2012 Investment Climate Statement - Spain
Openness to Foreign Investment
The government of Spain recognizes the value of foreign investment and the economic importance of attracting more. The government places special emphasis on attracting foreign investment to help spur recovery from the economic crisis. There were no significant changes in Spain's regulations for investment and foreign exchange under the Socialist Party (PSOE) government that held office from March 2004 through December 2011, and there have not been any significant changes under the Popular Party (PP) administration that took office in December 2011. Spanish law permits foreign investment of up to 100 percent of equity, and capital movements are completely liberalized. During the first nine months of 2011, gross new foreign direct investment in Spain was 21.2 billion euros, an increase of 108 percent from the first nine months of 2010 (10.2 billion euros). According to Spanish Investment Registry data, the main investors in Spain increased operations significantly over the first nine months of 2011, specifically China by 2396.6 percent, the United Kingdom by 630.2 percent, France by 379.95 percent, and the Netherlands by 101.7 percent. Russia also increased its investment in Spain by 233.6 percent. However, U.S. investment in Spain declined by 72.65 percent during the first nine months of 2011. The autonomous community of Madrid received 51.48 percent of the investment and the region of Catalonia 7.27 percent. Companies invested primarily in information and communication, transportation and storage, manufacturing, and activities related to finance and insurance. For the full year 2010, gross foreign investment had a positive increase of 38.41 percent compared to 2009. Disinvestments fell by 7.6 percent compared to 2009. Net investment reached 20.1 billion euros in 2010. Spain no longer has a big wage competitiveness advantage over other major EU economies, and its labor regime suffers from rigidity. Spain has embarked on additional structural reforms, with the arrival of the new right-center government, in an effort to instill confidence and recover high levels of foreign investment and competitiveness. That said, the government needs to do more to provide a clear, stable and fair legal, regulatory, and policy framework if it wants to attract more foreign investment.
In April 1999, the adoption of royal decree 664/1999 eliminated the need for government authorization of any investments save those in activities "directly related to national defense," such as arms production. The decree abolished previous authorization requirements on investments in other sectors deemed of strategic interest, such as communications and transportation. It also removed all forms of portfolio investment authorization and established free movement of capital into Spain as well as Spanish capital out of the country. As a result, Spanish law now conforms to multi-disciplinary EU Directive 88/361, part of which prohibits all restrictions of capital movements between member states as well as between such states and other countries, and which classifies investors according to residence rather than nationality.
Registration requirements are simple and straightforward, and apply to foreign and domestic investments equally. They aim to verify the purpose of the investment, and do not block investment.
A process of privatization of state-owned firms began in the mid-1980s and has been carried out by both Socialist and Popular Party governments in several stages. Spain’s privatization process was especially intense between 1996 and 2000, when large utilities and industrial groups, such as Telefonica, Tabacalera, Repsol, and Endesa, among others, were completely privatized. However, several of these companies maintain a de facto monopoly position under private ownership, and a high degree of sector concentration persists years after the main privatizations, reflecting the slow progress of competition in those sectors. U.S. companies have successfully participated in several purchases. In 2004 the government began the privatization of the railroad system. Effective January 1, 2005, the GOS dissolved the National Rail Network (RENFE) and formed two new companies, ADIF and RENFE-Operadora, both of which remain under state control. In November 2009, Iberia Airlines reached a preliminary agreement to merge with British Airways. The multi-billion-euro merger was completed on January 24, 2011 upon the listing of the shares in the International Airlines Group (IAG). The merger created Europe’s third largest airline after Lufthansa and the world’s sixth largest carrier after Delta Air Lines, Lufthansa, United Continental, Air France-KLM and AMR. In April 2011, the state-owned industrial holding company SEPI received approval from the Executive Cabinet to release its 2.71% stake in IAG, its 8.65% in Ebro Foods, and half of its 20% stake in the Spanish electricity grid, Red Electrica Espanola.
The Spanish government has liberalized the energy, electricity, and telecommunications markets to varying degrees. These efforts have opened Spain's economy to new investment, including by U.S. companies. However, many observers believe these changes have not been broad enough to fully stimulate the economy. For example, in the telecommunications sector, many analysts believe that Telefonica's dominant position undermines competition and innovation. It is frequently difficult for new entrants to gain traction in sectors dominated by former state-run monopolies such as Telefonica. Moreover, in the energy sector, the government clearly has concerns about possible foreign control of "national champion" companies. In June 2011, the Socialist government announced its plans to partially privatize (up to 49 percent) Spain’s airport authority AENA, Madrid Barajas and Barcelona El Prat airports, and the State Lotteries and Bets (LAE). These plans have been postponed.
