Spain is open to foreign investment and actively seeks additional investment as a key component of its COVID-19 recovery. After six years of growth (2014-2019), Spain’s GDP fell 11 percent in 2020 – the worst performance in the Eurozone – due in large part to high COVID-19 infection rates, a strict three-month lockdown, border closures, and pandemic-related restrictions that decimated its tourism and hospitality sectors. By building on healthy fundamentals and fueled by up to 140 billion euros in Next Generation EU recovery funds, Spain rebounded with 5.1 percent GDP growth in 2021, and unemployment improved to 13.3 percent. Economic activity is expected to return to its pre-crisis level in 2023, though Russia’s unprovoked war in Ukraine could threaten the recovery by pushing up energy prices, compounding supply chain disruptions, and stoking inflation. Service-based industries, particularly those related to tourism, and energy-intensive industries remain most vulnerable to the economic shock. Spain’s key economic risks are high public debt levels and ballooning pension costs for its aging population, though these areas are targets for government reforms.
Despite COVID-19’s economic shock, Spain’s excellent infrastructure, well-educated workforce, large domestic market, access to the European Common Market, and leadership on renewable energy make it an appealing foreign investment destination. Spanish law permits up to 100 percent foreign ownership in companies, and capital movements are completely liberalized. According to Spanish data, in 2021, foreign direct investment flow into Spain was EUR 28.8 billion, 17.7 percent more than in 2020. Of this total, EUR 1.6 billion came from the United States, the fifth largest investor in Spain in new foreign direct investment. Foreign investment is concentrated in the energy, real estate, financial services, engineering, and construction sectors.
Spain aims to use its Next Generation EU recovery funds to transform the Spanish economy, especially through digitalization and greening of the economy, to achieve long-term increases in productivity and growth. Full financing is contingent on additional economic reforms beyond labor reform. Spain’s credit ratings remain stable, and issuances of public debt – especially for green bonds – have been oversubscribed, reflecting strong investor appetite for investment in Spain. However, small- and medium-sized enterprises (SMEs), which account for more than 99 percent of Spanish businesses and have been acutely impacted by the COVID-19 pandemic, still have some difficulty accessing credit and rely heavily on bank financing. Small firms also experience more challenges accessing EU recovery funds.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Foreign direct investment (FDI) played a significant role in modernizing the Spanish economy during the past 40 years. Foreign companies set up operations in large numbers to take advantage of Spain’s large domestic market, export possibilities, and growth potential. Spain’s automotive industry is mostly foreign-owned, and multinationals control half of the food production companies, one-third of chemical firms, and two-thirds of the cement sector. Foreign firms control about one-third of the insurance market.
The Government of Spain recognizes the value of foreign investment and sees it as a key part of its post COVID-19 economic recovery. U.S. FDI is especially attractive as Spain looks to deepen its transatlantic ties after Russia’s full-scale invasion of Ukraine. Spain offers investment opportunities in sectors and activities with significant added value. Spanish law permits 100 percent foreign ownership in investments (limits apply regarding audio-visual broadcast licenses and strategic sectors of the economy; see next section), and capital movements are completely liberalized. Due to its openness and the favorable legal framework for foreign investment, Spain has received significant foreign investments in knowledge-intensive activities.
New FDI into Spain increased by 17.7 percent in 2021 compared to 2020 when the COVID-19 pandemic reduced FDI, according to data from Spain’s Ministry of Industry, Trade, and Tourism. In 2020, acquisitions of existing companies were the predominant form of foreign investment, representing 42.7 percent of the total, compared to 17.8 percent of new greenfield and brownfield investments. In 2021 the United States, as ultimate beneficial owner, had a gross direct investment in Spain of EUR 4.2 billion, accounting for 14.5 percent of total investment and representing an increase of 1.5 percent compared to 2020. According to the latest available Spanish data, U.S. FDI stock in Spain totaled about $88.6 billion in 2019.
Limits on Foreign Control and Right to Private Ownership and Establishment
Spain has a favorable legal framework for foreign investors. 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.
Spain adapted its foreign investment rules to a system of general liberalization, and its inbound investment screening mechanism is focused on protecting national security. Law 18/1992, which established rules on foreign investments in Spain, provides a specific regime for non-EU persons investing in defense, aerospace, gambling, television, and radio. For EU investors, the only sectors with a specific regime are the manufacture and trade of weapons or national defense-related activities. For non-EU investors, 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 in the audio-visual sector.
