Alternative Investments in Spain: a growing and maturing market

About the authors:

Alejandra Font specializes in corporate and commercial law with a focus on M&A, private equity and funds. She advises Spanish and international corporates, sponsors and LPs on transactions, regulatory issues and fund formation/secondaries. She is a founder member of SJ Berwin’s private equity team in Madrid.

Manuel Garcia-Riestra specializes in establishing and structuring closed-ended funds, management entities and related corporate matters, plus primary, co-investment and secondary transactions. He served on SJ Berwin’s international funds team from 2005 to 2015, which included a secondment to London supporting Triton Capital IV fundraising and multiple co-/secondary deals.

Key points:

• Over the past 25 years, Spanish alternative investments sector has evolved into a dynamic ecosystem attracting international capital

• In 2015, Spain has consolidated its position as an attractive market for alternative assets

• Spain also offers a competitive tax regime for alternative funds, such as the “Beckham Law”

• Successful foreign investors in Spanish fund investment engage consistently with the local business community

• Spain’s legal framework provides a range of vehicles suited to different investor profiles and strategies

• Spain has aligned itself with broader EU initiatives on ESG and sustainable finance

Over the past 25 years, Spain has undergone a remarkable transformation in the field of alternative investments. What was once a market dominated by traditional banking and domestic collective investment funds has evolved into a dynamic ecosystem attracting international capital, sophisticated strategies and a diverse range of asset classes.

During the 1990s, Spain’s alternative investment landscape was still at an early stage of development. Private equity activity was limited, real estate was primarily a domestic market and venture capital was a niche pursued by only a handful of specialist firms. The early 2000s brought rapid change: Euro adoption, regulatory harmonization, sustained economic growth and the gradual modernization of financial markets encouraged foreign investment and led several leading international private equity firms to establish local offices. At the same time, legal reforms introduced clearer rules for investment vehicles, and a new generation of managers began to emerge.

The global financial crisis of 2008 marked another turning point. While the downturn created obvious challenges, it also brought a wave of opportunities. International funds entered Spain in search of distressed assets, recapitalization deals and restructuring projects. The period between 2010 and 2015 saw significant inflows of foreign capital, particularly in real estate, infrastructure, non-performing loan portfolios, special situations, secondaries of LP stakes and direct investments. This activity reshaped the market, introducing more sophisticated deal structures and raising the profile of Spain as an investment destination.

The Spanish market combines the depth of a large, diversified economy with strategic geographic positioning

From 2015 onward, Spain has consolidated its position as an attractive market for alternative assets. Economic recovery, combined with strong sectors such as renewable energy, logistics, hospitality and technology startups, has generated a steady pipeline of opportunities. Domestic institutional investors have also become more active ‒ pension funds, insurers and large family offices are now meaningful participants in the alternative space, not just as passive investors but as co-investors alongside private equity sponsors.

For institutional investors and funds of funds exploring allocation possibilities, Spain offers a blend of advantages. The Spanish market combines the depth of a large, diversified economy with strategic geographic positioning, acting as a bridge to both European and Latin American markets. Deal flow is varied, ranging from mid-market buyouts to large infrastructure concessions and innovative start-up financing. The professional services ecosystem ‒ legal, tax, advisory ‒ has matured considerably, making it easier for foreign entrants to operate effectively.

Structuring considerations

Choosing the right structure for an investment remains a strategic decision. Spain’s legal framework, fully harmonized with EU standards, provides a range of vehicles suited to different investor profiles and strategies. Private equity funds, which are focused on investing in private qualifying assets, may take the form of FCRs (Fondos de Capital-Riesgo), which are contractual pools of assets without legal personality, or SCRs (Sociedades de Capital- Riesgo) which are corporate entities subject to Spanish corporate law. There are also special forms such as ECR-Pyme, designed to channel investment into small and medium-sized enterprises, and the more flexible EICCs (Entidad de Inversión Colectiva de tipo Cerrado), which have fewer investment restrictions and may invest in a broad range of assets.