Following are Spain's rankings on four widely accepted measures of the business and investment environment:
TI Corruption Perceptions Index
31 of 182, CPI 6.2
Heritage Economic Freedom
36 of 179, freedom score 69.1 (-1.1 from 2011)
World Bank Doing Business
44 of 183
World Economic Forum Global Competitiveness Report
36 of 139
Conversion and Transfer 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. 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 effected at market rates using commercial banks.
Expropriation and Compensation
Spanish legislation sets up a series of safeguards that virtually prohibit the nationalization or expropriation of foreign investment. No expropriation or nationalization of foreign investment has taken place in recent years. There are no outstanding investment disputes between the United States and Spain.
Legislation establishes mechanisms to solve disputes if they arise. The judicial system is open and transparent, although slow-moving at times. The Spanish judicial system is independent of the executive. 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. Spain is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Contractual disputes between American individuals/companies and Spanish entities are normally handled appropriately. There is no United States-Spain agreement on the mutual recognition of judgments, so U.S. citizens seeking to execute American court judgments in Spain must follow Spanish law, in this instance a complicated procedure known as the "exequator" process. In light of the Embassy's past experience in attempting to assist American citizen claimants with the process, the Embassy recommends that Americans who conclude contracts with Spanish entities specifying the United States as the venue for adjudicating disputes also obtain an agreement regarding how a possible U.S. judgment will be executed in Spain.
Spain has a fair and transparent bankruptcy regime. Bankruptcy proceedings are governed by the Bankruptcy Law of 2003 that entered into force on September 1, 2004. It applies to individuals and companies. The main aim of this law is to ensure the collection of debts by creditors, to promote consensus between the parties and, if possible, to enable the survival and continuity of the company.
Performance Requirements and Incentives
Performance requirements are not used to determine the eligibility or level of incentives granted to investors. A range of investment incentives exist in Spain, and they are provided according to the authorities granting incentives and the type and purpose of the incentives.
Authorities that provide incentives in Spain:
1. European Union. Since Spain is an EU Member State, potential investors are able to access European aid programs, which provide further incentives for investing in Spain:
- The European Union provides incentives primarily to projects that focus on economically depressed regions or that benefit the European Union as a whole.
- The European Investment Bank provides global loans for small and medium enterprises as well as individual loans based upon Innovation 2010 Initiative criteria.
- The European Investment Fund provides guarantees and venture capital to small and medium-sized enterprises, focusing on the transportation, telecommunications and energy industries.
- There are various structural funds designed to fund initiatives which reduce the wealth disparity between member states. Most autonomous regions of Spain currently qualify for these programs.
- Financial incentives are routed through major Spanish banks such as the Instituto de Credito Oficial (ICO) and Banco Bilbao-Vizcaya Argentaria (BBVA), and must be applied for through the financial intermediary.
2. Central Government of Spain:
- Spain’s central government provides numerous financial incentives for foreign investment, generally designed to complement EU financing. The Ministry of Industry, Tourism, and Commerce runs the State Organization for the Promotion and Attraction of Foreign Investment to assist businesses seeking investment opportunities. They provide support to foreign investors in both the pre and post-investment phases. A comprehensive list of incentive programs is available at its website, www.investinspain.org. Using this tool, companies can gain easy access to updated information regarding the grants available for their investment projects. Users can sign up to the automatic alert system which prompts a tailor-made newsflash as suitable grants or subsidies are published. Applications for these incentives should be made directly to the relevant government agency.
- Spain provides generous subsidies for job training and job creation. Projects designated as Investment and Employment may be eligible for further subsidies from the Government Employment Public Service (formerly the National Employment Institute). The last agreement among business, labor, and government offers waivers or sharp reductions in Social Security contributions to employers who hire young people or the long-term unemployed to part-time jobs.
- There are numerous industry-specific subsidies awarded based upon the National Plan for R&D and TI 2008-2011. In particular, Spain is emphasizing the development of green energy and R&D and innovation capabilities. In an attempt to bolster investment in R&D by enterprises, the Spanish Government approved the INGENIO Program, aimed at increasing both public and private investment in R&D.