The Spanish government issued new regulations on foreign investment in March 2020 that stipulate prior authorization for foreign investments in critical sectors. Prior approval is also required if the foreign investor is controlled directly or indirectly by the government of another country, if the investor has invested or participated in sectors affecting the security, public order, or public health in another EU Member State, or if administrative or judicial proceedings have been initiated against the investor for exercising illegal or criminal activities. Failure to request authorization for a transaction is a serious infringement of the law. These new regulations are outlined below (see Laws and Regulations on Foreign Direct Investment).
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 undergone Investment Policy Reviews with these three organizations within the past three years.
To set up a company in Spain, the two basic requirements include incorporation before a Public Notary and filing a public deed with the Mercantile Register (RegistroMercantil). The public deed of incorporation of the company 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, it takes on average about two weeks to start a business in Spain.
“Invest in Spain” is the Spanish investment promotion agency to facilitate foreign investment. Services are available to all investors. It has partner offices in five major U.S. cities.
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.
The EU announced a Comprehensive Agreement on Investment with China in December 2020 that is pending ratification by the European Parliament.
Spain and the United States have a Friendship, Navigation, and Commerce (FCN) Treaty and a Bilateral Taxation Treaty (1990), which was amended on January 14, 2013, and entered into force in November 2019.
Spain is a member of the OECD/G20 Inclusive Framework on BEPS, and Spain is party to the Inclusive Framework’s October 2021 deal on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy as of November 2021.
3. Legal Regime
Transparency of the Regulatory System
There is transparency throughout the rule making process at all levels of government. The Spanish government launched a transparency website in 2014 that makes more than 500,000 items of public interest freely accessible to all citizens (http://transparencia.gob.es/transparencia/en/transparencia_Home/index.html). The website offers details about the central government, public institutions such as the Royal House, the Parliament, the Constitutional Court, the Judicial Power, the Ombudsman, the Audit Court, the Central Bank, and the Economic and Social Council, and other organisms such as the European Commission. Regional and local authorities have developed their own transparency portals and related legislation. Spain’s Boletin Oficial de Estado (https://www.boe.es/) publishes key regulatory actions.
Many large established Spanish companies have not yet fully adopted environmental, social, and governance (ESG) criteria, though companies are increasingly committed to making positive impact on society. New companies, especially startups, tend to incorporate ESG values into their operations from the start, acting with transparency and adopting innovative, modern technologies for continuous improvement. Several official Spanish certifications recognized at European and global level accredit companies that meet ESG and CSR criteria, such as Norma SGE21, B Corp Spain, and SDG Certificate (AENOR.) To promote transparency in the disclosure of non-financial information and its impact on corporate governance of companies, the Spanish government published Law 11/2018 on non-financial and diversity matters (https://www.boe.es/boe/dias/2018/12/29/pdfs/BOE-A-2018-17989.pdf). The law reinforces requirements that companies disclose relevant information about their management in five areas: environment; social impact and workers’ rights; respect for human rights; fight against corruption and bribery; and impact on society.
International Regulatory Considerations
Spain is a member of the European Union, and its local regulatory framework compares favorably with other major European countries, although permitting and licensing processes may result in significant delays. The efficacy of regulation at the regional level is uneven. With a license from only one of Spain’s 17 regional governments or two enclaves, companies can operate throughout Spanish territory. The measures are designed to reduce business operating costs, improve competitiveness, and attract foreign investment.
Legal System and Judicial Independence
The Spanish judiciary has a well-established tradition of supporting and facilitating the enforcement of both foreign judgments and awards. For a foreign judgment to be enforced in Spain, an order declaring it is enforceable or exequatur is necessary. Once the order is granted, enforcement itself is quite fast, provided that the assets are identified. First instance courts are responsible for the enforcement of foreign rulings.
Local legislation establishes mechanisms to resolve disputes if they arise. Spain’s civil (Roman-based) judicial system is fair and accessible, although sometimes slow-moving. Investigating judges are in charge of the criminal investigation, assuring independence from the executive branch of the government. The Spanish judicial system allows for successive appeals to a higher court.
