate—14.4 percent at the close of 2018—and high levels of household and public indebtedness. Spain’s economy has benefitted from favorable external factors, namely low global energy prices and the European Central Bank’s expansionary monetary policy. As it recovered, Spain’s economy diversified, becoming more export competitive. As a result, Spain has had a current account surplus since 2013.

Following the global financial and euro crises, the Spanish government implemented a series of labor market reforms and restructured the banking system. In 2013, the Spanish government adopted the Market Unity Guarantee Act, which eliminated duplicative administrative controls by implementing a single license system to facilitate the free flow of all goods and services throughout Spain. Since the law’s adoption five years ago, Spain’s National Commission on Markets and Competition (CNMC)—the public-sector authority in charge of competition and regulatory matters—has taken 381 actions to enforce the law. However, certain provisions have been declared unconstitutional by Spanish courts, and some U.S. companies continue to complain about the difficulties in dealing with variances in regional regulations within Spain.

Since its financial crisis, Spain also has regained access to affordable financing from international financial markets, which has improved Spain’s credibility and solvency, in turn generating more investor confidence. Spain’s credit ratings were raised in 2018, and Spanish issuances of public debt have been oversubscribed, reflecting strong investor appetite for investment in Spain. However, small and medium-sized enterprises (SMEs) still have some difficulty accessing credit.

In implementing its fiscal consolidation program, the government took actions between 2012 and 2014 that negatively affect U.S. and other investors in the renewable energy sector on a retroactive basis. As a result, Spain is facing several international arbitration claims. Spanish law protects property rights and those of intellectual property. The government has amended the Intellectual Property Act, the Civil Procedure Law, and the Penal Code to strengthen online protection. In 2018, internet piracy decreased by 3 percent compared to 2017, although piracy continues at high levels.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 41 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2019 30 of 190 https://www.doingbusiness.org/rankings
Global Innovation Index 2018 28 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in Partner Country ($M USD, stock positions) 2017 $33,128 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $27,180 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

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. There have not been any major changes in Spain’s regulations for investment and foreign exchange under the current Spanish Socialist Workers Party (PSOE) administration, which took office in June 2018. Spanish law permits 100 percent foreign ownership in investments (limits apply regarding audio-visual broadcast licenses; 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 in the past few years. New FDI into Spain increased by 31.6 percent in 2018 according to Spain’s Industry, Trade, and Tourism Ministry data, continuing the growing path of gross FDI flow into Spain that began significantly in 2014. In 2018, 19.2 percent of total gross investments were investments in new facilities or the expansion of productive capacity, while 59 percent of gross investments were in acquisitions of existing companies. In 2018 the United States had a gross direct investment in Spain of EUR 984 million, accounting for 2.1 percent of total investment and representing a decrease of 52 percent compared to 2017. 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 of July 1, 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.

Spain is one of the 14 countries of the 28 EU member states that has established mechanisms to evaluate the possible risks of direct foreign investments. The cornerstone on which the control system is structured is the probable impact “on security and public order” of the arrival of foreign capital into Spain. Critical sectors include energy, transport, communications, technology, defense, and data processing and storage, among others.

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

For setting 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:

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.

2. Bilateral Investment Agreements and Taxation Treaties

Bilateral Taxation Treaties

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), Kirgizstan (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), South 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), 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, approved by the United States Senate Foreign Relations Committee on July 16, 2014, and authorized by the Spanish Parliament on December 10, 2014. However, the amended bilateral taxation protocol is pending ratification by the United States Senate before it enters into force.

3. Legal Regime

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 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, although permitting and licensing processes still result in significant delays. The efficacy of regulation at the regional level is uneven. The Market Unity Guarantee Act 20/2013 was adopted in December 2013 with the goal of rationalizing the regulatory framework for economic activities in order to facilitate the free flow of goods and services throughout Spain. It also reinforced coordination among competent authorities and introduced a mechanism to rapidly resolve operators’ problems. With a license from only one of Spain’s 17 regional governments, companies are able to operate throughout the Spanish territory, rather than needing to requests licenses from each region. 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. In fact, the recognition and enforcement of foreign judgments is so well entrenched in the judicial system, that it has not been subject to any relevant modifications (save those imposed by international conventions) since the late nineteenth century, underscoring the strength of the system. 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 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.