- The Central Government provides financial aid and tax benefits for activities carried out in certain industries which are considered to be priority sectors in view of their growth potential and their impact on the nation’s overall economy (e.g. activities in the agrofood industry, energy, mining, technological development, research and development, etc.). In addition, the regional governments provide similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on the loans obtained by the beneficiaries, or combinations of the two.
- The state-owned corporate entity (Instituto de Crédito Oficial, ICO) attached to the Ministry of Economy and Finance, has the status of the State’s Financial Agency. Its activity seeks to boost sectors such as transportation and textiles and to encourage technological innovation and renewable energy projects as well as help to alleviate critical situations. ICO 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 that are economically, financially, technologically and commercially sound and involve a Spanish interest.
3. Spanish 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. Most are granted on an annual basis. Incentives include: Nonrefundable subsidies; special loan and credit terms and conditions; subsidies for the repayment of those loans; technical counseling and training courses; tax incentives; guarantees; and social security deductions for common contingencies during a maximum number of years, to be determined by regulation, subject to the provisions of the legislation on incentives for hiring and for fostering employment.
- 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 it (incompatibilities between Structural Funds).
- Types of incentives available:
- Financial subsidies
- Exemption from certain taxes
- Preferential access to official credit
- Reduction of burdens, with social security discounts to companies
- Bonuses for acquisition of certain material
- Customs exemption for certain imported goods
- Real estate grants, and gratuitous or favorable land grants
- Guarantees granted in credit operations
- Loans with low interest, long maturities, and grace periods
- Guarantee of dividends
- Professional training and qualification
- Indirect aid by supplying infrastructure facilities (access, services, communications, etc.)
- Incentives from national, regional or municipal governments and the EU are granted to Spanish and foreign companies alike without discrimination.
- Spain is in compliance with its WTO TRIMS [Trade-Related Investment Measures] obligations.
- Municipal corporations offer incentives to direct investment by facilitating infrastructure needs, granting licenses, and allowing for the operation and transaction of permits. Municipalities such as Madrid offer numerous 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. Usually they are designed to help ease the initial operations of direct investment.
Right to Private Ownership and Establishment
The Constitution protects private ownership. Spanish law establishes 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. American construction companies note that they have not been able to win public sector construction contracts. They have, however, won private sector construction contracts.
Protection of Property Rights
Spanish law protects property rights, with enforcement carried out at the administrative and judicial levels. Any decision by the Administration pertaining to property rights can be appealed first at the administrative level and then at the judicial level, which has three levels of court appeals. Property protection is effective in Spain, although the system is slow. The Spanish legal system fully recognizes property rights and facilitates their acquisition and disposition. Mortgages are common in Spain.
Spanish patent, copyright, and trademark laws all approximate or exceed EU 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. 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 Directive, thereby also making the Internet treaties part of Spanish law. The GOS unveiled an anti-piracy action plan in April, 2005 which has enjoyed only limited success. The Internet presents the most problematic area in terms of respect for intellectual property rights in Spain. While law enforcement agencies are combating street piracy, Internet piracy has increased sharply over the past several years. U.S. copyright-dependent industries - music, movies, entertainment software - continue to report a steady decline in sales attributable to digital piracy and cite Spain as having one of the worst problems in the world in this regard. Spanish cultural industries have also been hit hard by piracy. Negotiations between Internet Service Provider (ISP) and rights-holder groups on measures to curb and punish illegal file-sharing and downloading of protected content broke off in April 2009 and did not resume, despite the government’s efforts to bring the parties together. In February 2011, more than a year after the government introduced it, Congress passed the Sustainable Economy Law (LES), which contains controversial provisions giving the government authority to shut down or block websites found to host or link to infringing content. The law provides for an administrative process with two separate judicial interventions before action could be taken against a site. The government approved implementing regulations on December 30, 2011. However, a "Circular" issued in 2006 by the Prosecutor General's Office to guide prosecutors stated that peer-to-peer (P2P) downloading of protected content should not be prosecuted as a criminal offense unless a commercial profit motive can be established. While the Circular defines such activity as a civil wrong, it contributes to a widespread public perception that P2P activity is legal. A number of legal obstacles also impede copyright holders from obtaining redress via civil litigation.