The number of civil claims has grown significantly over the past decade, due in part to litigation stemming from Spain’s financial 2008 crisis, resulting in an increased openness to alternative dispute resolution mechanisms. Although ordinary proceedings are relatively straightforward, due to the significant number of cases within each court, it can take years for a case to come to trial. 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. A decision may still be subject to appeal to the Supreme Court (although the grounds for appeal are quite limited), a process that generally takes two to three years to produce a final ruling. 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
The Spanish government issued new regulations on foreign investment in March 2020 (Royal Decrees 8/2020, 11/2020, and 34/2020) that require prior authorization for foreign investors seeking to acquire more than a 10 percent stake in the following critical sectors:
critical infrastructures, both physical and virtual (energy industries, transportation, water, healthcare, communications, media, data storage and processing, aerospace, defense, financial services, and sensitive installations)
critical technology and dual-use products;
essential supplies (energy, hydrocarbons, electricity, raw materials and food and agriculture value chains);
sectors with sensitive information such as personal data or with capacity to control such information and;
Purchases of less than 10 percent are also subject to authorization if they result in participation in the control or management of the company. Under these new Royal Decrees, foreign investments in any industry must also receive prior approval if the foreign investor is controlled directly or indirectly by the government of another country; if the investor has invested or participated in sectors affecting the security, public order, or public health in another EU Member State; or if administrative or judicial proceedings have been initiated against the investor for exercising illegal or criminal activities. Investments less than EUR 1 million are exempted, and investments between EUR 1 and 5 million are subject to a simplified review.
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. However, Royal Decree 34/2020 also temporarily requires residents of the European Union and European Free Trade Association to receive prior approval for investments into companies listed in Spain or investments exceeding EUR 500 million. This temporary requirement has been extended several times and is valid until December 31, 2022.
Registration requirements are straightforward and apply equally to foreign and domestic investments. They aim to verify the purpose of the investment, not block any investment. On September 1, 2016, a resolution established new forms for declaration of foreign investments before the Investment Registry, which oblige the investor(s) to declare foreign participation in the company.
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. Residents who have resided in Spain for at least 10 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 25 percent or more shares in a venture whose market value exceeds EUR 1 million.
A Protocol to the 1990 Income Tax Convention between the United States and Spain entered into force in November 2019. The Protocol significantly reduces taxes on interest, royalties, certain direct dividends, and capital gains. It also provides for mandatory binding arbitration to streamline dispute resolutions between the two countries’ tax administrations.
Spain’s digital services tax on companies, approved in January 2021, was dropped as of January 2022 in response to the OECD/G20’s multilateral agreement during international tax negotiations. Spain will credit amounts paid in excess of the global minimum tax from January 2022 against future taxes owed.
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 Commission (CNMC). The law attributes practically all functions entrusted to the National Competition Commission under the Competition Act 15/2007, of July 3, 2007 (LDC), to the CNMC. The CNMC’s website (https://www.cnmv.es/Portal/home.aspx) provides information to the public about major cases.
Expropriation and Compensation
Spanish legislation set up safeguards to prevent the nationalization or expropriation of foreign investments. Since the 2008 economic crisis, Spain has altered its renewables policy several times, creating regulatory uncertainty and resulting in losses to U.S. companies’ earnings and investments. As a result, Spain accumulated more than 32 lawsuits, totaling about EUR 7.6 billion in claims. Spain now faces an array of related international claims for solar photovoltaic and other renewable energy projects. Spain registered one case with ICSID in 2021 related to renewable energy generation.
ICSID Convention and New York Convention
Spain is a member state of the International Centre for the Settlement of Investment Disputes (ICSID) and a signatory to the 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). 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 according to Spanish law. U.S. citizens seeking to execute U.S. 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.
In December 2017, the Chamber of Commerce of Spain, the Court of Arbitration of the Official Chamber of Commerce of Madrid (CAM), and the Civil and Commercial Court of Arbitration Court of Madrid (CIMA) signed a memorandum of understanding (MOU) to unify their arbitration activities and create a unified Arbitration Court to administer international arbitrations. The new International Center of Arbitration of Madrid (CIAM) began operating on January 1, 2020. It has modern and flexible rules that facilitate successful arbitration outcomes, and proceedings are resolved swiftly, allowing the parties to obtain an award in as few as six months. More information on the CIAM is available on its website (https://madridarb.com/en/). The Barcelona Court of Arbitration (TAB) also offers services in the field of dispute resolution through arbitration or other similar mechanisms such as conciliation.
