2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009
Report

Openness to Foreign Investment

The government of Spain recognizes the value of foreign investment and the economic importance of attracting more. There have been no significant changes in Spain's regulations for investment and foreign exchange under either the Socialist Party (PSOE) government that took office in March 2004 and was re-elected in March 2008. Spanish law permits foreign investment of up to 100 percent of equity, and capital movements are completely liberalized. During the first nine months of 2008, gross foreign direct investment in Spain was 33.2 billion euros, a 250 percent increase over the first nine months of 2007 (9.21 billion euros). The UK was responsible for 40 percent of the investment, Germany 24 percent, the Netherlands 14.3 percent and the U.S. only 0.75 percent. The autonomous community of Madrid received 84.2 percent of the investment and the region of Catalonia 6.8 percent. Companies invested especially in production and distribution of electricity, real estate, financial services, construction, manufacturing and chemicals. American companies are relatively more important portfolio investors – in 2007 about 6.4 percent of Spanish negotiable instruments held by foreigners were held by Americans. Spain no longer has a big wage competitiveness advantage over other major EU economies. The country will therefore have to embark on additional structural reform if it wants to maintain previous years’ high levels of 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 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 the 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 any investment.

Spain's privatization process is slowing down because the government has already sold off most of the leading state-owned companies. From 1996 to 2007, the government sold its stakes in 59 companies. 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. From 1996 to 2007, the GOS restructured the shipbuilding company Izar, separating the civil (still called Izar) and military sectors (Navantia). The chairman of the state-owned Industrial Holding Company has recently stated that the Spanish government has no plans to sell its 5.2 percent stake in Iberia until at least 2010. Another deferred privatization is that of the 10 percent government stake in the Spanish electricity grid, Red Electrica Espanola, which is expected to take place in 2009.

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 feel 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 adheres to the “national champion” concept, for instance in its successful effort to ensure that control of electricity giant Endesa remained in Spanish hands, at least partially.

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 of 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. However, property owners in the autonomous community (region) of Valencia complained in 2007 that regional authorities unfairly took land or paid inadequate compensation in eminent domain cases for commercial development.

Dispute Settlement

Legislation establishes mechanisms to solve disputes if they arise. The judicial system is open and usually transparent, although slow-moving at times. The Spanish judicial system is independent of the executive; therefore, the government is obliged to follow court rulings. 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 U.S.-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 U.S. as the venue for adjudicating disputes also come to an agreement regarding how a possible U.S. judgment will be executed in Spain.

Spain has a fair and transparent bankruptcy regime. In June 2003, the Spanish Parliament approved a new, modern bankruptcy law that entered into force on September 1, 2004.

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. The European Union:

The European Union provides incentives in the form of subsidies in general development programs such as FEDER and F.S.E. FEOGA Guarantee. They also provide programs to target specific sectors under the EU Sixth Framework Programme. The Government of Spain manages these incentives locally. However, many benefits from EU-sponsored programs are limited to companies located in the European Union. These incentives will become less financially significant over the coming years as Spain's increasing wealth and EU enlargement will lead to a smaller share for Spain of the EU's general development programs.

- 2. The Central Government:

- a. The central government grants incentives out of its annual budget. Usually, these incentives match EU financing. Central government incentive programs are easily available for direct investment plans. The Ministry of Economy and Finance and Ministry of Industry, Tourism and Commerce play active roles in granting the incentives.

- b. The Foreign Investment Department, under the Ministry of Industry, Tourism and Trade, counsels new market investors in the application for government incentives. The Ministry of Industry's sector-related departments negotiate directly with the old market investors to inform them of incentives available for new investments.

- 3. The Regional Governments:

The 17 regional governments, called Autonomous Communities, also maintain specific programs to attract investment, which are often designed to complement central government incentives.

- 4. Municipalities:

- a. Municipal corporations offer incentives to direct investment by facilitating infrastructure needs, granting licenses, and allowing for the operation and transaction of permits. Usually they are designed to help ease the initial operations of direct investment.

- b. 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.

- c. 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 means of supplying infrastructure facilities (accesses, services, communications, etc.)

- d. Incentives from national, regional or municipal governments and the EU are granted to Spanish and foreign companies alike without discrimination.

- e. Spain is in compliance with its WTO TRIMS [Trade-Related Investment Measures] obligations.