In April 1999, the adoption of royal decree 664/1999 eliminated requirements for government authorization in investments except for those activities directly related to national defense, such as arms production. The decree abolished previous authorization requirements on investments in other sectors deemed to be of strategic interest, such as telecommunications and transportation. It also removed all forms of portfolio investment authorization and established free movement of capital into Spain as well as out of the country. As a result, 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.

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:

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 its economic crisis, 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. In December 2012, the government enacted a comprehensive energy sector reform plan in an effort to address a EUR 30 billion energy tariff deficit caused by user rates that were insufficient to cover system costs. In February 2014, Spain’s government announced its plan to cut subsidies for renewable-energy producers, a move that producers decried as a dramatic change to the business environment in which they made their initial investment decisions. Additional reforms in 2014 negatively affected U.S. investors in the solar power sector, with some companies arguing that the legal changes were tantamount to indirect expropriation. As a result of these energy reforms, 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. Two international panels have ordered the Government of Spain to compensate companies for losses due to cuts in renewable energy support. In May 2017, the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) arbitration panel ordered the Spanish government to pay 128 million euros to solar thermal investors, and in February 2018, a Swedish arbitration panel awarded a Luxembourg-based investment firm 53 million euros on a similar energy investment case.

Spain registered four new cases with ICSID in 2018, (three of them are related to renewable energy, and one to shares and bonds), and one on February 2019, bringing its total of pending cases to 32 (as of February 2019). By way of comparison, Venezuela has 19 pending cases in ICSID.

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. The number of cases–both domestic and international– handled by both institutions, has been rapidly increasing over the past years. In particular, 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 will create a commission that will 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. Bankruptcy proceedings are governed by the Bankruptcy Law of 2003, which entered into force on September 1, 2004, and applies to both individuals and companies. The main objective of the law was to ensure the collection of debts by creditors, to promote consensus between the parties by requiring an agreement between debtor and creditor, and for companies, to enable their survival and continuity, if possible. However, given the law’s requirement for agreement between debtor and creditor—primarily banks, many of which refused to negotiate debt reductions—relatively few companies and individuals were able to declare bankruptcy, even at the height of Spain’s economic crisis. To address the issue, 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, even with the new legislation, declaring bankruptcy remains much less prevalent in Spain than in other parts of the world.

4. Industrial Policies

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.

The European Union:

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.

The EU provides incentives primarily to projects that focus on economically depressed regions or that benefit the EU as a whole.

The European Investment Bank (EIB) provides guarantees, microfinance, equity investment, and global loans for small and medium enterprises (SMEs) as well as individual loans focused on innovation and skills, energy, and strategic infrastructure. Projects aiming to extend and modernize infrastructure in the health and education sectors may also qualify for EIB support.

The European Investment Fund (EIF) provides venture capital to small and medium-sized enterprises, particularly new firms and technology-oriented businesses, via financial intermediaries. It also provides guarantees to financial institutions (such as banks) to cover their loans to SMEs. The EIF does not grant loans or subsidies to businesses, nor does it invest directly in any firms. Instead, it works through banks and other financial intermediaries. It uses either its own funds or those entrusted to it by the EIB or the EU.

The European Structural and Investment Funds (ESI Funds) include the Funds under the Cohesion Policy (Structural Funds (ERDF and ESF) and the Cohesion Fund), which contribute to enhancing economic, social and territorial cohesion. Most autonomous regions of Spain qualify for structural funds under the EU’s 2014-2020 budget (EUR 454 billion). Investments under the European Regional Development Fund (ERDF) are concentrated in four key priority areas: innovation and research, the digital agenda, support for small and medium-sized enterprises (SMEs) and the low-carbon economy, depending on the category of region. The European Social Fund (ESF)’s Cohesion Fund provides funding for programs aiming to reduce economic and social disparities and to promote sustainable development.