Spain has a fair and transparent bankruptcy regime. In 2014, the government approved a reform of the bankruptcy law to promote Spain’s economic recovery by establishing mediation mechanisms. These reforms – nicknamed the Second Chance Law – aimed to avoid the bankruptcy of viable companies and preserve jobs by facilitating refinancing agreements through debt write-off, capitalization, and rescheduling. However, declaring bankruptcy remains less prevalent in Spain than in other parts of the world.
4. Industrial Policies
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 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. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by beneficiaries, or combinations of the two.
Because Spain is a European Union Member State, potential investors can access European aid programs, which provide further incentives for investing in Spain. Spain’s central government provides numerous financial incentives for foreign investment, which are designed to complement EU financing. The Ministry of Industry, Trade, and Tourism assists businesses seeking investment opportunities through the Directorate General for International Trade and Investments and the ICEX Spain Export and Investment office. These offices support 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.
The Ministry for the Ecological Transition and Demographic Challenge, through the Institute for Energy Diversification and Saving (IDAE), makes grants to promote renewable installations for the production of energy, both thermal and electrical. These grants, financed by the European Regional Development Fund (ERDF), are executed through calls for proposals made by the IDAE in each autonomous community/regional government. The grants are non-refundable and are governed by the principle of competitive competition with the aim of optimizing their application as widely as possible.
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 approved by the Spanish Commercial Office. Entrepreneurs must demonstrate the intent to develop the project in Spain for at least one year. Investors who purchase at least EUR 2 million in Spanish bonds or acquire at least EUR 1 million in shares of Spanish companies or Spanish banks deposits may also apply. Foreigners who acquire real estate with an investment value of at least EUR 500,000 are also eligible.
Spain’s 17 regional governments, known as autonomous communities, provide additional incentives for investments in their region. Many are similar to the incentives offered by the central government and the EU, but they are not all compatible. Additionally, some autonomous community governments grant investment incentives in areas not covered by state legislation, but which are included in EU regional financial aid maps. Royal Decree 899/2007 sets out the areas 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 established in the Royal Decrees. Most are granted on an annual basis.
Incentives from national, regional, or municipal governments and the European Union are granted to Spanish and foreign companies alike without discrimination. The most notable incentives include those aimed at fostering innovation, technological improvement, and research and development projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
Both the mainland and islands (and most Spanish airports and seaports) have 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 Las Palmas de Gran Canaria – 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 enclaves 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
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). Other foreign legal persons require an identification number known as a NIF. Apart from money laundering regulations, no special restrictions or limitations apply to foreign mortgage guarantees and loans.
The Land Register provides evidence of title and 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 are another form of real estate financing that has been used by some Spanish financial institutions. These institutions raised financing through the sale of their offices to their clients and subsequently leased them back. The institution raised funds and their clients received a stream of rental income.
Intellectual Property Rights
Spanish law protects intellectual property rights (IPR), and enforcement is carried out at the administrative and judicial levels. In Spain, IPR is separated into industrial property, which refers to industry and innovative activity (patents and trademarks), and intellectual property, which focuses on the rights of creators. Spanish patent, copyright, and trademark laws all approximate or exceed EU standards for IPR protection. Spain is a member of the World Intellectual Property Organization (WIPO) and party to many of its treaties, including the Berne Convention, the Paris Convention, the Madrid Accord on Trademarks, the WIPO Copyright Treaty, and the WIPO Phonograms and Performances Treaty.
Since its removal from the U.S. Trade Representative’s (USTR’s) Special 301 Watch List in 2012, Spain has undertaken extensive, multi-year reform measures to strengthen its framework for IPR protections. The latest legislative changes to the 1996 Law on Intellectual Property, in force as of March 2019, streamline anti-piracy and anti-counterfeit measures. As a result, Spain now has a stronger legal framework and corresponding criminal procedures to address IPR violations.
USTR removed Spain from its Notorious Markets List in 2020. Although physical and online marketplaces for counterfeit goods persist in Spain, Spanish authorities continue to make significant regulatory, legal, and enforcement progress in protecting IPR, and Spain is now ranked 11th out of 50 countries in the U.S. Chamber of Commerce’s IPR protection index.
Spanish authorities published a new Patents Law in 2015 (Law 24/2015), which entered into force in April 2017. A non-renewable 20-year period for working patents is available if the patent is used within the first three years. Spain permits both product and process patents. Patents can be awarded by the Spanish Office of Patents and Trademark (OEPM), a Spanish autonomous region via an Industrial Property Regional Information Center, or the European Patent Office.
