Multi-jurisdiction guide for screening foreign investments

1. Country: Kenya

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

Official records from the Kenya National Bureau of Statitstics as at 2020 indicate the following countries as the biggest sources of FDI inflows in Kenya:

• The UK (13,5%)
• Mauritius (11,0%)
• US (10,3%)
• South Africa (9,8%) 
• France (5,2%)  

3. Legal Framework in Force

• Constitution of Kenya, 2010
• Foreign Investments Protection Act (Chapter 518 Laws of Kenya)
• Investment Promotion Act (No. 6 of 2004)
• Kenya Investment Policy, 2019 
• The Law of Contract Act (Chapter 23 of the Laws of Kenya)

4. Last revision of the Legal Framework

2014

5. Contextualization of the Legal Framework (Historical or other)

Constitution of Kenya, 2010

The Constitution of Kenya, 2010 is the supreme law of Kenya which binds all persons and state organs. Article 40 of the Constitution of Kenya protects the right to property by among others, protecting all persons from arbitrary deprivation of property of any description, or any interest in or right over any property of any description. The Kenyan Constitution (2010) prohibits expropriation without compensation. Private property may be compulsorily acquired by the Government only for reasons pertaining to public safety or public interest, and with “payment of full compensation”. The owner of the property however has a right of direct access to the High Court if they wish to contest the legality of the expropriation or the amount of the compensation, or to enforce prompt payment of the compensation.

Investment Promotion Act (No. 6 of 2004)

The Investment Promotion Act of 2004 establishes the Kenya Investment Authority (KIA) which promotes and facilitates investments by assisting investors to obtain applicable licenses and permits to conduct business in Kenya, in addition to providing incentives for investments. The KIA issues an investment certificate upon application by an investor. The investment certificate will facilitate an investor to acquire necessary licenses and regulatory approvals for their business. A foreign investor is eligible to apply for an investment certificate if they intend to invest at least USD100.000 or the equivalent in any currency, and the investment (and any activity related to the investment) is lawful and beneficial to Kenya.

If in the opinion of KIA, an application for an investment certificate raises environmental, health or security issues, KIA may refer it to the appropriate person or body and shall inform the applicant of that referral. Pursuant to this provision, the Investment Promotion (Investment Registration and Certificates) Regulations, 2005 establishes an investment committee within the KIA which reviews technical applications for investment certificates touching on security, environment and health. This Investment Committee may impose conditions on an investment certificate to address bona fide health, environment and security concerns.

Before its amendment in 2005, the Investment Promotion Act required all foreign investors to apply to the KIA for an investment certificate before investing in Kenya. Application for the investment certificate is now optional and foreign investors can proceed to make investments in the country without an investment certificate.

Foreign Investments Protection Act (Chapter 518 Laws of Kenya)

The Foreign Investments Protection Act (FIPA) was enacted to give protection to certain approved foreign investments. To be eligible for FIPA guarantees, investors should obtain a Certificate of Approved Enterprise. The FIPA provides guarantees on capital repatriation, remittance of dividends and interest. Under the FIPA, foreign investors are free to convert and repatriate profits, including retained profits which have not been capitalised, after payment of the relevant taxes and the principal and interest associated with any debt. 

Section 8B of the FIPA goes further to provide a legal basis for the entry by the Government of Kenya into bilateral investment treaties (BITs) with foreign governments for reciprocal promotion and protection of investments. Kenya has BITs with Burundi, Finland, France, Germany, Japan, Kuwait, Netherlands, Republic of Korea, Switzerland, United Arab Emirates and the United Kingdom.

Kenya Investment Policy, 2019

The Government of Kenya developed the Kenya Investment Policy (KIP) to address challenges related to entry, treatment, performance and impact of private investment. The KIP is guided by seven core principles, which emphasise the need for openness and transparency, inclusivity, sustainable development, economic diversification, domestic empowerment, global integration and investors’ needs. As Kenya has a devolved system of government, the KIP addresses private investment at the national and county levels to ensure policy and regulatory coherence.

Some of the policy intervention areas which the KIP addresses include:

• Investment entry and establishment of enterprises, i.e., notification, registration and establishment of enterprises, minimum capital requirements and work permits
• Investment protection and guarantees, i.e., closure and exit, national treatment, convertibility and repatriation, protection against expropriation, and dispute prevention and resolution
• Responsible investment, i.e., legal compliance, common obligations against corruption, minimum standards for human rights and labour, domestic value addition, environmental protection, and corporate social responsibility
• Incentives framework i.e., types of incentives, incentive criteria, obtaining incentives, review of incentive efficacy, and authority to issue incentives
• Sector restrictions
• Regional integration and investment agreements. 

Law of Contract (Chapter 23 of the laws of Kenya) 

The Kenyan Law of Contract provides the general legal framework for contracts entered into in Kenya including those relating to investments in Kenya. The Law of Contract provides for the application of the principles of English common law on contracts entered into Kenya.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Subject to compliance with proceeds of crime and anti-money laundering regulations, there is no other restriction on source of foreign capital in Kenya. Cash transactions exceeding USD10.000 or its equivalent in any other currency are to be reported by the remitting bank (or money remittance institution) to the relevant financial services regulator.

In essence, since acquisition of the investment certificate is not mandatory, there is no screening mechanism for FDI in Kenya outside the anti-money laundering mechanisms. For foreign investors that choose to apply for the investment certificate, their application is screened by the investment committee if the proposed business touches on security, environment and health.

Further, there are some sector-specific requirements applicable to both local and foreign investors. In the banking sector, any proposed holder of more than 5% in a bank is required to disclose certain information (including shareholding details) in addition to declaring on oath that the proposed capital injection is not from proceeds of crime. Every bank is also required to disclose the ultimate beneficial owner of any shares held by a company, other body corporate or a nominee to the Central Bank of Kenya. This has been reinforced by the coming into force of the Companies (Beneficial Ownership Information) Regulations 2020, which require every company to maintain a register of beneficial owners containing information on the natural persons who ultimately control the company.

The Insurance Regulatory Authority has the power to carry out an assessment of the suitability of any person managing, controlling or having a significant ownership or significant beneficial interest in a person licensed under the Insurance Act (insurance companies, brokers or agents).

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Other than merger control and sector specific regulatory requirements, foreign investments (either controlling or portfolio) are not subjected to regulatory monitoring in Kenya by virtue of being foreign investments. This is because the acquisition of an investment certificate is no longer mandatory. Where a foreign investor applies for the investment certificate, KIA is required to determine whether the investment and the activity related to the investment is lawful and beneficial to Kenya. KIA will consider the following parameters:

• creation of employment in Kenya;
• acquisition of new skills or technology for Kenyans;
• contribution to tax revenues or other government revenues;
• a transfer of technology to Kenya;
• an increase in foreign exchange, either through exports or imports substitution;
• use of domestic raw materials, supplies and services;
• adoption of value addition in the process of local, natural and agricultural resources;
• use, promotion, development and implementation of information and communication technology; and
• any other factors that KIA considers beneficial to Kenya.

Merger control

Any acquisition of shares, business or other assets (whether inside or outside Kenya) resulting in a change of control of a business, part of a business or an asset of a business in Kenya is considered a merger. A minority shareholder can also be considered to have acquired control in a target if it is able to exercise material influence in the target entity including through the exercise of contractual rights.

The Kenyan competition merger regime has the following categories of merger control:

• Mergers excluded from notification – small transactions (generally below USD5 million combined turnover or value of assets);
• Mergers eligible to apply for exclusion – medium transactions (generally below USD10 million combined turnover or value of assets but above USD5 million); and
• Mergers requiring approval – other transactions (generally above USD10 million combined turnover or value of assets).

Sector regulatory requirements

• Banking – where only banks, financial institutions licenced in Kenya, the Government of Kenya, foreign governments, state corporations, foreign companies licensed to operate as financial institutions in the relevant country and nonoperating holding companies approved by the Central Bank of Kenya may hold more than 25% of the share capital of a financial institution in Kenya.
• Insurance – where at least 33% of shareholding is required for insurance companies and agents to be held by citizens of East Africa and 60% shareholding is required for brokers.
• Telecommunications – where at least 30% of Kenyan shareholding must exist within three years of the issuance of business license.
• Aviation – where 51% of Kenyan shareholding is required.
• Mining – where the holder of a mining license is required to maintain local equity participation amounting to at least 35% of the mineral right.
• Retirement benefits scheme administrators – where applicants are required to have at least 60% of the paid-up share capital owned by Kenyan citizens unless the applicant is a bank or an insurance company.
• Architectural sector – partnerships between persons registered with the Board of Registration of Architects and Quantity Surveyors and an unregistered person (foreign firms) is permitted as long the registered person owns a minimum of 51% of the shares in such a partnership. Effectively, unregistered firms are restricted to a maximum of 49% ownership in an architectural business.
• Land – where foreigners may only hold land on the basis of leasehold tenure. Leases granted to non-citizens may not exceed a period of 99 years. Dealings in agricultural land are controlled in Kenya by the Land Control Act. Consent must be obtained from the Land Control Board for any transaction involving the sale, transfer, lease, mortgage, exchange, partition or other disposal of or dealing with any agricultural land. Consent will not be given to non-Kenyan citizens for any such transactions (save in the case of a mortgage or charge created in favour of a non-Kenyan lender). However, a non-Kenyan citizen may apply for a presidential exemption from the application of the Act, although in practice this method is exercised in the most exceptional of circumstances in which there are significant public interest considerations.

8. Scope - sectors covered

See sectors outlined in answer to question 7 above

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

The Kenyan merger control process is a mandatory legal process that parties to a proposed merger must adhere to before implementation of a transaction. Further, Kenya’s Competition Authority has the power to unwind a transaction if it has been implemented before approval.

a) Prior notification and review procedure.

b) Merger control applies to controlling investments but owing to the statutory definition of what constitutes a merger, an investor can be deemed to have acquired control in portfolio investments if it has ability to exercise material influence through, among others, minority control rights.

c) Mandatory

10. Design – reciprocity?

The Kenyan FDI structure is based on national treatment and non-discrimination between foreign and national investors except where there is an existing BIT between Kenya and other countries which permit reciprocal special treatment for foreign investments. Kenya has BITs with Burundi, Finland, France, Germany, Japan, Kuwait, Netherlands, Republic of Korea, Switzerland, United Arab Emirates and the United Kingdom.

11. Design – Procedures and Deadlines

If a foreign investor chooses to apply to the KIA for the investment certificate, it is required to attach incorporation documents to the cover letter addressed to the Managing Director of KIA together with proof of investment. KIA is required to provide the applicant with a written notice of its decision within 20 business days of submission of the application. If KIA decides not to issue the investment certificate, it is required to refer the application together with its reasons to the Cabinet Secretary for Trade within five business days of its decision. The parties to a proposed merger are required to file the application either for exclusion of a merger or for merger approval as applicable. There is an online application process.

In relation to merger control, the Competition Authority responds to applications for exclusion and merger approval within 14 days and 60 days of filing respectively, with time extensions if the Competition Authority requests for further information from the parties.

Parties to a merger are prohibited from effecting the transaction before getting approval from the Competition Authority, and the payment of more than 20% of the consideration is considered implementation of the merger.

12. Design – Transparency and Information requirements (Filing Forms?)

Notification to the Competition Authority must be filed in a prescribed form, which is available online. For foreign investors that choose to apply for the investment certificate, there are prescribed forms also available online.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

In relation to merger control, the Competition Authority can approve a merger, approve it with conditions or prohibit it altogether.

There are no mechanisms that are purely aimed at interfering with foreign investments in Kenya. Foreign investments will, however, just like investments by local investors, be monitored by the relevant regulatory bodies for compliance with the relevant laws and regulations.

14. Interaction with other legal frameworks (ex: merger control)

As addressed above, other than merger control and compliance with applicable regulatory requirements for some sectors and with anti-money laundering laws, foreign investments (either controlling or portfolio) are not screened in Kenya.

With respect to anti-money laundering, the Proceeds of Crime and Anti-Money Laundering Act 2009 provides measures to combat money laundering and financing of terrorism by:

• providing for the identification, tracing, freezing, forfeiture and confiscation of proceeds of crime; and
• requiring reporting institutions (financial institutions and designated non-financial businesses and professions) to report any suspicious or unusual transaction or activity to the Financial Reporting Centre.

As a result, foreign investors may by law be required to disclose information relating to their identity, nationality, occupation and the sources of their funds to a financial institution or designated non-financial businesses and professions.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Under the Prevention of Terrorism Act of 2012, it is an offence to collect or provide property, funds or services for the commission of terrorism acts and deal in property owned or controlled by terrorist groups.

This legislation also establishes the Counter-Terrorism Centre, which has the power to request any person for any information relating to terrorism. Further, financial institutions have a reporting obligation to the Counter-Terrorism Centre where there are reasonable grounds to believe that it holds any property or an account that is owned or controlled by or on behalf of a terrorist group.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

In relation to merger control, any person aggrieved by the decision of the Competition Authority can appeal to Competition Tribunal within 30 days of publication of the decision for review.

A party dissatisfied with the decision of the Competition Tribunal may appeal to the High Court of Kenya (for judicial review orders) against that decision within 30 days after the date on which a notice of that decision has been served on them and the decision of the High Court of Kenya shall be final. In practice, judicial review is an avenue available to a party challenging the process of decision-making as opposed to the substance of the decision and where all administrative review processes have been exhausted.

The orders that a party can seek for in a judicial review application include:

• Certiorari – an order where the court quashes the decision that has been made by the decision-making body. Application for this order must be made within a period of six months of the subject decision.
• Mandamus – an order by the court compelling a decision-making body to mandatorily perform a certain act.
• Prohibition – an order prohibiting a decision-making body to refrain from performing certain acts.

The purpose of judicial review is to check that public bodies do not exceed their jurisdiction and carry out their duties in a manner that is detrimental to the public at large.

17. Publication in Official Gazette or other

In relation to merger control, the Competition Authority is required to publish its decision in relation to a proposed merger in the Kenya Gazette. This includes a decision to permit, conditionally permit or prohibit a proposed merger. 

There is no requirement to publish the decision of the investment committee in relation to foreign investors that choose to apply for the investment certificate.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

In relation to merger control, there have been no judicial review applications filed at the High Court of Kenya challenging the decision of the Competition Tribunal, which was formally established in 2017. However, on 4 May 2020, in this first appeal under the Kenyan Competition Act the Kenyan Competition Tribunal overturned conditions imposed by the Competition Authority of Kenya (CAK) on the Telkom Kenya/Airtel Kenya merger. 

There is no record of any judicial review application challenging the failure by KIA to issue a foreign investor with an investment certificate.

19. Stakeholders views on the Legal Framework

Since the acquisition of an investment certificate is no longer mandatory and Kenya does not have foreign exchange restrictions, stakeholders have generally not raised concerns with the existing legal framework on FDI in Kenya.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

Kenya is not a member of the EU but is a member of the East African Community (EAC). The EAC partner states have signed the following protocols:

• the Protocol for the establishment of the EAC Customs Union, which was signed on 1 July 2005;
• the EAC Common Market Protocol entered into force on 1 July 2010, and is an expansion of the bloc’s existing Customs Union; and
• the East African Monetary Union (EAMU) which was signed on 30 November 2013, and set the groundwork for a monetary union within ten years while allowing the EAC Partner States to progressively converge their currencies into a single currency in the EAC.

As a result of the wider economic and political integration objectives of the EAC member states, there are concerted efforts to harmonize laws across the EAC partner states, and this has necessitated amendment of various laws to comply with EAC laws.

Kenya is also a member of the Common Market for Eastern and Southern Africa (COMESA) which is a free trade area with 21 member states. The member states are from time to time required to harmonize their laws in accordance with adopted COMESA regulations, e.g., anti-trust laws.

Further, the African Continental Free Trade Agreement (AfCFTA), which came into force on 29 April 2019, was ratified by Kenya in 2018. The AfCFTA establishes a single continental market for goods and services. It also seeks to increase intra-African trade by cutting tariffs by 90% and harmonizing trading rules at a regional and continental level.

21. Other relevant information

Kenya operates export processing zones (aimed at manufacturers of exports) and special economic zones  that offer numerous incentives for investors in the country. These regimes offer an attractive investment opportunity for export-oriented business ventures since there are no foreign shareholding restrictions and there are attractive fiscal incentives in the form of tax exemptions designed to lower operational costs.

Contact: David Lekerai

Last updated June 2023

1. Country: Mauritius

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

• France (MUR2.219 million) 
• South Africa (MUR1.245 million) 
• United Arab Emirates (MUR724 million) 
• United Kingdom (MUR509 million) 
• China (MUR401 million) 

3. Legal Framework in Force

• The Economic Development Board Act of 2017 which governs investment in Mauritius;
• The Companies Act of 2001 which governs incorporation of businesses. 
• With regards to foreign investors investing in immovable properties in Mauritius, the Non-Citizens (Property Restriction) Act 1975 (NCPRA) provides that approval from the Prime Minister’s Office is required in such instances.

The Economic Development Board (EDB) is the government agency responsible for the promotion of investment in Mauritius and for navigating investors through the regulatory and legal requirements of the country.

The Corporate and Business Registration Department of the Ministry of Finance and Economic Development administers the Companies Act 2001.

In principle, a company incorporated in Mauritius can be wholly owned by foreigners, with no minimum capital requirement, except in some regulated activities such as banking or insurance. Companies must register their activities with the EDB after the Registrar of Companies has issued a certificate of incorporation. The company can then apply for occupation permits (work and residence permits) and incentives offered to investors. 

4. Last revision of the Legal Framework

In 2017, whereby the Economic Development Board Act 2017 repealed the Investment Promotion Act 2000.

5. Contextualization of the Legal Framework (Historical or other)

There is a constant search for foreign investment in Mauritius. Statistics and surveys indicate that Mauritius is one of the most “business friendly” countries in Africa.

• The World Banks’s last “Doing Business” report of 2020 placed Mauritius, for the 12th consecutive year, at the top of African economies and 13th worldwide, in terms of overall ease of doing business. 
• Mauritius has also done better than any other African country on the Human Development Index in the 2021-2022 Report where it obtained the favourable ranking of 63rd out of 189 countries. 
• The Heritage Foundation has, in its Index of Economic Freedom of 2022, placed Mauritius in the “mostly free” category globally at the 30th rank, and first among 47 countries in Sub-Saharan Africa.

The Government of Mauritius, responding to the Covid-19 crisis, has loosened the investment requirements for foreign investors in 2020. As part of this effort, the minimum investment amount for an occupation permit has been reduced by half to USD50.000 (approx. MUR2,224,500). Both the minimum turnover and the minimum investment amount for the innovator occupation permit have been lifted. Professionals with an occupation permit and retired foreigners with a residence permit have been allowed to invest in other ventures without any shareholding limitations. The validity of the permanent residence permit was extended to 20 years. Non-citizens holding a residence permit under the various real estate schemes are no longer required to hold an occupation or work permit in order to invest and work in Mauritius.

The conditions for the purchase of property developed under the Property Development Scheme and the Smart City Scheme have also been relaxed. The minimum price of a property that buyers can use to subsequently apply for a residence permit has been reduced from USD 500.000 to USD 375.000.

On another hand, in February 2020, Mauritius was introduced on the list of jurisdictions under increased monitoring concerning anti-money laundering/combating the financing of terrorism (AML/CFT) by the Financial Action Task Force (“FATF”). The European Union also found Mauritius to have strategic deficiencies in its anti-money laundering and anti-terrorist financing regime under Article 9 of its 4th Anti-Money Laundering Directive and added Mauritius to its list of high-risk countries. The country was subsequently included on the UK's list of high-risk third countries. 

However, on 07 January 2022, the European Parliament and the European Council delisted Mauritius from the EU List of High-Risk Third Countries (EU Blacklist) after being satisfied that the country no longer had any strategic deficiencies in its anti-money laundering and combatting the financing of terrorism (AML/CFT) framework. This decision was official when the EU published an updated list of High-Risk Third Countries. The country is now cleared from all international sanction lists. 

With the collaboration of the relevant financial institutions (such as the Bank of Mauritius, the Financial Services Commission (the FSC) as well as the FATF and the Eastern and Southern Africa Anti-Money Laundering Group) the Government completed its FATF action plan ahead of the timeline provided. 

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Foreign investment proposals are evaluated by the Investment Office of the EDB. The EDB assists interested investors with occupation permits, licenses and clearances in collaboration with the relevant local authorities.

Restrictions

The Mauritian government typically does not differentiate between local and foreign investment. However, there are some business fields where restrictions and conditions are imposed on foreign investment:

• Television broadcasting:
  The Independent Broadcasting Authority Act 2019 limits the shareholding capacity of a foreign company or body corporate in broadcasting licencees in Mauritius to 49,9%;

• Sugar industry:
  Foreign investors are not allowed to make investments that would result in 15% or more of the voting capital of a Mauritian sugar company being held by a foreign entity or person. (Note that there may be exemptions from this rule subject to authorisation by the FSC);

• Newspaper or magazine publishing:
  A foreign investor cannot hold 20% or more of the shares of a company owning or controlling any newspaper or magazine, or any printing press publishing such publications in Mauritius;

• Certain operations in the tourism sector:
  Conditions are imposed on non-citizen investors in the following activities:
  1. Guesthouse/tourist accommodation;
  2. Pleasure craft;
  3. Diving; and
  4. Tour operators; 

• Construction:
  Foreign consultants or contractors are required to register with the Construction Industry Development Board; and

• Real Estate:
  The NCPRA allows foreigners to purchase certain types of properties as long as the amount paid is over MUR6 million (~USD137.000). Under the Invest Hotel Scheme, the amount payable for the acquisition of a stand-alone villa relating to a hotel to be constructed, by a non-citizen, shall not be less than USD375.000. Other residential properties can be acquired by foreigners under the government-regulated Property Development Scheme which provides that they can be eligible for a residence permit upon the purchase of a house if the investment is of more than USD375.000.

Loopholes

N/A 

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Foreign investment proposals are evaluated by the Investment Office of the EDB on a case-to-case basis.

There is no visibility on the threshold applied by the EDB in the process and nothing suggests that the threshold would be applicable to only controlling investments or portfolio investments. 

8. Scope - sectors covered

Almost all sectors seem to be covered.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

There is poor visibility on the screenings undergone by the EDB for foreign direct investments. 

In general, the different screenings and KYC required by the FATF must be adhered to, and the UN sanctions screening should be completed before investors are welcomed. 
On another hand, the different KYC and screenings required per sector of activity for local investments would be applied to foreign investments as well. 

10. Design – reciprocity?

Not mentioned.

11. Design – Procedures and Deadlines

These vary from sector to sector and the information required by the regulator would depend on the type of licence/ approval sought.
For example: 

• The Financial Intelligence and Anti-Money Laundering Act 2002 provides for procedures for screening with respect to suspicious transactions through the Financial Intelligence Unit. 

• To be eligible for a Global Business Company (“GBC”) Licence, the following conditions must be fulfilled: 
  • the majority of shares or voting rights, or the legal or beneficial interest, are held and controlled by a person who is not a citizen of Mauritius; and 
  • that corporation proposes to conduct or conducts business principally outside Mauritius or with a certain category of persons specified in rules issued by the FSC.

• To qualify as an authorised company in Mauritius, the following conditions must be fulfilled: 
  • the majority of shares or voting rights. or the legal or beneficial interest in a company, incorporated or registered under the Companies Act 2001, must be held and controlled by a person who is not a citizen of Mauritius; 
  • that person proposes to conduct or conducts business principally outside Mauritius or with a category of persons specified in the rules issued by the FSC; and 
  • the authorised company has its place of effective management outside Mauritius. An authorised company is required to be administered by a registered agent in Mauritius that is a management company licensed by the FSC.

Various factors are taken into consideration before a work permit is issued, such as the type of sector, obtaining health clearance, the curriculum vitae of the employee and so on. With regards to the appliction for an occupation permit, foreign national should satisfy specific requirements to fall within one of the three categories: investor, professional or self-employed. For example: to fall within the category of ‘investor’, the foreign national should make an initial transfer of an equivalent of USD100.000 (approx. MUR4,449,000) to the bank account of the company under which the application will be made. That company should have a turnover of at least MUR2 million per year and generate a cumulative turnover of at least MUR 12 million during three consecutive years. 

12. Design – Transparency and Information requirements (Filing Forms?)

There is no proper procedure in place to govern the screening process for FDI in Mauritius.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

The decisional outcomes would be at the inherent discretion of the Government of Mauritius.

14. Interaction with other legal frameworks (ex: merger control)

As addressed above, other than merger control and compliance with applicable regulatory requirements for some sectors and with anti-money laundering laws, foreign investments (either controlling or portfolio) are not screened in Mauritius.

The FATF recommendations are to be adhered to with regards to each prospective investor in Mauritius. 
The Competition Act 2007 expressly prohibits collusive agreements and other restrictive agreements which adversely affect competition in Mauritius, to the extent of their restrictive clauses. Collusive agreements can be penalised, while other restrictive practices and abuse of monopoly situations can only be remedied. The financial penalty to be imposed may not exceed 10% of the turnover of the enterprise in Mauritius for each year of the breach, up to a maximum of five years. 

The Non-Citizens (Property Restriction) Act 1975 provides that approval from the Prime Minister’s Office is required in instances whereby a non-citizen wishes to hold, dispose of, or purchase or otherwise acquire a property. However, under the NCPRA, no certificate from the Minister authorising the purchase, acquisition or holding or disposal of the property shall be required in the following situations:

• Holding of immoveable property for industrial or commercial purposes under a non-renewable lease agreement of 20 years or less;
• Holding of immoveable property under a deed of concession under the Fisheries and Marine Resources Act; 
• Holding of immoveable property under a tenancy agreement for a term not exceeding 4 years;
• Holding shares in companies that do not own immoveable property;
• Holding of immoveable property by inheritance or by the effect of marriage to a citizen under the regime of legal community;
• disposing  of,  purchasing or  otherwise  acquiring  any  luxury villa, apartment, penthouse or other similar properties used, or available for use, as residence with  or  without  attending  services  or  amenities  from  a  company  holding  a certificate under the Invest Hotel Scheme, Property Development Scheme or Smart City Scheme, prescribed under the Economic Development Board Act;
• Holding shares in companies listed on the Mauritian Stock Exchange; and
• Through a unit trust scheme or any collective investment vehicle as defined in the Securities Act. 