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, however, 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. However, while law enforcement agencies have effectively combated street piracy, internet piracy has becoming a rapidly growing concern for copyright-based businesses. Rights-holders’ organizations are concerned about whether the GOS will allow their members to use technological protection measures for consumer products like DVDs and CDs. Internet Service Provider (ISP) and rights-holder groups, with the government’s support and encouragement, continue to attempt to negotiate an agreement on what administrative procedures should exist to curb and punish illegal peer-to-peer downloads of copyrighted material. Content providers are currently required to present difficult-to-obtain judicial orders to ISPs in order to get the ISPs to suspend service to illegal downloaders. Moreover, a 2006 “circular” issued by the Prosecutor General’s Office for judges and prosecutors stated that peer-to-peer downloading of protected material should not be prosecuted as a criminal offense unless a commercial profit motive can be established. A number of legal obstacles also impede copyright holders from obtaining redress via civil litigation. The Internet presents the most problematic area in terms of respect for intellectual property rights in Spain.

Public and private sector enforcement actions (especially private sector initiatives) using Spain's patent, copyright and trademark legal framework have increased. Industry groups praise police enforcement actions; their enforcement concerns have to do with the judiciary, not Spain’s police forces. Despite enforcement efforts, piracy remains a significant problem. Industry sources estimate that illegal CDs constitute 30 percent of the Spanish market, with pirated versions of new releases approaching 50 percent. Pirated software, videogames and DVDs are also sold widely.

a. Patents.
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).

b. Copyrights.
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.

c. Trademarks.
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.

Business 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:

Oficina de Harmonizacion del Mercado Interior (Office for Harmonization in the Internal Market)
Avenida Aguilera, 20
03080 Alicante
Tel: (34) 96-513-9100
Fax: (34) 96-513-9173

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 has led to a significant lowering of interest rates in recent years; however, the recent downgrade of Spanish sovereign debt may 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 U.S. There is a significant amount of portfolio, investment in Spain, including by American entities. Accumulated foreign investment in Spanish negotiable securities at the end of 2007 amounted to USD 1,077.3 billion, an 18.4 percent increase over the previous year. 60.2 percent of this amount was in fixed rate securities, 39.3 percent in listed shares and 0.5 percent in shares of investment funds. Investors were mostly from EU countries (86 percent) and the United States (11 percent.)

Corporate scandals in the U.S. 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 pro-active 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. Spain's government views corporate governance rules as a means of ameliorating the effects of concentrated economic power and preventing a major corporate scandal along the lines of Enron or Parmalat.

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 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 fully 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 2007 were 2,006.4 billion euros:
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Banco Santander Central Hispano:912.9 billion euros
Banco Bilbao Vizcaya Argentaria:502.2 billion euros
La Caixa:248.5 billion euros
Caja Madrid:158.8 billion euros
Banco Popular:107.2 billion euros
Banco SabadellAtlantico:76.8 billion euros

The domestic Spanish banking system is regarded as healthy, with four institutions (banks and savings banks) dominating the market. Spanish regulators have recently focused attention on these banks' exposure to financial instruments based on U.S. sub-prime loans, and have required provisions against this exposure. The Spanish financial system’s exposure to such instruments is relatively low. In 2007, new Spanish gross investment abroad was USD 148.5 billion, showing an 81 percent increase from the 2006 annual level. During the first nine months of 2008, Spanish authorities recorded USD 50.6 billion in new foreign direct investment, an increase of more than 300 percent compared with investment in the first nine months of 2007. (Note: Detailed statistics on Spanish overseas investments and foreign investments in Spain for 2008 will be available in March of 2009.) The increase in Spanish overseas investment reflects more attractive opportunities for Spanish companies, especially in the U.S. market in the renewable energy and the construction sectors.

Political Violence

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 over 40 persons since January 2000 and about 850 persons since its campaign began in 1968. It appears likely that ETA will continue to commit violent acts. In December 2008, suspected ETA gunmen 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. ETA operatives extort "revolutionary taxes" from businesspersons and professionals living in the Basque region, sometimes bombing their property to intimidate them into paying extortion demands. ETA supporters also engage in street violence and vandalism against government facilities, economic targets (particularly banks), and the homes and property of persons opposed to ETA's cause. In recent years, the Spanish government has secured greater security cooperation from French authorities on the ETA threat. Joint Spanish-French operations in November and December 2008 resulted in the capture of the group’s two military chiefs.