Spanish law extends copyright protection to all literary, artistic, or scientific creations, including computer software.
Amendments to the 2001 Trademark Law (17/2001), which amend the regulations for the 2001 law, entered in force in April 2019. OEPM oversees protection for national trademarks. Trademarks registered in the Industrial Property Registry receive protection for a 10-year period from the date of application and may be renewed. Protection is not granted for generic names, names that violate Spanish customs, or other inappropriate trademarks. The Spanish parliament passed a reform of the penal code that entered into force in July 2015 (Ley Organica 1/2015). The revised penal code removed the condition that certain IPR crimes related to the sale of counterfeit items meet a threshold of EUR 400 in order to merit prosecution, and it changed the procedure for destruction of counterfeit items seized by law enforcement. Counterfeit items may now be destroyed once an official report is filed unless a judge formally requests the items be retained.
Businesses may seek a trademark valid throughout the EU via the Office for Harmonization in the Internal Market (OHIM), which is located in Alicante:
The Spanish government welcomes all forms of investment, including portfolio investment, and actively courts foreign investment as part of its COVID-19 recovery plan. Foreign investors do not face discrimination when seeking local financing for projects. Credit is allocated on market terms, and foreign investors are eligible to receive credit in Spain. A large range of credit instruments are available through Spanish and international financial institutions. Many large Spanish companies rely on cross-holding arrangements and ownership stakes by banks rather than pure loans. However, these arrangements do not restrict foreign ownership. Several of the largest Spanish companies that engage in this practice are also publicly traded in the United States. There is a significant amount of portfolio investment in Spain, including by U.S. entities. Spain has an actively traded and liquid stock market, the IBEX 35.
In 2019, the United States and Spain amended their bilateral tax agreement to prevent double taxation of each other’s nationals and firms and to improve information sharing between tax authorities.
Spain has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange rate system free of restrictions on payments and transfers for current international transactions, other than restrictions notified to the Fund under Decision No. 144 (52/51).
In January 2021, Spain’s new Financial Transactions Tax (FTT) or “Tobin tax,” entered into force. The FTT is an indirect tax of 0.2 percent on the acquisition of Spanish companies with a market capitalization of at least EUR 1 million EUR. The financial intermediary executing the transaction – not the seller or acquirer of the shares – pays the tax.
Money and Banking System
There were about 50 commercial bank branches per 100,000 adults in Spain in 2019, down from 104 in 2007 but still more than twice the eurozone average, according to the IMF. There are 20,421 financial institution branches as of December 2021, after having closed 2,488 offices in 2021, according to the Bank of Spain. Spain’s domestic housing crisis, which began in 2007, was linked to poor lending practices by Spanish savings banks. The government subsequently created a Fund for Orderly Bank Restructuring (FROB) through Royal Decree-law 9/2009, which restructured credit institutions to bolster capital and provisioning levels. The number of Spanish financial entities dropped significantly since 2009 through consolidation as banks have faced increased capital requirements and shrinking profit margins.
The COVID-19 pandemic adversely affected the outlook for Spanish banks, though the government’s income support measures, fiscal support for ailing firms, and loan guarantees helped reduce the pressure on the sector. Slim profit margins for the Spanish financial sector are also likely to persist, however, due to slowing growth, low (or negative) interest rates, and nonperforming loans (NPLs). The NPL ratio in Spain – 4.3 percent in December 2021 – was a marked improvement from 2014 levels. The sector has capital buffers to absorb the unexpected losses associated with this crisis, though there is significant disparity between institutions. Spanish financial institutions have significantly higher capital levels than the minimum regulatory requirements, which can be used to absorb unexpected losses from the economic fallout of pandemic. Total profit for the Spanish banking system was about EUR 19.8 billion euros in 2021, compared to the losses of 5.5 billion registered in 2020.
The Bank of Spain, Spain’s central bank, is a member of the euro system and the European System of Central Banks. Within the framework of the Single Supervisory Mechanism (SSM), the Bank of Spain and European Central Bank (ECB) jointly supervise the Spanish banking system.
Foreign banks can establish themselves in Spain and are subject to the same conditions as Spanish banks to access the Spanish financial system. Foreign banks with authorization in another EU member state do not need to get authorization from the Bank of Spain to establish a branch or representative office in Spain.
