Spain's FDI rules are about to change: What the new EU Screening Regulation means for investors in Spain

Introduction

The EU’s new Foreign Direct Investment Regulation – which replaces the 2019 framework and will apply across all Member States 18 months after it enters into force – introduces material changes to the screening architecture that deal teams and investors need to understand before they close. Mandatory prior authorization requirements are expanding, ex officio review powers are extending to up to five years post-completion, and the coordination rules for multi-jurisdictional transactions are being overhauled. This note sets out the key changes and what they are expected to mean for the Spanish FDI regime specifically.

The 2019 Regulation laid the foundations of the EU FDI control framework by establishing common assessment criteria for foreign direct investments on grounds of security or public order. It also introduced a structured cooperation mechanism between Member States, and between Member States and the European Commission, designed to ensure the exchange of accurate, comprehensive and reliable information, while preserving Member States’ competence to screen investments at national level.

In parallel, several Member States, including Spain, significantly reinforced their national screening regimes. In Spain, this process began with the amendment of Law 19/2003 through Royal Decree-law 8/2020, which introduced a new Article 7 bis suspending the liberalization regime for certain foreign direct investments and reshaping the applicable sanctions framework. This national regime was subsequently consolidated and further developed through Royal Decree 571/2023 (the Spanish FDI Regime).

The new Regulation (EU) 2026/1386 (the 2026 Regulation) supersedes the 2019 Regulation. This note outlines the most relevant changes and provides a high-level assessment of their expected impact on the existing Spanish FDI regime. 

Key changes in the revised EU FDI Regulation

Two-phase national screening procedure

The 2026 Regulation formalizes a structured two-phase national screening process:

• An initial review phase will be conducted within 45 calendar days following the filing of an application. The purpose of this phase is to decide whether a more in-depth investigation is necessary to determine if the foreign investment is likely to negatively affect security and public order.
• If required, an in-depth investigation phase will follow. No specific timeframe has been established for this deeper investigation, indicating a more flexible – but potentially longer – scrutiny period.

New powers for national competent authorities (self-initiated screening)

The 2026 Regulation grants enhanced powers to national authorities for ex officio screening:

• The authority will be empowered to initiate screening of foreign investments falling within its scope on its own initiative for a period of at least 15 months and up to five years from the completion of an investment that was not subject to prior authorization, if there are grounds to believe it could affect security and public order.
• The authority will also be empowered, for at least 24 months following the completion of a foreign investment, to screen and adopt a screening decision in relation to that investment, provided that it was subject to prior authorization but was not filed or was filed after its completion.

These new provisions significantly strengthen the ability of national authorities to intervene in investments that initially escaped scrutiny or were improperly notified.

Right to be heard for the parties subject to the screening decision

According to the 2026 Regulation, before adopting a decision to authorize a foreign investment subject to mitigating measures, to prohibit it, or to unwind a completed investment, the parties involved must be given the opportunity to make known their views on the proposed decision. As established in the 2019 Regulation and now maintained, foreign investors have the possibility to seek judicial recourse against screening decisions by national authorities.

Mandatory prior authorization criteria

The 2026 Regulation significantly expands the types of Union targets for which Member States must impose a requirement of prior authorization. These mandatory prior authorization requirements do not apply to greenfield investments.

Prior authorization will be required when the Union target:

• Develops, produces, or commercializes items listed in Annex I to Regulation (EU) 2021/821 (common list of dual-use items subject to export controls);
• Develops, produces, or commercializes goods or technology listed in the Annex to Directive 2009/43/EC (concerning intra-Community transfers of defense-related products);
• Produces, conducts research in, or develops semiconductors or quantum technologies, or conducts research in or develops artificial intelligence technology described in Annex I to the 2026 Regulation;
• Is active in the transport, energy, or digital infrastructure sectors and is considered critical pursuant to a risk-based targeted assessment performed by the Member State where the Union target is established;
• Carries out activities of exploration, extraction, processing, recycling, recovery, or stockpiling of strategic raw materials listed in Section I of Annex I to Regulation (EU) 2024/1252 (the Critical Raw Materials Act);
• Constitutes one of the following entities: central counterparties, central securities depositories, operators of regulated markets, operators of payment systems (excluding central banks), other systemically important institutions, or global providers of specialized financial messaging services; or
• Owns, develops, or operates voter registration databases, voting systems, and other information systems specifically designed to manage electoral operations.