EU financial incentives are routed through major Spanish financial institutions, such as the Instituto de Credito Oficial (ICO) and Banco Bilbao-Vizcaya Argentaria (BBVA); EU financial incentives must also be applied for through the financial intermediary.

The Central Government:

Spain’s central government provides numerous financial incentives for foreign investment, which are designed to complement European Union financing. The Ministry of Economy and Competitiveness (MINECO) 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  

Using this tool, companies can access up-to-date information regarding grants available for investment projects. Users can also sign up for the automatic alert system, which provides customized updates as suitable grants or subsidies are published. Applications for these incentives should be made directly with the relevant government agency.

Spain provides some support to SMEs through a national program designed to strengthen innovative business groups and networks and boost their competitiveness. 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.

The central government provides financial aid and tax benefits for certain industries that it considers priority sectors given their potential growth resultant effect on the nation’s overall economy. Such activities include, for example: new industrial plants, increases in production capacity, relocations that industries undertake to boost competitiveness, new infrastructure projects, and the extension of projects, which are already mature. Preferred sectors are transportation, energy and environment, and social infrastructure and services. Furthermore, priority activities also include those involving Research &Development (R&D) and innovation—including the acquisition, upgrade and maintenance of scientific-technological equipment for R&D activities, private technology centers, and private centers of innovation support. Regional governments also offer similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by the beneficiaries—or combinations of the two. Companies are classified according to size, which can be a limiting factor in accessing certain types of public aid. According to the current usage, the term “micro” company refers to those employing 0-9 employees, with a turnover of less than EUR 2 million, and with a EUR 2 million limit for total assets. A “small” company has 10-49 employees, a turnover below EUR 10 million, and total assets below EUR 10 million. “Medium” enterprises 50-249 employees, annual turnover not exceeding EUR 50 million, and total assets less than EUR 43 million.

The state-owned financial institution (Instituto de Credito Oficial, ICO), which is attached to the Ministry of Economy and Competitiveness, has the status of State Financial Agency. Its mission is to promote economic activities that contribute to economic growth and development as well as the improved distribution of wealth within Spain. As part of this mission, the ICO seeks to foster the growth of small- and medium-sized companies, to encourage technological innovation and renewable energy projects, and to provide financial relief to those affected by natural disasters. The ICO’s 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 which are economically, financially, technologically and commercially sound and involve a Spanish interest. The maximum amount that can be applied for is EUR 12.5 million.

Other official bodies that grant aid and incentives:

  • Ministry of Finance
  • MINCORUR – Ministry of Industry, Trade, and Tourism
  • ENISA – National Innovation Company S.A. (under MINCOTUR)
  • AXIS ICO Group (under MINECO)
  • INVEST IN SPAIN (under MINCOTUR)
  • RED.ES (under MINECO)
  • IDAE – Institute for Energy Diversification and Saving (under MITECO)
  • CERSA – Spanish Guarantee Company S.A. (under MINCOTUR)
  • CDTI – Center for Industrial Technological Development (under Ministry of Science, Innovation and Universities)
  • Tripartite Foundation for training in employment (under Ministry of Employment and Social Security)
  • CESGAR – Spanish Confederation of Mutual Guarantee Companies

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 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.

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. No investment project can receive other financial aid if the amount of the aid granted exceeds the maximum limits on aid stipulated for each approved investment in the legislation defining the eligible areas. Therefore, the subsidy received is compatible with other aid, provided that the sum of all the aid obtained does not exceed the limit established by the legislation of demarcation and EU rules do not preclude the provision of funding (i.e., due to incompatibilities between Structural Funds).

Incentives from national, regional, or municipal governments and the European Union are granted to Spanish and foreign companies alike without discrimination.

Municipalities:

Municipal corporations offer incentives for direct investment by facilitating infrastructure needs, granting licenses, and allowing for the operation and transaction of permits, although these have been reduced significantly due to budget constraints. Municipalities such as Madrid also offer varied 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. Spain recently made starting a business easier by eliminating the requirement to obtain a municipal license before starting operations and by improving the efficiency of the commercial registry.