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. Islamic extremists remain active in Spain and if there are other attacks, U.S. citizens/property could be hurt/damaged, although, so far, U.S. citizens and companies in Spain have not been direct Islamic terrorist targets.

Corruption

Giving or accepting a bribe is a criminal act. Under the Spanish civil code, section 1255, 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 the actions of a company. 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. Banks and financial institutions are also gearing up to meet stiff new EU regulations on money laundering.

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 15-20 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.

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. During 2008, the Audiencia Nacional was investigating approximately 250 individuals and companies for alleged tax evasion via Liechtenstein.

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), 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), Morocco (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), and Mexico (2006.)

Spain and the United States have a Friendship, Navigation and Commerce (FCN) Treaty and a Bilateral Taxation Treaty (1990). Spanish officials have indicated that they would like to keep the FCN, despite indications in 2004 that the EU Commission wanted Member States to terminate bilateral FCN agreements.

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).

Labor

Employment estimates for 2008 show that there are about 23 million Spaniards in the work force. This figure is expected to climb to 23.5 million for 2009. However, the economic crisis is having a significant impact on unemployment, which increased from 8 percent in third quarter of 2007 to 11.313 percent in the third quarter of 2008 and is expected to continue to rise throughout 2009. Unemployment for women continues to be higher than the male average, at 12.7 percent compared to 10.3 percent, although in recent quarters the disparity has been gradually decreasing. Spain faces a shortage of high-tech workers for its IT sector and of unskilled workers for its fishing and agricultural industries.

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 government recognizes that labor market reform is essential to increasing productivity, which Spain needs to do as it faces competition from lower-wage new EU member countries. To encourage employers to move people from short-term contracts to regular employment status, in June 2006 the government approved a package of measures designed to provide incentives to employers to hire full-time workers. The initial results of these measures show that the number of temporary contracts decreased by 300,000 and more than a million new full-time contracts were signed, but one third of all employed Spaniards are still classified as temporary hires. Collective bargaining reform should be part of this effort, but so far this has not happened. In early 2005, the Spanish government approved indexing the minimum wage to inflation. The unions supported this position and employers accepted it, albeit unenthusiastically, with some employer representatives questioning the decision.

Collective bargaining is widespread in both the private and public sectors. Sixty percent of the working population is covered by collective bargaining agreements, although only a minority (generally estimated to be about 10 percent) 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 is 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.

The constitution guarantees the right to strike and it 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 there are numerous free trade zones (in most Spanish airports and seaports) 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
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2005* 2006* 2007*
(In USD Millions)
Total new foreign
direct investment
in Spain17,59413,70137,531
U.S. direct investment
in Spain3,0082,1521,778
U.S. share of total
direct invest (percent)17.115.74.7
Total new Spanish
investment abroad34,18265,294108,355
Spanish investment in U.S.2,1096,54811,727
U.S. share of total
Spanish investment (percent)6.1710.0210.8

New Foreign Direct Investment in Spain (2007*): by country of origin
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Italy48.4 percent
The Netherlands13.3 percent
Luxembourg10.6 percent
U.S.4.7 percent
United Kingdom3.3 percent
Germany2.8 percent
Switzerland1.9 percent

New Foreign Direct Investment in Spain (2007*): by industry sector destination
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Electricity49.5 percent
Real estate promotion3.7 percent
Food and Beverages2.8 percent
Banking and Insurance5.6 percent
Chemicals4.4 percent
Manufacturing papers2.0 percent

Source: Directorate General of Trade and Investment, Ministry of Industry, Tourism and Trade. Note (*): data are not comparable with investment figures for years before 2005. It is a new concept that corresponds to Registered Gross Investment minus: a) acquisitions of shares and stakes in Spanish companies from other non-residents; and b) multiple accounting for the same investment as a result of business group restructuring in Spain.

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 have acquired networks from Spanish banks, and foreign firms control close to one third of the insurance market. In 2007, Spain recorded USD 49.4 billion in new foreign direct investment, an increase of 188 percent compared with investment in 2006.

In 2007, the OECD countries were the largest investors, accounting for 93 percent. By countries, the largest investors were Italy, the Netherlands, Luxemburg, the United States, the United Kingdom, Germany, and Switzerland.

Note: FDI numbers provided in this section do not include portfolio investment.

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