Public and private sector enforcement actions (especially private sector initiatives) using Spain's patent, copyright and trademark legal framework have increased, though less so in cases involving alleged Internet piracy. Industry groups praise police enforcement actions; their concerns have to do more with the judiciary than with Spain's police forces. Despite enforcement efforts, piracy remains a significant problem. Industry sources estimate the following digital piracy levels: 98% for music, 74% for films, 62% for videogames and 49% for books. In June 2010, the government modified the penal code to provide alternatives to prison sentences for persons of modest means who sell counterfeit or pirated merchandise at a profit of less than 400 euros. Right-holders have expressed concern that by reducing such activity from a crime to a misdemeanor, the government is sending a signal that it is not deemed a serious offense. Furthermore, they note that the new penal code provisions may make it harder for law enforcement authorities to pursue retail sales of IPR-protected merchandise (especially fake brand-name products) over the Internet.
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.
Spain has ratified the 1973 Munich European Patent Convention allowing Spain to be designated in a European patent application. European patents are administered by the European Patent Office, based in Munich (Germany). Spain continues to oppose the proposal to implement a new European patent on the grounds that Spanish is not included among languages in which a patent may be registered. Pharmaceutical companies have expressed concern over recent government cost-cutting measures that affect market access and reference pricing for brand-name medications, as well as practices by the governments of several of Spain’s 17 autonomous regions which they assert are incompatible with central government policies. Further, industry reported that Spain’s lack of patent harmonization with the majority of EU member states has left holders of pharmaceutical process patents with weaker patent protection than required by the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement.
The law extends copyright protection to all literary, artistic or scientific creations, including computer software. Spain and the United States are members of the Universal Copyright Convention.
There are various procedures to register a trademark in Spain. 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. Spanish authorities published a new Trademark law in 2001 (Law 17/2001), which came into effect in July 2002.
Applicants must designate the countries where they wish to obtain protection. The World International Property Organization (WIPO, headquartered in Geneva) oversees an international system of registration. 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.
Businesses may seek a trademark valid throughout the EU. 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
Tel: (34) 96-513-9100
Transparency of Regulatory System
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, though permitting and licensing processes can still suffer delays. Efficacy of regulation at the regional level is uneven.
Quasi-independent regulatory bodies exist in several sectors; however, they are for the most part still finding their role and fighting to assert their independence. Making the transition from state-owned monopolies to promoting full and open competition has been a slow, but steady, process.
The comment process for proposed rule-making changes is not as formal as in the United States. Spain does not have an official comment procedure for government regulations similar to what exists in the U.S. system. Most new laws and regulations are published as drafts before they go into force, but by the time they are published, there are often limited opportunities to change them. Government officials do seek out stakeholder comments before finalizing significant regulations, but the comment system is geared towards collecting input from officially recognized industry sector associations or consumer organizations. The general public will not necessarily be aware of a regulation until it is finalized and published.
Efficient Capital Markets and Portfolio Investment
The convergence of monetary policy following the adoption of the euro had led to a significant lowering of interest rates; however, recent downgrades of Spanish sovereign debt have had a negative impact on public financing costs. Foreign investors do not face discrimination when seeking local financing for projects. There is a large range of credit instruments 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 traded publicly in the United States. There is a significant amount of portfolio investment in Spain, including by American entities. During 2010, Spain saw a small increase in foreign investment flows in negotiable securities of 0.48 percent over the previous year, so that accumulated foreign investment amounted to USD 1,015.49 billion (€766 billion). 99.64 percent of this amount was in equity securities, and 0.37 percent in shares of investment funds. Investors were mostly from EU countries (90.82 percent) and the United States (6.92 percent.)
Corporate scandals in the United States and Europe, further integration of European capital markets, and efforts to make Spain a more attractive destination for foreign investment have led to several new initiatives to improve the transparency of capital markets and corporate governance. Spanish business organizations and private economic think tanks are proactive on corporate governance issues. In 2003 and 2004, Spanish business leaders created a progressive code of business practices and ethics. In 2004, Spanish regulatory agencies and lawmakers codified the business codes and required Spain's listed companies to follow a rigorous set of corporate governance and transparency rules.