Research and Development

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 (TI), and research and development (R&D) projects, which have been priorities of the Spanish government in recent years. The Science, Technology and Innovation Law 14/2011, of June 1, 2011, establishes the legal framework for promoting scientific and technical research, experimental development, and innovation in Spain. On February 2013 the Council of Ministers approved, in a combined document, “the Spanish Strategy for Science and Technology and for Innovation” for the 2013-2020 period, the essential purpose of which is to promote the scientific, technological, and business leadership of the country as a whole and to increase the innovation capacities of the Spanish company and the Spanish economy. The beneficiaries may be: individuals, public research agencies, public and private universities, other public R&D centers, public and private health entities and institutions related to or assisted by the National Health System, certified health research institutes, public and private non-profit entities (foundations and associations) engaging in R&D activities, enterprises (including SMEs), state technological centers, state technological and innovation support centers, business groupings or associations (joint ventures, economic interest groupings, industry-wide business associations), innovative business groupings and technological platforms, and organizations supporting technological transfer and technological and scientific dissemination and disclosure.

The aid can take the form of subsidies, loans, venture capital instruments, and other instruments (tax guarantees and incentives).

In 2013, the European Commission implemented Horizon 2020, the largest-ever EU research and innovation program with nearly EUR 80 billion of funding available from 2014 – 2020. The goal of the program is to attract additional private investment to promote breakthroughs and discoveries and take new ideas from the laboratory to the market. Horizon 2020 is open to all EU Member States and seeks to promote public and private collaboration in delivering innovation. EU Members States are eligible for funding on international collaborations; however, Horizon 2020 expressly prohibits funding on international collaboration with advanced economies outside of the EU.

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.

5. Protection of Property Rights

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. The registration system is rigid, formalistic, and functions efficiently. 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; enforcement is carried out at the administrative and judicial levels. Intellectual property protection has improved in recent years and is generally effective. However, several municipalities struggle to curb the sale of counterfeit apparel. Spanish patent, copyright, and trademark laws all approximate or exceed European Union 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.

Copyrights

Spanish law extends copyright protection to all literary, artistic, or scientific creations, including computer software. 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 Term Directive, thereby also making the Internet treaties part of Spanish law. However, the Internet remains a problematic area in terms of respect for intellectual property rights in Spain.

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 3, 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.

Patents

Spanish authorities published a new Patents Law in 2015 (Law 24/2015). It entered into force on April 1, 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. The European Parliament approved regulations to establish a single patent for the European Union (EU) in December 2012. Spain and Italy decided to opt out, however, due to discrepancies with the patent’s linguistic regime (English, French, and German). A special court will be created to resolve disputes arising from the 25 country signatories. Companies or individuals who want to protect their innovations throughout the EU will have to request a patent in three places – in Munich, the headquarters of the European Patent Office, in Spain, and in Italy (compared to the need to do so in 28 different countries currently) – and will be exposed to litigation in many other jurisdictions. Patents will be issued in English, French, or German, although applications may be presented in any official EU language, along with a summary in one of the three aforementioned languages. Although the regulations entered into force on January 20, 2013, the Patent Package will not enter into force until Germany, France, and 10 other Member States have ratified the Agreement on a Unified Patent Court. As of April 2019, 12 countries have ratified the agreement, which will enter into force upon ratification by Germany and the United Kingdom.

Pharmaceutical companies have reported that Spain’s lack of patent harmonization with the majority of European Union Member States has left holders of pharmaceutical process patents with weaker patent protection than required by the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. The Spanish government has amended the penal code to stipulate that patent infringers will receive one to three years imprisonment for infringing on protected plant varieties for commercial or agricultural purposes.

Trademarks

Despite high-profile, high-impact raids in 2016 to halt physical sales of counterfeit goods, storefronts selling counterfeit goods have reopened and sales have rebounded. Spanish National Police note that the removal of IP from the EUROPOL Strategic Plan will diminish attention to IP crime in Spain. Purchase and sale of counterfeit items—particularly apparel and accessories on offer by street vendors in tourist areas of major cities and beach towns—noticeably increased over the course of 2018. Spain is listed on USTR’s 2018 Notorious Markets List with specific mention to the Els Limits de La Jonquera market in Girona and tourism centers in Barcelona and Madrid which sell counterfeit goods. Audiences in Spain also stream illegally produced movie and television content. The government has committed to developing a national action plan to combat the problem, which requires coordination with national, regional, and local authorities.