Each vehicle offers different degrees of investor involvement, governance requirements and tax implications. For example, FCRs are typically more suitable for passive institutional investors, whereas SCRs may appeal to investors seeking a more direct role. These structures are supervised by the CNMV (Comisión Nacional del Mercado de Valores), Spain’s securities regulator, which ensures a level playing field and investor protection.

Tax and regulatory advantages

Spain also offers a competitive tax regime for alternative funds. Private equity entities (ECRs) benefit from exemptions on dividends and capital gains derived from qualifying investments, provided certain conditions are met, including minimum holding periods. Importantly, distributions to non-resident investors are generally not taxed in Spain, making these vehicles attractive to international capital. Domestic investors, particularly corporations, can also benefit from specific exemptions that reduce their effective tax burden when investing through ECRs.

Regarding carried interest, Spain treats the income generated from certain participations, shares or other rights ‒ including performance fees ‒ that grant special economic rights in closed-ended alternative investment funds as employment income. For tax purposes, only 50% of this income is included in the general tax base, provided specific conditions are met, effectively reducing the tax burden for fund managers.

Spain’s legal framework provides a range of vehicles suited to different investor profiles and strategies

Additionally, Royal Decree 687/2005, commonly known as the “Beckham Law” provides a special tax regime for qualifying foreign professionals relocating to Spain, allowing them to be taxed at a reduced rate on Spanish-source income. This regime makes Spain an attractive destination for international private equity talent.

The regulatory framework, while rigorous, is pragmatic and aimed at fostering both transparency and competitiveness. Fund managers must adhere to strict fiduciary duties and governance rules, ensuring that investors’ interests are safeguarded. At the same time, Spain has aligned itself with broader EU initiatives on ESG and sustainable finance, a key consideration for institutional investors today.

Spain as a jurisdiction of choice

Spain’s role as a jurisdiction for fund investment has evolved from being merely a source of deals for offshore structures to becoming a credible location for fund management and administration. While Luxembourg and Ireland continue to dominate cross-border fundraising, Spain offers clear advantages for regionally focused strategies: proximity to the underlying assets, cost efficiencies, a deepening pool of domestic investors and a regulator recognized for its professionalism.

For first-time entrants, the main action points before investing or setting up a local vehicle would be establishing strong relationships with local players and advisers, understanding sector-specific dynamics and identifying trusted partners to accelerate entry, identify potential deal sourcing opportunities and reduce execution risk. Awareness of business and social uses and reputation matter ‒ successful foreign investors tend to be those who engage consistently with the local business community, building networks that lead to proprietary deal flow.

Attention should also be paid to governance, compliance and ESG integration from the outset. Investors who embed these elements early not only reduce regulatory risk but also strengthen their appeal to domestic institutions and global LPs.

Looking ahead

Spain’s alternative investment market is well-positioned for further growth. The energy transition is creating demand for capital in renewables and grid infrastructure. Urban regeneration projects are reshaping real estate strategies. Digital transformation is opening opportunities in technology, data centers and telecommunications infrastructure. At the same time, sustainability is moving from a marketing advantage to a regulatory expectation, with institutional investors increasingly requiring credible ESG policies embedded in investment processes. Moreover, operations targeting SMEs are expected to gain importance, as Spain’s highly fragmented business landscape offers significant opportunities for building up domestic companies across multiple sectors, including education, hospitality, healthcare and energy.

The combination of a mature legal framework, attractive tax regime and strong sector-fundamentals positions Spain as more than just a source of deals: it is a jurisdiction capable of supporting long-term sustainable investment platforms. For institutional investors and funds of funds, the opportunity lies in combining strategic foresight with local understanding, ensuring that structures and strategies are aligned not only with regulation but with the evolving dynamics of the market, including the growing potential of SME-focused investments and corporate build-ups.