The Companies Act imposes certain requirements for private companies limited by shares which is the most common investment vehicle used by foreign investors in Mauritius. The Financial Services Act also provides for the requirements of the various licences provided by the FSC. These two acts, together, constitute the core of the legal framework for the operation of a business in Mauritius and same would have to be strictly followed by investors who operate businesses in Mauritius. 

The FDI screenings would need to be mindful of the protection of the data of data subjects under the Data Protection Act. The regulators shall ensure that they comply with Data Protection laws at all times when handling the data of potential investors. 

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The decisional outcomes would be at the inherent discretion of the Government.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Mauritian law does not provide a specific procedure for investors to request a judicial review in cases related to FDI, therefore, most disputes would be carried out through the ordinary process of judicial review in the supreme court of Mauritius, through an application that must be lodged promptly. 

The purpose of judicial review is to check that public bodies do not exceed their jurisdiction and carry out their duties in a manner that is not detrimental to the public at large.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

There is no proper procedure in place to govern the screening process for FDI. The process lacks sufficient transparency and uniformity. 

Both the government and the business community have recognised the structural change in Mauritius and that the country needs to embark on its second phase of industrialisation. In order to maximise the benefit from FDI, the institutional framework is essential. 

The bureaucratic procedures for attracting FDI to Mauritius have discouraged foreign direct investors. The lack of selection criteria for FDI programs has led to the wearisome ‘watch and wait’ approach for investors. 

It is important for Mauritius to continue maintaining a high level of institutional infrastructure. This includes a sound political system, a democratic society and a high protection against expropriation. It should continue to maintain a system where the business community is assured that there will be a sound continuity of policies irrespective of which political party is in power.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contact: Emilie Aliphon

Last updated June 2023

1. Country: South Africa

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

1. UK
2. The Netherlands
3. US
4. Germany
5. China

3. Legal Framework in Force

N/A

4. Last revision of the Legal Framework

N/A

5. Contextualization of the Legal Framework (Historical or other)

The Competition Amendment Act 18 of 2018 (Competition Amendment Act) Act introduces FDI screening on national interest grounds. The Competition Amendments Act was assented to on February 13, 2019, but the sections that introduce FDI screening are not yet in force.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The Competition Amendment Act requires the president of South Africa to constitute committee, consisting of cabinet members and other public officials, (Committee) to decide whether the implementation of a transaction that constitutes a merger in terms of the Competition Act 89 of 1998 (Competition Act) may have an adverse effect on the national security interests of South Africa. A foreign acquiring firm which is required to notify the South African Competition Commission of a merger in terms of the Competition Act must, at the same time must file a notice with the Committee if the merger relates to a list of national security interests, as identified by the President of South Africa. The Committee must consider and decide whether the merger affects the national security interests of South Africa and must prohibit, or conditionally or unconditionally approve the merger.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

An investment by a foreign acquiring firm will require approval by the Committee if it constitutes a notifiable merger in terms of the Competition Act and it relates to relates to a list of national security interests as identified by the president of South Africa.

Foreign acquiring firm

A foreign acquiring firm is any of the firms listed in (a) to (c) below that are incorporated, established or formed under the laws of a country other than South Africa; or whose place of effective management is outside South Africa:

• a) a firm that will directly or indirectly acquire, or establish direct or indirect control over, the whole or part of the business of another firm;
• b) a firm that has direct or indirect control over the whole or part of the business of a firm referred to in (a); or
• c) a firm, the whole or part of whose business is directly or indirectly controlled by a firm in (a) or (b).

A firm controls another if it:

• beneficially owns of more than half of the issued share capital of the other;
• is entitled to vote a majority of the votes that may be cast at a general meeting of the other firm, or has the ability to control the majority of those votes;
• is able to appoint or to veto the appointment of a majority of the directors of the other firm;
• is a holding company, and the other firm is a subsidiary of that company in terms of the Companies Act;
• in the case of a firm that is a trust, has the ability to control the majority of the votes of the trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust;
• in the case of a close corporation, owns the majority of members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation; or
• has the ability to materially influence the policy of the other firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in the preceding paragraphs.

Notifiable merger

• An investment that results in a firm acquiring or establishing direct or indirect control over the whole or part of the business of another firm is a notifiable merger if certain prescribed financial thresholds for notifiability are met.

List of national security interests

• The president must identify and publish a list of national security interests and in determining what constitutes national security interests, the president must take into account all relevant factors, including the potential impact of a merger transaction:
• on South Africa’s defense capabilities and interests;
• the use or transfer of sensitive technology or know-how outside of South Africa; • on the security of infrastructure, including processes, systems, facilities, technologies, networks, assets and services essential to the health, safety, security or economic well-being of citizens and the effective functioning of government;
• on the supply of critical goods or services to citizens, or the supply of goods or services to government;
• to enable foreign surveillance or espionage, or hinder current or future intelligence or law enforcement operations;
• on South Africa’s international interests, including foreign relationships;
• to enable or facilitate the activities of illicit actors, such as terrorists, terrorist organizations or organized crime; and • on the economic and social stability of South Africa.

8. Scope - sectors covered

The list of national security interests which will set out the sectors or regions considered to be a national security interest has not been published yet.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Prior approval is required. Applies only to controlling investments (see discussion of control under question 7 above). Mandatory.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

A notice must be filed in a prescribed form with the Committee at the same time that the Competition Commission is notified of the merger. Within 60 days after the notice has been filed (or a longer period agreed by the president), the Committee must decide whether the merger may have an adverse effect on national security interests as identified by the president. Within 30 days of such decision, a decision to permit, permit with conditions or approve the merger must be published.

12. Design – Transparency and Information requirements (Filing Forms?)

Notice must be filed in a prescribed form, which has not been published yet.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

If the Committee decides that the merger may have an adverse effect on national security interests as identified by the president, the merger may be permitted, permitted with conditions or prohibited.

14. Interaction with other legal frameworks (ex: merger control)

The Competition Commission may not consider a merger if notice to the Committee is required and has not been made. The competition authorities may also not approve a merger if it has been prohibited following a decision by the Committee that it may have an adverse effect on national security interests.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

National security interests. See discussion under question 7 above.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Not specifically provided for in Competition Amendment Act.

17. Publication in Official Gazette or other

The decision to permit, conditionally permit or prohibit must be published in the Government Gazette.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

None, as the Competition Amendment Act is not yet in force.

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

Exchange Control Regulations (1961) were made in terms of the Currency and Exchange Act No. 9 of 1933, which regulates the flow of capital in and out of South Africa. Where foreign persons/entities wish to make FDI in South Africa and/or enter into commercial arrangements with South African persons/entities, prior approval is often required from the South African Reserve Bank (or its delegates). These regulations can have a constraining effect on FDI into South Africa (although not the most obvious barrier to FDI).

Contact: Janine Simpson

Last updated June 2023

1. Country: Argentina

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

USA, UK, Germany, Spain, China

3. Legal Framework in Force

Foreign Investment Law (Law 21,382 as amended); Business Associations Law (Law 19,550 as amended), Central Bank regulations.

4. Last revision of the Legal Framework

The Foreign Investment Law was last revised in 1993 whereas Central Bank regulations are revised permanently.

5. Contextualization of the Legal Framework (Historical or other)

The legal framework is based on the principles of no restrictions on foreign investment – except for certain limited activities – and equality of rights between foreign and local investors.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

There is no screening mechanism for FDI.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

There is no screening mechanism for FDI.

8. Scope - sectors covered

There is no screening mechanism for FDI.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

There is no screening mechanism for FDI.

10. Design – reciprocity?

There is no screening mechanism for FDI.

11. Design – Procedures and Deadlines

There is no screening mechanism for FDI.

12. Design – Transparency and Information requirements (Filing Forms?)

There is no screening mechanism for FDI.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

There is no screening mechanism for FDI.

14. Interaction with other legal frameworks (ex: merger control)

There is no screening mechanism for FDI, and merger control is unrelated to the foreign or local identity of the parties. 

Registration of foreign corporations, so as to comply with the business associations law, may be complex but does not imply an FDI screening procedure.

Remittances abroad by foreign investors are limited and heavily regulated by the Central Bank.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

There is no screening mechanism for FDI.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

No judicial review.

17. Publication in Official Gazette or other

No relevant publication.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

No relevant cases.

19. Stakeholders views on the Legal Framework

No stakeholders views.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

No relation with the EU regulation.

21. Other relevant information

Foreign investment is limited and subject to specific prohibitions and regulations in specific areas, namely: real estate bordering other countries; media and agricultural land.

Contact: Guillermo Cabanellas

Last updated June 2023

1. Country: Brazil

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

Europe is the largest direct investor in Brazil, representing 62.9% of a total of USD901.4 billion in 2021. North America holds the second position, representing 22.2% of the total. Netherlands is the main European investor with 40.5%, followed by Luxembourg, 16.7%, and Spain, with 11.1% of the total European position (USD567.3 billion). North American immediate investors totaled USD200.5 billion, 83.3% came from the United States (Central Bank of Brazil/ Direct Investment Report 2022).

3. Legal Framework in Force

Law 14,286/2021, as amended; Law 11,371/06, as amended; General regulation from the National Monetary Council (Conselho Monetário Nacional (CMN) and the Central Bank of Brazil (the Central Bank), including but not limited to:

• Central Bank Circular No. 3,689/13, as amended
• CMN Resolution No. 4,373/14, as amended
• BCB Resolution No. 277/2022
• BCB Resolution No. 278/2022
• BCB Resolution No. 279/2022
• BCB Resolution No. 280/2022
• BCB Resolution No. 281/2022.  

4. Last revision of the Legal Framework

The Brazilian Legal Framework related to Foreign Direct Investment was relevantly updated, mainly by virtue of the enaction, by the Central Bank, of a normative package, published on 31 December 2022.

5. Contextualization of the Legal Framework (Historical or other)

The only FDI obligation concerns the mandatory registration of any investment within the Central Bank through the Electronic Declaratory Registration System for Direct Foreign Investment (SCE-IED), which is the sole responsibility of the receiver of the FDI. 

According to BCB Resolution, No. 278/2022, the investment registration with the SCE-IED must be done within 30 days of the applicable FDI event. However, differently of the established by the previous regulation (which provided that the registration of the FDI with the RDE-IED (SCE-IED predecessor) mandatory regardless of the involved amount), as set forth by Resolution BCB No. 278/2022, FDI shall only be registered in the SCE-IED if certain financial thresholds, related to the receiver and to the foreign investment transaction itself, are reached, as detailed on item 7, below.
Additional legislation, such as Laws No. 14,286/2021 and No. 11,371/2006, as well as BCB Resolution No. 131/2021, provides for the rules applicable to the FDI process, such as the information to be provided, deadlines and fines for the presentation of misleading and false data and documentation.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Brazilian legislation and regulation require that foreign investments in Brazil must be registered with the Central Bank, if certain financial thresholds are reached. This registration is solely declaratory and by no means implies a previous authorization. Foreign capital is registered in specific modules, according to classification, which are: 

• FDI (SCE-IED), 
• financial operations (SCE-Credit), and 
• portfolio investments. 

Guarantees provided by international organizations in internal credit operations must be registered as well. FDI is regulated by the CMN and by the Central Bank. The company receiving the investment, together with the representatives appointed by it, if applicable, is responsible for the registration. The entry of foreign capital in Brazil must be registered within 30 days from the date of the trigger event. Failure to comply with the requirements within the established period, failure to provide required regulatory information, or the transmission of false information are all subject to penalties. Furthermore, companies receiving foreign investments are obliged to keep their net worth and paid-up corporate capital, together with the paid-in capital by each foreign investor, duly updated in the registry.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The SCE-IED registration is only mandatory, within the scope of a FDI, in case (i) of a financial transfer related to a non-resident investor of an amount equal to or in excess of USD100,000.00 or its equivalent in other currencies; or (ii) of a financial movement, namely, by BCB Resolution No. 278/2022: (a) capitalization through tangible or intangible assets; (b) conversion into investment of rights remissible abroad not reported as foreign credits; (c) assignment, exchange and conference of quotas or shares between resident and non-resident investors, or between non-resident investors; (d) international transfer of quotas or shares; (e) corporate reorganization; (f) distribution of profits and dividends, payment of interest on own capital, alienation of interest, return of capital and net assets resulting from liquidation, when made directly abroad or in Brazilian currency in the country; (g) payments and receipts in Brazilian currency in non-resident accounts; or (h) reinvestment – in all cases, in an amount equal or superior to USD100,000.00 or its equivalent in other currencies¹.

Furthermore, also if certain financial thresholds are reached, the FDI receiver must provide to the Central Bank, also through the SCE-IED, quarterly, annual and five-year periodic statements. According to BCB Resolution No. 278, such statements must disclose: (i) the corporate structure and the identification of non-resident investors; (ii) the receiver's accounting and economic value; (iii) the receiver's operating and non-operating profit; and (iv) the receiver's complementary accounting data.

In this sense, as mentioned, the periodic statements shall only be provided to the Central Bank if the following thresholds are verified: (a) quarterly statement: receiver’s total assets equal to or greater than BRL300 million (base dates of 31 March, 30 June and 30 September of each year); (b) annual statement: receiver’s total assets equal to or greater than BRL100 million on the (base date of 31 December of the previous year); and (c) five-year period statement: receiver’s total assets equal to or greater than BRL100,000.00² (base date is 31 December of a calendar year ending in 0 (zero) or 5 (five)).

Transition Rules:

Additionally, the Central Bank also enacted the BCB Resolution No. 281/2022, which regulates the transition period until the effectiveness of the requirements related to the submission of the periodic statements referred above, established by BCB Resolution No. 278/2022. 

According to BCB Resolution No. 281/2022, the quarterly statement related to the base date of 31 December 2022 shall be provided by receiver of direct foreign investment that, on such base date, has total assets equal to or greater than BRL300,000,000.00 - through the Economic-Financial Statement, a platform to be maintained by the Central Bank until the compliance with this transition rule.

Also, the annual statement related to the base date of 31 December of 2022 shall be provided by (i) companies headquartered in the country, with direct participation of non-residents in their share capital, and with net worth equal to or greater than the equivalent of USD100 million; and (i) investment funds with non-resident shareholders and net worth equal to or greater than the equivalent of USD100 million – through the Census of Foreign Capital System, a platform to be maintained by the Central Bank until the compliance with this transition rule.

If the financial thresholds described above (including those provided by the transition rules) are reached, the respective foreign investment, either controlling or portfolio, is subject to registration, in the form and procedure of registration applicable to the parameter reached.

¹Please note that the financial threshold related to the FDI events referred in item (ii) will be only applicable as of November 1, 2023. Until that date, in accordance with BCB Resolution No. 281, such events must be registered in the SCE-IED regardless of their amount.
²There shall be no annual declaration in the years in which the five-year period statement is applicable.

8. Scope - sectors covered

All sectors are covered.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

1. No pre-authorization is necessary.
2. Covers controlling investments as well as portfolio investments. 
3. Mandatory nature in case certain financial thresholds, described on item 7, above, are reached.

10. Design – reciprocity?

There are no express reciprocity provisions in Brazil.

11. Design – Procedures and Deadlines

According to BCB Resolution, No. 278/2022, the investment registration with the SCE-IED must be done within 30 days of the applicable FDI event that reached the financial thresholds.

Also, as referred in item 7, above, receivers that comply with the financial thresholds mentioned therein must provide to the Central Bank quarterly, annually and in five-year periods statements, within the following deadlines: (i) quarterly statement: (i.a) base date of 31 March: from 1 April to 30 June of the respective year; (i.b) base date of 30 June: from 1 July to 30 September of the respective year; and (i.c) base date of 30 September: from 1 October to 30 December of the respective year; (ii) annual statement: from 1 January to 31 March of the following year the respective base date; (iii) five-year period statement: from 1 January to 31 March of the following year the respective base date. 

Transition Rules:

In relation to the periodic statements that must be provided to the Central Bank within the scope of the transition to BCB Resolution No. 278/2022 requirements (as provided by BCB Resolution No. 281/2022), the following deadlines must be met: (i) quarterly transition statement: base date of 31 December 2022: 1 January 2023 to 31 March 2023; and (ii) annual transition statement: base date of 31 December 2022: 1 July 2023 and 15 August 2023.

Law 11,371/2006 requires registration, with the Central Bank, of foreign capital invested in the country in local currency, which is not subject to any other form of registration. FDI originating from exchange contracts and imported goods with no obligation to pay, on the other hand, must be registered in foreign currency.

12. Design – Transparency and Information requirements (Filing Forms?)

SCE-IED

The company receiving the investment, together with the representatives appointed by it, if applicable, is responsible for the registration, according to instructions available on the Central Bank’s website, option “SCE-IED – Sistema de Prestação de Informações de Capital Estrangeiro de Investimento Estrangeiro Direto” (only in Portuguese). Once all form issues regarding registration have been addressed, as well as issues regarding other government offices, there are no restrictions, whatsoever, for international transfers related to the investment.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

We are not aware of any mechanisms that would interfere with FDI.

14. Interaction with other legal frameworks (ex: merger control)

There is limited interaction between the FDI base rules presented above and other Brazilian legal regimes. As previously discussed, with the exception of sectors in which the government limits the access of foreign capital, all others are free to receive international capital flows from any jurisdiction. The sectors facing limitation are: (i) banking; (ii) telecoms;³ (iii) radio/television broadcasting; (iv) fishing companies; (v) rural property; (vi) health system;⁴ and (vii) transport of money and values. 

The Federal Constitution also imposes broader limitations on specific activities, namely: the nuclear sector; mail services; and aerospace activities. As a general rule, there is neither special treatment nor a more adverse approach towards FDI in comparison to local investments. Merger control rules, for instance, are applicable irrespective of the source of the capital. Whenever the legal thresholds set forth at the Law 12,529/2011 are met, a merger notification will be due. As Brazil follows a pre-merger review approach, transactions cannot be closed without the Brazilian Antitrust Authority (CADE) previous approval – even when the Central Bank’s regulatory approval has already been granted. Foreign capital entities may operate only under concession agreements. 

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The only acceptable circumstances to have an FDI blocked will be based on the restricted areas pointed out above (see question 14). Both controlling entities and hampered counterpart may rely on administrative or judicial reviews of any governmental act. Swift preliminary injunctions can be obtained in case of any imminent harm. These measures tend to be very effective if any authority unduly applies limitations beyond those expressly defined in law.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Brazilian law does not provide a specific procedure for investors to request a judicial review in cases related to FDI. Therefore, most disputes would be carried out through two types of lawsuits: an ordinary lawsuit and the writ of mandamus. 

Ordinary lawsuits are the most commonly used legal vehicle to bring a dispute into Brazilian Courts. The parties may file an appeal against the decision rendered by Federal and State Courts within 15 business days from the day the judgement is published in the official gazette. 

The writ of mandamus can be brought to protect any liquid and certain rights that are unprotected by habeas corpus against illegality or abuse of power by public authorities. The writ of mandamus has a preferential place on the docket and a specific and fast judicial procedure, but does not include an evidence presentation mechanism. In other words, it is only possible to file a writ of mandamus when the claimant has previous and enough evidence to prove the certainty and determination of its right. The procedure of the writ of mandamus is regulated by the Law no. 12,016 (2007) and is supplemented by the Civil Procedure Code. In short, it encompasses the initial petition, the information to be presented by the defendant authority and the legal report from the Public Attorney’s Office. After such report is attached to the case records, the writ of mandamus is supposed to be decided within 30 days. The parties may file an appeal against the issuance or rejection of the writ of mandamus within 15 business days from the day the judgement is published in the official gazette. 

Another alternative dispute involving FDI is arbitration.

17. Publication in Official Gazette or other

Please refer to question 16 above.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

While judicial decisions are published in the official gazette in Brazil, most of the cases involving FDI are submitted to arbitration, which is legally confidential.

19. Stakeholders views on the Legal Framework

While there are still legal restrictions with regards to foreign investments in certain areas, imposed mostly by the Brazilian Federal Constitution, there may be some changes in legislation to adjust these restrictions, especially in regard to the current restrictions on the purchase and lease of rural land by foreigners. Under the current rules, foreigners are subject to heavy restrictions to acquire or lease rural land in Brazil. In this sense, there are some discussions concerning the alterations on these restrictions and there are two bills of law (projetos de lei) pending analysis in the House of Representatives (PL 2964/2022 and PL 2963/2019). If the wording is approved, it will facilitate the acquisition, lease and registration of rural property by foreigners in Brazil.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

Foreign capital entering the country for foreign investment is subject to the Tax on Credit, Exchange, Insurance Transactions or Marketable Securities (IOF), at the rate of 0.38%. However, such rate will be reduced to 0% as of 2 January 2029 as part of Brazil’s commitment to join the OECD (Decree No. 10997/2022). On 28 December 2021, the U.S. Treasury implemented regulations disallowing foreign tax credits (FTC) concerning income tax paid or withheld by Brazilian taxpayers, mainly due to deviations in the Brazilian transfer pricing (TP) system from the internationally recognized arm's length principle. Currently, the Brazilian Congress is working on the approval of new TP rules in line with the OECD's arm's length principle, which should help alleviate the U.S. FTC restrictions. The new TP bill must be converted into law by 1 June 2023. Secondary regulations with more detailed guidance on the application of the new TP rules are expected to be issued by the Brazilian Federal Tax authorities in the first semester of 2023. While it remains unclear if the new rules will be compulsory starting from fiscal year 2024 or 2025, Normative Instruction 2.132/23 has already outlined the procedures for taxpayers interested in anticipating the adoption of the new rules in 2023. 

Contacts: Luciana Martorano

Last updated June 2023

1. Country: Canada

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

Based on number of investments in 2020-21:

• US (58.2%)
• EU (16.7%)
• United Kingdom (7.0%) 
• China (4.0%)
• Australia (2.2%)¹

¹Annual Report under the Investment Canada Act, 2021-2022 available here.

3. Legal Framework in Force

The review of foreign direct investments is authorised by operation of the Investment Canada Act (ICA), which provides for the review of significant foreign investments for their likely “net benefit to Canada”. Only very large acquisitions of control of Canadian businesses by foreign investors are assessed for their likely impact on Canadian economic activity.

Economic / Net benefit Reviews

A foreign investor’s acquisition of control of an existing Canadian business valued at or above the relevant “net benefit” review threshold requires that the investor files an application for review and obtains approval. The review assesses the proposed investment against the net benefit factors set out in the ICA, and the parties may not close the transaction unless the Minister of Innovation, Science and Industry (the Minister) is satisfied that the investment is likely to be of net benefit to Canada.

Cultural businesses are considered a protected sector, as evident from low thresholds for pre-closing review and approval of the foreign acquisition of a cultural business (as described in section 8).
In some cases, the ICA deems the acquisition of a minority interest of a Canadian business by a non-Canadian investor to be an acquisition of control.

The Minister takes into account the statutory factors when making a determination of likely net benefit. These factors ensure predictability for investors while maintaining the flexibility to ensure the investment’s overall economic benefit to Canada.

Large Investments will require that the investor provide binding commitments by way of written undertakings relating to the maintenance and/or growth of the Canadian business being acquired. Undertakings related to employment, capital expenditures, participation of Canadians in the Canadian business, including those to maintain head offices or head office functions in Canada are common. Research and development undertakings are frequently required, particularly in research and technology-driven industries.

National Security Reviews

The ICA also provides authority to review investments by non-Canadians to assess whether the investment could be injurious to Canada's national security. The government has the right to review and prohibit, or impose conditions on, a very broad range of investments by non-Canadians where it determines that an investment would be injurious to Canada’s national security. All foreign investments in Canada of any size or scope, including investments to establish new businesses may be reviewed under the national security regime.

4. Last revision of the Legal Framework

The Budget Implementation Act 2009 (2009, c.2, s.453) amended the Investment Canada Act to permit the review of investments injurious to national security. 

Investment Canada Regulations 85-611 (as amended SOR/ 2015-64)
National Security Review of Investments Regulations 2009-271 (SOR/ 2009-271, as amended SOR/2015-65)

Guidelines – Investment by State-owned Enterprises – Net benefit assessment – (December 2012) 

Specific guidelines on the net benefit assessment of investments by investors that are owned, controlled or influenced by a foreign state. Pursuant to the Guidelines on Investment by State Owned Enterprises (SOEs), the Minister takes into account the governance and commercial orientation of the investor and investors will need to demonstrate their strong ongoing commitment to transparent and commercial operations. 

Guidelines on the National Security Review of Investments (December 2016)

Specific guidelines to inform investors of procedures that will be followed in the administration of the national security review process set out in Part IV.1 of the Act and the National Security Review of Investments Regulations. The guidelines provide a list of nine non-exhaustive factors, which will be considered in the assessment, including the effects of the investment on Canadians' defence capabilities and interests and intelligence activities; the transfer of sensitive technology or know-how outside of Canada; the effects on the security of Canada’s critical infrastructure and the supply of critical goods and services; and the potential of the investment to enable foreign surveillance or espionage. 

COVID-19 Policy (18 April 2020)

The Canadian Government announced a new policy affecting foreign investment screening (the “Policy”), citing as its justification the extraordinary circumstances of the global COVID-19 pandemic. The Policy will apply until the economy recovers from the effects of the COVID-19 pandemic. This suggests an open-ended time horizon into the future.

The Government stated its concern that many Canadian businesses had seen their valuations decline as a result of the pandemic and such sudden declines in valuations could lead to opportunistic investment behaviour. The Policy provides that the Government will scrutinize with particular attention foreign investments of any value, whether a controlling or non-controlling interest, in Canadian businesses that are related to “public health” or “the supply of critical goods and services to Canadians or to the Government”. The Government signalled that it could cast a wider net in applying the national security review provisions to foreign investments in Canada. In addition, the Policy subjects all foreign investments by state-owned investors or by private investors “assessed as being closely tied to or subject to direction from foreign governments” to enhanced security under the Act, regardless of the value of such investments.

Updated Guidelines on the National Security Review of Investments (24 March 2021)²

The Updated Guidelines provide an illustrative list of factors that the government takes into account in assessing the national security injury potential of an investment. The list of factors includes the potential of the investment to enable access to sensitive personal data, the potential effects of the investment on the transfer of sensitive technology or know how, the potential impact of the investment on critical minerals and critical mineral supply chains, and involvement by state-owned or state-influenced investors.

