Information Obligations of Foreign Investors in Spain

24 Dec Information Obligations of Foreign Investors in Spain

Posted at 10:04h in INTERNACIONAL by Navarro Llima Abogados 0 Comments

Spain remains one of the preferred destinations for foreign investment, supported by the free movement of capital guaranteed by the European framework, both among Member States and vis-à-vis third countries.

This freedom, however, coexists with certain reporting obligations that States may impose on non-resident investors for administrative or statistical purposes.

These obligations have recently been updated through:

Many investors are unaware of these obligations until they are faced with the sanctioning regime, which is why it is advisable to keep them in mind.

Declaration with the Foreign Investments Registry

As a general rule, any investment by a non-resident in Spain that involves reaching or exceeding 10% of the share capital or voting rights of a Spanish company must be declared to the Foreign Investments Registry within one month from the date of completion of the investment.

This applies to the following cases:

1. Shareholdings in Spanish companies

This category covers the incorporation of a company, as well as the subscription or total or partial acquisition of shares or equity interests. It also includes the acquisition of securities issued by resident public or private individuals or entities, such as pre-emptive subscription rights, convertible bonds or similar instruments, and any other legal transaction through which political rights in a Spanish company are acquired. The most significant change introduced by the new regulations is that, whereas previously only transactions involving unlisted companies were subject to declaration, the reporting obligation now applies to all Spanish companies, whether listed or unlisted.

Practical example

If a Belgian individual who is non-resident in Spain acquires shares in a Spanish company representing 8% of its share capital, this transaction is not subject to declaration. However, if the investor subsequently acquires an additional 7%, resulting in a total holding of 15%, this second transaction—through which the investor exceeds the 10% threshold—must be declared to the Foreign Investments Registry using the corresponding forms.

2. Acquisition of shares or units in closed-end collective investment vehicles

This includes hedge funds, real estate funds, venture capital funds, alternative investment funds, and similar entities.

In these cases, the reporting obligation generally falls on the management company, unless the investor reaches 10% or more, in which case the obligation applies to the investor.

3. Contributions to equity by a non-resident shareholder

This heading refers to contributions made to the equity of a Spanish company by a non-resident shareholder who holds at least a 10% interest in the company, provided that such contributions do not result in an increase in the company’s share capital.

4. Intragroup financing by foreign companies

Intragroup financing provided by foreign companies to Spanish companies or branches must be declared when it exceeds EUR 1 million and has a repayment period of more than one year.

5. Reinvestment of profits in Spanish companies by a non-resident investor

Reinvestment of profits in Spanish companies by a non-resident investor holding more than 10% of the company’s share capital.

6. Temporary joint ventures (UTEs), silent partnerships, foundations, economic interest groups (AIEs), and communities of property

Where the participation of the non-resident investor exceeds 10% of the total value, and amounts to more than EUR 1 million.

For these six scenarios, if the foreign investment exceeds 50% of the Spanish company, an additional informational form must also be filed.

7. Acquisition of real estate in Spain by non-residents for an amount exceeding EUR 500,000

Each individual transaction must be declared using the corresponding form. In the case of a sale, the threshold applies to the sale price.

Investments made by residents of non-cooperative jurisdictions must always be declared, regardless of the amount or thresholds mentioned above.

Obligation to file an annual report

In certain cases, the reporting obligations of foreign investors in Spain do not end with registration in the Foreign Investments Registry. Spanish companies and branches with foreign investment are also required to file an annual report within seven months from the end of the financial year in the case of companies and branches, and within the first seven months of the year in the case of collective investment institutions.

This obligation applies to:

Spanish branches of non-resident companies whose allocated funds or net equity exceed three million euros.
Spanish parent companies of a group where the non-resident investor holds 10% or more of the share capital or voting rights.
Spanish companies with share capital or net equity exceeding three million euros are required to file the annual report when the foreign investor holds a participation of at least 10% of the share capital or voting rights.

With regard to closed-end collective investment entities, only SICAVs are required to file the annual report.

Failure to comply with these obligations may result in minor, serious or very serious infringements, depending on factors such as intent, financial capacity and prior conduct.

The applicable sanctions range from fines of 25% of the value of the transaction, with a minimum of 3,000 euros and a private warning, to fines of up to 100% of the transaction value, with a minimum of 30,000 euros and a public reprimand.

In an increasingly demanding regulatory environment, compliance with reporting obligations is essential to avoid unnecessary risks. At Navarro Llima Abogados, we have a team that can advise clients throughout all stages of the investment process, from initial planning to the filing of declarations and reporting forms.