The National Securities Market Commission (CNMV) is responsible for the supervision and inspection of Spanish securities markets. Since its creation in 1988, the CNMV’s regime has been updated to adapt to the evolution of financial markets and to introduce new measures to protect investors.
Total assets for the five biggest banks in Spain at the end of 2021 were EUR 3.3 trillion:
To open a bank account as a non-resident, a foreigner needs a proof of identity, proof of address in Spain, and proof of employment status or where the funds originated. All documents that are not in Spanish or issued by Spanish authorities must be translated into Spanish.
Foreign Exchange and Remittances
There are no controls on capital flows. In February 1992, Royal Decree 1816/1991 provided complete freedom of action in financial transactions between residents and non-residents of Spain. Previous requirements for prior clearance of technology transfer and technical assistance agreements were eliminated. The liberal provisions of this law apply to payments, receipts, and transfers generated by foreign investments in Spain.
Capital controls on the transfer of funds outside the country were abolished in 1991. Remittances of profits, debt service, capital gains, and royalties from intellectual property can all be affected at market rates using commercial banks.
Sovereign Wealth Funds
Spain does not have a sovereign wealth fund or similar entity. Spain was among the top ten receiving countries for sovereign wealth investments, attracting EUR 2.8 billion between October 2020 and December 2021.
7. State-Owned Enterprises
Spain’s public enterprise sector is relatively small, and the role and importance of state-owned enterprises (SOE) decreased since the privatization process started in the early 1980s. The reform of SOE oversight in the 1990s led the government to create the State Holding for Industrial Participations (SEPI) in 1995. SEPI has direct majority participation in 15 SOEs, which make up the SEPI Group, with a workforce of more than 78,000 employees. It is a direct minority shareholder in nine SOEs (five of them listed on stock exchanges) and participates indirectly in ownership of more than one hundred companies. Either legislative chamber and any parliamentary group may request the presence of SEPI and SOE representatives to discuss issues related to their performance. SEPI and the SOEs are required to submit economic and financial information to the legislature on a regular basis. The European Union, through specialized committees, also controls SOEs’ performance on issues concerning sector-specific policies and anti-competitive practices.
Companies with a majority interest: Agencia Efe, Cetarsa, Ensa, Grupo Cofivacasa, Grupo Correos, Grupo Enusa, Grupo Hunosa, Grupo Mercasa, Grupo Navantia, Grupo Sepides, GrupoTragsa, Hipodromodo la Zarzuela, Mayasa, Saeca, Defex (in liquidation)
Companies with a minority interest: Airbus Group, Alestis Aerospace, Enagas, Enresa, Hispasat, Indra, International Airlines Group, Red Electrica Corporacion, Ebro Foods
Attached companies: RTVE, Corporacion de Radio y Television Espanola
SEPI also has indirect participation in more than 100 subsidiaries and other investees of the majority companies, which make up the SEPI Group.
Corporate Governance of Spain’s SOEs uses criteria based on OECD principles and guidelines. 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.
Spain does not have a formal privatization program.
8. Responsible Business Conduct
Although the visibility of responsible business conduct (RBC) efforts is still moderate by international standards, it has garnered growing interest over the last two decades. Today, almost all of Spain’s largest energy, telecommunications, infrastructure, transportation, financial services, and insurance companies, among many others, undertake RBC projects, and such practices are spreading throughout the economy.
Spain enforces domestic and EU laws and regulations to protect human rights, labor rights, consumer protection, and environmental protections. Spain endorsed the OECD Guidelines for Multinational Enterprises and supports the Montreux Document on Private Military and Security Companies. The national point of contact is the Ministry of Industry, Trade, and Tourism.
Spain’s Climate Change and Energy Transition Law (Law 7/2021) entered into force in May 2021. The law sets a goal of reaching climate neutrality by 2050 and establishes renewable energy, energy efficiency, and greenhouse gas (GHG) emission reduction national targets that align with those established in Spain’s Integrated National Energy and Climate Plan. It sets the following targets for 2030:
23 percent reduction of GHG emissions compared to 1990;
42 percent of final energy consumption from renewable energy sources;
74 percent of electricity generation from renewable energy sources; and
39.5 percent reduction of the country’s primary energy consumption.
By 2050, Spain expects to generate 100 percent of its electricity from renewable sources. The law allows the Council of Ministers to raise (but not lower) Spain’s targets periodically, with the first review expected in 2023.