Due to extensive cross-ownership within a small universe of dominant companies, Spanish corporations have traditionally not had truly independent board members. This situation is slowly changing, with several leading Spanish companies introducing independent members to their boards in an effort to improve transparency. Hostile takeover rules and in the past the threat of a government "Golden Share" veto have been used to prevent takeovers of companies. While surfacing on occasion in purely Spanish transactions, these defenses are most often used when the acquiring company is partially or wholly owned by other governments, with the Spanish government and securities regulators acting to prevent what they interpret as another government taking over a privatized Spanish company. A European Court of Justice decision has ruled such practices illegal. In 2006, parliament passed legislation abolishing the "Golden Share" whereby the government had to approve the sale of more than 10 percent of the shares in strategically important companies such as Telefonica, Endesa, Iberia and Repsol. Total assets for the six biggest banks in Spain by the end of the third quarter of 2011 were 2,624.6 billion euros:
Banco Santander: 1,224.6 billion euros
Banco Bilbao Vizcaya Argentaria: 584.4 billion euros
Bankia: 303.2 billion euros
CaixaBank: 273.4 billion euros
Banco Popular: 144.0 billion euros
Banco Sabadell: 95.0 billion euros
As a result of conservative banking regulation and practices, Spain’s banking system was not directly affected by the U.S. subprime mortgage crisis that affected many banks in other European countries in 2008, although the system was hurt by the resulting international liquidity crisis. In response, the government increased deposit insurance, issued guarantees for some financial instruments, and purchased others; in 2010, it injected 14 billion euros into financial institutions. A domestic housing slump that began in 2007 has had a greater impact, particularly on savings banks (“cajas de ahorro”), many of which are heavily exposed to troubled construction and real estate companies. The government created a Fund for Orderly Bank Restructuring (FROB) by the Royal Decree-law 9/2009, of June 26, on credit institution restructuring processes and enhancement of their equity. The Governing Committee of the FROB approved capital injections for three financial entities at the end of September 2011. After the capital injection and the conversion of preferences shares into ordinary shares, the FROB is the only shareholder and administrator of one of these entities. Prior to this date, the authorities intervened in one caja in March 2009, another in May 2010, and a third one in July 2011. Much concern remains, however, about the viability of some cajas due in large part to uncertainty over the true value of many real estate assets on their books. A 2010 decree enables cajas to raise capital in private markets and provides incentives for them to convert to traditional banks; a 2011 Bank of Spain regulation requires them to reveal the value of all their assets. The Spanish “cajas” began work to merge operations and establish as new banks following new regulations issued by the government to raise core capital by attracting new investors and to reveal their exposure to bad debt with greater transparency. Currently there are 15 savings banks, down from 45 two years ago.
In 2010, new Spanish gross investment abroad was USD 51.5 billion, showing a 59.2 percent increase from the 2009 annual level. During the first nine months of 2011, Spanish authorities recorded USD 31 billion in new Spanish gross investment abroad, a decline of 1.14 percent compared with investment in the first nine months of 2010. (Note: Detailed statistics on Spanish overseas investments and foreign investments in Spain for 2011 will be available by the end of March 2012.) The decrease in Spanish overseas investment reflects the impact of both the domestic and global economic crises on Spanish companies.
Competition from State-owned Enterprises
Spain has few major state-owned enterprises, given the process of privatization carried out in the 1980s and 1990s, when large utilities and industrial groups, such as Telefonica, Tabacalera, Repsol, and Endesa, among others, were completely privatized. However, several of these companies maintain a de facto monopoly position under private ownership, and a high degree of sector concentration persists years after the main privatizations, reflecting the slow progress of competition in those sectors. U.S. companies have reported difficulty competing particularly in regulated sectors. Additionally, airlines and private bus companies have complained about unfair competition from the state-owned rail company, claiming that high speed passenger tickets are being sold below costs in a manner “that can be considered state aid.” The rail company RENFE announced that in 2010 it had for the first time turned a small operating profit on its commercial and long-distance operations and that, in keeping with European regulations, it no longer receives a state subsidy.
Corporate Social Responsibility (CSR)
The growing movement in favor of corporate social responsibility (CSR) continues in Spain. Spanish companies consider corporate reputation, competitive advantage, and industry trends to be the major driving forces of CSR. Initiatives undertaken by the EU and international organizations have influenced companies' decision to implement CSR, and companies are increasingly adhering 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 CSR in Spain. Although the amount of CSR is still moderate by international standards, in the last two decades there has been a growing interest in adopting CSR. Today, almost all of Spain’s largest energy, telecommunications, infrastructure, transport, financial services and insurance companies, among many others – including such companies as Repsol, Telefonica, Vodafone, Ferrovial, Renfe-Operadora, Unión Fenosa, Endesa, BBVA, BSCH and Mapfre - have undertaken CSR projects, and such practices are spreading throughout the economy. Regional savings banks (“cajas”), prohibited by law from distributing profits, funnel their earnings into social and cultural activities. The Spanish government has taken some measures to promote CSR since 2002. The so-called Aldama Report of January 2003 focused attention on the duties and responsibilities of directors and proposed changes to the law to improve transparency in corporate governance that were included in a new law on transparency. The government endorsed the OECD Guidelines for Multinational Enterprises, and the national point of contact is the Ministry of Industry, Energy, and Tourism.