A non-exhaustive list of sensitive technologies was added and includes: advanced materials and manufacturing; advanced sensing and surveillance; advanced weapons; aerospace; artificial intelligence; biotechnology; energy generation, storage and transmission; medical technology; neurotechnology and human-machine integration; next-generation computing and digital infrastructure; position, navigation and timing systems; quantum science; robotics and autonomous systems; and space technology. 

Policy Statement on Foreign Investment Review and the Ukraine Crisis (8 March 2022)

The Minister issued a Policy Statement under the ICA stating that investments by Russian investors, including state-influenced investors will be subject to in-depth scrutiny and prolonged timelines. This policy applies to acquisitions of control as well as minority voting interests and establishments of new businesses in Canada.

The Canadian government effectively blocks investments by any investors, which are subject to any direct or indirect influence of the Russian Federation. 

Regulations Amending the National Security Review of Investments Regulations: 

SOR/2022-124 (2 August 2022)

Amendments to the National Security Review of Investments Regulations (the “Regulations”) create a voluntary filing mechanism for investors that do not have a filing obligation under the ICA i.e. minority investors in Canadian businesses. Investors who choose to submit a voluntary filing will, within 45 days from the certification date of their filing, know whether the Government of Canada intends to challenge their investment. Notably, the amendments to the Regulations also extend the initial national security review period (from 45 days) to 5 years for all investments by non-Canadians that do not make a filing. In other words, if the non-Canadian investor chooses not to make a voluntary filing, the government has up to five years after the date of implementation of the investment to decide whether it will take any action. 

Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the Investment Canada Act (28 October 2022)

“Net Benefit Approval”

Specific guidelines were issued by the Minister providing direction with regard to the application of the ICA in cases involving critical minerals and critical minerals’ supply chains. Applications for “net benefit to Canada” approval of acquisitions of control of a Canadian business involving Critical Minerals by a foreign SOE will only be approved on an “exceptional basis”.

FDI Enhanced Screening

Foreign SOEs or foreign-influenced private investors that participate in an investment or proposed investment involving a Canadian business operating in a critical minerals sector in Canada will support a finding by the Minister that there are reasonable grounds to believe that the investment could be injurious to Canada’s national security as set out in Part IV.1 of the ICA. This policy applies to such investments regardless of value, whether direct or indirect, whether controlling or non-controlling, and across all stages of the value chain (e.g. exploration, development and production, resource processing and refining, etc.). This policy means such investments will be subject to enhanced FDI screening.

The Policy of the Government of Canada expressly recommends that all non-Canadian investors and Canadian businesses carefully review their investment plans to identify any potential connections to SOEs or entities linked to or subject to influence by hostile or non-likeminded regimes or states.

The Critical Minerals List was announced on 11 March 2021, and includes 31 minerals considered critical for the sustainable economic success of Canada and its allies - minerals that can be produced in Canada, are essential to domestic industry and security, and have the potential to support secure and resilient supply chains to meet global demand.

²Guidelines on the National Security Review of Investments, (March 24, 2021); available here.

5. Contextualization of the Legal Framework (Historical or other)

In February 2009, the ICA was amended to add Part IV.1 Investments Injurious to National Security, which established Canada’s FDI national security review regime. Under the ICA provisions, the Canadian government can review all foreign investments – regardless of value – to determine if they could be “injurious” to Canada’s national security. 

The Minister is responsible for the administration of the national security process under Part IV.1 of the ICA, with the review itself a multi-step process led by Canada's national security agencies. Based on a recommendation from the Minister, following consultation with the Minister of Public Safety (PS), the Governor in Council (GiC) - which is the Canadian federal cabinet - has the authority to take any measure necessary with respect to an investment to protect national security. This can include:

• Prohibiting an investment from proceeding;
• Authorizing an investment on condition that the investor give certain written undertakings or on terms and conditions that the GiC considers necessary under the circumstances (or abandon the transaction);
• requiring the investor to divest the Canadian business (if closing has already occurred).

The national security provisions provide for a review of a broader scope of investments by non-Canadians than the net benefit provisions, including: the establishment of a new Canadian business or an entity carrying on operations in Canada, the acquisition of control of a Canadian business of any dollar value (i.e. below the net benefit review threshold), and the acquisition of all or part of an entity carrying on operations in Canada. All these investments are subject to a multi-step national security review process led by Canada’s national security agencies.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The ICA will look up the chain of ownership to the ultimate controller of the investor, and will require disclosure of the name and address of the ultimate controller, the country of origin of the ultimate controller and a description of the manner in which control is exercised.

The ICA specifies enforcement procedures when the Minister believes that an investor has not complied with its obligations under the Act, or contrary to the Act has entered into any transaction or arrangement primarily for a purpose related to the Act. If the investor fails to comply with a demand letter issued by the Minister, an application may be made by the Minister to a superior court. The court may order any measure as the circumstances require, including directing divestiture, compliance with undertakings, payment of a penalty of CAD10,000 for each day of contravention, revocation of voting rights and disposition of voting interests.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Net Benefit to Canada - Screening Thresholds

There are multiple thresholds for review of direct acquisitions of control of a Canadian business by a non-Canadian investor. The current threshold amounts are as set out below. (Note that the threshold amounts are indexed annually, and the 2023 amounts are expected to be published in Q1). 

For private-sector investors from World Trade Organization (WTO) member countries, the threshold for review is CAD1.141 billion or more in enterprise value, based on the total acquisition value, plus total liabilities (less operating liabilities), minus cash and cash equivalents, for an investment to directly acquire control of a Canadian business. 

For investors from countries with whom Canada has a trade agreement, specifically, the US, the EU, Mexico, Chile, Colombia, Panama, Peru, Honduras, South Korea, Japan, Vietnam, Singapore, Australia and New Zealand (collectively, Trade Agreement Investors), the threshold for review is CAD1.711 billion in enterprise value of the target Canadian business, for an investment to directly acquire control of a Canadian business made by a non-Canadian that is controlled by nationals of these countries who are not state-owned.

For WTO member country state-owned or influenced enterprises the relevant threshold is CAD454 million or more, based on the book value of assets of the Canadian business being acquired.

For investors from non-WTO member countries acquiring a non-WTO controlled target Canadian business, the relevant threshold for review is CAD5 million or more, based on the book value of assets of the Canadian business being acquired.

Cultural Businesses

The thresholds for review outlined in this Section 7 are not applicable to investments in cultural businesses. Please see section 8 for the applicable thresholds.

Controlling investments and portfolio investments

Control of corporations is deemed not to occur unless one-third or more of voting shares are acquired (subject to control in fact test for cultural businesses or SOE acquisitions). Control is presumed to be acquired for acquisitions of between one-third and a majority of voting shares, but this presumption can be rebutted if there is no control in fact.

For non-corporate entities, control is acquired when a majority of voting interests are acquired, and no control is acquired when the voting interests acquired represent less than a majority.

National security Screening

The ICA provides for the national security review of foreign investments. All investments, including greenfield and minority investments – regardless of value – are subject to the national security review process set out in Part IV.1 of the Act.

For acquisitions of control of Canadian businesses valued below the relevant thresholds, investors must file a notification under the ICA and the investment is subject to the national security screening process (as described in Section 6 of the ICA), however, the investment is not subject to review and approval under the net benefit provisions.

Indirect investments by WTO investors are not subject to a net benefit review (except investments in cultural business, as described in section 9). However, the investor must file a notification under the ICA and the investment is subject to the national security screening provisions. An indirect investment is an acquisition of a foreign company that has Canadian subsidiaries.

Note that Indirect acquisitions of control of cultural businesses in Canada are reviewable, where the applicable threshold is exceeded, as described in section 8.

A notification under the ICA is also required when a non-Canadian investor establishes a new business in Canada and the investment is subject to the national security screening provisions.

8. Scope - sectors covered

International investment across all sectors is subject to the ICA. The thresholds for review are set out above.

Cultural Businesses

Cultural businesses are considered a sensitive sector, as evident with low thresholds for pre-closing review and approval of the foreign acquisition of a cultural business. Cultural businesses include businesses involved in the production or distribution of books, music, film and other media such as video games. Even if the cultural business activities are ancillary to the principal business of the target Canadian business and revenues from sales of cultural products are de minimis, a Canadian business will be considered a cultural business and will be subject to review by and approval of the Minister of Canadian Heritage.

The direct or indirect acquisition of a Canadian business that is a cultural business is generally subject to a review requirement if the book value of the assets of the Canadian business is CAD5 million (in the case of a direct acquisition) or CAD50 million (in the case of an indirect acquisition). The establishment of a new cultural business or the acquisition of a cultural business below the thresholds may be subject to review if the government of Canada (federal cabinet) considers it in the public interest to review the investment. Such reviews are rare.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

The ICA does not define national security, which injects significant discretion and corresponding uncertainty into this aspect of the investment review process. In December 2016, the Minister issued Guidelines on the National Security Review of Investments, which were updated in March 2021, and provide guidance as to the factors that will be taken into account in assessing investments under the national security provisions (as described in section 4).

The national security provisions cover the acquisition of a minority holding in a Canadian business, or the establishment of a new Canadian business, or even a foreign entity carrying on all or part of its operations in Canada.

Mandatory ICA Filing Requirement:

A notification must be filed where a foreign investment results in an acquisition of control of an existing Canadian business or the establishment of a new Canadian business, and will be subject to the national security provisions of the ICA. Where the thresholds for the net benefit to Canada (in Section 7 of the ICA) are met, a pre-closing application for review must be filed and approval of the Minister must be obtained before the transaction can be completed.

There are no monetary thresholds for national security reviews. The national security provisions cover the acquisition of a minority holding in a Canadian business, or even a foreign entity carrying on all or part of its operations in Canada. However, neither of these requires a notification to be filed.

Voluntary ICA Filing Mechanism:

A voluntary filing mechanism is available for investors that do not have a filing obligation under the ICA i.e. minority investors in Canadian businesses. Investors who choose to submit a voluntary filing will, within 45 days from the certification date of their filing, have certainty as to whether the Government of Canada intends to challenge their investment on national security grounds. If the non-Canadian investor chooses not to make a voluntary filing, the government has up to five years after the date of closing to decide whether it will take any action. 

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

Where the relevant threshold for review (as set out in section 7) is met, the acquisition is reviewable on a pre-closing basis and the parties may not complete the transaction until such time as the Minster has found (or is deemed to have found) that the investment will likely be of net benefit to Canada. The Minister has 45 calendar days (which may be extended by an additional period of 30 calendar days) to determine whether the investment is likely to be of net benefit to Canada and should be approved. The review period may be extended past 75 days for an additional period which is determined by agreement between the Investment Review Division and the investor.

If a direct or indirect investment by a non-Canadian does not meet the review thresholds set out above in section 7, the investor must file a notification with the Investment Review Division. A notification must be filed at any time prior to the implementation of the investment or within 30 days after closing.

Non-Canadians who establish a new Canadian business must file a notification within 30 days after the establishment of the Canadian business.

12. Design – Transparency and Information requirements (Filing Forms?)

An Application for Review form, with information required for purposes of the net benefit assessment is prescribed under the regulations made under the ICA. A mandatory Notification form and a Voluntary Notification form, with information required to assess the investment from a national security perspective, are both prescribed under the ICA regulations. 

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Measures to mitigate the potential harm to national security were considered and in some cases were imposed through conditions in an Order made under section 25.4 of the ICA on the investment. The following are examples of measures that were considered or imposed on investments by such an Order made under the Act:

• requiring government approval of proposed business locations in order to avoid proximity to strategic assets;
• requiring that all servicing and support for some or all business lines are conducted in Canada;
• creating approved corporate security protocols to safeguard information and access to a site;
• requiring the engagement of a security-cleared compliance officer to ensure and report on compliance;
• requiring third-party compliance audits on request;
• requiring access to facilities for compliance inspection;
• requiring employees with access to sensitive information to attest to compliance with approved security protocols;
• notifying existing customers of pending new ownership;
• providing notice to the Minister of new prospective employees who would have access to sensitive information or technology as a part of their job description; and
• excluding sensitive business segments or assets from a transaction.³

³Annual Report under the Investment Canada Act, 2021-2022 available here.

14. Interaction with other legal frameworks (ex: merger control)

One of the factors considered under the ICA “net benefit to Canada” assessment is the foreign investment’s effect on competition in any industry in Canada. In practice, the Investment Review Division seeks the Commissioner of Competition’s view on the competitive effects of a reviewable acquisition. However, the Minister is not bound by the Commissioner’s analysis of the competitive impact of the transaction.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Grounds for Blocking based on Screening FDI on national security grounds 

Chinese investments in critical infrastructure and advanced military laser technology have resulted in transactions being blocked or divestitures ordered under the national security regime.

Historically, there have been completed acquisitions of and investments in Canadian mining companies by Chinese entities, including state-owned entities. However, in late 2020, the Canadian government blocked the proposed acquisition by Shandong Gold (Shandong) of Canadian gold-mining company TMAC Resources (TMAC) on national security grounds. TMAC operates the Hope Bay property in Nunavut and began producing gold in 2017 at the Doris mine. This marked the first time that a Chinese investment in Canada’s mining sector has been formally blocked under the ICA. Current challenges in the Canada-China relationship may have been a factor. Also, it was reported that there were substantive national security concerns arising from an investment by a Chinese state-owned enterprise in a business geographically proximate to sensitive military and strategic assets in the Arctic. 

A review of investments in 2020-21 that were subject to a formal national security review and the outcome in each is indicative of grounds for blocking FDI: 

- Three of the investments involved pharmaceutical manufacturing, scientific research or medical and diagnostic laboratories were subject to a formal national security review. One was permitted to proceed and two were withdrawn (suggesting that they would have been blocked). 

- Five of the investments were related to software, computer systems or other telecommunications, an area of national security concern. Three were permitted to proceed and two were required to wind up or divest. 

- Two investments involved road construction and financial transaction processing. Both were withdrawn.

Critical Minerals Policy

In November 2022, the Canadian government ordered divestitures in three separate, completed investments in Canadian businesses. The divestiture orders were made in respect of interests acquired by Chinese government-linked companies in three separate publicly-traded Canadian lithium mining companies. Lithium is a key input for the battery ecosystem. Although the Canadian companies were listed and headquartered in Canada, the lithium properties and assets of two of the Canadian targets were located outside Canada. 

These divestiture orders followed within days of the Canadian government’s release of its Critical Minerals Policy (as described in section 4) on how the ICA will be applied to investments in Canadian entities and assets in the Critical Minerals sectors by foreign SOEs.

COVID Policy

The COVID-19 Policy (as described in section 4) has resulted in longer review periods in some cases, and the increased scrutiny of foreign investments by SOEs or by private investors with foreign government ties to assess whether such investments are motivated by non-commercial imperatives that could harm Canada’s economic or national security interests.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Decisions and orders of the GiC, and decisions of the Minister, made under the national security provisions of the ICA Act are final and binding and, except for judicial review under the Federal Courts Act, are not subject to appeal or to review by any court.

17. Publication in Official Gazette or other

The ICA process is confidential and exempt from Access to Information Act (AIA) requests. However, a list of completed decisions and/or notifications of investments by non-Canadians is published each month on the government of Canada website. It contains only the information which may be disclosed under the ICA, namely the name of the Investor and its country location, the name of the Canadian business being acquired or established and its location, and a description of the business activities of the Canadian business.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

In assessing investments under the national security provisions of the ICA, and as articulated in the Guidelines on the National Security Review of Investments, the terms of the investment, the nature of the asset or business activities involved, and the parties, including the potential for third-party influence, are considered. Determinations made by the Minister or GiC are made on a case-by-case basis.

19. Stakeholders views on the Legal Framework

Until amendments were made to the ICA in 2009, the Minister had no obligation to provide any reasoning to the parties for his refusal to clear a transaction under the (economic) net benefit to Canada screening. Now, when refusing to clear a transaction, the Minister must provide reasons.

The ICA national security review is an opaque process and there is no obligation on the Minister or the GiC to provide reasons for refusing to clear a transaction for national security reasons.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

The Canadian government is shifting towards stricter standards for screening FDI on national security grounds. There is an increased sensitivity to national security concerns and a heightened scrutiny of foreign investments. This is evident in recent government policies (as described in section 4), which seem to cast a much wider net in terms of Canada’s national security interests.

It is also evident in proposed amendments to Canada’s FDI screening regime, as outlined below.

FDI National Security Review Powers to be Expanded

On 7 December 2022, the Canadian government introduced Bill C-34, The National Security Review of Investments Modernization Act. The Bill proposes a significant change to the regulation of foreign investment in Canada, and specifically, the FDI screening regime. Key changes are summarized below:

• The proposed amendments would establish a mandatory pre-closing notification for investments in certain prescribed business sectors (to be defined under regulation). Investments in Canadian businesses involved in critical minerals, vaccines, semi-conductors, quantum computing, AI, cybersecurity, information technologies and personal data collection will likely fall under this new mandatory pre-closing notification requirement.
• The proposed amendments would grant new authority to the Minister to extend the national security review of investments; to impose interim conditions during a national security review; and to accept undertakings from an investor to mitigate national security risk.
• Penalties for non-compliance would be significantly increased and a discretionary penalty for non-compliance with the new pre-closing filing requirement will be introduced (greater of CAD500,000 or amount set in regulations). 
• The Canadian government would be permitted to share case-specific information with international counterparts. 
• New rules would be introduced for the protection of sensitive information in the course of judicial review court proceedings.

The proposed amendments are expected to become law by mid-2023. The list of prescribed sensitive business sectors and the mandatory pre-closing notification filing requirement for investments in these sectors will likely come into effect at a later date.

If passed, the new law will significantly expand the national security review powers of the Canadian government.

Ban on the Purchase of Residential Property by Non-Canadians 

The Canadian government passed new legislation, which came into effect on 1 January 2023, prohibiting the purchase of residential property for two years. The measure is intended to help improve housing affordability for Canadians. There are a number of exemptions, including for foreign workers and international students who plan to become permanent residents.

Industry-Specific Review: Transport Sector

Canada’s main federal transportation legislation, the Canada Transportation Act, contains a review process for mergers involving transportation companies under federal jurisdiction. In the case of a foreign investor, this review is in addition to the review and/or notification under the ICA and the merger control provisions under the Competition Act.

Parties are required to submit information about the proposed transaction and its impact on the public interest as it relates to national transportation.

Public interest factors include the economic, environmental, safety, security and social implications of the proposed transaction.

It is a criminal offense for parties to fail to notify under the Canada Transportation Act, or to close without cabinet approval where required, or to fail to adhere to terms and conditions imposed by the cabinet. Any officer or director who authorized or participated in the offense is personally liable, in addition to the corporation. Penalties include fines and/or imprisonment.

Other Restrictions on Foreign Investment

Investment in the following industries is restricted by Canadian ownership requirements: uranium mining, aviation, telecommunications, insurance, fisheries and certain real estate.

Contact: Catherine Pawluch

Last updated June 2023

1. Country: Chile

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

The five biggest FDI countries of origin in Chile are:*

• Canada (13,706%)
• US (10,427%)
• Netherlands (9,574%)
• UK (7,274%)
• Spain (7,157%)

*Data originates from de Central Bank of Chile and Corresponds to the Direct Investment Stock per country in 2021. Percentages are approximate.

3. Legal Framework in Force

Foreign Direct Investment Law 20,848 (hereinafter, the FDI Law).

• Chapter XIV of the Central Bank’s Compendium of Foreign Exchange Regulations (hereinafter, the 
  Chapter XIV).
• Additionally, Chile has signed numerous Bilateral Investment Treaties with several countries, as well as 
  numerous Free Trade Agreements, Multilateral Agreements and Preferential Agreements, which are in 
  force.

4. Last revision of the Legal Framework

The FDI Law has not been subject to revision since its issuance. The Chapter XIV and its Manual were last revised in December 2019. The latest amendments became effective March 1, 2020.

5. Contextualization of the Legal Framework (Historical or other)

The FDI Law replaced the Decree Law N° 600 of 1974 (DL 600) on January 1, 2016. Under DL 600, the foreign investors had to apply for an authorization from the Foreign Investment Committee, which is the public body in charge of the matter. After the approval, the foreign investor could enter a Foreign Investment Contract with the State of Chile. A foreign investor was able to access the formal foreign exchange market for both incoming capital and for acquiring the currency to remit capital or profit. Also, a foreign investor had the right to perform capital remittances one year after the capital entered Chile and could make profit remittances at all time. Lastly, they had the right to choose between a Common Tax Regime or a Special Tax Regime. 

The FDI Law enacted in 2016 aims to simplify the whole investment scheme and relies on a non‐discrimination policy between national and foreign investors. Among the main characteristics of the new FDI structure, the following aspects of the FDI Law should be mentioned:

• It includes several definitions, such as foreign direct investment and foreign investor.
• It aims to promote the foreign investment in certain specific areas, in order to transform Chile from an export country into a producer country. 
• It creates the Foreign Investment Promotion Agency, also known as “InvestChile,” which replaced the former Foreign Investment Committee. InvestChile is the public organization that promotes Chile as a destination for foreign direct investment in the global market, connecting the interests of foreign investors with the business opportunities that the country offers.
• It establishes certain rights for all those that qualify as foreign investors (ie the right of remitting overseas the transferred capital and the liquid profits generated, to the extent that it has met its tax obligations; the right of accessing the formal exchange market to liquidate or obtain foreign exchange; the right to access the tax exemptions over the sale and import of certain capital goods; and the right of non-discrimination between foreign and national investors). These rights are granted without the need of obtaining any kind of authorization from any regulatory body, for all investors that obtain a Foreign Investor Certificate. 
• It creates a Ministerial Committee for the promotion of the Foreign Investment, which will advise the President of the Republic on all foreign investment related matters. This Committee will be led by the Ministry of Economy.
• Allows local governments to attract and promote foreign investment by their own means. It is important to note that even when a new FDI structure has been enacted, contracts signed between the State of Chile and foreign investors under DL 600 remain in force as well as their rights and obligations. These contracts will be administered by InvestChile as the successor and legal continuator of the Foreign Investment Committee. Chapter XIV already existed besides the DL 600 and continues to exist besides the FDI Law. Whereas the FDI Law provides for certain advantages for foreign investors, but is not compulsory for the most part, the application of Chapter XIV is mandatory in the cases regulated by it.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

There is no need for foreign investors to obtain any sort of authorization granted by any regulatory body. However, if the foreign investor wants to qualify for the special tax regime regulated under the FDI Law, it has to send a request to the Foreign Investment Promotion Agency in order to receive a certificate where the Agency recognizes the foreign investor and its investment. The request submitted by the foreign investor for these purposes must prove the materialization of the investment in Chile, as well as contain a detailed description of it, including its amount, destination and nature, in the form and under the conditions determined by said agency. The Foreign Investment Promotion Agency shall issue said certificate within 15 days from the date of receipt of the application submitted by the foreign investor. The certificate must contain all the details that allow the individualization of the foreign investor and the investment made up to the date of issuance. Chapter XIV mainly establishes the rules applicable to foreign exchange operations regarding international loans, deposits, investments and capital contributions, from abroad. Such rules are not applicable to credits, deposits, investments or capital contributions of up to USD10,000 or its equivalent in any foreign currency, nor to the operations of this type that are regulated on banking companies established in Chile. There are no specific rules for foreign investors that consider the EU or non-EU qualification of investors in the FDI Law or in the Chapter XIV. Also, in our opinion, there are no significant loopholes in the FDI Law. However, there are some critics regarding this new foreign investment model, which are referred to in section 19 below.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Without prejudice that there are no mandatory authorizations required for foreign investors under the FDI Law, it applies to “the transfer to the country of foreign capital or assets owned or controlled by a foreign investor for an amount of or more than USD5 million or their equivalent in other currencies.” The FDI Law also includes investments that give the foreign investor control of at least 10% of the company´s voting shares, or an equivalent percentage of the share capital if it is not a stock company, or of the net worth of the company in question. In case of smaller investments, it is not possible to obtain a Foreign Investor Certificate. On the other hand, under the Chapter XIV credits, deposits, investments and capital contributions in a foreign currency must be declared to the Formal Exchange Market if their amount is more than USD10,000 or its equivalent in a foreign currency. In case the aforementioned operations involve an amount equal to or higher than USD1 million or its equivalent in a foreign currency, the actors of the operation have to inform in writing the Central Bank of Chile about the corresponding operations to be performed, in accordance with the provisions of the corresponding Manual of Chapter XIV issued by said body.

8. Scope - sectors covered

In principle, all economic sectors are open to private investment (both for national and foreign investors, according to the non-discrimination principle) except for a few exceptions, as mentioned below (see section 15). Even when the FDI Law covers all sectors indistinctly, there are specific sectors that are promoted by the FDI Law by applying a tax exemption to the import of capital goods that are used for the development, exploration or exploitation in Chile of mining, industrial, forestry, energy, infrastructure, telecommunications; and technology, medical or scientific development research projects, if they involve investments for an amount equal to or more than USD5 million. For these purposes, the investor must file a request before the Ministry of Finance for it to verify and certify the compliance of certain legal requirements which must be met for the tax exemption. However, note that the main investment sectors* in Chile are mining (31.58%); financial services (23.47%); electricity, gas and water (13.28%); commerce (6.58%) manufacturing industry (5.46%); and communications (4.50%).

*Data originates from the Central Bank of Chile and corresponds to the Passive Direct Investment Stock per economic sector in 2019

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

a) Under Chapter XIV, there is an ex ante screening for credit operations of more than USD10,000, since they must be carried out through the Formal Exchange Market (basically, through a Bank or an authorized Money Exchange House). In case of operations that involve an amount equal to or higher than USD1 million, the interested parties must inform said operation to the Central Bank of Chile before or at the same time as the currency enters Chile. 

b) The FDI structure covers controlling investments as well as portfolio investments. 

c) Under FDI Law it is not mandatory, but foreign investors may request from InvestChile a Foreign Investor Certificate which gives them the possibility to access the rights granted by the FDI Law, as mentioned above. Under Chapter XIV, it would be mandatory in cases where the credit operations involve the amounts indicated in answer a) above.

10. Design – reciprocity?

Not applicable since the Chilean FDI structure relies on the non-discrimination principle between foreign and national investors. Therefore, unless there is an International Multilateral or Bilateral Treaty between Chile and other countries, there should not be special treatment for any foreign investment, no matter where they come from.