Law 7/2021 also restricts the future exploitation of fossil fuel deposits in Spain by prohibiting new hydrocarbon exploration and extraction projects, though a new oil and gas exploitation concession may still be awarded if a company with a valid exploration license applied for an exploitation concession prior to the date when Law 7/2021 entered into force. In addition, the law states that existing hydrocarbon research or exploitation concessions will not be extended beyond December 31, 2042, effectively ending fossil fuel production beyond this date. Fossil fuel producers with existing concessions must submit a plan to convert their drilling platforms to produce cleaner types of energy, such as renewables and geothermal, five months before the concession expires. The law also prohibits the use of high-volume hydraulic fracturing (fracking) for any project and bans new permits for radioactive mining, such as uranium mining. It ends tax benefits for fossil fuel producers, except if producers demonstrate a strong social and economic interest or if there is a lack of technological alternatives. The law introduces provisions that promote renewable gases, including biogas, biomethane, and hydrogen, and allows for annual targets for renewable gas penetration in natural gas sales and consumption.
Law 7/2021 stipulates that all new passenger cars and light commercial vehicles must have 0g CO2/km emissions by 2040, with the goal of achieving a decarbonized fleet of passenger cars and light commercial vehicles by 2050. To advance this goal, the government approved a Strategic Project for the Recovery and Economic Transformation (PERTE) of Electric Vehicles to mobilize EUR 24 billion (roughly EUR 3.4 billion of public funding and EUR 19.7 billion of private investment) for electric vehicle manufacturing.
Spain’s Ecological Public Procurement Plan (2018-2025) applies to state administrators, public entities, and social security managing bodies, and responds to the need to incorporate ecological criteria in public procurement. The plan aims to promote the acquisition of goods, works, and services with the least environmental impact; promote the Spanish Circular Economy Strategy; and promote environmental clauses in public procurement. It prioritizes 20 goods, including construction and building management, electricity supply, cleaning products, HVAC systems, and printing equipment.
Spain has a 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 into full accordance with the EU’s Fourth Anti-Money Laundering Directive, in 2018, Spain approved measures to modify its money laundering legislation to comply with the EU Directive. These measures establish new obligations for companies to license or register service providers, including identifying ultimate beneficial owners; institute harsher penalties for money laundering offenses; and create public and private whistleblower channels for alleged offenses.
The General State Prosecutor is authorized to investigate and prosecute corruption cases involving funds in excess of roughly USD 500,000. The Office of the Anti-Corruption Prosecutor, a subordinate unit of the General State Prosecutor, investigates and prosecutes domestic and international bribery allegations. The Audiencia Nacional, a corps of magistrates has broad discretion to investigate and prosecute alleged instances of Spanish businesspeople bribing foreign officials.
Spain enforces anti-corruption laws on a generally uniform basis. Public officials are subjected to more scrutiny than private individuals, but several wealthy and well-connected business executives have been successfully prosecuted for corruption. In 2021, Spanish courts arraigned 344 defendants involved in 53 corruption cases. The courts issued 65 sentences, with 44 including a full or partial guilty verdict.
There is no obvious bias for or against foreign investors. U.S. firms rarely identify 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.
Spain’s rank in Transparency International’s annual Corruption Perceptions Index fell slightly in 2021 to position 34; its overall score (61) is lower than that of many other Western European countries.
Spain is a signatory to the 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. Spain has made progress addressing OECD concerns about the low level of foreign bribery enforcement in Spain and the lack of implementation of the enforcement-related recommendations. In a 2021 report, GRECO highlighted that of the group’s 11 recommendations to combat corruption from 2013, six had been fully implemented, four had been partly implemented, and one had not been implemented.
National Chapter – Spain
Fundacion Jose Ortega y Gasset-Marañón
Calle Fortuny, 53
28010 Madrid, Spain
Telephone: +34 91 700 4105
10. Political and Security Environment
There are periodic peaceful demonstrations calling for salary and pension increases and other social or economic reforms. Public sector employees and union members organize frequent small demonstrations in response to service cuts, privatization, and other government measures. Demonstrations and civil unrest in Catalonia have resulted in vandalism and damage to store fronts and buildings in Barcelona and other cities. Some regional business leaders have expressed concern that disturbances could negatively affect business operations and investments in the region.