The Government of Spain is involved in a long-running campaign against Basque Fatherland and Liberty (ETA), a terrorist organization founded in 1959 and dedicated to promoting Basque independence. ETA has traditionally targeted Spanish government officials, members of the military and security forces, journalists, and members of the Popular Party and Socialist Party for assassination. More broadly, symbolic targets include representatives of the Spanish state, security forces, and prominent industrialists. U.S. citizens and U.S. companies have not been ETA targets. ETA's main methods are car bombs and assassinations with firearms. ETA has killed more than 40 persons since January 2000 and more than 850 persons since its campaign began in 1968. Suspected ETA operatives have extorted "revolutionary taxes" from businesspersons and professionals living in the Basque region, sometimes bombing their property or sending the demands to their children to intimidate them into paying extortion demands. Though these extortion demands have ceased according to local business organizations, there remains the possibility that ETA may reinstitute the practice. ETA supporters have also engaged in street violence and vandalism against government facilities, economic targets (particularly banks), and the homes and property of persons opposed to ETA's cause. ETA gunmen in late 2008 killed a Basque businessman whose construction company is involved in the construction of a high-speed rail linking the Basque cities of Bilbao, San Sebastian, and Vitoria to Madrid. In mid-2009, the group marked its 50th anniversary with a series of high-profile and deadly bombings. On July 29, ETA detonated an explosive-laden stolen van outside a Civil Guard barracks in Burgos. The blast injured more than 60 Civil Guards, spouses, and children. The following day, ETA murdered two Civil Guards in Mallorca with a car bomb. There were no terrorist attacks within Spain in 2010. Arrests and seizures in 2010, combined with the cumulative effect of years of intense crackdown, effectively decapitated ETA’s leadership and neutralized its capacity to sustain a prolonged operational campaign. Nevertheless, the group retains the capacity to kill. The lone fatality attributed to ETA in 2010 occurred outside Paris, France in March, when ETA members shot a French policeman during a botched car-theft attempt. In January 2011, ETA announced a “permanent” ceasefire; however, similar declarations by the group, followed by new terrorist attacks, have given rise to skepticism on the part of Spanish government officials. In October 2011, ETA declared a “definitive cessation of armed activities.” Spanish authorities continue to question the credibility of the message, given ETA has not disarmed nor disbanded.
On March 11, 2004, Islamic terrorists killed 191 people on commuter trains headed for Madrid's central Atocha train station. Several foreign nationals died in the attack, although there were no American citizen casualties. Although U.S. citizens and companies in Spain have not been direct targets of terrorists, the potential for violent extremism exists in Spain. In the aftermath of the train bombings, the Spanish government mobilized against the threat and continues to fight aggressively against international terrorism.
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.
Spain has a wide variety of laws, regulations, and penalties dealing with corruption. The legal regime has both civil and criminal sanctions for corruption, bribery, financial malfeasance, etc. The Spanish legal regime is hampered, however, by the fact that only natural persons (i.e., individuals), as opposed to legal persons (i.e., companies), can be held criminally liable for their actions. Furthermore, civil and administrative proceedings cannot begin until there is a finding of criminal liability against a natural person. Although the Ministry of Justice has initiated an amendment process to provide for sanctions of legal persons, it has not yet become law.
On November 29, 2006, Parliament passed a tough law against tax evasion that is designed, in part, to combat corruption. The government also issued two regulations imposing new requirements on banks and financial institutions to fight money laundering. In April 2010 Spain’s Parliament passed a new law, Law 10/2010, aimed to protect the integrity of the financial and other economic sectors through the establishment of obligations to prevent money laundering and terrorist financing. With this law, Spain has successfully transposed the third EU money laundering Directive (Directive 2005&60/CE) of the European Parliament and the Council of October 26, 2005. Banks and other financial institutions, investment services firms, collective investment institutions, management companies of private equity and venture capital firms are all obliged to comply with the law. Some portions of the new law entered into force immediately, but others are still awaiting implementing regulations.
Spain is a signatory of the OECD Convention on Combating Bribery, and Spanish officials attach importance to combating corruption. The government is working to amend domestic law to make the Convention a more useful investigative and prosecutorial tool.