11. Design – Procedures and Deadlines

Procurement of the Foreign Investor Certificate 

Regarding this, the request filed by the foreign investor must prove the investment in the country, as well as contain a detailed description of it, including its amount, destination and nature, all in the form and conditions determined by the referred Foreign Investment Promotion Agency. The referred Agency must issue the certificate referred to within 15 days from the date of receipt of the request submitted by the foreign investor.

Procurement of the Tax exemption resolution 

Under the provisions of the Law on taxes to sales and services, investors can access a tax benefit regarding the import of certain capital goods, if they are destined to the development of certain activities. This tax exemption can be requested only after 12 months of the goods’ import or acquisition in Chile was performed. For this purpose, the investor has to file a request before the Ministry of Finance to issue a tax exemption resolution (foreign investors have to attach the Foreign Investor Certificate). Said resolution will be issued within 60 calendar days starting from the presentation of the request and all relevant background information; if this term is not complied with, the request will be deemed as approved, and said Ministry must issue, without delay, the resolution granting the tax benefit, within 5 business days since the 60 days’ term expired. If the Ministry issues the certificate, it must send a copy to the Tax Authority within 20 calendar days of the issuance of the relevant resolution.

Information to the Central Bank of Chile 

Under Chapter XIV, and only in case of credit operations with an amount equal to or higher than USD1 million, the Central Bank of Chile must be informed in writing by the debtor/receiver of the currencies. This must be done before or at the same time as the currency enters Chile. The information shall be sent by completing the special Form prepared by the Central Bank to do so, which is contained in the relevant Manual related to Chapter XIV.

12. Design – Transparency and Information requirements (Filing Forms?)

Procurement of the Foreign Investor Certificate 

The form and list of documents needed for obtaining a certificate from InvestChile can be found on its website. The information required will depend on whether the foreign investor is a natural person or a legal entity. In the case of natural persons, they comprise among others: (i) a photocopy of passport; (ii) if presented by the foreign investor’s representative, enough power of attorney for this purpose; (iii) a certificate of domicile or tax residence overseas in Spanish or English, duly certified or legalized and registered by a public notary in Chile, as applicable; (iv) a foreign exchange operation report or equivalent, issued by the Central Bank of Chile, indicating the transfer of the capital to the country; (v) a legalized copy of the deeds of incorporation or increase in equity of the company receiving the investment and any other deeds necessary to accredit materialization of the investment and that the foreign investor has 10% of the control of or stake in it; (vi) a legalized copy of the registration, in force, of the recipient company on the Business Register of the corresponding Custodian of Real Estate. In the case of legal entities, the relevant background information contains, among others: (i) bylaws of the foreign investor in Spanish or English, duly certified or legalized and registered by a public notary in Chile, as applicable; (ii) a Good Standing Certificate of the foreign investor in Spanish or English, duly certified or legalized and registered by a public notary in Chile, depending on the case; (iii) power of attorney to represent the foreign investor before InvestChile in Spanish or English, duly certified or legalized and registered by a public notary in Chile, depending on the case; (iv) a foreign exchange operation report or equivalent, issued by the Central Bank of Chile, indicating the transfer of the capital to the country; (v) a legalized copy of the deeds of incorporation or increase in equity of the company receiving the investment and any other deeds necessary to accredit materialization of the investment and that the foreign investor has 10% of the control of or stake in it; (vi) a legalized copy of the registration, in force, of the recipient company on the Business Register of the corresponding Custodian of Real Estate. For both cases abovementioned, other information may be required if InvestChile deems it necessary.

Procurement of the Tax exemption resolution 

In this case it is necessary that the investor files all background information necessary for the Ministry of Finance to verify and certify that the investor complies with all legal requirements for accessing to the tax benefit (which in case of foreign investors, will include the Foreign Investor Certificate). Information to the Central Bank of Chile In the case of credit operations with an amount equal to or higher than USD1 million, the debtor/receiver of the foreign currencies has to file the form contained in Annex 1 of the Manual for Chapter XIV, either directly or through an entity of the Formal Exchange Market, jointly with the instructions issued for the purposes of the delivery of the foreign currencies or its liquidation in Chilean pesos. Other details are included in the relevant Manual referred to.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

The discretionary powers of the relevant authorities involved are mostly determined by law and includes the possibility (i) to request more information that they deem necessary for issuing a resolution or certificate; and (ii) to sanction infringers in case they have made false declarations or filed fake documents. A wide range of sanctions are available. Regarding other possible decisional outcomes, the authority must strictly comply with the law. It is even possible that in case of non-response to the investors’ requests, the silence of the authority will be deemed as approval of said request as expressly indicated by law.

14. Interaction with other legal frameworks (ex: merger control)

Merger control takes place if the investment can be categorized as a concentration operation under Competition law. This is the case when there is a change of control, which occurs when the transaction results in an acquisition of control of a business as a consequence of a merger or acquisition of capital. For mandatory merger control, the transaction has to surpass a threshold determined by the competition authority. To date (Exempt Resolution No. 157/2019 of the National Economic Prosecutor's Office), the thresholds are that: (i) the parties’ combined turnover in Chile is CLF2.5 million or more (USD99 million); (ii) at least two of the parties have individual turnover in Chile of CLF450,000 or more (approx. USD17 million). Regarding minority interests, filing is mandatory within 60 days of completion where the acquisition is of a minority interest of more than 10% of a competitor, and only if both firms compete in Chile and each have a turnover in Chile of more than CLF100,000 (USD4 million).

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

In principle, all economic sectors are open to the private investments and foreign capital in Chile. The FDI Law, however, has certain specific restrictions:

• Border areas: A natural person or legal entity from a neighboring country cannot acquire state-owned land which is within 10 km from a bordering land or 5 km from the coast. Exceptionally, foreigners domiciled in Chile may have access to land located on the coastal strip, subject to authorization from the Undersecretary of Armed Forces, the Ministry of National Defense and the National Directorate of Borders and Boundaries (DIFROL), as the case may be. 
• Aquaculture and fishing: Only Chilean natural persons, legal entities incorporated under Chilean law and foreigners with permanent residence in Chile can be granted authorization to harvest and capture hydrobiological species. 
• Hydrocarbons, lithium and deposits in Chilean waters: Mining concessions cannot be awarded on hydrocarbons, lithium or deposits of any type in Chilean waters or areas classified as important for national security. 
• Naturally-occurring nuclear materials and nuclear energy: Naturally occurring nuclear materials cannot be subject to any legal act except those implemented or entered into by the Chilean Nuclear Energy Commission (CChEN) with it or counting with the CChEN authorization.
• Domestic shipping: Only Chilean boats are permitted to transport passengers and freight along the coast, by river or on lakes between different points in Chile or between them and naval infrastructure in Chilean waters or the Economic Exclusion Zone. 
• Telecommunications and radio: Only legal entities governed by public or private law and incorporated and domiciled in Chile may hold a concession for an open television service or make use of it.
• Television: Only legal entities incorporated and domiciled in Chile may hold a telecommunications or radio broadcasting concession. 

These grounds are not based on the WTO definitions. 

Also, as most of the restrictions are established by law and do not give any discretional powers to the relevant bodies, the degree of discretion of the authority to apply the legal criteria in question is very limited. Exceptionally, even in those cases where the law expressly gives discretional powers to a specific authority, they must be exercised with strict adherence to the law.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Firstly, any case will be reviewed based on the Investment International Treaty between Chile and the foreign investor’s country of origin. These treaties may include rules for solving potential disputes, commonly the UNCITRAL and ICSID Convention Arbitration Rules. The Chilean judicial system is generally transparent and independent. It is based on the rule of law with civil and criminal courts distributed throughout the country and other special courts, such as labor and tax courts. These are the first instance courts whose verdict could be subject to appeal before other second instance courts, the Courts of Appeals, located in each region of Chile. Finally, the highest Court is the Supreme Court, based in the country’s capital, Santiago. It does not constitute a third instance, but a court of cassation. As to the processing times for cases brought before the Chilean courts, it is possible to distinguish among the different procedures. In civil matters, for example, it can take an average of four years to process a case in the first instance. As for higher courts (Appeals Courts and Supreme Court), cases are usually resolved promptly, after the attorney’s verbal allegations, but it can take up to a year from the time the case enters the respective court and pleadings are scheduled. Please note, that these times decrease considerably when the case is heard outside of Santiago. Finally, it should be noted that some judicial and administrative proceedings have been slowed due to the COVID-19 pandemic.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

Taking into account foreign investors’ concerns, the Chilean government has been working on simplifying investment procedures in Chile for the last few years and has entrusted InvestChile with the job to promote foreign investments and help foreigners invest in Chile as well as encouraging bigger investments by awarding them benefits. 

The following criticism has been raised by the relevant actors:

• The lack of a contract between a foreign investor and the state of Chile represents uncertainty and risk for foreign investors, who used to execute agreements for the safeguard of their rights (since they required the prior consent of both parties to be amended, while any change to the FDI Law depends only on the will of the state of Chile.) 
• The main reason argued by the Chilean authorities for the derogation of DL 600 was that the investment structure regulated therein did not respond to the current needs, particularly considering that now Chile is an “economically, socially and politically stable country.” This affirmation has been much debated in the years following the FDI Law’s entry into force. 
• The new structure is not clear enough regarding the powers that local governments have in the promotion of foreign investments, in comparison to the efforts that the central Agency may make.
• The definition of foreign investors is quite limited, as it would leave out legal entities incorporated in Chile but subject to the control of a foreign person. This could prevent the implementation of certain business strategies. 
• As the tax invariance benefit is not included in the FDI Law (and was included under DL 600), it may make Chile less competitive with neighboring countries that do have it.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contact: Jorge Timmermann

Last updated June 2023

Last updated June 2023

1. Country: Colombia

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

• US (26.4%)¹
• Spain (16%)
• Panamá (13.7%)
• Anguilla (6.9%)
• Chile (6.1%)

¹Information available here. The percentages were calculated using the provisional statistics provided by the Colombian Central Bank for the year 2022.

3. Legal Framework in Force

• Law 9 of 1991
• External Resolution No. 1 of 2018 issued by the Colombian Central Bank
• Decree 1068 of 2015
• Decree 1644 of 2021
• Resolution 18 of 2021, issued by the Colombian Tax and Customs National Direction
• Circular DCIP 83 issued by the Colombian Central Bank’s Foreign Exchange Direction

4. Last revision of the Legal Framework

Last modification is the issuance of DCIP 83, which replaced the previous Circular, DCIN 83

5. Contextualization of the Legal Framework (Historical or other)

Before the issuance of the Constitution of 1991, Colombia restricted the use of foreign currencies in its territory.

Since 1991, under the scope of the freedom of enterprise principle provided by the Constitution, FDI is generally permitted and can only be prohibited or restricted due to reasons of sovereignty, technology transfer or public policies regarding specific sectors.

Despite the economic openness that arose from the Constitution of 1991, the law was considered necessary to regulate or limit investments made in certain sectors for public order purposes, such as the investments in financial institutions, hydrocarbon sector and TV networks.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

FDI is permitted in Colombia in all economic sectors, except for activities related to national defense and security and those concerning the processing, disposition and disposal of toxic waste not produced in Colombia, which are explicitly prohibit.

Additionally, as a general rule, public authorization is not required for foreign investment. Regarding any investment made in branches of foreign companies that engage in activities related to the exploration and exploitation of oil, natural gas, carbon, ferronickel, and uranium; or that provide services exclusively to the oil and gas sector, the law provides a special foreign exchange regime that regulates the flow of funds between the branch and its parent company.

Nonetheless, some special regimes provide that a public authorization will in fact be required or establish limits on the amount of the investment. This includes:

• Investments made in financial institutions that imply the acquisition of 10% or more of its capital must be previously authorized by the Superintendence of Finance, who will review the solvency of the investor, as well as its moral and professional conditions.

Regarding the Colombian TV network sector, Law 680 of 2001 provides that foreign investments made in a television concessionaire (national and regional networks and national networks of private operation) are allowed provided that they do not exceed 40% of the capital of such concessionaire. Additionally, the National Television Authority will verify the treatment granted by the country of origin of the investment regarding Colombian investments in the same sector, considering reciprocity and transference of technologies, in order to authorize the FDI.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Investments made in a television concessionaire will be reviewed to verify, (i) that the transaction does not imply that more than 40% of the concessionaire’s capital is owned by foreigners, and (ii) that there is reciprocity with the country of the foreign investor.

Regarding FDI in financial institutions, the threshold for the screening of the FDI requires that the investment is equivalent to 10% or more of the financial institution’s capital.

In both cases the screening will cover both FDI and portfolio investments.

8. Scope - sectors covered

As mentioned, the screening covers the investments made in financial institutions or television concessionaires.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Regarding television concessionaires, the screening mechanism is an ex post control which is initiated by the Television Authority.

Regarding financial institutions, the screening mechanism is a procedure for pre-authorization.

10. Design – reciprocity?

As previously mentioned, regarding FDI in television concessionaires, the Authority considers reciprocity for such investments, regarding the possibility of the Colombian companies to invest in the same sector in the country of the foreign investor, as well as the possibility to perform transference of technology that allow such Colombian investor to contribute to the development of the Colombian television industry.

11. Design – Procedures and Deadlines

There is no specific deadline or term for the authority to approve an FDI in financial institutions. At present, the authority takes between two and three months to consider such authorization requests; however, this term may vary (e.g., in the last few months the term has increased to between two and three weeks). The term will also depend on the timing of inquiries for additional information, which the authority requests from the investor and from foreign authorities. These requests for additional information are commonly associated with the requirement to, (i) identify the real beneficiary of the investment; and (ii) identify and prevent any risk related to money laundering and terrorism financing.

12. Design – Transparency and Information requirements (Filing Forms?)

Regarding FDI in television concessionaires, there are no specific forms or information that the Authority requires to be filed. Therefore, the foreign investor shall submit all the information that can support the fulfilling of the requirements provided by law regarding the percentage of foreign investment in the concessionaire’s capital, as well as the reciprocity and transference of technology with the FDI's country of origin, if demanded by the Authority.

Regarding FDI in financial institutions, the Superintendence of Finance has designed forms and checklists with information that shall be filed before the authority to assess the investment.

As for FDI in general, certain forms before Colombia’s Central Bank and Tax Authority will need submission, providing information about the FDI. 

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

With regard to FDI in financial institutions, it does not appear possible to provide a specific range of decisional outcomes, considering that all the filings are private, and therefore, information becomes available only with regard to approved investments. Nevertheless, recent experience shows that it is unlikely that the approval will be denied by the authority unless a risk related to money laundering and terrorism financing associated with the investor, its affiliates or the real beneficiary, is identified.

14. Interaction with other legal frameworks (ex: merger control)

Despite the foregoing, the screening of FDI interacts with different legal frameworks as follows:

• Merger control: If the foreign investor, directly or indirectly, participates in the same chain of value as the recipient of the investment in Colombia, the transaction shall be subject to notification or pre-assessed by the Superintendence of Industry and Commerce. Such procedures are mandatory if the relevant merger control thresholds are met.
• Authorization for specific sectors: Colombian regulation has procedures for the pre-authorization of certain transactions related to the acquisition of participation in companies in specific sectors, such as private surveillance; health and public services, among others. These procedures shall be made by any investor, regardless of whether it is foreign or national

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Regarding FDI in television concessionaires, as aforementioned, there are three criteria applicable: (i) that the total foreign investment in such television concessionaire does not exceed 40% of its capital; and (ii) regarding the country of origin of the investment, the reciprocity and transference of technology opportunities for Colombian investors.

Regarding FDI in financial institutions, the criteria is wider as the law provides that the authority shall consider the solvency of the investor, as well as its moral and professional conditions. Nevertheless, from such wideness does not arise a high degree of discretion since the authority mainly considers the experience of the investor in the finance sector, the curriculum of its directors, and the origin and management of the investor funds, especially for purposes of preventing asset laundering and financing of terrorism.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Considering that both the Superintendence of Finance and the National Television Authority are public authorities, their decisions are subject to judicial review by Colombian judges in two different instances: The first instance decision can take between 12 and 36 months, and the second instance decision can take up to ten years. In any case, the judge will only apply the law directly and verify whether the decision of the authority applies such regulation.

17. Publication in Official Gazette or other

Regarding the procedures before the Superintendence of Finance, all of the filing, documents and the decision are private, therefore there is no publication of such a decision.

The same consideration shall apply regarding investments made in television concessionaires.

Nevertheless, considering the public relevance of the television concessionaires, the Authority usually issues a statement concerning the decision but without revealing the filing, the documents of support, and all the considerations of such a decision.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

As all the information regarding the investments in finance institutions is private, there are no relevant examples.

Regarding investment in television concessionaires, there is one recent case related to the concession of a public network in Colombia, called Canal Uno, which was granted to a concessionaire integrated by three Colombian companies, and a foreign investor called HMTV, a company duly incorporated in Florida.

As per the public information, the participation of HMTV does not exceed the 40% threshold. Despite the aforementioned, the authorization of the investment made by HMTV was made in the course of a bid process decided by the National Television Authority. This is a consequence of the public nature of the network to be granted.

Regarding privately operated networks, there are no recent cases to be considered as precedent.

19. Stakeholders views on the Legal Framework

Generally, the Colombian regulation is seen as non-restrictive of FDI, as there is no need to request authorization and the only procedure is related to foreign exchange duties to be fulfilled before the Central Bank, that are made by the intermediary, or once that investment has been made.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contacts: María Claudia Martínez Beltrán and Daniela Huertas

Last updated June 2023

1. Country: Mexico

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

1. US (47,5%)
2. Spain (13,7%)
3. Canada (6,5%)
4. United Kingdom (5,7%)
5. Germany (5,2%)

3. Legal Framework in Force

Foreign Investment Law (Ley de Inversión Extranjera, (LIE)) and the Regulation of the Foreign Investment Law (Reglamento de Inversión Extranjera, (RLIE))

4. Last revision of the Legal Framework

The LIE was last revised on 15 June 2018, and RLIE was last revised on 17 August 2016.

5. Contextualization of the Legal Framework (Historical or other)

Some of the most relevant underlying ideas of the Explanatory Memorandum (Exposición de Motivos) of the LIE, as provided by the House of Deputies (Cámara de Diputados) published on November 25, 1993, supporting the need for approving LIE, are:

• “The objective of this Foreign Investment Law is to establish a new regulatory framework that, in full compliance with the Constitution, promotes our competitiveness, provides legal certainty to foreign investment in Mexico and establishes clear rules for channelling international capital to our economic activities.”
• “The Law to Promote Mexican Investment and to Regulate Foreign Investment published in the Official Gazette on 7 March 1973, reflects the economic reality of Mexico and the world at the beginning of the 1960s, which was considerably different from the one that currently prevails. At that time, the generalised tendency of the developing countries was to establish mechanisms and legal regimes with an excessive regulatory emphasis on the participation of foreign investment in their economies.”
• “For the abovementioned reasons, it is appropriate to propose a new legal framework to promote foreign investment. Thus, the bill submitted for consideration by the Congress, clearly defines relevant concepts and specifies the channels for obtaining foreign investment; it (the bill) is compliant with all constitutional provisions; allows foreign investment in activities where its participation is necessary and beneficial for national development; establishes obligations and grants precise powers to the competent authorities, and considerably simplifies administrative procedures.”

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

FDI is an important catalyst for national development, since it has the potential to generate employment, increase savings and raise foreign currency, stimulate competition, encourage the transfer of new technologies and boost exports. All of this has a positive impact on the productive and competitive environment of a country. Mexico enacted the LIE in 1993 and it has drastically changed the regulatory framework for foreign investments in Mexico that was in place since 1973. The LIE has been reformed on various occasions, and such reforms follow the provisions imposed by the North America Free Trade Agreement (NAFTA). This new regulatory framework replaces the restrictions of the former investment law, which generally limited foreign investment in Mexican companies to 49% or less. Trust funds have been used as loopholes for the Mexican FDI regulation. Nevertheless, there have been efforts to regulate and supervise trust funds precisely to avoid these loopholes.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Screening of FDI 

1) Activities and companies with specific regulation 

As provided under article 7 of the LIE, the following activities and companies in which foreign investment can participate are subject to certain thresholds:

• up to 10% in cooperative production companies;
• up to 49% in manufacturing and commercialisation of explosives, firearms, cartridges, ammunition and fireworks, not including the acquisition and use of explosives for industrial and extractive activities, nor the preparation of explosive mixtures for the consumption of such activities;
• printing and publication of newspapers for its exclusive sale in the national territory;
• T Series shares, representing the capital contributed in land, of companies that own agricultural land, livestock and forestry;
• fishing in freshwater, coastal waters and in the exclusive economic zone, not including aquaculture;
• integral port administration concessions;
• port services for piloting ships to carry out operations of interior navigation in the terms of the applicable law;
• shipping companies dedicated to the commercial exploitation of vessels for inland navigation and cabotage, with the exception of tourist cruises and the exploitation of dredges and naval artifacts for construction, port conservation and operation;
• supply of fuels and lubricants for boats and aircraft and railway equipment;
• broadcasting; and
• national air transport service, regular and non-regular; international non regular air transport service (taxi); and specialised air transport service.

2) Activities and companies where an authorisation are required from the national foreign investment commission for a foreign majority participation

Foreigners can participate only up to a maximum of 49% shareholding in certain activities and companies. However, if foreigners would like to acquire a higher percentage, they can do so as long as they previously obtained a favourable resolution from the National Foreign Investment Commission (CNIE). Such activities and partnerships, as provided by article 8 of the LIE, are the following:

• port services to vessels to carry out their operations of interior navigation, such as towing, rope lashing and boating;
• shipping companies engaged in the operation of vessels exclusively in high altitude traffic;
• concessionaires or permit holders of aerodromes;
• private services of preschool, primary, secondary and higher education (media superior, superior y combinados);
• legal services; and,
• construction, operation and operation of railways, and the rendering of the public rail transport service.

8. Scope - sectors covered

LIE allows foreign investors and Mexican companies controlled by foreign investors, to own 100% of the equity in Mexican companies and invest in almost all economic sectors, without prior approval.

The only exceptions are those expressly foreseen in the LIE. LIE provides that certain economic activities are:

1. reserved to the Mexican state;
2. reserved to Mexican nationals or Mexican companies without foreign equity participation; 
3. subject to foreign investment limitations; and
4. subject to prior approval if the foreign investor pretends to own more than 49% of a company engaged in certain activities.

Limits on foreign control Sectors reserved for the Mexican state (article 5 of LIE) include:

• exploration and extraction of petroleum and other hydrocarbons (in terms of the provisions of the seventh paragraph of Article 27, and the fourth paragraph of Article 28 of the Mexican Constitution and the corresponding regulations);
• planning and control of the national electric system (in terms of the provisions of the seventh paragraph of Article 27, and the fourth paragraph of Article 28 of the Mexican Constitution and the corresponding regulations);
• generation of nuclear energy;
• radioactive minerals;
• telegraphs;
• radiotelegraphs;
• postal service;
• coinage and printing of money;
• control, supervision and surveillance of ports, airports and heliports; and
• any other activities in terms of the applicable laws.

Some other economic activities are reserved to Mexican nationals or Mexican companies with a foreigners’ exclusion clause (a covenant included in the by-laws whereby foreigners agree not to invoke the protection of their own government). The following are sectors reserved for Mexican nationals as provided by article 6 of LIE:

• domestic transportation of passengers, tourism and freight, except for messenger or package delivery services;
• development banks; and
• certain professional and technical services, as provided under the applicable laws.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

(a) It is worth mentioning that all foreign investments in Mexico are required to be registered with the National Registry of Foreign Investments (RNIE). The National Foreign Investment Commission (CNIE) is the governmental authority that provides the corresponding authorisations related to foreign investments in Mexico, such as those related to exceed the 49% threshold abovementioned. Pre-authorisations are only granted by the CNIE.

(b) Controlling investments and investments in certain economic activities, as above described.

(c) Mandatory nature.

10. Design – reciprocity?

Mexico is party to several international free trade agreements containing investment protection provisions which allow some levels of reciprocity in investments with other countries.

11. Design – Procedures and Deadlines

CNIE has 45 business days to resolve the requests submitted for approval. 

12. Design – Transparency and Information requirements (Filing Forms?)

The following are the foreign investments procedures that can be carried out before the Mexican foreign investment authorities (CNIE and RNIE):

• notice for the establishment of foreign legal entities in the Mexican Republic to provide services;
• notice for the establishment of foreign legal entities in the Mexican Republic;
• authorisation for the establishment of foreign legal entities in the Mexican Republic, intending to establish representative offices without income;
• authorisation for the establishment of foreign legal entities in the Mexican Republic to register its bylaws in the Public Registry of Commerce;
• authorisation of the CNIE;
• neutral investment – issuance of shares; neutral investment – trust;
• neutral investment – international development associations;
• consultation on foreign investment;
• questionnaire to Request a Resolution of the CNIE; and
• advisory opinion of the CNIE referred to in Article 77 of the Federal Law of Telecommunications and Broadcasting.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

CNIE is responsible for the application of the Foreign Investment Law and reports to the Ministry of Economy. It is composed by the heads of the state ministries, and for its operation, it has a Committee of Representatives and an Executive Secretary. CNIE resolves queries on foreign investment into Mexico requested by federal public administration agencies and entities, and only with respect to the information notified to the National Registry of Foreign Investments. The RNIE belongs to the Ministry of Economy through the General Management of Foreign Investment (DGIE). In this sense, the General Management of the RNIE is responsible for operating and publishing timely information on FDI.

14. Interaction with other legal frameworks (ex: merger control)

In the international arena, foreign investments in Mexico and Mexican investments abroad are regulated and protected through International Investment Agreements. These agreements are set out in investment chapters included in the majority of the International Commercial Agreements and in the Agreements for the Promotion and Reciprocal Protection of Investments (APPRIs) signed by Mexico. The Commercial Agreements on Investment that are in force include rules to protect, promote or strengthen investments with a country. Likewise, they include dispute resolution mechanisms between an investor and the state that receives the investment. At the national level, foreign investments in Mexico are regulated by the Mexican Constitution, the LIE, the RLIE and other applicable federal laws.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The CNIE must follow the specific criteria contained in the LIE for the approval of any application, according to the following criteria:

• employment and training considerations, 
• technological contributions, 
• compliance with environmental provisions
• contributions to productivity and competitiveness. 