Spanish authorities published a new Trademark law in 2001 (Law 17/2001), which came into effect in July 2002. 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. In March 2015, 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 intellectual property rights crimes related to the sale of counterfeit items meet a threshold of EUR 400 in order to merit prosecution and changed the procedure for destruction of counterfeit items seized by law enforcement. Counterfeit items may be destroyed once an official report has been made regarding the items, unless a judge formally requests that 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 European Union. 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:

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  

The World International Property Organization (WIPO, headquartered in Geneva) oversees an international system of registration. Applicants must designate the countries where they wish to obtain protection. 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.

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/ .

6. Financial Sector

Capital Markets and Portfolio Investment

The convergence of monetary policy following the adoption of the euro led to a significant lowering of interest rates; however, the eurozone crisis and the downgrade of Spanish sovereign debt had a negative effect on public financing costs. Foreign investors do not face discrimination when seeking local financing for projects. 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 U.S. There is a significant amount of portfolio investment in Spain, including by American entities. Spain has an actively traded and liquid stock market.

Money and Banking System

Spain’s domestic housing crisis, which began in 2007, was linked to poor lending practices by Spanish savings banks (cajas de ahorros), many of which were heavily exposed to troubled construction and real estate companies. The government subsequently created a Fund for Orderly Bank Restructuring (FROB) through Royal Decree-law 9/2009 of June 26, which restructured credit institutions with an eye toward bolstering capital and provisioning levels. The number of Spanish financial entities has shrunk significantly since 2009 with 50 entities consolidated into 11 as of March 2019 (Banco Santander, BBVA, Bankinter, Banco Sabadell, CaixaBank, Bankia, Ibercaja Banco, Kutxabank, Liberbank, Abanca, and Unicaja Banco).

Since the financial sector’s peak in 2008, the number of financial institution branches that accept deposits has been reduced by 43.1 percent, according to Bank of Spain and European Central Bank data. Catalonia is the Spanish region most affected by the closure of financial branches, as 55.8 percent of the branches have closed in the past decade. The economic crisis, the wave of mergers and acquisitions, the digitalization of the sector, and the need to reduce costs led to a radical adjustment of the branch network. There were 26,011 financial institution branches at the end of 2018, according to the Bank of Spain, the lowest number since the end of 1980. The sector has also shed nearly 95,000 workers, and downsizing continues as banks reassess profitability. With profit margins narrowing, banks are continuing to downsize, reducing both numbers of employees and branches. Banco Santander plans to close 1,000 branches and lay off more than 3,000 employees over the next two to three years. CaixaBank announced the closure of 800 branches and plans to lay off more than 2,000 employees. BBVA planned the closure of 195 offices, Bankia about 25 offices, and the merger of two medium-sized banks, Unicaja and Liberbank, was estimated to result in layoffs for 3,000 employees and the closure of 200 branches. Early retirement for those over 50 years old has been the mechanism of choice for banks seeking to downsize their workforce. In 2017, two significant banking consolidations occurred. Banco Santander (Spain’s largest bank by market capitalization) acquired Banco Popular in June 2017 after the EU’s Single Resolution Board (SRB)—the centralized banking authority for the EU, established in 2015—deemed Banco Popular as “failing or likely to fail.” Later in June, Bankia agreed to acquire Banco Mare Nostrum—a deal finalized in January 2018, making Bankia Spain’s fourth-largest bank in terms of market capitalization.