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, has 15 to 20 prosecutors in Madrid, Barcelona, and Valencia who are tasked with investigating and prosecuting domestic and international bribery allegations. There is also the "Audiencia Nacional," a corps of magistrates whose attributes include 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 probably subjected to more scrutiny than private individuals, but several wealthy and well-connected business executives have been successfully prosecuted for corruption. There is no obvious bias for or against foreign investors. U.S. firms have not identified corruption as an obstacle to investment in Spain. 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 dropped one place in 2011. However, its overall score has remained stable in recent years.
Conversations with representatives of the Spanish legal community indicate that the Convention is increasingly being taken into account in the drafting of contracts. Spanish companies, both domestic and multinational, are insisting that clauses protecting them against requests for bribes be inserted into business contracts. Tax evasion, particularly by those who work in cash-based sectors, has reportedly been heavy.
Bilateral Investment Agreements
Spain has concluded bilateral investment agreements with Hungary (1989), the Czech Republic (1990), Russia (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), Indonesia (1995), Venezuela (1995), Turkey (1995), Lebanon (1996), Ecuador (1996), Costa Rica (1997), Croatia (1997), Estonia (1997), India (1997), Panama (1997), Slovenia (1998), South Africa 1998), Ukraine (1998), the Kingdom of Jordan (1999), Trinidad and Tobago (1999), Bolivia (2001), Jamaica (2002), Iran (2002), the Federal Republic of Yugoslavia (2002), Bosnia and Herzegovina (2002), Nigeria (2002), Namibia (2003), Albania (2003), Uzbekistan (2003), Syria (2003), Colombia (2005), Macedonia (2005), Morocco (2005), Kuwait (2005), China (2005), the Republic of Moldova (2006), Mexico (2006), Vietnam (2006), Libya (2007), Bahrain (2008), and Senegal (2008.)
Spain and the United States have a Friendship, Navigation and Commerce (FCN) Treaty and a Bilateral Taxation Treaty (1990). Spanish officials indicated that they would like to keep the FCN, despite indications in 2004 that the European Commission wanted Member States to terminate bilateral FCN agreements. In July 2010, in response to recommendations by some U.S. and Spanish companies and business groups, the Governments of the United States and Spain initiated a round of negotiations on a new Double Taxation Treaty. Many investors from both countries have labeled the 1990 Treaty outmoded and inadequate and an obstacle to increased investment. Separately, some U.S. and other foreign companies operating in Spain say they are disadvantaged by the Tax Administration’s interpretation of Spanish legislation designed to attract foreign investment. For the past several years, the Tax Administration has been investigating and disallowing deductions based on operational restructuring at the European level of a number of U.S.-owned holding companies (Empresas de Tenencia de Valores Extranjeros or ETVEs) with a presence in Spain, claiming the companies are committing “an abuse of law.” This situation disadvantages foreign direct investment in Spain; many U.S. companies now channel their Spanish investments and operations through third countries. Some companies assert that this practice conflicts with Spain’s obligations under the existing Double Taxation Treaty and suggest that the USG consider invoking the Treaty’s mutual agreement procedure and request government-to-government negotiations. In 2010, the Prosecutor General’s Office opened a criminal investigation into one U.S.-origin, Spain-based multinational holding company and several of its employees, eventually forcing the company to settle by paying a large fine and significant alleged tax arrears.
OPIC and Other Investment Insurance Programs
As Spain is a member of the European Union, 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).
The economic crisis continues to have a significant adverse impact on employment in Spain. After having substantially reduced unemployment between 2000 and 2007, Spain is suffering one of the highest unemployment rates recorded in the last 20 years. The unemployment rate climbed from 8 percent in third quarter of 2007 to 23 percent in the fourth quarter of 2011. More than 5.3 million people are reported jobless. According to 2011 statistics, there are about 18.1 million people in the work force. Unemployment among youth (ages 18-30) is exceptionally high at 46%. Spain faces a shortage of high-tech workers for its IT sector and of unskilled workers for its fishing and agricultural industries. Immigration has slowed down significantly as a result of the severe employment crisis, which disproportionately affects the immigrant community. For the first time in a decade, Spain experienced net emigration in 2011, as it lost more residents than it gained. A number of immigrant workers, especially from Latin America, have returned home. The Cabinet introduced an initiative in September 2008 whereby it would pay jobless immigrants their unemployment benefits in a lump sum provided they return to their home countries and promise not to return to Spain for three years. Only a very small number of immigrants are reported to have taken advantage of this program.