Likewise, the CNIE may reject applications for national security reasons. 

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Firstly, an administrative procedure must be followed, which takes approximately a year and a half. Judicial review is possible by a Tribunal Colegiado de Circuito that is in charge of resolving the amparo, which is an extraordinary constitutional appeal, aimed to protect the human rights, regardless of whether the entity causing such violation is a public authority or a private party.

17. Publication in Official Gazette or other

Publications are made in the Federal Official Gazette.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

It is uncertain whether future legislation will be introduced to adapt to the new EU regulation.

21. Other relevant information

N/A

Contacts: Jorge Benejam and Aldo Ramirez

Last updated June 2023

1. Country: Perú

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the Agency of Promotion of Private Investment (“ProInversion”) as of December 2021 , the most foreign investment financial flows come into Perú from the following countries:

• UK (22%)
• Spain (18%)
• Chile (12%)
• US (11%)
• The Netherlands, Brazil, Colombia and Canada (contributing 4% each country).

3. Legal Framework in Force

Peruvian Constitution of 1993 (the Constitution).

Legislative Decree No. 662 – Regime of Legal Stability of Foreign Investment through the recognition of assurances (Legislative Decree 662).

Legislative Decree No. 757 – Legal Framework for the Growth of Private Investment (Legislative Decree 757).

Supreme Decree No. 162-1992-EF – Regulations of the Regime to Guarantee Private Investment (Supreme Decree 162).

4. Last revision of the Legal Framework

Legislative Decree 662 was last revised in 2008.

Legislative Decree 757 was last revised in 2018.

Supreme Decree 162 was last revised in 1998.

5. Contextualization of the Legal Framework (Historical or other)

The Constitution encourages foreign investment by subjecting foreign and domestic investment to the same conditions. Decrees that also promote foreign investment include:

• Legislative Decree 662, which aims to promote foreign investment and foreign technology transfer;
• Legislative Decree 757, which aims to promote growth of private investment in all sectors of the Peruvian economy;
• Supreme Decree 162, which regulates the guarantee regimes for private investment.

The competent authority for foreign investment is ProInversion, which promotes private investment through Public-Private Partnerships, Projects in Assets and Public Works Tax, aiming to destinate foreign investment into public services, public infrastructure, assets, projects and Peruvian state companies.. The Peruvian financial system is regulated primarily by the following agencies:

Peruvian Central Reserve Bank: aims to preserve the monetary and economic stability of the country. Moreover, it is in charge of regulating currency and financial credit and managing international reserves.

National Superintendence of Bank and Insurance: responsible for regulating and supervising the financial, insurance, and private pension system. Its objective is to preserve the interests of depositors and insured persons.

Superintendence of Stocks Market: safeguards investors and the efficiency and transparency of the markets under its supervision.

The National Institute for the Defense of the Competition and the Intellectual Property (Indecopi): aims to promote the Peruvian market economy through the defense of the competition, the protection of consumer rights, and the protection of the intellectual property.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Pursuant to Article 1 of Legislative Decree No. 662, the Peruvian State promotes and guarantees current and future foreign investment in Peru through contractual or business forms in all sectors of economic activity. According to Article 1, any foreign investment that is made for income-generating purposes, under any of the following modalities, will be considered a foreign investment:

• Contributions owned by foreign natural or legal persons, channeled through the National Financial System, to the capital of a new or existing company in any of the corporate forms indicated in the General Law of Companies, in freely convertible currency or physical assets or tangible, such as industrial plants, new and reconditioned machines, new and reconditioned equipment, spare parts, pieces and parts, raw materials and intermediate products;
• Investments in national currency from resources with the right to be remitted abroad;
• The conversion of private obligations abroad into shares;
• Investments carried out in accordance with current legislation;
• Investments in assets physically located in the territory of the Republic;
• Intangible technological contributions, such as trademarks, industrial models, technical assistance and patented or non-patented technical knowledge that may be presented in the form of physical goods, technical documents and instructions;
• Investments for the acquisition of securities, documents and financial papers listed on stock exchanges or bank deposit certificates in national or foreign currency;
• The resources destined to joint venture or similar contracts that grant the foreign investor a form of participation in the production capacity of a company, without implying a capital contribution and that corresponds to commercial operations of a contractual nature through which the foreign investor provides goods or services to the recipient company in exchange for a participation in the volume of physical production, in the global amount of sales or in the net profits of the referred recipient company; and
• Any other form of foreign investment that contributes to the development of the country.

Moreover, Article 3 of Legislative Decree No. 662 sets out that: (i) foreign investments made effectively in Peru are automatically authorized; and, (ii) once the foreign investment has been made, it should be registered with ProInversion. Under Peruvian legislation there is no peremptory time period for registration nor sanctions for failure to register. However, the registration of the foreign investment with ProInversion grants the right to transfer abroad in freely convertible currencies, without previous authorization from any authority in the Central government or any other institution, the following:

• income derived from their investments, including the sale of shares, stocks or rights, capital reduction, partial or total liquidation of companies; and
• earnings or net profits derived from their investments, payments for the use or enjoyment of goods located in Perú, royalties and considerations for the use or transfers of technology, including industrial property assets authorized by the Competent National Agency.

Likewise, investors who register their foreign investments will be allowed to, in all cases in which it is appropriate to convert foreign currency to national currency, use the most favorable current purchase exchange rate. In the case of conversion from national currency to foreign currency, the investor will have the right to use the most favorable current selling exchange rate.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Any kind of foreign investment (as described in the answer to question 6 above) may be registered. This includes both controlling and portfolio investments.

8. Scope - sectors covered

Foreign investors in Perú can invest in various sectors, save for exceptions set out in Peruvian legislation:

• Pursuant to Article 71 of the Constitution, within 50 km of the borders, foreign investors cannot acquire or possess by any title mines, lands, forests, waters, fuel or energy sources, directly or indirectly, individually or collectively. It should be noted that, according to Article 71, in case the aforementioned provision is contravened by a foreign investor, its right (acquisition or possession) would be forfeited against the Peruvian State. An exception can be made for public necessity, if expressly stated by a Supreme Decree that is approved by the Council of Minister.
• According to Article 8 of the Supreme Decree 162, investment in foreign trade has the following restrictions:

1. On exports:

• The prohibitions established in the Text of Prohibited Exportation Products.
• The ones contained in the General Law of Protection of Cultural Heritage.
• The obligations and rights originated from International Agreements signed by the country.
• The temporary emergency measures required to guarantee external security and internal order.
• The provisions that aim to preserve the native genetic patrimony and the improvements in cultivation techniques and wildlife.

2. On imports:

• The obligations and rights originated from International Agreements signed by the country.
• The prohibitions established in the List of Imports Restricted Goods.
• iii) The temporary emergency measures required to guarantee external security and internal order.

Pursuant to the Article 79 of the Peruvian Civil Aviation Law National Commercial Aviation, the National Commercial Aviation (Commercial Aviation refers to air transportation, special air transportation and aerial work) is reserved to Peruvian individuals and Peruvian legal entities. A company will be considered a Peruvian entity if it fulfills the following:

• Has its main domicile in the Peruvian territory.
• At least half plus one of the members of the directory, managers and people with management control over the company are be Peruvian or have a permanent residence in the Peruvian territory.
• The company’s property is substantially national. At least fifty-one percent (51%) of the capital stock is Peruvian property and under the effective and real control of Peruvian shareholders or partners with a Peruvian residence.
• According to Article 160 of the Peruvian Civil Aviation Law Regulations, six months after obtaining the first operational permit by the company, the percentage of the capital stock owned by foreigners may be up to 70%.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

• (a) According to Legislative Decree 662, foreign investments that are effectively carried out in Perú are authorized. In this regard Perú has an ex-post screening mechanism.
• (b) Applies to controlling and portfolio investments.
• (c) Please refer to section 6.

10. Design – reciprocity?

Not applicable as Peruvian legislation establishes that foreign and national investment is subject to the same conditions.

11. Design – Procedures and Deadlines

The Department of Investors Services of ProInversion has 25 business days to approve or deny the registration. This procedure is subject to positive administrative silence.

If the registration is denied, the investor may file an administrative review or an appeal within 15 business days. The appl must be resolved by the competent authority within 20 working days.

12. Design – Transparency and Information requirements (Filing Forms?)

The filling forms are mandatory to register the investment. However, the forms and documents required for the registration will vary according to the type of investment.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

All registration procedures are private; in that regard, it is not possible to determine the range of decisional outcomes. Nevertheless, it is unlikely for the approval to be denied by ProInversion, unless the registration documents are improperly submitted or incomplete.

14. Interaction with other legal frameworks (ex: merger control)

As of June 2021, Peru has a regime of prior control of concentration operations (which include, among others, mergers and acquisitions). The merger control regime applies to any operation that has effects in the Peruvian territory and imply a change in control (business control operations); this includes operations that are done abroad and bound directly or indirectly to the economic agents that develop economic activities in Perú.

These operations may be:

• a merger between two or more economic agents;
• the acquisition of rights that allow it to exercise control overall, or part of, one or more economic agents, done directly or indirectly;
• the establishment of two or more economic agents, independent of each other or joint venture, that implies the acquisition of joint control over one or more economic agents, in a way that said agent permanently performs functions of an autonomous economic entity; or
• the acquisition of the productive operational assets of other economic agents.

Nevertheless, the merger control regime will be only applicable for operations that meet all of the following thresholds:

• The total amount of the sales or annual gross income or value of assets in Perú of the companies involved in the business concentration operation reached during the fiscal year prior to that in which the operation is notified, equal or exceed the value of 118,000 Tax Units (approximately USD 153.3 million).
• The value of the sales or annual gross income or value of the assets in Perú of at least two of the involved companies in the business concentration operation reached during the fiscal year prior to that in which the operation is notified, equal or exceed the value of 18,000 Tax Units (approximately USD 23.3 million).

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Although atypical, when the process of blocking foreign investment occurs, is usually after the investment is effectively done. When this has happened, the grounds have been mainly based on environmental protection and changes done by the administration, such as the designation of lands as intangible (i.e., dispositions under cultural heritage legislation) after they are acquired by the investors, limiting their permitted use.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Foreign investments can be protected through judicial and other dispute resolution avenues, depending on the characteristics of each case.

Administrative jurisdiction allows investors to dispute administrative decisions of a state entity before a higher body of that entity. The processes on the most complex matters can take up to four years. Once the final decision of the administrative entity is issued, it can be disputed before the judicial courts through the administrative contentious action, which can be appealed before Peruvian Court of Justice. This process can last an average of five years.

Investors can seek judicial recourse if a norm of general and abstract scope affects a direct investment. The investor can file a protection action, so the norm is not applied. The decision may be disputed up to the Constitutional Court, whose decisions are final. This duration of the process varies according to the complexity of the case. However, in our experience, they last approximately between two and eight years.

Investors may also dispute Public Entities administrative decisions through conciliation or arbitration. In Peru, contracts executed with the Peruvian State must contain a dispute resolution clause. Therefore, investors may protect their contractual rights through the dispute resolution mechanism set out in the relevant clause. Exceptional cases, as provided by the Law of State Contracts, must be resolved in the judicial jurisdiction. These arbitration procedures may take up to approximately two years.

If investment falls within the framework of an Investment Agreement between Peru and another state, the dispute can be resolved according to the agreement’s dispute resolution clause, for example through ICSID arbitration. The duration of the proceedings before ICSID may vary according to the complexity of the case.

17. Publication in Official Gazette or other

Relevant decisions provided by administrative and judicial authorities may be published in the Peruvian Official Gazette, El Peruano, as well as in the relevant authorities’ web pages. The awards issued in an arbitration against the Peruvian State are published on the OSCE (Supervisory Agency for State Procurement) website. According to the last amendment to the arbitration law, all arbitration against the Peruvian State is publicly accessible and the awards issued by ICSID can be found on the web portal of the Ministry of Economy and Finance.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

ICSID Case No. ARB / 07/6 (Tza Yap Shum vs Republic of Peru)

Tza Yap Shum claimed that his investment in a Peruvian company had been expropriated through a series of SUNAT (Peruvian Tax Authority) actions. Shum argued these actions breached the 1994 Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Peru Concerning the Encouragement and Reciprocal Protection of Investments (“China - Peru BIT").

The China – Peru BIT did not establish an arbitral tribunal’s jurisdiction to determine whether an expropriation took place, and was limited to disputes about the amount of compensation. The Tribunal concluded that the BIT did not limit ICSID's jurisdiction to determine whether expropriation took place alongside (and, subsequently), the discussion on the amount of the compensation due.

The Arbitral Tribunal also concluded that expropriation, as outlined in the China – Peru BIT could refer to both direct and indirect expropriation. This award is particularly important, as it considers that ICSID's jurisdiction should be interpreted in a broad and unrestricted manner.

ICSID Case No. UNCT / 13/1 (The Renco Group Inc. vs Republic of Peru)

This was the first arbitral claim in against the Peruvian State under the FTA investment chapter of the Peru – US Trade Promotion Agreement (2006) (“TPA”).

Peru claimed stated that Renco did failed to comply with the requirement set out under Article 10.18 of the TPA to waive its right to instantiate or continue other judicial or administrative dispute resolution mechanisms with respect to same claim. Renco only submitted a partial waiver of other dispute resolution mechanisms. Based on this, Peru argued that the prerequisite agreed in the Peru-US APC had not been fulfilled, so that the Tribunal was not competent to rule on the dispute, nor to correct the vices incurred by Renco. The Tribunal found in favour of Peru.

ICSID Case No. ARB 11/17 (Renée Rose Levy and Gremcitel S.A vs Republic of Peru)

A French investor brought a claim agianst the Peruvian State for breaches of the France - Peru BIT. The investor, Levy, controlled Gremcitel S.A, which was granted a public tender as a result of which it and bought 200 hectares of land in the Municipality of Chorrillos in order to invest in a real state project. Before the initiation of the project, the Municipality declared that said lands were historic ground and therefore intangible. The investor argued that its legitimate expectation was frustrated, and sought compensation of USD1.5 million. The tribunal found in favour of the Peruvian State.

19. Stakeholders views on the Legal Framework

The Peruvian Legal Framework is not seen as restrictive by shareholders as there is no need for pre-authorization of foreign investment, as foreign investments are automatically authorized, and national and foreign investments are subject to the same conditions. According to the BCR, foreign investments inflow is continually increasing.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contact: Daniel Flores

Last updated June 2023

1. Country: United States

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

Based on the 2021 annual CFIUS report to Congress, the following countries accounted for the most filings with CFIUS from 2019 to 2021: 

• Japan (12.5%)
• Canada (10.8%)
• China (8%)
• UK (6.8%)
• Germany (5.4%)

3. Legal Framework in Force

The Defense Production Act of 1950 (the DPA) as amended by the Foreign Investment Risk Review Modernization Act (FIRRMA) signed into law in August 2018, and the implementing regulations contained in 31 C.F.R. Parts 800 and 802. The regulatory body charged with enforcing the DPA, as amended, is the Committee on Foreign Investment in the United States (CFIUS).

4. Last revision of the Legal Framework

FIRRMA was largely implemented on 13 February 2020, with new regulations in 31 CFR Parts 800 and 802. On 29 April 2020, CFIUS issued an interim final rule implementing filing fees for CFIUS notices filed on or after 1 May 2020. On 15 September 2020, CFIUS issued a final rule that modified the mandatory filing requirements for transaction that had not yet entered into a definitive agreement as of 15 October 2020.

5. Contextualization of the Legal Framework (Historical or other)

FIRRMA substantially revised and expanded CFIUS’s jurisdiction to review non-controlling investments into US businesses and joint ventures, and it created new jurisdiction to review real estate transactions. In addition to creating mandatory filing requirements for certain transactions, FIRRMA established a limited carve-out for investment funds and created a limited "excepted investor" framework to exclude from review certain investments from designated allied countries. During the negotiations and passage of FIRRMA, several members of Congress advocated for further expanding CFIUS’s jurisdiction to review outbound transfers of technology. Although the review of outbound transfers was left to US export controls and the creation of the “emerging and foundational” technologies identification and control in the Export Control Reform Act, passed with FIRRMA, the US government is closely evaluating a new outbound investment screening regime similar to CFIUS. 

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

CFIUS remains focused on national security concerns posed by foreign access to US critical technology, sensitive infrastructure and sensitive personal data, in addition to other traditional national security risk areas. Investments of this nature from China and Russia continue to receive increased scrutiny by CFIUS, but CFIUS review – and the mandatory filing regulations – are not geographically limited. CFIUS has jurisdiction to review investments by a “foreign person” into US business and real estate regardless of domicile or nationality. A “foreign person” includes any foreign national, foreign government or foreign entity. A “foreign entity” is one that is organized under the laws of a foreign state and either has its principle place of business outside the US or its equity securities are primarily traded on a foreign exchange. However, a foreign entity that is ultimately majority owned and controlled by US nationals is not considered a foreign entity. To determine whether an investor is a “foreign person,” CFIUS will review the entire ownership structure, including all individual beneficial owners with 5% or greater direct or indirect interest in the foreign investor. CFIUS also reviews the context and informal relationships between parties, including side agreements, affiliations, and related individuals to assess both foreign person status and national security risks.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

CFIUS has authority to review “covered control transactions,” i.e., transactions that could result in foreign “control” of a US business; “covered investments,” i.e., non-controlling investments in certain types of US businesses; and certain real estate transactions. A "US business" is broadly defined to include any entity engaged in interstate commerce in the US and may include assets that are sufficient to constitute a “business” even if not a registered or incorporated entity. Thus, a transaction structured as an asset purchase or the formation of a joint venture involving a US business may be subject to CFIUS review. Foreign “control” over a US business is broadly defined as “The power, direct or indirect, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, whether formal or informal, to act in concert, or other means, to determine, direct or decide important matters affecting an entity.”

Although assessing whether a foreign investor has “control” of a US business is a fact-specific analysis, CFIUS has traditionally found “control” where the foreign investor obtains greater than 10% voting equity, or less than 10% voting equity with material control rights, such as majority board representation. Since the implementation of FIRRMA, CFIUS also has authority to review noncontrolling investments in certain types of US businesses, known as “TID US businesses,” which include US businesses that (i) produce, design, test, manufacture, fabricate, or develop one or more “critical technologies;” (ii) own, operate, or provide support services to “critical infrastructure;” or (iii) collect or maintain “sensitive personal data” on US citizens. To be subject to CFIUS review, a noncontrolling transaction must afford a foreign person with one of the following rights:

• access to material non-public technical information of the US business; 
• membership, observer, or nomination rights on the board of directors; or 
• any involvement in substantive decision-making (other than through voting shares). 

As codified in 31 C.F.R. Part 802 (the CFIUS regulations specific to real estate transactions), CFIUS has jurisdiction to review purchases, leases and concessions of real estate by foreign persons, irrespective of whether such transactions involve a US business. CFIUS’s expanded authority to review real estate transactions is limited to those transactions involving property near sensitive US locations, such as airports, maritime ports, and military installations, and that afford the foreign investor with certain rights related to the property. There is no minimum value threshold for transactions subject to CFIUS jurisdiction.

8. Scope - sectors covered

CFIUS’s authority to review – and its interest in transactions – is not limited to any specific sectors.  CFIUS has identified national security concerns in many sectors that – at first glance – do not appear to be directly related to US national security or otherwise sensitive. In addition to the traditional national security sectors – aerospace and defense, energy, cybersecurity, critical infrastructure, and semiconductors – CFIUS has demonstrated an interest in several other areas. For example, CFIUS has focused recently on the following sectors: 

• Telecommunications 
• Agriculture
• Biotechnology
• Critical technology (e.g., artificial intelligence; big data analytics, advanced materials, PNT, sensors and lasers, etc.)
• Insurance
• Semiconductors
• Financial services
• Transportation
• Real estate
• US government contractors/suppliers
• Genetic information
• Pharmaceuticals
• Gene editing research and development

CFIUS also has particular interest in foreign state-owned (direct or indirect) enterprise investments in US businesses.

In September 2022, President Biden issued an unprecedented Executive Order providing formal presidential direction on the scope of national security risks for CFIUS to consider. The Executive Order enumerates priority technologies that are fundamental to US technological leadership and therefore US national security, including microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies.  

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Generally

CFIUS review is largely a voluntary process and, unless mandatory (as described below), it can occur pre- or post-closing. In most circumstances where CFIUS applies and the parties decide to file voluntarily, it is prudent to file pre-closing and have CFIUS approval as a condition to closing. CFIUS has authority to review completed transactions that it has not already reviewed (non-notified transactions) indefinitely. Thus, a decision not to notify CFIUS of a transaction subject to its jurisdiction may result in ongoing CFIUS risk after closing, including the possibility that CFIUS will require the parties to file a notice and impose conditions or force divestiture by the foreign party. Achieving CFIUS clearance prior to closing eliminates this risk. 

Controlling and Non-Controlling Transactions 

As described above, CFIUS has jurisdiction to review “covered control transactions,” i.e., transactions that could result in foreign “control” of a US business; “covered investments,” i.e., non-controlling investments in certain types of US businesses; and certain real estate transactions. Notably, this jurisdiction may include asset purchases or the formation of a joint venture anywhere in the world if a US business makes significant contributions of assets or technology. 

Mandatory Filings 

There currently are two circumstances where filing with CFIUS is mandatory: (i) “covered control transactions” or “covered investments” where the US business produces, designs, tests, manufactures, fabricates or develops a “critical technology” that requires a regulatory approval to the country of the foreign investor and other involved parties; or (ii) substantial investments in certain types of US businesses where a foreign government holds a “substantial interest” (greater than 49%) in the foreign investor. “Critical technology” includes: 

• military technologies controlled under the International Traffic in Arms Regulations (ITAR);
• certain civilian/military dual-use technologies controlled under the Export Administration Regulations (EAR); 
• certain nuclear facilities, equipment, and material; 
• select agents and toxins; and
• emerging and foundational technologies controlled pursuant to the Export Control Reform Act of 2018.

If a filing with CFIUS is mandatory, then it must be submitted at least 30 days prior to closing the transaction. In practice, receiving CFIUS approval prior to closing is the preferred approach unless compelling circumstances dictate otherwise. CFIUS has authority to prevent the parties from closing the transaction until it completes its review. There are exemptions for passive investments amounting to less than 10% voting equity and a carve-out for US investment funds with foreign limited partners, subject to certain conditions. There also is a limited exception for “excepted investors” from the UK, Canada, and Australia, subject to several conditions and limited to only certain transactions.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

Where a filing is required or submitted voluntarily, parties may choose to file jointly either a traditional “notice” or a short form “declaration.” 

Notice 

A notice is a more extensive submission that includes detailed information about the transaction structure, operations of the US business, ownership structure and investors, and leadership team. Once a notice is formally accepted, which typically takes several weeks, CFIUS has 45 days to review a notice, followed by an optional 45-day investigation period, which is required for approximately half of notices filed. The entire CFIUS notice process, including pre-filing period, typically takes approximately three to five months, but may be longer for more complicated or sensitive transactions. 

Declaration 

A declaration is a more abbreviated filing intended for less sensitive transactions. Upon acceptance of a declaration, CFIUS has 30 days to review and respond. The most significant limitation of a declaration is that, if CFIUS identifies any national security concerns and is considering potential mitigation, then it will likely require the parties to file a full notice and restart the three to five month timeline described above. CFIUS may also respond to a declaration by taking no action, which does not block the transaction but does not provide the safe-harbor of CFIUS approval. Thus, where a transaction is sufficiently complicated or presents a national security sensitivity, it is recommended to file a notice at the outset to avoid unnecessarily prolonging the CFIUS approval process.

12. Design – Transparency and Information requirements (Filing Forms?)

Parties submitting a filing with CFIUS should expect to provide very detailed information regarding the transaction, the parties involved, and each entity and individual in the chain of ownership and investors with at least 5% direct or indirect interest in the investor. In addition to the details provided in the filing, CFIUS often requests additional information during its review. 

Notice 

Notices typically are jointly filed by the parties, and each party certifies as to the information contained in the notice regarding itself and the transaction description. The required contents of voluntary notices are set forth in the regulations. In general, the contents include (i) detailed information about the US business that is the subject of the investment; (ii) detailed information about the acquirer and its ownership, all the way up chain of ownership to individuals with beneficial interests of 5% or more (even if a public company); and (iii) information about the transaction, including side agreements (e.g., distribution agreements) beyond the primary investment agreement. Required information also includes sources of financing for the transaction, and other regulatory approvals required for the transaction, and personal identifying information for the officers and directors of each entity in the ownership structure. Voluntary notices are typically at least 30 pages in length and include multiple lengthy exhibits. Parties are obligated to update the notice for material information. 

Declaration 

A declaration is a much shorter document (approximately five pages) containing: (i) a brief description of the transaction; (ii) a description of the interests being acquired by the foreign person; (iii) total transaction value; (iv) expected closing date; (v) sources of financing; (vi) access rights foreign person will acquire; (vii) a description of the US business; (viii) disclosure of the critical technologies involved and whether they are controlled under US export control laws (ITAR and EAR); and (ix) certain information relating to the foreign person’s ownership.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

CFIUS may approve a transaction by concluding that there are no unresolved national security concerns. This result may occur with or without conditions on the transaction. There are very few limitations on CFIUS’s ability to negotiate and impose conditions or mitigation measures. These measures may be as simple as a board resolution up to the implementation of special governance mechanisms such as independent directors installed on the board with fiduciary duties to the US government to protect US national security or requiring the spin-off of certain aspects of the US business. CFIUS also has the authority to block a transaction from closing or, if already completed, to force the foreign party to divest its interest under CFIUS’s supervision and to a CFIUS-approved buyer.

14. Interaction with other legal frameworks (ex: merger control)

A primary interaction of the CFIUS process with other US legal frameworks is with FOCI (foreign ownership control or influence) mitigation under the NISPOM for transactions involving a US business with a government security clearance to perform classified work. This FOCI mitigation process is overseen by the US Department of Defense’s Defense Counterintelligence Security Agency (DCSA). However, the CFIUS process and the FOCI process are separate.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The only grounds for CFIUS blocking a transaction is national security. Although national security is not strictly defined in the DPA or the regulations promulgated thereunder, non-exhaustive lists of examples are provided. CFIUS has interpreted national security very broadly. 