In January 2014, Spain cleanly exited its EU aid program, the European Stability Mechanism (ESM), which was used to recapitalize Spanish banks in 2012 and 2013. Spain has made nine voluntary early repayments of its ESM loans; through 2018, Spain had paid back 19.6 billion EUR of the original 41.3 billion EUR loan. These payments have boosted investor confidence in the Spanish economy and have earned praise from EU officials. In November 2015, the Government approved legislation implementing the Law on the Recovery and Resolution of Credit Institutions and Investment Service Companies. The regulation also develops the role of the Orderly Bank Restructuring Fund (Spanish acronym: FROB), as the National Resolution Authority, as well as the contributions of institutions to the National Resolution Fund and the Deposit Guarantee Fund. The flow of credit has been restored and alternative financing mechanisms have been created. The IMF conducted a Financial System Stability Assessment of Spain in August 2017—the first such review since 2012—and deemed that Spain’s financial system has made steady progress strengthening its solvency and reducing nonperforming loans (NPLs) since 2012.

Total assets for the five biggest banks in Spain at the close of 2018 were 2.95 trillion euros:

  1. Banco Santander: 1.459 trillion euros
  2. Banco Bilbao Vizcaya Argentaria (BBVA): 677 billion euros
  3. CaixaBank: 386.6 billion euros
  4. Banco Sabadell: 223.2 billion euros
  5. Bankia: 205.2 billion euros

Foreign Exchange and Remittances

Foreign Exchange 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.

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.

7. State-Owned Enterprises

The size of the public enterprise sector in Spain is relatively small. Over the last three decades, 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 makes up the SEPI Group, with a workforce of more than 74,000 employees in 2017, and also 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. Both 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. SEPI’s mission is to make profitable its entrepreneurial participations and orient all its activities taking into account the public interest, which makes it responsible for combining the objectives of economic and social profitability. Beyond its initial nature of a mere Agent in charge of industrial policy, SEPI has been consolidated as an instrument for the economic and financial policy, maintaining a close relationship with the budgetary policy.

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.

  • Companies with a Majority Interest:
    Agencia Efe – Cetarsa – Defex (company in liquidation) – Ensa – Grupo Cofivacasa – Grupo Correos – Grupo Enusa – Grupo Hunosa – Grupo Mercasa – Grupo Navantia – Grupo Sepides – Grupo Tragsa – Hipodromo de la Zarzuela – Mayasa – Saeca
  • Companies with a Minority Interest:
    Airbus Group, NV – Alestis Aerospace – Enagas – Enresa – Hispasat – Indra – International Airlines Group – Red Electrica Corporacion – Ebro Foods
  • Attached companies: RTVE- Corporacion de Radio y Television Espanola
  • Reference: http://www.sepi.es/es/sectores  

Privatization Program

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

8. Responsible Business Conduct

Spanish companies consider corporate reputation, competitive advantage, and industry trends to be the major driving forces of responsible business conduct (RBC). Initiatives undertaken by the EU and international organizations have influenced companies’ decision to implement RBC, and companies continue to increasingly adhere 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 RBC in Spain. Although the visibility of 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.

The Spanish government has taken some measures to promote RBC since 2002. The government 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.

9. Corruption

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. There is also the Audiencia Nacional, a corps of magistrates with 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 2018, Spanish courts conducted 48 corruption cases involving 205 defendants. The courts issued 63 sentences, with 40 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, such as Airbnb, Uber, and Expedia. 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 2018, with the country climbing to position 41 (from 42 in 2017); its overall score (58) is one of the lowest among Western European countries. Among the Spanish public, corruption continues to be one of the main concerns, second after unemployment.

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. OECD has noted concerns about the low level of foreign bribery enforcement in Spain and the lack of implementation of the enforcement-related recommendations. GRECO highlighted the “limited progress made by Spain in adopting 11 of the group’s recommendations from 2013 to combat corruption. GRECO criticized Spain for failing to adopt of a code of conduct in its Congress and Senate, conduct a thorough review of the financial disclosure regime, or establish an enforcement mechanism for when misconduct occurs.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Resources to Report Corruption

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

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/ 

10. Political and Security Environment

There have been periodic peaceful demonstrations against austerity measures and other social or economic policies. Public sector employees and union members have organized frequent small demonstrations in response to service cuts, privatization, and other government measures.

