On July 5, 2023, the BOE (Official State Gazette) published Royal Decree 571/2023, dated July 4, 2023, concerning foreign investments. This decree is set to take effect on September 1, 2023. It marks a significant milestone as it approves the new regulatory framework associated with Law 19/2003, enacted on July 4, 2003. Law 19/2003 establishes the legal foundations for international capital movements and economic transactions while also implementing crucial measures to combat money laundering. Importantly, this Royal Decree replaces the prior regulation outlined in Royal Decree 664/1999, dated April 23, 1999.
This new regulation represents a comprehensive update in the domain of declarations for both inbound and outbound direct investments. Furthermore, it formalizes and solidifies the suspension regime for the release of foreign investments, a measure originally introduced during the Covid-19 pandemic in our legal framework. These modifications are carried out through amendments to Law 19/2003, providing the legal framework for capital movements and international economic transactions.
In this article, our primary focus is on the modifications introduced by the regulation concerning reporting obligations for statistical purposes regarding Spanish investments abroad and foreign investments in Spain, particularly those that do not necessitate prior authorization.
In broad terms, the regulation stipulates that the obligation to declare applies exclusively to investments that reach a 10% stake in the capital or voting rights of the receiving entity. Nevertheless, the scope of situations requiring such declarations has been broadened to encompass the following:
- Acquisitions of participations or shares in closed-end collective investment institutions. The obligation for declaration arises when the participation equals or exceeds 10% of the entity’s equity or capital. It’s essential to note that, in such cases, the managing entities now bear the responsibility for filing declarations, a task that was previously assigned to the investors.
- Contributions by shareholders to the net worth that do not lead to an increase in the capital stock. This requirement applies when the shareholder holds a share equal to or greater than 10%.
- Financing provided to companies or branches by group companies, using methods such as deposits, credits, loans, negotiable securities, or other debt instruments. This requirement kicks in for amounts exceeding 1 million euros and repayment periods extending beyond one calendar year.
- Reinvestment of profits into companies executed by an investor holding an interest equal to or greater than 10% of the capital stock.
- In this section, we delve into the alterations in investment thresholds that dictate the necessity of a declaration. These modifications are an essential aspect of the new regulations and exert a substantial influence on reporting obligations in various scenarios.
- Firstly, in instances of establishing or formalizing joint ventures, foundations, economic interest groupings, or communities of property, a declaration will only be requisite when the participation represents a percentage equal to or greater than 10% of the total value and additionally exceeds €1 million. It is crucial to highlight that in the previous regulation, this threshold was established at €3 million.
- Conversely, in the realm of real estate investments, these thresholds are now lower. For the acquisition of real estate in Spain by non-residents, a declaration will be obligatory when the amount surpasses €500 thousand euros (previously set at €3 million). As for the acquisition of real estate abroad by Spaniards, a declaration is now required when the amount exceeds €300 thousand euros (formerly starting from €1.5 million euros). Concerning the prior declaration obligation, it only applies in the case of investments to or from non-cooperative jurisdictions, as outlined in Order HFP/115/2023, dated February 9. Additionally, for investments in companies, a prior declaration is mandated if the investment exceeds 50% of the shareholding in the same entity. In the case of real estate investments, whether in Spain or abroad, a prior declaration becomes necessary if the amount surpasses €500 thousand euros.
- The specifics of the declaration forms and deadlines will be revealed upon the publication of the relevant orders and development circulars corresponding to the new regulations. During the transitional period, the current models in force will remain applicable, with the exception of cases involving financing to group entities and reinvestment of profits, which are considered new scenarios in the direct investments catalog. These new cases will not necessitate a declaration until the corresponding implementation regulations are published.
- It’s essential to emphasize that the Law that accompanies the new regulation lays out penalties for non-compliance with the reporting obligations. The severity of the infringement is determined by whether the transaction exceeds €6 million. In the case of a serious infringement, the penalty can amount to half of the economic value of the transaction, with a minimum of €6.000. For minor infringements, the penalty can be as high as a quarter of the economic value of the transaction, with a minimum of €3.000.