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

There is no judicial review or appeal right within the CFIUS process contained in the regulations. There have been only a few court challenges related to CFIUS on the grounds that the CFIUS process applied in those cirumstances was unconstitutional or violated required procedure or jurisdiction. Parties typically abandon the transactions that do not clear CFIUS. 

17. Publication in Official Gazette or other

The CFIUS process, including whether parties to a transaction have filed, and the outcome of any filing, is confidential and exempt from disclosure in response to US Freedom of Information Act (FOIA) requests. The parties may themselves disclose that a transaction has been subject to CFIUS review, which is most commonly done in connection with US public company compliance with reporting obligations under US securities laws.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

CFIUS has reported the following statistics for 2021: 

Total Notice Filings: 272

Approval with Mitigation: 26

Notices Withdrawn and Abandoned Due to National Security Concerns: 9

19. Stakeholders views on the Legal Framework

The US government relies on CFIUS as one of the foremost processes to protect against foreign investment or transactions that threaten to harm broadly-defined US national security. The expansion of CFIUS jurisdiction to review noncontrolling and real estate transactions and the creation of the mandatory filing requirements highlight the US government’s commitment to use CFIUS aggressively to protect against perceived threats. Despite this posture, the US government remains open to foreign investment, as evident by the very high percentage of transaction that are approved each year.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contacts: Nicholas Klein and Christine Daya

Last updated June 2023

1. Country: Australia

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

On the basis of the most current publicly available information the biggest investors in Australia are:

• US (25.6%)
• UK (17.8%)
• Belgium (9.1%)
• Japan (6.3%)
• Hong Kong (SAR of China) (3.7%)

Further FDI data is due for release in May 2023.

3. Legal Framework in Force

Australia’s foreign investment policy framework comprises the Foreign Acquisitions and Takeovers Act 1975 (FATA), its related regulations, and Australia’s Foreign Investment Policy. 

Australia's Foreign Investment Policy provides guidance on what factors are typically considered in assessing whether an investment proposal is contrary to the national interest. The concept of national interest includes factors such as national security, competition, the impact on the economy, the community, and the character of the investor. Where a proposal involves a foreign government or a related entity, the government also considers the commerciality of the investment by a foreign entity in Australia may require the formal submission of a proposal. This is subject to approval by the Australian Foreign Investment Review Board (FIRB).

4. Last revision of the Legal Framework

Significant amendments to the FIRB approval regime came into force from 1 January 2021.

5. Contextualization of the Legal Framework (Historical or other)

Since 29 March 2020, national security measures triggered by the COVID-19 pandemic require a AUD0 monetary screening threshold to be applied to all acquisitions subject to the FIRB regime. 

From 1 January 2021, the pre-29 March 2020, monetary thresholds for “notifiable actions” and “significant actions” were reinstated and significant changes were made to the FIRB regime.

A new federal government was elected in May 2022. While this immediately impacted penalties and the fees payable for assessing an application to FIRB, it is unclear whether the new government will implement any further reforms.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The FIRB examines proposals and advises the Australian government on whether those proposals are suitable for approval under the government's policy. Whether a proposal is required to be submitted to FIRB by the investor depends on the monetary value, the nature of the investment, and type of investor.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The applicable legislation provides that certain foreign investment proposals can be subject to compulsory or voluntary notification. 

A compulsory notification is required where the proposal constitutes both a notifiable action and significant action, or a notifiable national security action. 

A voluntary notification applies where the proposal constitutes a significant action or a reviewable national security action. Generally, a minimum 20% interest in a target is needed before FIRB approval is mandatory. Voluntary notification will typically apply in the case of the acquisition by a foreign person of a 10% interest or more in a target’s securities or in the assets of a business. Asset value thresholds also apply and depend on the nature of the asset and the acquirer.

8. Scope - sectors covered

Special thresholds apply if the target of the acquisition operates a national security business or is an agribusiness. In those cases any direct interest in a target that meets the applicable monetary threshold will require FIRB approval. The monetary threshold is nil if the acquirer is a foreign government investor or where the target operates a national security business.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

As noted above, investment by a foreign entity in Australia may require the formal submission of a proposal to FIRB who will assess whether a proposed transaction is consistent with the national interest. Whether notification is mandatory or voluntary will depend on the size of the interest and value of the asset. In certain circumstances (such as where the target operates a national security business), notification is compulsory irrespective of the value of the target.

10. Design – reciprocity?

Applicable monetary thresholds are generally more favorable to acquirers from one of the free trade agreement counties or regions; namely Canada, Chile, China, Hong Kong, Japan, Mexico, New Zealand, Peru, Singapore, South Korea, the US and Vietnam.

11. Design – Procedures and Deadlines

The Treasurer has 30 calendar days to make a decision in respect of a FIRB approval application and 10 furhter calendar days to notify the applicant. In practice, this timeframe is often extended. 

The timeframe for making a decision will not start until the correct application fee has been paid in full. If the Treasurer requests further information from the investor, the review period will be on hold until the request has been satisfied. It should also be noted that the holiday period usually affects these timeframes.

12. Design – Transparency and Information requirements (Filing Forms?)

The government may share documents lodged as part of an application with Commonwealth, state and territory government departments and agencies for consultation purposes. The government respects “commercial-in-confidence” information it receives and ensures that appropriate security is provided. The government will not provide applications to third parties outside of the government unless it has permission or it is ordered to do so by a court of competent jurisdiction. The government will defend this policy through the judicial system if needed.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Compulsory notification 

Where notification is compulsory, the proposed acquirer is legally obliged to notify FIRB of the proposed transaction, and failure to do so is a criminal offence. The acquirer cannot complete the proposed transaction unless and until it obtains FIRB approval. The treasurer can choose to approve the proposed transaction (i.e. grant FIRB approval) if it considers the transaction would not be contrary to the national interest. Approval can be given on an unconditional basis or subject to binding conditions. If the treasurer considers the transaction would be contrary to the national interest, it can make an order prohibiting the proposed transaction. If the transaction has already occurred, the treasurer has the power to make an order requiring disposal. 

Voluntary notification

Where voluntary notification applies and prior FIRB approval is not obtained, the acquirer is subject to the risk that the treasurer may, at any time within ten years after the transaction completes, exercise the call-in power to review the transaction on national security grounds. The treasurer can also make orders (such as a disposal order) if the it is not satisfied that the transaction is contrary to national security. 

14. Interaction with other legal frameworks (ex: merger control)

FIRB consults broadly with Commonwealth, state and territory government departments and agencies when assessing FIRB applications. In particular, FIRB consults with the Australian Competition and Consumer Commission (ACCC) the Australian Taxation Office (ATO) and, where critical infrastructure assets (such as telecommunications, gas, electricity, water and ports) are involved, the Critical Infrastructure Centre. The ATO conducts a "tax risk assessment" of each FIRB application. FIRB is entitled to adopt its own position on competition concerns, even if the ACCC clears a transaction, but engages with the ACCC on competition matters. The Critical Infrastructure Centre undertakes a national security risk assessment of a proposal where the target is a critical infrastructure asset.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

An investment proposal will be blocked if it is assessed to be contrary to the national interest. The concept of national interest includes factors such as national security, competition, the impact on the economy, the community, and the character of the investor. Where a proposal involves a foreign government or a related entity, the government also considers the commerciality of the investment.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Applicants have no right of administrative or judicial review of foreign investment decisions made under the FATA or the policy. The Administrative Decisions (Judicial Review) Act 1977 specifically exempts decisions made under the FATA from judicial review.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contact: John Fogarty and Shane Bilardi

Last updated June 2023

1. Country: China

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the Statistical Report of Foreign Direct Investment (FDI) in China issued by the Ministry of Commerce (MOFCOM), the top five sources of foreign direct investment in China as of 4 January 2023 were:

• Hong Kong (SAR of China) (72.8%)
• Singapore (5.7%)
• British Virgin Islands (2.9%)
• South Korea (2.2%)
• Japan (2.2%)

Investors from other jurisdictions often channel investments into China through entities organized in Hong Kong, Singapore, and BVI. 

3. Legal Framework in Force

• Article 35 of the Foreign Investment Law of the People’s Republic of China (FIL), promulgated by China’s National People’s Congress on 15 March 2019, explicitly provides for the establishment of a security review mechanism for foreign investment. Under the mechanism, a security review shall be conducted for any foreign investment that affects or may affect national security.¹
• The Measures for Security Review of Foreign Investment (MSRFI) were jointly promulgated by the National Development and Reform Commission (NDRC) and MOFCOM on 19 December 2020 pursuant to the FIL and other relevant laws.²
• The MSRFI replace and expand existing procedures for a central government inter-ministerial working group to assess the national security implications of direct and indirect foreign investments in China and to remedy national security risks by blocking, modifying, or unwinding transactions.

¹Zhonghua Renmin Gongheguo Waishang Touzi Fa (《中华人民共和国外商投资法》) [Foreign Investment Law of the People’s Republic of China] (promulgated by the National People’s Congress, 15 March 2019, effective 1 January 2020), (Ch.).
²Waishang Touzi Anquan Shencha Banfa (《外商投资安全审查办法》) [Foreign Investment Security Review Measures] (promulgated by the National Development and Reform Commission and the Ministry of Commerce, 19 December 2020, effective 18 January 2021), (Ch.).

4. Last revision of the Legal Framework

• The MSRFI have not been revised since taking effect on 18 January 2021.

5. Contextualization of the Legal Framework (Historical or other)

• The enactment of the MSRFI reflects the confluence of (1) a global trend in which many jurisdictions have adopted or expanded formal mechanisms for reviewing FDI on national security, public interest, and other policy grounds and (2) domestic policy pressures to compensate for the recent liberalisation of the general FDI regime by strengthening national security review procedures. 
• Throughout most of the “reform and opening up” period, China’s general foreign investment regime categorized sectors into “positive lists” of industries where foreign investment was “encouraged,” “permitted,” and “restricted.” All investments by foreign parties were subject to examination, approval, and licensing requirements. These general foreign investment regulations had the effect of blocking or deterring potentially problematic transactions at the provincial or local level.  
• Measures enacted in 2006 and 2011 provided for an interdepartmental review of foreign investments with potential national security implications at the central government level.³ However, these measures remained largely dormant as informal consultations with officials or initial applications at the provincial or local level tended to identify and resolve national security concerns or other political challenges.
• The Chinese government substantially streamlined the foreign investment regime, initially with the establishment of pilot free trade zones and subsequently on a nationwide basis under the FIL. When the FIL took effect on 1 January 2020, it established a new nationwide system in which foreign investors enjoy the same rights as domestic investors in most circumstances in most sectors. There is an exception fot industries specified on “negative lists.”⁴ The FIL also abolished many requirements for advance examination and approval of foreign investments, eliminating opportunities for lower and regional level bureaucracy to anticipate and address potential national security concerns.  
• Soon after the FIL was promulgated, the inter-departmental review mechanism became more active, initiating reviews and intervening in some proposed investments.  
• The MSRFI effectively overhauled the existing interdepartmental mechanism.
• In the new Five Year Plan, released in March 2021, the liberalisation of the general FDI regime was explicitly linked to the strengthening of other control mechanisms, declaring the need to “[b]uild a supervision and risk prevention and control system that matches China’s higher-level opening-up pattern,” including efforts to “improve the early warning system for industrial damage, enrich policy tools such as trade adjustment assistance and trade remedies, and properly respond to economic and trade frictions” and to “improve foreign investment national security review and anti-monopoly review, and the administration of the national technological security list, unreliable entity list and other systems.”

³Shangwubu Shishi Waiguo Touzizhe Binggou Jingnei Qiye Anquan Shencha Zhidu De Guiding (《商务部实施外国投资者并购境内企业安全审查制度的规定》) [Provisions of the Ministry of Commerce on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors] (promulgated by the Ministry of Commerce, 25 August 2011, effective 1 September 2011), (Ch.).
⁴FIL, Art. 4 (Ch.).

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

• The MSRFI provides that any “foreign investment” that “has or possibly has” an “impact on national security shall be subject to security review, regardless of the origin of FDI.
• According to Article 2 of the National Security Law of the People’s Republic of China, national security is defined as a relative status of the nation not being endangered and not being threatened internally and externally with regard to government, sovereignty, unity and territorial integrity, people’s welfare, sustainable development of economy and society, and other major national interest as well as the capability to secure the status of sustained security.  
• In practice, Chinese authorities may construe national security extremely broadly.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

• The MSRFI broadly defines “foreign investment” to include “any investment activity carried out directly or indirectly by a foreign investor within the territory of the PRC” in which a foreign investor “(i) solely or jointly with any other investor, invests in the construction of a new project or the establishment of an enterprise in China;” (ii) “by means of merger and acquisition, acquires the equity or assets of any enterprise in China;” or (iii) “makes an investment in China by other means.” 
• This language broadens the scope of national security review to encompass minority investments and greenfield projects, and in theory, also the offshore transactions between foreign parties resulting in a change in the ultimate foreign control of existing foreign investment in China.

8. Scope - sectors covered

The MSRFI establishes two categories of transactions subject to mandatory review: 

1. defence-related investments; and
2. control investments in “important” sectors, which include: 
   1. important agricultural product;
   2. important energy and resources;
   3. major equipment manufacturing;
   4. important infrastructure;
   5. important transportation services;
   6. important cultural products and services;
   7. important information technologies and internet products and services;
   8. important financial services, key technologies and other important fields that concern national security.

These categories may be construed to encompass a wide range of products, services, and sectors.

For any foreign investment in these categories, the MSRFI provide that “a foreign investor or a party concerned in China . . .shall take the initiative” to submit a declaration to the working mechanism office before making the investment.⁵

⁵MSRFI, Art. 4 (Ch.).

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

• As mentioned above, two categories of transactions under the MSRFI are subject to mandatory review.
• The MSRFI applies both to acquisitions of sole or joint control in the important sectors, and to non-controlling minority investments in defence-related sectors.
• The MSRFI establish an ex-ante review mechanism. A transaction subject to mandatory notification must be reported before closing. Upon receiving the relevant notification materials, the working mechanism office which is led by the NDRC and MOFCOM will determine whether general national security shall be conducted. If the working mechanism office does not initiate a general review, then the transaction parties may proceed with the transaction. If a security review is initiated, then the transaction must be suspended until the security review is completed. 

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

The MSRFI establishes a review process consisting of successive preliminary, general, and special review phases.

Preliminary Review: Within 15 working days of receipt of a complete declaration package, the working mechanism office shall make a threshold determination of whether or not to initiate a general security review of the declared investment, and shall notify the parties of its decision in writing. If the working mechanism office does not initiate a general review, then the parties may proceed with the transaction. If a security review is initiated, then the parties must suspend the investment, and may not proceed with the transaction until the review is completed.⁶

General Review: General reviews are to be completed within 30 business days of initiation. If the working mechanism office determines that the reported investment will not impact national security, it shall approve the transaction and notify the parties in writing. If the working mechanism office determines that the reported transaction impacts or may impact national security, it shall initiate a special review and notify the parties in writing.⁷

Special Review: Special reviews are to be completed within 60 working days of initiation, except in “exceptional” circumstances (not defined by the MSRFI). If the working mechanism office determines that the reported investment will not impact national security, it shall approve the proposed investment and notify the parties in writing. If the working mechanism office determines that the reported transaction will or may impact national security, then it may either prohibit the investment or conditionally approve the transaction subject to the parties’ agreement to remedial commitments.⁸

It is worth noticing that the review deadlines are tolled while information requests are outstanding. Changes in investment plans will lead to the rest of the review deadlines.

⁶MSRFI, Art. 7 (Ch.).
⁷MSRFI, Art. 8 (Ch.).
⁸MSRFI, Art. 9 (Ch.).

12. Design – Transparency and Information requirements (Filing Forms?)

Declarations may be submitted by a foreign investor or its counterpart in China.⁹ Declarations must include basic information regarding the proposed investment, and a statement on whether the investment may affect national security.¹⁰ The working mechanism office may also require submission of other materials. The MSRFI allow parties to consult with the working mechanism office regarding the applicability of national security review or filing requirements.¹¹

⁹Id.
¹⁰MSRFI, Art. 6 (Ch.).
¹¹MSRFI, Art. 5 (Ch.)

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

The working mechanism office may unconditionally clear a transaction, prohibit a transaction, or conditionally approve a transaction subject to remedial commitments. 

The MSRFI does not define the potential remedies that might be imposed to address national security concerns. The relevant provisions would appear to allow commitments to divest (or carve out) certain assets or business lines, to adopt specific commercial or security policies, to cooperate with government supervision of certain functions, or other remedies common to other countries’ foreign investment review regimes. The parties’ compliance with the remedial commitments may be verified through periodic reporting requirements, on-site verification, or other means.

14. Interaction with other legal frameworks (ex: merger control)

Other government authorities, enterprises, social organizations, or members of the general public may report to the working mechanism office any foreign investment that might impact national security. They may also “make a suggestion” to the working mechanism office for a national security review. In addition, the working mechanism office may be made aware of a transaction that is subject to other regulatory approvals, such as a merger review by the State Administration for Market Regulation or securities registration with the Securities and Exchange Commission.

Offshore transactions may come to the authorities’ attention through antitrust reviews by SAMR or by routine corporate compliance filings disclosing changes in the ultimate controlling shareholders of Chinese entities.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

A transaction may be blocked or subject to remedial commitments if it affects Chinese national security, which may be broadly defined.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

The FIL specifies that the national security decision made by the relevant authority is final, and therefore not subject to judicial review.

17. Publication in Official Gazette or other

The security review process and the outcome thereof under the MSRFI are usually confidential.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contacts: Nathan Bush and Leah Li

Last updated June 2023

1. Country: Japan

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the statistics provided by the Japan External Trade Organization (JETRO) (JETRO Invest Japan Report 2022), the five biggest FDI countries of origin were:

• US (approx. 22.8%) 
• UK (approx. 14.0%)
• Netherlands (approx. 9.7)
• Singapore (approx. 9.2%)
• France (approx. 7.8%)

3. Legal Framework in Force

In Japan, the Foreign Exchange and Foreign Trade Act (FEFTA) regulates FDI. The FEFTA applies to FDI conducted by foreign investors in the form of, among others: 

1. the acquisition of 1% or more of shares of listed companies;
2. the acquisition of shares of unlisted companies;
3. the transfer of shares from a non-resident individual to a foreign investor (where a non-resident acquired such shares while a resident);
4. a substantial change in the business purpose of a domestic company (if the company is a listed company);
5. the establishment of a branch, factory or other business office (excluding a representative office) in Japan, or substantially changing the type or business objectives of such a branch, factory or other business office, excluding those with the business objectives of:
   • banking;
   • foreign insurance;
   • gas;
   • electricity;
   • certain types of securities;
   • investment management;
   • foreign trust; and
   • fund transfer
6. loans over one year to Japanese corporations exceeding a certain threshold; and
7. a business succession caused by a business transfer, an absorption-type split or mergers by resident companies (excluding the cases of (1) and (2)). 

In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the Minister of Finance and the relevant ministries through the Bank of Japan.

The purpose of imposing a reporting requirement is to make a statistical record resulting in no ex post facto review or investigation conducted by the government. However, the FEFTA requires prior notification for certain limited investments involving particular areas of businesses and particular geographic areas or countries. Please refer to point 6 below for the details of the prior notification.

4. Last revision of the Legal Framework

The latest revision of the FEFTA was made on 29 December 2022.

5. Contextualization of the Legal Framework (Historical or other)

The FEFTA was enacted in 1949. The original FEFTA reflected the environment surrounding Japan’s economy at the time, and therefore foreign transactions were basically prohibited under the original FEFTA.

In 1980, the FEFTA was amended, and foreign transactions became available as a rule. In 1998, the FEFTA was further amended, and the prior-permission system and prior-notification system were basically abolished for the purpose of making both domestic and foreign transactions move freely and quickly. Through these amendments, FDI into Japan by foreign investors was free from legal barriers in principle, and remained this way for more than a decade since.

In 2017, a system was established with the power to force foreign investors who have made FDI regarding security-related investments without notification to sell shares, etc., by government orders. In addition, under the amended FEFTA, foreign investors are able to acquire unlisted shares from other foreign investors subject to a regulation of notification with prior screening. Through these amendments, the FEFTA has more strict restrictions toward FDI in favor of national security.

In 2020, the FEFTA was once again amended to further tighten the regulations on “inward direct investment” by a foreign investor (2020 Amendments), aiming to ensure that Japan's foreign investment regime cannot be exploited by foreign investors that may endanger national security. Under the 2020 amendments, the definition of “inward direct investment“ was further expanded by reducing the prior notification requirement threshold concerning the acquisition of shares or voting rights of listed companies in Japan from 10% of all outstanding shares or voting rights to 1%.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The Japanese government has placed relatively few restrictions on FDI. As mentioned above in point 3, the FEFTA requires prior filing for certain limited investments involving particular areas of business or particular geographic areas or countries only. The business-related restrictions are imposed on, among others, investments on business related to:

• national security (e.g., weapons, airplanes, nuclear power or space development);
• public infrastructure (e.g., electricity, gas, water, telecommunications or railways);
• public safety (e.g., vaccine manufacturing or private security services); and
• domestic industry protection (e.g., agriculture).

The geographic area-related restrictions are imposed on, among others, investments concerning countries with which Japan has not executed a treaty on FDI (e.g., Iran) and certain activities involving those governments, entities, individuals or groups.

If the investment falls into any of the above mentioned sensitive categories (Exceptional Category), the investor who intends to make such an investment is required to submit a prior notification of the intended investment to the Ministry of Finance and relevant ministries through the Bank of Japan within six months from the expected date of FDI. Note that if the investor is not a resident of Japan, such prior notification shall be submitted by an agent who is a resident of Japan. The Ministry of Finance and relevant ministries will then review the report within 30 days from filing in principle. After reviewing, the relevant ministries may order a suspension or amendment of the filed FDI if they find the investment is likely to:

• impair national security;
• impede public order;
• hamper the protection of public safety; or
• have a significant adverse effect on the smooth management of the Japanese economy.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Under the FEFTA, as stated previously, acquisitions of minority interests, except for acquisitions of less than 1% of the shares of listed companies, are generally regulated by the FEFTA. Please note, however, certain exemptions exist for filing requirements triggered by the 1 % or more acquisition rule.

8. Scope - sectors covered

Please refer to point 6 above.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

When foreign investors invest in Japan, they are required to submit an ex post facto report in general. In addition, as aforementioned, if such an investor falls under the Exceptional Category, the investor shall make a prior notification.

These ex post facto reports and prior notifications are mandatory for every investment that falls within the scope of the regulation. Both individuals and legal entities may be subjected to a wide range of sanctions (both are subject to fines, and individuals may also face imprisonment) for failing to file the ex post facto report and the prior notification.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

Under the FEFTA, if an investment falls into an Exceptional Category that requires the filing of prior notifications, the investor who intends to make such an investment is required to submit a prior notification of the intended investment to relevant ministries.

After filing the prior notification, the investor may not make an investment for a period of 30 days from the date that the Ministry of Finance and relevant ministries accept the application (i.e., waiting period). However, this waiting period is normally shortened to two weeks in accordance with the relevant ordinance. According to the Ministry of Finance, more than 95% of all applications have been so shortened.

Moreover, with an aim to facilitate more FDI in Japan, the Ministry of Finance and other relevant ministries have implemented expedited fast-track options for Greenfield investment (i.e., certain investments involving a wholly-owned Japanese subsidiary), rollover investments (i.e., the same type of investment by the same investor which has been filed within the previous six months by the same investor) and passive investments (i.e.,  the investor does not proactively participate in the management or take control of the company). If the fast-track option applies, the waiting period will be further reduced to five business days.

Once the investor submits the report, relevant ministries will then review the filed report within 30 days from filing in principle, subject to the abovementioned exceptions. After reviewing, the Minister of Finance and relevant ministries may recommend a suspension or amendment of the filed investment if they find the investment is likely to:

• impair national security;
• impede public order;
• hamper the protection of public safety; or
• have a significant adverse effect on the smooth management of the Japanese economy.

When the Minister of Finance and relevant ministries recommend suspension or amendment of the filed investment, the investor has to answer whether it will (i) comply with the recommendation or (ii) refuse the recommendation. If the investor does not answer the recommendation or refuses the recommendation, the Minister of Finance and the relevant ministries may order a suspension or amendment of the filed investment.

However, if the authority finds that there needs to be a review procedure on whether the investment is likely to impair national security, impede public order or compromise public safety, the waiting period can be extended to up to five months.

Note that it is extremely rare for ministries to issue such an order. In fact, there has been only one case where the ministries have actually issued an order for the suspension of investments under the current FEFTA.

If the FDI does not fall under an Exceptional Category that is required to file prior notifications, the investor who intends to make such an investment is generally required to submit an ex post facto report to the Minister of Finance and relevant ministries through the Bank of Japan by the 15th day of the following month in which the investor conducts the FDI.

12. Design – Transparency and Information requirements (Filing Forms?)

When an investor is required to file prior notification, the investor needs to prepare the notification by using the prescribed notification forms. Such forms are available on government websites.¹

There are several types of forms. The forms vary in accordance with the types of FDI the investor will conduct. The investor shall file such notification to the Minister of Finance and the competent minister through the Bank of Japan.

When an investor is required to submit an ex post facto report, the investor needs to prepare the report by also using the prescribed report forms² and submit such report to the Minister of Finance and the competent minister through the Bank of Japan.

¹The forms of the notifications are available here. (Japanese)
²The forms of the reports are available on the same websites as the notifications in footnote 1.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

• When the Minister of Finance and the competent minister for the business find, through examination, the filed FDI falls under the FDI pertaining to national security, etc., they may recommend an investor who has given notification of the FDI, etc. to amend the content of the FDI or discontinue the FDI after hearing opinions of the Council on Customs, Tariff, Foreign Exchange and other Transactions.
• When an investor who has received a recommendation, fails to give a reply notice pursuant to the provisions of the paragraph or has given a notice of refusal of the recommendation, the Minister of Finance and the competent minister for the business may order the investor to amend the content pertaining FDI, or to discontinue the FDI.

Also please refer to point 11.

14. Interaction with other legal frameworks (ex: merger control)

As mentioned in point 3 above, the followings are subject to the regulation of the FEFTA:

• the acquisition of 1% or more shares in listed companies; and
• the acquisition of shares of unlisted companies from a domestic investor.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Please refer to point 6 above for the grounds for blocking.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

A negative decision can be appealed. A party can appeal to the relevant ministry challenging the orders rendered by the authority to sustain or amend the content of the investment.