Labor market reforms in 1994 and 1997 eased Spain's well-known labor market rigidities but did not fundamentally change the difficult labor situation. The labor market is divided into permanent workers with full benefits and temporary workers with few benefits. Labor market reform legislation enacted by Congress in September 2010 aims to encourage the use of indefinite labor contracts by reducing the number of days of severance pay under these contracts. It has thus far been criticized as not going far enough and has not stimulated employers to hire more workers on indefinite contracts. In January 2011, government, business, and labor agreed to a pension reform that includes increasing the legal retirement age from 65 to 67 over a 15-year period beginning in 2013, and gradually increasing the number of years of contributions on which pensions are calculated. They followed this success by negotiating a broader Social and Economic Agreement that, in addition to pension reform, includes new job creation, facilitation, and retraining programs; general principles to guide reform of the framework for negotiating collective bargaining agreements; a commitment to design approaches to implementing the 2007 public employment statute; and a range of industrial, energy, and innovation policy reforms. As these reforms failed to stem growing unemployment, the government elected in the November 2011 general elections pledged to enact deeper labor reforms by the first quarter of 2012.
Collective bargaining is widespread in both the private and public sectors. Slightly more than fifty percent of the working population is covered by collective bargaining agreements (“convenios colectivos”), although only a minority (generally estimated to be about 10 percent) of those 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. Negotiations between labor unions and business organizations on a new legal framework for future collective bargaining agreements broke down in January 2012. The government has announced that it will legislate reforms to the system by the end of the first quarter of 2012. Slightly more than half of all collective bargaining agreements provide for wage adjustments based on anticipated inflation, a system that has been criticized by the Bank of Spain as inimical to the goals of increasing productivity and improving competitiveness. Business negotiators are pressing for agreements that would align wage increases with productivity rather than inflation.
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.
Foreign-Trade Zones/Free Ports
Both on the mainland and islands (and in most Spanish airports and seaports) there are 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. The largest free trade zones are in Barcelona, Cadiz and Vigo. Others vary in size from a simple warehouse to several square kilometers. Spanish customs legislation allows for companies to have their own free trade areas. Duties and taxes are payable only on those items imported for use in Spain. These companies have to abide by Spanish labor laws.
Foreign Direct Investment Statistics (in millions of euros)
Total new FDI in Spain
New FDI in Spain from the U.S.
U.S. share of total new direct investment (%)
Total new Spanish investment abroad
New Spanish investment in U.S.
U.S. share of total new Spanish investment (%)
New Foreign Direct Investment in Spain (2010): by country of origin
The Netherlands: 38.6 percent
France: 16.1 percent
Luxembourg: 15.3 percent
United Kingdom: 12.8 percent
Germany: 4.1 percent
U.S.: 2.2 percent
Portugal: 1.5 percent
Switzerland: 1.3 percent
Cyprus: 1.0 percent
Italy: 0.6 percent
New Foreign Direct Investment in Spain (2010): by industry sector destination
Transportation and Storage: 17 percent
Real Estate Activities: 17 percent
Manufacturing industry: 14.8 percent
Financial Services and Insurance: 12.9 percent
Electric power and gas: 11.9 percent
Source: Directorate General of Trade and Investment, Ministry of Industry, Tourism and Trade. 18. Foreign Direct Investment Statistics
Source: Directorate General of Trade and Investment, Ministry of Industry, Tourism and Trade. 19. Major Foreign Investors
Foreign investment has played a significant role in modernizing the Spanish economy over the past 35 years. Attracted by Spain's large domestic market, export possibilities and growth potential, foreign companies in large numbers have set up operations. Spain's automotive industry is almost entirely foreign-owned.
Multinationals control half of the food production companies, a third of chemical firms, and two-thirds of the cement sector. Several foreign banks acquired networks from Spanish banks, and foreign firms control close to one third of the insurance market. In 2010 there was an absence of large mergers and acquisitions compared to those recorded in previous years that partially explain the lower direct investment flows. In 2010, Spain recorded USD 32.5 billion in new foreign direct investment (FDI), an increase of 38.4 percent compared with investment in 2009 in spite of the deep economic crisis. In 2011, Spain occupied the 9th position in the ranking of the top countries for FDI inflows. New investment rose significantly in the first nine months of 2011.