11. Labor Policies and Practices
The COVID-19 pandemic and public health crisis derailed progress on reducing Spain’s stubbornly high unemployment rate, which peaked at 26.9 percent in 2013 after the European financial crisis. At the end of 2021, unemployment stood at 13.3 percent, among the highest unemployment rates in the EU. The figure, however, excludes about 100,000 workers who were enrolled in temporary government furlough schemes established to provide income support for workers who lost their jobs during the pandemic. The youth unemployment rate decreased to 30.7 percent in 2021, from the 40.1 percent in 2020, representing 452,000 unemployed people under the age of 25. Spain’s economically active population totaled 23.3 million people, of whom 20.2 million were employed and 3.1 million unemployed. Foreign nationals comprised 15.3 percent of Spain’s workforce (3,094,900 people) in 2021.
Spain approved a landmark labor reform law in 2022 that satisfies EU requirements to unlock subsequent tranches of European recovery funds. Key components include:
Elimination of temporary contracts except for periods of high demand and temporary substitution of workers: The reform allows for two types of temporary contracts: structural, to respond to temporary increases in demand for up to one year, and substitution, to cover workers’ absences due to medical and parental leave.
Permanent-intermittent contracts: The reform’s limitations on temporary contracts will push employers to use a permanent-intermittent contract, which provides firms flexibility to use seasonal workers and allows seasonal workers to earn seniority for the entire duration of the employment relationship – not just the time of services provided.
Limits on training contracts: The goal of this measure is to reduce the share of Spanish young people employed on temporary contracts. It defines two broad types of educational contracts, including for students under 30 who work part-time while studying for a period of up to two years, and for professional trainees who are seeking work experience toward specific certifications.
Workers sector-wide will receive the same benefits: Firms must now apply the appropriate sector-wide labor agreement to the service a subcontractor performs, such as cleaning, maintenance, or information support, rather than the firm-level labor agreement.
Restoration of indefinite agreements between firms and unions: Expired labor agreements will now stay in effect until they are replaced.
Establishment of permanent state-backed furloughs (ERTEs) and stronger fraud-fighting measures: The reform establishes a permanent furlough scheme to protect workers in firms or sectors facing significant structural economic changes that require workers to retrain and find new employment. The measures strengthen fines for firms “overusing” temporary contracts.
The labor market is mainly divided into permanent workers with full benefits and temporary workers with many fewer benefits. In the event of dismissal for an objective reason (e.g., economic reasons), severance pay is available to the worker and amounts to 20 days’ wages per year of service with a maximum of 12 months’ wages. A worker dismissed for disciplinary reasons is not entitled to severance pay. For termination of a fixed term contract (either its term expiration or completion of the work), the worker is entitled to a severance payment of 12 days per year of service. Under Spanish Labor law, an employee may bring a claim against the employer for unfair dismissal within 20 days of receiving a termination letter.
Mechanisms for preventing and resolving individual labor disputes in Spain are developed by labor laws and alternative dispute resolution (ADR) systems through collective bargaining agreements. Each of Spain’s 17 autonomous communities has a different ADR system at different levels generally dealing with collective disputes. Spanish law stipulates that, before taking individual labor disputes to court in search of a solution, parties must first attempt to reach agreement through conciliation or mediation.
The Spanish Public Employment Service (SEPE) under the Ministry of Labor and Social Economy administers unemployment benefits called the Contributory Unemployment Protection. This benefit protects those who can and wish to work but become unemployed temporarily or permanently, or those whose normal working day is reduced by a minimum of 10 percent and a maximum of 70 percent.
Collective bargaining is widespread in both the private and public sectors. A high percentage of the working population is covered by collective bargaining agreements, although only a minority (generally estimated to be about 10 percent) of those covered are union members. Large employers generally have individual collective bargaining agreements, while smaller companies use industry-wide or regional agreements. As a result of the recent labor reform, sectoral-level agreements currently hold primacy over business-level agreements.
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.
The informal or underground economy costs Spain an estimated EUR 270 billion, or about 25 percent of GDP as of 2020. The informal economy is most common in sectors such as construction or retail that tend to use more cash in commercial transactions. In July 2021, the Spanish Parliament approved an anti-fraud law (Law 11/2021) to prevent and combat tax fraud, lower the limit for cash payments to EUR 1,000 between professionals and EUR 2,500 between individuals, and prohibit tax amnesties.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
As Spain is a member of the European Union, DFC products are generally not offered. Various EU directives, as adopted into Spanish law, adequately protect the rights of foreign investors. Spain is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct 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
Host Country Gross Domestic Product (GDP) ($M USD)