The ministry receiving a motion of appeal is required to hold a public hearing after giving a reasonably lengthy advance notice.

The party who is dissatisfied with the decision by the relevant ministry in the appeal procedure may opt to bring an action to court.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

As stipulated above, the relevant ministries may order a suspension or amendment of the filed FDI in certain situations. Before issuing an order to suspend or amend the content of an investment, the relevant ministers are required to hear opinions from the Council on Customs, Tariff, Foreign Exchange and other Transactions.

The Council shall be comprised of academic experts nominated by the Minister of Finance. Competitors or customers may not be involved in the review process. Note that there are no procedures allowing complainants to participate.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

Whether future legislation will take place to adapt with the new EU regulation is not certain.

21. Other relevant information

N/A

Contact: Tony Andriotis

Last updated June 2023

1. Country: New Zealand (NZ)

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

On the basis of the most currently publicly available information:

1. Australia (50.4%)
2. Hong Kong, Special Administrative Region of China (8.49%)
3. United States of America (6.55%)
4. Japan (4.97%)
5. United Kingdom (4.72%)

3. Legal Framework in Force

The regime is comprised of the Overseas Investment Act 2005 (Act) and associated regulations. Under the Act, overseas persons are required to obtain consent before investing in certain assets in NZ. The Act provides broad discretion for the relevant Ministers or the Overseas Investment Office (OIO) (where delegated by the relevant Minister) to grant consent, grant consent with conditions, or refuse an application entirely. Consent is required for acquisitions of significant business assets and sensitive land. A national interest assessment is applied to consent applications for investments by non-NZ governments and acquisitions of strategically important businesses. There is also a 'call-in' regime for investments in strategically important businesses that do not otherwise require consent.

4. Last revision of the Legal Framework

The regime has been subject to a comprehensive overhaul over the last few years which is aimed at strengthening the regime for high-risk investments, while streamlining the process for low risk investors. In 2020 the Act was amended to introduce the national interest test, which covers investments by non-NZ government investors and investments in 'strategically important businesses' such as utilities and media companies. In 2021, the process was streamlined for overseas persons who wish to acquire sensitive land by requiring the investor to do a status quo 'before and after' analysis of the benefits likely to arise from the acquisition as opposed to a counterfactual ‘before and after’ analysis of the benefits and the thresholds for acquiring farm land have been strengthened. In 2022, there was reform to tighten the rules in relation to the conversion of farmland to production forestry.

5. Contextualization of the Legal Framework (Historical or other)

National security measures were triggered by the COVID-19 pandemic which came into effect in June 2020. The effect of these measures was to require all overseas investments in significant business assets and sensitive land where a more than 25% interest was being acquired regardless of the value. From 7 June 2021 these measures were replaced by a permanent national security and a public order 'call-in' regime applies to investments in strategically important businesses that would not otherwise require consent.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Consent must be obtained where the proposed investment exceeds the thresholds set out in the Act for significant business assets or sensitive land (see below). Where a transaction that requires consent triggers the national interest test, the relevant Ministers must decide whether the investment is contrary to NZ's national interest, in which case they can either impose conditions on the consent to manage any risks associated with the investment or decline consent. For transactions that do not require consent but are subject to notification under the call-in regime, the Minister must issue a direction order either permitting the transaction, permitting the transaction with conditions or prohibiting the transaction. Any transaction that is subject to the call-in regime that is not notified can still be called in by the Ministers if the Ministers consider that the transaction could be contrary to NZ’s national interest, even if it has already been given effect to.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Consent is required for the acquisition of a more than 25% ownership or control interest in a company (or an increase in an existing more than 25% interest) where the consideration paid, or the assets of the company, exceeds NZ$100 million. Higher value thresholds apply to some countries that have trade agreements with NZ. Consent is also required to purchase or lease (for a term of 10 years or more) sensitive land that is residential land or non urban land including farmland greater than five hectares, land adjoining the sea, a lake or various types of reserves, and land containing or adjoining conservation/heritage land, or to acquire a more than 25% ownership or control interest (or increase an existing more than 25% interest) in an entity that owns or controls an interest in sensitive land. The Act restricts the ability for an overseas person to acquire an interest in a fishing quota or to invest in a business that, directly or indirectly, owns or controls a fishing quota without consent.

8. Scope - sectors covered

The focus is on investments in "sensitive land", and those that exceed a certain monetary thresholds. A national interest test applies to non-NZ government investors and strategically important businesses such as utilities and media businesses. Special consent pathways apply for development of new housing and existing forestry. As above, the investment pathway relating to overseas investment in forestry particularly in respect of the conversion of farm land to production forestry has been tightened in 2022 and it is now more difficult to obtain consent to convert farm land to production forestry as applicants are required to apply for consent under the benefits to NZ test rather than the special forestry pathway.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

If a transaction requires consent under the Act, an application for consent must be submitted to the OIO for approval by it or the relevant Ministers before the transaction is given effect. Any such transaction must therefore be conditional upon OIO consent being obtained. The national interest test will be applied to any transactions that trigger it during the course of the consent application. Transactions that do not otherwise require consent may be subject to notification under the 'call-in' regime. Notification is mandatory where a business involves military or dual-use technology or a 'critical direct supplier'. Otherwise, notification is voluntary but transactions may still be called-in by the relevant Ministers and thereby risk being blocked even if they have already been given effect to. We also note that where an investor wishes to acquire farmland in New Zealand, they cannot enter into a sale agreement to purchase the farmland until the land has been publicly advertised to New Zealanders in accordance with specific requirements under the Act.

10. Design – reciprocity?

Higher thresholds apply for certain countries with which New Zealand holds free trade agreements such as Korea, Japan, China, Hong Kong, Australia, Singapore and other countries that are party to the CPTPP. Investors from Australia and Singapore are also generally exempted from the requirement to obtain consent to acquire residential land that is not otherwise sensitive.

11. Design – Procedures and Deadlines

There are statutory timeframes which vary in time depending on the consent pathway. Generally, these timeframes range from approximately 10 working days to 200 working days. However, we note that there are no ramifications for the OIO if these timeframes are not met and so they serve as a guideline only and are often exceeded.

12. Design – Transparency and Information requirements (Filing Forms?)

Applications must be made using the OIO's online forms. The OIO will consult on aspects of an application with relevant Government departments and agencies such as the Department of Conservation and Heritage New Zealand. All applications are subject to disclosure under the Official Information Act 1982, although applicants can request confidentiality under certain grounds.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Where consent is required, this must be obtained in advance of giving effect to any transaction and the transaction must be conditional on obtaining consent. Consent can be given subject to conditions with which the overseas person must comply. Non-compliance can result in consent being withdrawn and divestment of any acquired property. Where a transaction is subject to the call-in regime, the Ministers must give a direction order either approving the transaction which may be subject to conditions to manage any risks associated with the transaction or blocking the transaction if it is contrary to national security or public order. Transactions to which the notification regime applies that are given effect to without being notified may still be called-in by the Ministers where the Ministers consider that the transaction could be contrary to NZ’s national interest with the attendant risk of being unwound.

14. Interaction with other legal frameworks (ex: merger control)

For transactions involving sensitive land the OIO will consult with other relevant government agencies such as the Department of Conservation, Heritage New Zealand and the Walking Access Commission. Where competition issues arise, the OIO may consult with the Commerce Commission which regulates restrictive trade practices and merger control. For transactions involving strategically important businesses, consultation is undertaken with a range of government agencies including the relevant regulatory agency such as the Telecommunications Commission and the Electricity Commission.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Consent will only be granted where the transaction meets the thresholds set out in the Act. For sensitive land this is generally whether the proposed investment would result in a substantial and identifiable benefit to New Zealand. Consent will not be granted for transactions that are contrary to the national interest. Transactions that are subject to the call-in regime may be blocked if they are contrary to national security or public order. The OIO and relevant Ministers have a wide discretion to make such decisions. All applications for consent must satisfy the investor test. The investor test encompasses 12 factors which focus on serious and proven matters going to the character and capability of the relevant overseas person(s) and individual(s) with control. To the extent that any of the factors apply, the investor will need to set out in their application why the factor does not make the investor unsuitable to own and control the asset.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Decisions of the Ministers and the OIO may be challenged through the judicial review process in the New Zealand High Court. Applications for judicial review are time-consuming and expensive, and will only consider the fairness of the decision-making process rather than the merits of the decision.

17. Publication in Official Gazette or other

The OIO publicly releases summaries of consent decisions whether granted or declined. Summaries of direction orders are only released where the transaction is approved, with or without conditions. Requests can be made for access to information about applications under the Official Information Act 1982, which has a number of grounds for withholding information such as commercial sensitivity.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

Decision summaries are published on the OIO's website: www.oio.govt.nz

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contacts: Martin Thomson, Pavanie Edirisuriya

Last updated June 2023

1. Country: Thailand

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

For 2021¹, the top five countries that invested in Thailand (by amount of capital) are as follows:

• Hong Kong (52%)
• Japan (28%)
• Singapore (8%)
• South Korea (2%)
• The People's Republic of China (1%)

¹Report available here.

3. Legal Framework in Force

The Foreign Business Act B.E. 2542 (1999), as amended (the FBA), is the key legislation prescribing legal requirements respecting foreign direct investment in Thailand. The FBA restricts Foreigners² from operating certain business activities unless granted a foreign business license (FBL) or foreign business certificate (FBC).

There are three lists attached to the FBA, which elaborate types of restricted activities categorised by level of prohibition. List 1 indicates strictly prohibited business activities that the Foreigner is not permitted to conduct or apply for the FBL or the FBC. List 2 indicates types of businesses related to national safety or security, or having impacts on arts, culture, traditions, customs and folklore handicrafts or natural resources and environment. List 3 includes business activities in which Thai nationals are not ready to compete with Foreigners. Unless exempted by relevant regulations, the operation of business activities under List 2 and List 3 by Foreigners requires an FBL or FBC to legally operate the business in Thailand.

Thai Land Code and regulations issued by the Ministry of the Interior generally govern an ownership, possession and usage of land in Thailand. Foreigners defined under the Land Code are prohibited from owning land unless exempted by relevant regulations, such as being granted with the Board of Investment promotion certificate (BOI Certificate) or operating business within the Industrial Estate Authority of Thailand, etc.

In addition to the FBA and Thai Land Code, legal limitation or restriction on foreign direct investment (which may include nationality of directors or the control over management of such business) may also be prescribed in specific legislation, such as laws governing insurance, financial institutions and credit bureau businesses, etc.

²A foreigner is defined in the FBA as:

1) a natural person who does not have Thai nationality;
2) a juristic person that is not registered in Thailand;
3) a juristic person that is registered in Thailand and possesses the following characteristics:
       a) a juristic person with 50% or more of its capital held or invested by persons under 1) or 2), or
       b) a limited partnership or a registered ordinary partnership whose managing partner or manager is a person under 1); or
4) a juristic person registered in Thailand with 50% or more of its capital held or invested by persons under 1), 2) or 3).

4. Last revision of the Legal Framework

Latest amendments to the FBA and Thai Land Code:

• the Lists attached to the FBA were made in 2013
• the Thai Land Code was made in 2019

5. Contextualization of the Legal Framework (Historical or other)

The relevant ministerial regulations and subordinated laws under the FBA and Thai Land Code were updated periodically. For example, the ministerial regulations prescribing, (i) minimum capital requirements to be brought into Thailand, and (ii) the service business being exempted from approval, were updated in 2019. 

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Under the FBA, if the Foreigner, (i) is qualified under treaties or international trade agreements to which Thailand is a party, or (ii) receives a BOI Certificate, it shall apply for an FBC as opposed to an FBL. In brief, there are 5 treaties and international trade agreements (to which Thailand is party) entitling certain qualified Foreigners to apply for an FBC: (i) AFAS, (ii) ACIA, (iii) JTEPA, (iv) TAFTA, and (v) U.S.-Thai Treaty of Amity.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The requirements and qualifications required to apply for an FBC using the route of treaties or international trade agreements are slightly different based on the relevant treaties or international trade agreements. Generally, the usual requirements and qualifications relate to shareholding ratio and nationality of shareholders and/or (authorised) directors. In certain cases, an application for an FBC will not be permitted where the business activities to be requested for approval fall under the reserved lists.

8. Scope - sectors covered

Please refer to questions 3 and 7 above.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

If the Foreigner is subject to notifications or approval requirements under the FBA, the Foreigner must notify or obtain the relevant approvals (e.g., FBL or FBC and BOI Certificate) in order to legally operate the restricted business in Thailand. Failure to comply with legal requirements under the FBA may result in criminal penalties.

10. Design – reciprocity?

Please refer to question 6 above.

11. Design – Procedures and Deadlines

To apply for an FBL, an applicant must submit the application form and required supporting documents to the Foreign Business Division of the Ministry of Commerce of Thailand (MOC). Once all documents and information are satisfactory as per the officer's sole discretion, the applicant shall pay the application fee of THB 2,000. Within 60 days of the application fee payment, the MOC will notified to the applicant of the result. Please note that the timeframe could be prolonged due to many factors, such as a request for additional documents or internal consideration and process, etc.

For an FBC, the procedures and timelines could be different according to the applicable option (e.g., treaties, international trade agreements or BOI Certificate). In general, if the applicant applies for an FBC under the treaties or international trade agreements, one of the key documents required is a letter certifying the nationality of the applicant issued by the relevant embassy.

12. Design – Transparency and Information requirements (Filing Forms?)

Please refer to question 11 above.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Under the FBA, the competent authority may decide to grant the FBL or FBC, reject the application, or extend the timeframe for consideration of the application. If the application is rejected, the applicant is entitled to appeal the order according to the requirements under the FBA.

In case of non-compliance with legal requirements under the FBA, the competent authority may order the applicant to rectify such non-compliance according to a specified timeframe. Failure to rectify non-compliance may lead to, (i) temporary suspension of the FBL or FBC or of the business operation, or (ii) revocation of the FBL or FBC.

14. Interaction with other legal frameworks (ex: merger control)

The main competition legislation in Thailand is the Trade Competition Act B.E. 2560 (2017), as amended (the TCA), supervised by the Trade Competition Commission of Thailand. There are also specific laws and regulations, which govern competition matters in particular industries, such as the Energy Business Act B.E. 2550 (2007) (as amended), the Broadcasting and Television Business Act B.E. 2551 (2008) (as amended) and the Telecommunication Business Act B.E. 2544 (2001) (as amended). In such cases, the TCA will apply to the business sectors, where the laws concerning anti-trust are already in place.

According to the TCA, the consolidation of business is subject to pre-merger approval or post-merger notification. 
If a transaction meets the prescribed thresholds (e.g., market share, turnover, etc.), it will be subject to the requirement of pre-merger approval or post-merger notification, as applicable.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

According to the Thai Civil and Commercial Code, as amended (the CCC), which is the primary and general legislation respecting individuals and private entities. The CCC incorporates the concept of public order or good morals of Thai people, which is used as a test for determining whether an action is void. Simply put, if an action is considered expressly prohibited by law or impossible, or contrary to law concerning public order or good morals, such action will be void and have no legal effect. 

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Under the FBA, if there is an offence and the matter is brought to litigation, the Thai court would determine the case and issue an order according to the relevant offence. For example, where there is a use of nominee arrangement, the court is empowered to order a cessation of such business operations or termination of shareholding status, etc. 

Thai court systems can be divided into four main systems: (i) Courts of Justice; (ii) Constitutional Court; (iii) Administrative Court; and (iv) Military Court. The Courts of Justice are the most common courts and deal with extensive types of matters including those pertaining to carrying out business in Thailand. The Courts of Justice has a three-tier court system, in order of seniority, (i) the Court of First Instance, (ii) the Court of Appeal (including a Court of Appeal for Specialized Cases), and (iii) the Supreme Court. 

17. Publication in Official Gazette or other

Generally, a bill or draft legislation is enacted when it is published in the Royal Thai Government Gazette.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

There has been a view that the restricted business activities under the FBA should be removed in order to promote foreign direct investment in Thailand which would ultimately be advantageous for Thailand in terms of economic growth, employment and transfer of technology. The MOC has periodically considered this concern, which led to the amendment to the lists attached to the FBA in 2013.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contacts: Samata Masagee, Mrs. Kanokkorn Viriyasutum and Miss Sudthapa Thanathanya

Last updated June 2023

1. Country: Austria

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the activity report of the Austrian Ministry for Labour and Economy for the period 25 July 2020 to 24 July 2021 ("Activity Report"), the five biggest FDI countries of origin are:

1. USA (approx.. 57%);
2. UK (approx.. 22%);
3. Japan (approx.. 3,7%);
4. Singapore (approx. 3,7%); and
5. UAE (approx.. 3,7%).

3. Legal Framework in Force

Invesment Control Act (Investionskontrollgesetz; ICA)

4. Last revision of the Legal Framework

31.12.2022 (BGBl. I Nr. 231/2022)

5. Contextualization of the Legal Framework (Historical or other)

Formerly the Austrian Foreign Economy Act

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The ICA applies to direct or indirect acquisition of:

1. an Austrian company;
2. a certain amount of shares in an Austrian company;
3. a controlling influence in an Austrian company; or 
4. a substantial assets of an Austrian company; by a foreign investor provided that the respective Austrian company operates in a relevant sector listed in the exhibit to the ICA.

A foreign investor is:

1. a natural person without citizenship of the EU, an EEA State or Switzerland; or
2. a legal entity having its registered office or head office outside the EU, the EEA and Switzerland.

It shall be noted that also intra-group reorganizations fall within the scope of the ICA in Austria.

The approval requirement pursuant to the ICA does not apply to a transaction, if the respective company is a "micro enterprise", including start-up enterprises, with fewer than ten employees and an annual turnover or an annual balance sheet total of less than EUR2 million.

There are no known loopholes. 

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

See questions 6 and question 8.

The ICA also applies to portfolio investments.

8. Scope - sectors covered

The ICA provides two types of relevant sectors, i.e. "highly sensitive" sectors and "other" relevant sectors, whereby the relevant thresholds are at 10% (for highly sensitive areas) and 25% as well as 50% (for other relevant areas).

Highly sensitive sectors pursuant to the ICA are:

1. defence equipment and defence technology;
2. providing/operating critical energy infrastructure;
3. providing/operating critical digital infrastructure, in particular 5G infrastructure;
4. water;
5. providing/operating systems that safeguard the data sovereignty of the Republic of Austria; and
6. research and development in the fields of pharmaceuticals, vaccines, medical devices and personal protective equipment.

Other relevant sectors pursuant to the ICA are:

1. critical infrastructure (institutions, systems, facilities, processes, networks or parts thereof) in particular in the areas of energy, information technology, traffic and transportation, health, food, telecommunications, data processing or storage, defence, constitutional institutions, finance, research facilities and institutions, social and welfare systems, chemical industry and investments in land and real estate crucial for the use of such infrastructure;
2. critical technologies and dual-use items as defined in EU Regulation No 428/2009; including artificial intelligence, robotics, semiconductors, cybersecurity, defence technology, quantum and nuclear technologies, nano- and biotechnologies;
3. security of the supply of critical resources including energy, raw materials, food supply, medicines, vaccines, medical devices and personal protective equipment as well as research and development in these areas;
4. access to sensitive information, including personal data, or the ability to control such information; and
5. freedom and plurality of the media.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

If a transaction is subject to approval under the ICA, the acquirer must file a written application for approval at the latest immediately after signing of the relevant transaction agreement. Legal transactions concerning operations for which approval is required under the ICA are deemed to have been concluded subject to the condition precedent that approval is granted. Thus, pre-authorisation is required. 

The ICA also applies to portfolio investments.

Carrying out a direct investment requiring a permit without a permit constitutes a criminal offense. In addition, administrative penalties may be imposed.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

After the approval procedure has been initiated, the Austrian Minister for Labour and Economy (Minister) must immediately notify the European Commission. This triggers the EU consultation mechanism under the EU-FDI-Screening-Regulation and within a 35-day period, the European Commission and the EU Member States can comment on a transaction (this consultation period may be extended by another 5 days under specific circumstances).

After the consultation period expires, the Minister has to issue a decision within one month either approving the transaction or initiating an in-depth investigation of the transaction (i.e. Phase 1). In the case of an in-depth investigation, the Minister has to take a decision within a period of another two months either (i) approving the transaction, (ii) approving the transaction subject to commitments, or (iii) prohibiting the transaction (i.e. Phase 2). 

If no decision is adopted by the Minister within the statutory time limits, the transaction is deemed to be approved.

It shall be noted that, besides obtaining approval under the ICA, the acquirer may file a request for a clearance certificate (Unbedenklichkeitsbescheinigung), declaring that an intended transaction is not subject to approval under the ICA. Such a request is reviewed within a period of up to two months after filing. During this period the Minister either issues the clearance certificate or requalifies the request for a clearance certificate into an approval application in case the transaction is considered to require approval which would trigger the initiation of the formal approval procedure as described above (starting with the EU consultation mechanism). In case there is no reaction within the period of two months, the clearance certificate is deemed to be issued (clearance is deemed to be granted).

12. Design – Transparency and Information requirements (Filing Forms?)

Pursuant to section 6 para. 4 ICA, the application must contain the following information:

1. contact information of the acquiring party (i.e. company name, registration number, seat, business address and, if available, telephone number and e-mail address);
2. contact information of the Austrian target (i.e. company name, registration number, seat, business address and, if available, telephone number and e-mail address);
3. precise description of the business activities (including products, services and business transactions) of the acquiring party and the target, including a description of the market in which these business activities are carried out (competitors, market share);
4. information on the beneficial owner(s) of the acquiring party (name, ID copy, date and place of birth, nationality and residence, in case of indirect beneficial owners additionally group chart showing the participation);
5. detailed description of the intended transaction and the ownership and shareholding structure in the target;
6. reference to other EU Member States in which the acquiring party and the target conduct relevant business operations;
7. funding of the intended transaction and the source of this funding; 
8. date on which the intended transaction shall be completed or was completed;
9. notification whether the transaction must also be reported under the EU Merger Regulation; 
10. data on the appointed Austrian authorized representative(s) of the acquiring party (typically this is the legal advisor); and
11. notification of whether the transaction has or may have an impact on a project or program of European Union interest, if known to the acquiring parties.

Beside the EU notification form part B, no filing forms exist.

The Minister may ask further questions or request clarification after an application has been filed.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

See question 11.

14. Interaction with other legal frameworks (ex: merger control)

The ICA does not refer to any other Austrian legal act. However, it shall be noted that generally the Austrian Federal Competition Authority (Bundeswettbewerbsbehörde) informs the Minister of all merger notifications.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

An approval of an FDI might be refused if there is a threat to security or public order, including crisis management and services of general interest within the meaning of Art. 52 and Art. 65 TFEU. However, the Minister may issue the approval with conditions if those are sufficient to eliminate this threat.

When assessing the possibility of a threat, the following must also be taken into account:

1. whether an acquiring person is directly or indirectly controlled by the government, including government agencies or the armed forces, of a third country, inter alia, due to the ownership structure or in the form of substantial financial resources,
2. whether an acquiring person, or a natural person holding a senior management position in an acquiring legal person, is already or has been involved in activities that have or have had an impact on security or public policy in another EU Member State; and
3. whether there is a significant risk that an acquiring person, or a natural person holding a senior position in an acquiring legal person, is or has been involved in illegal or criminal activities.

The definitions of "security" and "public order" are not based on WTO definitions.

The authority has some discretion in identifying probable threats and choosing the appropriate conditions.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

An appeal against a decision of the Minister may be filed with the Austrian Federal Administrative Court. The time limit for filing an appeal is four weeks from the date of service and must be submitted in writing to the Austrian Federal Ministry of Labor and Economy, as the relevant authority. 

17. Publication in Official Gazette or other

The ICA does not provide for publication or disclosure of the fact that an application has been filed or a clearance certificate has been requested. Therefore, any parties to a potential transaction as well as the transaction itself will not be published by the Minister. Furthermore, the decisions by the Minister are not published.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

According to the Activity Report, out of 35 approval procedures, only 2 approvals were granted with conditions and in no procedure the approval was refused.

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contacts: Cristoph Mager and Marc Lager

Last updated June 2023

1. Country: Belgium

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

The five biggest foreign direct investment countries of origin into Belgium, by number of projects, are the following:

1. United States
2. United Kingdom
3. France
4. Netherlands
5. China

3. Legal Framework in Force

The Belgian government has put in place a foreign direct investment review mechanism inspired by Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for screening foreign direct investments in the European Union. 

The Interfederal Screening Commission (ISC) (Interfederale Screeningscommissie/Comité de Filtrage Interfédéral), designated as the public entity responsible for reviewing foreign direct investments into Belgium and whose powers are set out in the cooperation agreement between the various Belgian governments (the Cooperation Agreement), is expected to become effective on 1 July 2023.

It should be pointed out that where the acquisition of control by a foreign investor took place before the entry into force of the Cooperation Agreement (i.e., before 1 July 2023), the ISC can start the assessment and screening procedure ex officio up to two years after the acquisition, and in case of indications of bad faith, up to a maximum of five years, if deemed necessary in light of the protection of public order, national security or strategic interests in Belgium. 

4. Last revision of the Legal Framework

Not applicable, since this regime is the first FDI regime in Belgium at federal level.

5. Contextualization of the Legal Framework (Historical or other)

Following the adoption of Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for screening foreign direct investments in the European Union, on 23 February 2021, as a first step, a draft legislation was proposed at federal level.

The preparatory works to this contemporary legislation indicate that it aims to combat some of the disadvantages that an open economy, such as Belgium, is confronted with. This notably includes reducing the dependency of Belgium on certain goods from non-EU countries and “re-shore” them to Belgium. Moreover, it seeks to reduce the excess circulation of investment capital into financially distressed companies that can be more easily acquired, which are at times involved in strategic sectors or whose activities relate to national security.

The macro-economic tendencies are clear. There is a significant increase in foreign investments by fast-growing economies such as China and India, offshore investors, investments by companies in the hands of foreign governments and a general increase in foreign ownership.

