Royal Decree-law 11/2020: changes to the suspension of the deregulation scheme for certain foreign investments as a consequence of COVID-19

1 April 2020

The Cabinet agreed at its meeting on 31 March 2020 to approve a new piece of legislation with the force and effect of an act of parliament due to the extraordinary and urgent need arising from the public health emergency: Royal Decree-law 11/2020, of 31 March, adopting additional urgent measures in the social and economic field to deal with Covid-19.

One of the aspects regulated by this new Royal Decree-law, which covers a large number of matters, is the modification of the suspension of the deregulation scheme for certain foreign investments established in Final Provision 4(1) of Royal Decree-law 8/2020, of 17 March, on urgent extraordinary measures to deal with the economic and social impact of Covid-19, and which was the subject of a previous briefing paper produced by this Firm (

As indicated in that paper, Final Provision 4(1) of Royal Decree-law 8/2020 introduced a new Art. 7 bis in the Capital Movements and Financial Transactions with Foreign Countries (Legal Regime) Act 19/2003 of 4 July, modifying in certain cases the model for screening foreign investments, changing in such cases the general system of deregulation by requiring express ex ante authorisation to carry out such investments.

Now the new Royal Decree-law 11/2020 modifies this suspension of the deregulation scheme in relation to its personal scope (ratione personae), also establishing a simplified authorisation procedure for certain transactions, excluding from the need for authorisation those which, due to their small volume, are considered not to involve a risk to public safety, public policy and/or public health.

With regard to the modification of the personal scope, Final Provision 3 of Royal Decree-law 11/2020 amends Art. 7 bis (1) of Act 19/2003 for the purpose of clarification: for the purposes of the suspension of the deregulation scheme, not only will investments directly made by non-residents of the European Union or the European Free Trade Association be considered foreign investments, but also investments made by resident entities in those areas whose beneficial ownership lies with residents of countries outside the European Union and the European Free Trade Association. Said beneficial ownership will exist when the latter directly or indirectly own or control more than 25% of the investor’s share capital or voting rights thereof, or when by other means they exercise direct or indirect control over the investor.

As regards the second of the aspects commented on, Transitional Provision 2 of Royal Decree-law 11/2020 excludes from the need for authorisation investments of less than EUR 1 million and sets out a simplified authorisation procedure for the following transactions:

(a) Those in which there is evidence of an agreement between the parties or a binding offer in which the price was fixed, determined or determinable prior to 18 March 2020, and

(b) those of an amount equal to or greater than EUR 1 million and less than EUR 5 million.

This simplified procedure will be initiated by means of an application addressed to the Director-General for International Trade and Investment, who will decide on it following a report from the Foreign Investment Board, applying sua sponte the simplified procedure provided in Art. 96 of the Public Administrations (Common Administrative Procedure) Act 39/2015 of 1 October. In this simplified procedure, the authorisation must be resolved within thirty days, as opposed to six months for the ordinary procedure, and it will be understood that authorisation is withheld if no express resolution is issued within this period.

Finally, it should be noted that Royal Decree-law 11/2020 removes Article 7 bis (6) of Act 19/2003, a sub-article created by Royal Decree-law 8/2020 that empowered the Cabinet to agree on the lifting of the suspension of the deregulation scheme for certain foreign investments. This removal is, in our opinion, correct, since it should not be up to the Cabinet to decide on the validity of a legal provision, especially when it is presumed that the withdrawal of the suspension will take place when the current health emergency that led to the imposition of the said suspension has disappeared or at least has been significantly mitigated.