Expanded cooperation mechanism notification obligations

The 2026 Regulation introduces more detailed and mandatory notification obligations for Member States to the Commission and other Member States within the cooperation mechanism. In particular, according to the 2026 Regulation, Member States are required to notify any foreign investment in a Union target established in their territory that:

• Meets the mandatory prior authorization condition (as described above) and also meets specific investor-related conditions – i.e., if the investor is directly or indirectly controlled by a third country government, is subject to EU restrictive measures, or has a history of non-authorized or conditionally authorized investments where conditions were breached).
• Is subject to an in-depth investigation by the competent national authority, in particular where the target (i) is active in a Union project or program listed in Anex II to 2026 Regulation; or (ii) has subsidiaries, or forms part of a group, operating in at least one other Member State.
• Is intended to be authorized subject to conditions, prohibited or unwound without having been subject to an in-depth investigation, and provided that either of the conditions set out in the previous bullet (i.e., active in a Union project or program or cross-border group presence) is also met.
• Falls within the scope of the national screening mechanism but does not meet any of the above conditions, where the Member State considers that the investment could negatively affect security or public order in at least one other Member State.

Mechanism for multinational transactions

The 2026 Regulation introduces a dedicated framework for the coordination of foreign investments involving multiple Member States:

• Applicants shall endeavor to submit their filings simultaneously in all relevant Member States, expressly cross-referencing the corresponding notifications submitted in the other jurisdictions.
• The Member States concerned must coordinate throughout the entire screening process, with a view to aligning procedural timelines (both for the assessment phase and the adoption of the final decision), ensuring procedural compatibility and, where relevant, the consistency of their respective screening decisions. This coordinated approach is intended to facilitate the assessment of complex cross-border transactions and reduce fragmentation across national screening processes.

Determination of negative impact on security and public order

The 2026 Regulation significantly strengthens and clarifies the framework for assessing whether a foreign investment is likely to negatively affect security or public order:

• Article 19 sets out a structured and comprehensive list of factors that must be taken into account when assessing such risks.
• Article 20 establishes a clearer decision-making framework under which Member States must either authorize the investment subject to mitigating measures or prohibit or unwind it, subject to strict proportionality and a risk-based analysis. Prohibition or unwinding is expressly framed as a measure of last resort, while the Regulation enhances transparency by identifying the types of mitigating measures that may be imposed, such as changes to governance arrangements or limitations on voting rights.

Explicit exclusions from scope

The 2026 Regulation introduces specific carve-outs for certain types of investments, clarifying its scope:

• It will not apply to investments carried out as part of a resolution tool or write-down and conversion powers, within the meaning of Directive 2014/59/EU, Directive (EU) 2025/1, Regulation (EU) No 806/2014 and Regulation (EU) 2021/23. 
• Internal corporate restructurings (which shall not result in a change of the beneficial owner) are also excluded from the scope of the 2026 Regulation, unless a new legal entity from a third country that was not previously present in the upstream ownership chain of the Union target is introduced into that chain. This approach enhances legal certainty and ensures alignment at EU level, while making the introduction of a new third-country element the key triggering facto.

Implications for the Spanish FDI Regime

As a directly applicable EU Regulation, the 2026 Regulation will become binding upon entry into force but will apply substantively only 18 months later. A series of modifications are anticipated for the existing Spanish FDI regime, primarily governed by Royal Decree 571/2023. The following deserve particular attention:

The national screening procedure and applicable timelines will need to be adjusted

The 2026 Regulation introduces a two-phase review process – an initial 45-day review followed, where necessary, by an in-depth investigation without a fixed deadline – which departs from the current Spanish framework based on a single three-month decision period and negative administrative silence. Spain will therefore need to adapt its procedural rules to accommodate these distinct phases, potentially extending the overall review period for complex cases.

National authorities’ ex officio powers are significantly expanded

The 2026 Regulation allows authorities to review (i) foreign investments that were not subject to prior authorization and therefore not notified for at least 15 months (and up to five years) after completion, and (ii) investments subject to prior authorization that were not duly filed, or were filed only after completion, for at least 24 months.

While the first category introduces a new power under the Spanish FDI regime, the second may require further procedural development at national level. Although the Spanish FDI Regime already provides that transactions carried out without the required prior authorization lack legal validity and effects pending potential legalization, it does not currently establish a formal ex post screening procedure within a defined timeframe. Spain might introduce a specific procedural mechanism governing how such cases would be assessed and resolved within the 24-month window.

A formal right to be heard must be incorporated into the screening procedure, prior to the adoption of a decision authorizing an investment with conditions, prohibiting it or unwinding it. While the Spanish FDI Regime provides for administrative and judicial remedies after a decision has been adopted, it does not currently require a formal pre-decision hearing.

The scope of mandatory prior authorization will need to be expanded and updated to reflect the more detailed and prescriptive list of critical sectors and technologies set out in the 2026 Regulation, including a reassessment of existing national exemptions.

Internal procedures for notification under the EU cooperation mechanism will need to become more granular and time-sensitive, in order to ensure compliance with the revised 2026 Regulation’s deadlines for comments by other Member States and for opinions issued by the European Commission within the authorization process.