11. Labor Policies and Practices

Spain’s unemployment rate fell to 14.4 percent at the end of 2018, down from 16.5 percent at the beginning of 2018 and marking the lowest level in a decade—down from its peak of 26.9 percent in 2013. The youth unemployment rate fell to 33.5 percent at the end of 2018, an improvement of almost four percentage points from 2017, but still representing 502,900 unemployed people under the age of 25. Despite these gains, in 2018 Spain maintained the EU’s second highest unemployment and youth unemployment rates after Greece. Steady job creation is due, in part, to Spain’s flourishing tourism industry. In 2018, Spain set a new record with more than 82.6 million visitors (a 0.9 percent increase compared to 2017), who spent more than 89.7 billion euros—a 3.1 percent year-over-year increase.

While youth unemployment has fallen substantially, the “lost decade” of extraordinarily high unemployment continues to affect Spain’s socioeconomic development and harms the country’s long-term competitiveness. Spanish economists and politicians across the political spectrum consistently raise concerns about the quality of youth jobs, which are often low-paid, temporary, low-skilled positions that are the first to be terminated in any economic difficulty.

Spain added 566,200 jobs in 2018, lowering its unemployment rate to 14.4 percent, the lowest rate since the fourth quarter of 2008, according to Spain’s National Institute of Statistics (INE). Spain’s economically active population increased by 103,800 people in 2018, totaling 22.8 million people, of whom 19.5 million were employed and 3.3 million unemployed. Several indicators suggest a modest but gradual improvement in Spain’s longer-term employment trends. The 2018 job growth rate rose to nearly three percent from 2.6 percent in 2017; the number of “long-term” unemployed (over a year without work) dropped 17.4 percent from 2017; and over four-fifths of the jobs created in 2018 were full-time positions (476,800 positions)—2.9 percent higher than 2017.

The labor market is divided into permanent workers with full benefits and temporary workers with many fewer benefits. Labor market reform legislation enacted by the parliament in September 2010 aimed to encourage the use of indefinite labor contracts by reducing the number of days of severance pay under these contracts. In January 2011, government, business, and labor union representatives agreed to a pension reform that increases the legal retirement age from 65 to 67 over a 15-year period beginning in January 1, 2013, and gradually increases the number of years of contributions on which pensions are calculated. In 2012 the Spanish government enacted a series of measures to make hiring and firing easier.

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. 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. The reforms enacted in 2012 gave business-level agreements primacy over sectoral and regional agreements and made it easier for businesses to opt out of higher-level agreements. They also required collective labor agreements to 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.

12. OPIC and Other Investment Insurance Programs

As Spain is a member of the European Union, Overseas Private Investment Corporation (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).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $1,317,600 2017 $1,314,314 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country ($M USD, stock positions) 2016 $66,309 2017 $33,128 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Host Country’s FDI in the United States ($M USD, stock positions) 2016 $78,014 2017 $74,716 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Total Inbound Stock of FDI as % host GDP 2016 44.8% 2017 52.3% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

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


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions), 2017
Inward Direct Investment Outward Direct Investment
Total Inward 633,756 100% Total Outward 570,294 100%
Netherlands 129,598 20.4% United Kingdom 120,091 21%
Luxembourg 90,864 14.3% United States 86,520 15.2%
United Kingdom 85,969 13.5% Brazil 63,204 11%
France 58,832 9.3% Mexico 41,032 7.2%
Germany 51,887 8.2% Portugal 26,961 4.7%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets, June 2018
Top Five Partners (US Dollars, Millions)
Total Equity Securities Total Debt Securities
All Countries 748,201 100% All Countries 359,711 100% All Countries 388,490 100%
Luxembourg 179,119 23.9% Luxembourg 172,724 48.0% Italy 124,293 31.9%
Italy 128,287 17.1% France 44,017 12.2% United States 37,570 9.6%
France 69,176 9.2% Ireland 47,324 13.1% Netherlands 32,110 8.3%
Ireland 59,061 7.9% United States 18,373 5.1% France 21,833 5.6%
United States 55,943 7.5% United Kingdom 18,068 5.0% United Kingdom 21,506 5.5%

14. Contact for More Information

Elliot Carmean, Economic Officer, tel.: (34) 91 5872399; carmeaner@state.gov
Ana Maria Waflar, Economic Specialist, tel.: (34) 91 5872290; waflarax@state.gov

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