On 1 June 2022, the various Belgian governments, acting as the Consultation Committee (Overlegcomité/Comité de concertation), agreed to a draft cooperation agreement to install a Belgian FDI screening mechanism, which was slightly revised on 30 November 2022. The cooperation agreement was approved on 9 February 2023 by the Federal Parliament and is expected to enter into force on 1 July 2023. This is an important development as the competences for reviewing foreign direct investments are currently dispersed among the various federal governments.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Only foreign direct investments that can have an effect in Belgium on security, public order or the strategic interests of the regions and communities face potential scrutiny. A foreign direct investment is a broadly defined term, capturing any type of investment made by a foreign investor that creates or is intended to create direct and lasting links with another undertaking, including investments leading to effective participation in the management or control of that undertaking.

Unlike some other EU Member States’ regimes, the Belgian regime will only screen investments made by investors not originating from the EU. The regime will apply to investments made by (i) natural persons with a main residence outside the EU, (ii) undertakings incorporated outside the EU and (iii) undertakings of which the ultimate beneficial owner has its main residence outside the EU. It is clarified that several undertakings that are part of a consortium will be treated as one single foreign investor.

Investments made by a foreign investor in the ambit of setting up new and direct economic activities in Belgium (greenfield investments), while not taking over any existing economic activities, are not captured by the regime.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The regime applies to any acquisition of control, the direct or indirect acquisition of a certain percentage of the voting rights in undertakings or entities incorporated in Belgium already being defined as such (i.e., including investments into a non-Belgian target with a Belgian subsidiary).

More specifically, every direct or indirect acquisition of 25% or more of the voting rights in a Belgian undertaking or entity is reportable, without there being a fixed deal size or turnover threshold for these investments (with one exception) and whose activities relate to:

• Critical infrastructure, both physical and virtual, for energy, transport, water, health, electronic communication and digital infrastructure, media, data processing or storage, aerospace, defence, election or financial infrastructure and sensitive facilities, whether or not part of an existing business, as well as the land and real estate crucial for the use of such infrastructure;¹
• Technologies and resources of essential importance to public (health) safety, defence and public security,² military equipment subject to the Common Military List of the European Union adopted by the Council on 17 February 2020 (equipment covered by Council Common Position 2008/944/CFSP defining common rules governing the control of exports of military technology and equipment) (the Common Military List) and national control, dual-use items³ and technologies of strategic importance (including related IP rights) regarding artificial intelligence, semiconductors, robotics, cybersecurity, aerospace, defence, energy storage and quantum and nuclear technologies and nano technologies;
• Supply of vital inputs such as energy and raw materials and avoiding food shortages;
• Access to or control of strategically sensitive information and personal data;
• Private security sector;
• Freedom and pluralism of the media; or
• The biotech sector, on the condition that the target undertaking concerned achieved a turnover of at least EUR25 million in the financial year prior to the investment.

In addition, the regime covers direct and indirect acquisitions of 10% or more of the voting rights in Belgian undertakings and entities whose activities relate to the energy, defence (cf. dual-use items), cybersecurity, digital infrastructure or electronic communication sectors that have realised a turnover of minimum EUR100 million in the financial year prior to the acquisition of 10% of the voting rights.

The different governments in Belgium can, by way of a supplementary executive cooperation agreement between them, decrease the 25% threshold to 10% and increase the 10% threshold to 25% respectively.

Irrespective of the voting rights thresholds above, it should be borne in mind that in principle any acquisition of control (i.e., the ability to exercise decisive influence over an undertaking’s activities) over a Belgian undertaking or entity whose activities relate to the sectors mentioned above fall within the Belgian regime’s ambit. Indeed, the acquisition of control does not necessarily always overlap with the voting rights thresholds, e.g., in case of certain veto rights assigned to a minority stake or in case of asset deals.

¹This includes the critical infrastructures referred to in Regulation (EU) No 1285/2013 of the European Parliament and of the Council of 11 December 2013 on the implementation and operation of the European satellite navigation systems and repealing Council Regulation (EC) No 876/2002 and Regulation (EC) No 683/2008 of the European Parliament and of the Council, in the Act of 1 July 2011 on the security and protection of critical infrastructures, and in the Royal Decree of 2 December 2011 on critical infrastructures in the air transport sub-sector.
²Whose disruption, failure, loss or destruction would have a significant impact on Belgium, an EU Member State or the EU.
³As defined in Article 2(1) of Regulation (EU) 2021/821 of the European Parliament and of the Council of 20 May 2021 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items.

8. Scope - sectors covered

Increased exposure to a mandatory FDI notification is imminent when control or a stake of a certain size (as explained in Section 7) is acquired in Belgian undertakings with activities related to one of the following sectors or industries:

• Critical infrastructure, both physical and virtual, for energy, transport, water, health, electronic communications, media, (personal) data processing or storage, aerospace, defence, election or financial infrastructure and sensitive facilities, whether or not part of an existing business, as well as the land and real estate crucial for such infrastructure;
• Technologies and resources that are of essential importance to public (health) safety, defence and public security, military equipment subject to Common Military List and national control, dual-use items, and technologies of strategic importance (including related IP rights) regarding artificial intelligence, semiconductors, robotics, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies and nano technologies;
• Supply of critical inputs such as energy, resources and avoiding food scarcity; and
• Private security, strategically sensitive information and personal data, freedom and pluralism of media or biotech sectors.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

For investments captured under the Belgian regime, notification to the ISC by the foreign investor is mandatory and the process suspends closing. The regime applies to the acquisition of control and direct and indirect acquisitions of a certain percentage of the voting rights in undertakings or entities incorporated in Belgium (i.e., including investments into a non-Belgian target with a Belgian subsidiary).

For example, and as indicated previously, if an investment into a non-Belgian target occurs who has a subsidiary in Belgium, this may also trigger a filing. 

Moreover, the ISC can start investigations ex officio into closed deals up to two years (up to five years in cases of bad faith) after the investment’s implementation. Finally, the ISC can initiate investigations on its own initiative if it finds there are reasons to suspect that an investigation is warrranted for safeguarding public order and national security as well as its strategic interests.

10. Design – reciprocity?

The Belgian legislative text does not, at present, mandate nor require reciprocity.

11. Design – Procedures and Deadlines

Investments falling within the scope of the regime, must be notified to the ISC secretariat which is represented by all three Belgian governments (the federal, regional and community levels) and organisationally and administratively sits within the Belgian Ministry of Economic Affairs. A member of the ISC is only competent when there is (i) a territorial nexus (registered office, economic activity, presence of certain infrastructure) and (ii) a potential impact on their material competencies. The notification can be done by letter, e-mail or through physical deposit.

The review process can involve two or even three phases, after a pre-notification phase, during which the ISC secretariat can already submit requests for information to the parties involved in the transaction and to third parties, if deemed useful. There is no statutory time limit for the pre-notification phase, similarly to merger control, which lasts until the notification is deemed complete and thus ready to be formally filed.

Notification process

Phase 1 – Assessment

Phase 1 is the assessment phase where the foreign investment is preliminarily examined and lasts 30 days. The clock starts running once the secretariat of the ISC considers the notification complete. A general review of the investment will be conducted by the competent members of the ISC, verifying whether the main characteristics of the foreign investor, the change of control over the target company or the resulting significant changes in the ownership structure pursuant to the proposed foreign direct investment can have a potential impact on public order, security or strategic interests in Belgium. 

If no concerns are identified, the ISC will close the assessment and issue a positive decision whereby the transaction is approved. Whenever additional information is requested by the ISC, the 30-day period is put on hold. In case the 30-day period is exceeded without the ISC taking a decision, the foreign investment is deemed to be approved.

Phase 2 - Screening

If one of the members of the ISC identifies concrete concerns or risks for public order, security or strategic interests (e.g., based on entities controlled by foreign governments, past involvement in risky activities or the serious risk that the foreign investor is involved in criminal or otherwise illegal activities), the ISC will proceed to the actual screening of the foreign investment (Phase 2). The screening phase involves an in-depth and additional risk analysis and results in an advice to the respective ministers of the competent government bodies. 

The secretariat of the ISC informs the foreign investor and the Belgian undertaking concerned that they may inspect the file at the secretariat and obtain an electronic copy. The foreign investor and the Belgian undertaking concerned have 10 calendar days from the day on which the copy is made available to submit their written comments. This period has a suspensory effect in relation to the 20 calendar days period in which the ISC member(s) have to provide the advice to the relevant minister, commencing after the decision to open a screening procedure was notified to the notifying party(ies). This period can be extended up to several months, in case of written comments, oral hearing(s), mitigating measures, a significant complexity of the file or requests for additional information by the ISC, the European Commission or other Member States.

Upon receipt of the advice by the ISC member(s), the relevant ministers have 6 calendar days to decide and consequently notify their decision to the ISC. Within 2 calendar days after receipt of said decision(s), the ISC will combine them (if multiple federal bodies are competent) and notify the foreign investor of the decision.

If the foreign investment falls within the jurisdiction of more than one of the federal bodies, decisions to prohibit the foreign investment must be taken unanimously, save the veto right of the federal minister to prohibit the foreign investment nonetheless should it fall within its powers and competencies.

If no decision is made within these time limits, the transaction is deemed to be tacitly approved.

Ex officio investigation

At the request of a competent member of the ISC, a procedure will be initiated ex officio if a foreign investor wishes to acquire a participation through a foreign direct investment. The companies concerned or their representatives are notified of such an investigation only if the ISC secretariat indicates that the companies should make a formal notification. 

In the event of non-compliance with the notification requirement, the ISC, at the request of at least one of its competent members, will initiate a procedure ex officio. Where an ex officio procedure is initiated, structural adjustments and remedial measures may be imposed on the parties at the end of this procedure for up to two years after the acquisition of non-notified control. In case of indications of bad faith, this period is extended to five years, even before the entry into force of the Cooperation Agreement (i.e., before 1 July 2023).

12. Design – Transparency and Information requirements (Filing Forms?)

The notification involves the submission of certain transaction documents (in signed or even draft form in case the parties explicitly declare that the draft agreement will not signficantly differ from the one they intend to conclude) to the ISC. Although there is no specific notification form available at present and the ISC can issue additional requests for information, the notification should certainly include the following information on the envisaged transaction:

1. ownership structure of both the foreign investor and the target company (e.g. identity, participation in the capital and the ultimate beneficial owner of the foreign investor);
2. approximate value of the investment, including the underlying valuation methods and elements used;
3. products, services and business activities of the foreign investor (at group level) and the target company, specifying in which EU and third countries these activities take place;
4. how the investment is financed and the origin of such financing; and
5. the expected closing date.

Following the procedure, a report is prepared containing only non-confidential elements of the screening procedure, to be implemented in the annual report that Belgium must send to the European Commission as required by the FDI Regulation. This includes information on the investment itself, corrective measures mandated, or negative decisions adopted, if relevant.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Positive decision – Approval

The ISC can issue a positive decision granting clearance for the foreign direct investment to occur.

Conditional positive decision – Remedies

To address any risks identified by the ISC, foreign investors can offer different types of remedies, both behavioural and structural. More than a dozen measures are suggested to mitigate the expected impact of the foreign direct investment, potentially clearing the way for a conditional positive decision. Foreign investors may be exposed to various governance and compliance requirements such as codes of conduct or safety protocols, information and IP transfer barriers and an obligation whereby it is ensured that said information and IP rights remain available for use in Belgium. Said measures have to be proportional with the aim of reducing the risk to national security, public order or strategic interests to such an extent that the investment can be deemed admissible.

Negative decision – Block

In case no remedies can alleviate the concerns of possible negative effects on public order, national security or strategic interests, the ISC can block the foreign investment. The competent ISC members must reach unanimity to block a decision, yet the Federal Minister retains a veto within the boundaries of its own powers and competencies.

Fines

Foreign investors expose themselves to fines up to 30% of the investment value in case of a failure to notify, for prematurely implementing the foreign investment, for providing incorrect or misleading information or for non-compliance with imposed remedies. Fines of up to 10% of the investment value can be imposed in case of providing no or incomplete information, providing information untimely or in case spontaneous notice is given of a non-notified foreign investment within 12 months after its implementation. In any event, the natural person or undertaking exposed to a fine can formally oppose the ISC’s fine.

14. Interaction with other legal frameworks (ex: merger control)

In case any FDI review process by the Belgian authorities runs in parallel with the applicable merger control regime(s), at Belgian or EU level, it is key that these are carefully coordinated. Inevitably, the FDI notification process and stand-still obligation will stretch the M&A closing timeline and impact the associated transactional documents notably on closing conditions to a similar extent as merger control. From a more practical stance, the FDI rules may impact an auction process as it may disadvantage foreign investors to step into an auction process based on the uncertainty of FDI authorisation.

Since 1 January 2019, the Flemish goverment has set up an FDI framework that provides for an ex-post screening mechanism for foreign direct investments originating outside the EU or EEA into companies that are controlled by Flemish governmental institutions or local authorities or otherwise set up under public law and which are established for fulfilling public interests. When certain conditions are fulfilled, the Flemish government can block a transaction if it leads to a foreign company acquiring control or any other decision-making power in a Flemish government institution, thereby threatening Flanders’ strategic interests or overall independence. However, no actual decisions have been made under this framework to date.

Timing of the procedure can also be impacted by the entry into force of Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (EU Foreign Subsidies Regulation) in which the European Commission has exclusive competence.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

An FDI transaction into Belgium can be blocked when it puts at risk:

• the continuity of key processes in the sensitive sectors mentioned under Section 7, which, in such event, would constitute a threat to national security, strategic interests and the quality of life of the Belgian population as a result of serious societal disturbances;
• the integrity or exclusivity of the knowledge, technologies and information associated with these pivotal processes; or
• making Belgium strategically dependent.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

The foreign investor and the target undertaking are in a position to lodge an appeal against a negative decision of the ISC with the Brussels Market Court, within a period of 30 days after receipt of the ISC’s decision. 

The Brussels Market Court has competence over the case both in law and in fact, shall judicate by way of summary proceedings, and has the power to annul a challenged negative decision. It also retains unlimited jurisdiction over fines imposed by the ISC and can annul or adjust said fine upwards and downwards. 

If the Market Court annuls all or part of a negative decision, the case is sent back to the ISC where the foreign investment is re-examined through a new screening procedure.

An appeal does however not in itself suspend the ISC’s decision. Nevertheless, the interested party can specifically request the Market Court to do so in case there are serious consequences if the ISC’s decision be executed immediately.

17. Publication in Official Gazette or other

No official publication in the Belgian Official Gazette has yet occurred, yet the enforcement and review powers of the ISC are expected to become effective as of 1 July 2023.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

No relevant examples of application are available, as the enforcement and review powers of the ISC are expected to become effective only as of 1 July 2023 save its possibility to, for foreign investments made before that date, start the assessment and screening procedure up to two years after the acquisition, if deemed necessary in light of the protection of public order, national security or strategic interests in Belgium.

19. Stakeholders views on the Legal Framework

According to the large majority of stakeholders, significant deal uncertainty is on the horizon since no relevant examples of application yet exist and it is unforeseeable how the regime will affect transactions.

As indicated previously, the Belgian FDI notification process and stand-still obligation will stretch the M&A timeline and impact the associated transactional documents notably on closing conditions to a similar extent as merger control or in application of the EU Foreign Subsidies Regulation.

Access to the EU, and more specifically, Belgium, is hampered and complexified for candidate investors located outside the EU, as EU investors are not subject to the Belgian FDI regime, putting the former at a competitive disadvantage and potentially making them refrain from investing altogether given the uncertainty of FDI authorisation.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

Not applicable, since the Belgian legislation is largely based on the EU Regulation that precedes it and no prior legislation at Belgian national level was in place.

21. Other relevant information

N/A

Contacts: Joost Haans and Sander De Volder

Last updated June 2023

1. Country: Czech Republic

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

The latest official statistics are as of 31 December 2021 – statistics from the Czech National Bank:

• Netherlands (17,5%)
• Luxembourg (15,4%)
• Germany (14.5%)
• Austria (10.1%)
• France (7.1%) 

3. Legal Framework in Force

International framework

• Bilateral investment treaties (BITs)
• Multilateral agreements
• ICSID (International Centre for Settlement of Investments Disputes)
• Convention MIGA (Multilateral Investments Guarantee Agency)
• Convention Agreement on Trade
• Related Investment Measures (TRIMs)

EU legislation

• Regulation (EU) 2019/452 establishing a framework for the screening of FDI into the Union (FDI Regulation).

National legislation

• Czech Act No. 72/2000 Coll., on Investment Incentives, as amended (partially relevant); and
• Act No. 34/2021 Coll., on Screening of Foreign Investment which implements delegated areas arising from the EU Regulation (Czech FDI Act).

4. Last revision of the Legal Framework

• ICSID Convention entered into force on 14 October 1966
• MIGA Convention last amendment on 14 November 2010
• TRIMs Agreement entered into force in 1995
• FDI Regulation last amendment on 23 December 2021
• Czech FDI Act entered into force on 1 September 2021

5. Contextualization of the Legal Framework (Historical or other)

Former Czech Act No. 219/1995 Coll., the Foreign Exchange Act, as amended – abolished on 18 October 2016.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The Czech FDI Act specifies the sectors that are subject to potential screening procedures. These sectors are usually connected to the strategic or safety interests of the Czech Republic (please see section 7).

The regulation applies to all investors residing outside of the EU, including European entities which are controlled (directly or indirectly) from outside of the EU. The Czech FDI Act stipulates that the Ministry of Industry and Trade (Ministry) requires an investor who applies for an authorization of the FDI to provide full disclosure of the information including the complete ownership structure and the source of financing (please see section 12).

Standalone internal restructurings which do not involve a change of control (which are not connected to a separate third party transaction) are not exempted from the Czech FDI Act (even though such transactions do not raise any national security risk). In such cases, it is recommended to file for voluntary consultation to the supervisory authority which may, on a case by case basis, allow the acquisition to proceed without any FDI clearance, or to conduct the FDI clearing proceedings.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

General threshold of direct or indirect acquisition or a possibility of disposal with 10% or more of the voting rights of the target applies (i.e. effective influence under Section 5 of the Czech FDI Act).

The Czech FDI Act further provides general criteria that are closely related to the national security which are classified as follows:

FDI requiring authorization (Section 7 of the Czech FDI Act)

The authorization is necessary for the acquisition of control of the businesses that operate in nationally strategic fields, in particular:

• manufacture, research or innovation of military material;
• operation of an element of critical infrastructure as designated by state authority;
• the administrator of the critical informational system or communicational infrastructure; and
• developer or manufacturer of dual-use items (for civil and military use), listed in Annex IV to the Regulation (EC) 428/2009.

These criteria are then further specified across Czech or EU legislation (e.g. a critical infrastructure is a power plant with a total installed electrical capacity of at least 500 MW, or a power plant with a total installed capacity of at least 200 MW, etc.)

FDI that may be screened ex officio (Section 8 of the Czech FDI Act)

Other FDI that has the potential to jeopardise the security of the Czech Republic or its internal or public order may also fall within FDI screening. In this case, the prior authorization is not required but the Ministry may commence the screening procedure ex officio within five years after the completion of the FDI. The terms “national security”, “internal order” and “public order” are not defined by the Czech law which leads to uncertainty for investors.

The Explanatory Report to the Czech FDI Act states the following aspects of the target entity that are taken into account when assessing the aspects of the FDI:

• access to the energy, transport, health, communication, defence, cybersecurity, aviation, media;
• information infrastructure, technology or dual-use items;
• access to the supply that relates to the energy, raw material or food;
• providing access to information that is important in terms of protecting the security of the Czech Republic or internal or public order, including personal data, or the ability to control such information;
• providing access to information that is important in terms of protecting the security of the Czech Republic or internal or public order, including personal data, or the ability to control such information;
• possibility to significantly influence public opinion;
• critical information infrastructure, significant information systems and essential services;
• non-military objects important for the defence of the state; and
• other technologies, the misuse of which could endanger the security of the Czech Republic or internal or public order, or other facts that are important for the security of the Czech Republic or internal or public order.

8. Scope - sectors covered

The sectors that are covered by the Czech FDI Act are usually related closely to business of strategic and military importance which if compromitted by FDI would cause a direct threat to the security of the Czech Republic and its public or internal order.

In this sense, the critical infrastructure that requires FDI screening under Section 7 of the Czech FDI Act (please see section 7), provided that sector-specific thresholds are met, includes the following sectors:

• electricity production, transfer and distribution, including gas, oil and heat
• water management and supply
• food and agriculture, including crop production, animal production and food production
• healthcare, including provision of health services and production of medicinal products
• transport, including road, rail and air transport and inland water transport
• communication and information systems, including technological elements of a fixed network of electronic communications, of the mobile network of electronic communications, of networks for radio and television broadcasting, for satellite communication, for postal services, of information systems and the area of cyber security
• financial market and currency, including banks and insurance
• emergency services, including integrated rescue system, radiation monitoring, forecasting, warning and reporting service and internal security
• public administration, including public finance, social protection and employment, intelligence services and other state administration

Other sectors may be covered under Section 8 of the Czech FDI Act that are not determined by law, however general consideration related to national security should be taken into consideration Act (please see section 7).

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Taking into account the different sensitivity of some sectors, the Czech FDI Act establishes:

(a) A mandatory screening mechanism for FDI targeting key areas for protection of essential security interests of the Czech Republic (see the FDI requiring authorization above). These investments need pre authorization.

(b) Both are covered because the key aspect is the threshold of control or influence over the target entity’s 10% or more voting rights.

(c) Voluntary pre-screening mechanism is established for other potentially risky FDI in certain sectors (please see section 7) where investors may avoid the subsequent ex officio screening procedure by commencing a consultation process with the Ministry before completion of the FDI. In case the target entity has a TV or radio broadcasting license or is a periodical print publisher whose aggregate minimum average printed load is 100,000 copies per day for the last calendar year, the consultation is mandatory (Section 10(1) of the Czech FDI Act).

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

Pre-screening procedure – Consultation (Section 10 of the Czech FDI Act)

The Ministry has 45 days from the commencement of the process of consultation to initiate a screening procedure, otherwise the FDI is deemed permissible.

Screening procedure (Sections 11–13 of the Czech FDI Act)

The screening of FDI is supervised by the Ministry in cooperation with other national entities – Ministry of Foreign Affairs, Ministry of Finance, Ministry of Defence, Ministry of Interior, Czech Police, Czech Intelligence Service and concerned EU Member States. Those authorities provide the Ministry with their statement regarding the FDI.

If particular or all aspects of the FDI are assessed as pertaining to national security, the Ministry shall lead an official negotiation with the investor. Such negotiation aims to amend the original intent of the FDI to avoid the potential endangerment of national security. During the negotiations the limitation time periods are interrupted. At the end of the negotiations, the Ministry may issue a decision on authorization of the FDI. If the potential danger remains, the Ministry shall submit a proposal of the decision to the Czech government.

The Ministry has 90 days (in justified cases it may be prolonged by 30 extra days) to conclude the screening procedure by authorizing the FDI or by filing a proposal for a final decision to the government, who has another 45 days to issue a decision.

The decision issued in the screening proceeding may be revised by a court. The application for revision must be filed within two months after the decision was delivered.

12. Design – Transparency and Information requirements (Filing Forms?)

At the beginning of the screening procedure, the investor must disclose the information that is set out in the relevant form (Section 9 of the Czech FDI Act), in particular:

• identification information about the company and its bodies;
• complete ownership structure of the investor himself and the target entity, including the identity of the person or persons who are the ultimate investors and their shares;
• the source of the investment´s financing and the total amount;
• entrepreneurial activities, including the information on the sector-specific regulation, conducted in the country of the origin;
• the date of the completion of the FDI;
• direct or indirect share of the voting and proprietary rights of the target prior and after the FDI; and
• list of EU Member States where the investor already operates.

The Ministry may additionally require the investor to disclose any other information that it considers important. Documents that are reviewed during the proceedings and contain classified or confidential information are held separately from the file and are not accessible to the public or the investor.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

The final decision in the screening procedure may be issued by the Ministry if there are no doubts about its permissibility (please see section 11). In case discrepancies are found during the proceedings, the Czech government may issue the following decision on (Sections 14, 15 of the Czech FDI Act):

• conditional authorization of the FDI;
• conditions of the FDI;
• refusal to issue an authorization of the FDI;
• prohibition of the FDI; and
• unwinding (cancellation) of the FDI.

The unwinding of the already realized FDI is usually exercised via restriction in proprietary or voting rights or forced sale.

If the investor does not comply with the conditions of the authorization of the FDI, the Ministry may impose a fine in the amount of up to 2% of the total turnover of the investor in the last completed accounting period, or between CZK 100,000 (approx. EUR 4,000) and CZK 100 million (approx. EUR 4 million) if the turnover cannot be ascertained. In case the investor completes the FDI without previous authorization, the Ministry may impose a fine in the amount of up to 1% of the total turnover of the investor in the last completed accounting period, or between CZK 50,000 (approx. EUR 2,000) and CZK 50 million (approx. EUR 2 million) if the such turnover cannot be ascertained.

14. Interaction with other legal frameworks (ex: merger control)

The Czech Act No. 181/2014 Coll., on Cybersecurity, as amended, and the Czech Act No. 240/2000 Coll., on Crisis Management, as amended, may provide the investors or the Ministry with sector-specific definitions and may help with interpretation of the Czech FDI Act.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Please see section 7 and section 8.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

The final (effective) decision issued in the screening proceeding may be revised by a court. The application for revision must be filed within two months after the decision was delivered. The proceedings will be governed by administrative procedural rules. The applicant may seek annulment of the decision. The action against the decision generally does not have a suspensive effect (delaying the decision’s effectiveness).

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

The Czech legislative authorities (i.e. Parliament and government) have expressed support for the intention of the EU Council to regulate FDI.

Inclusion of intra-group restructuralisation is criticised.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

Czech FDI Act is compliant with EU Regulation.

Possible amendment may be considered in relation to the intra-group restructuralisation as these have been exempted in some of the EU countries recently (e.g. certain intra-group reorganizations are not deemed a triggering event in Germany). Currently, however, no amendment is deliberated on.

21. Other relevant information

N/A

Contacts: Miroslav Dubovsky and Tomáš Ščerba

Last updated November 2025

1. Country: Denmark

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the Danish National Bank, the United States of America (USA) was the biggest FDI country in Denmark in 2021. Investors from USA made up 27% of the foreign investments in Denmark. The second biggest FDI country in Denmark was Sweden. The third biggest FDI country in Denmark was Norway. The fourth and fifth biggest FDI countries in Denmark were the United Kingdom and Finland, respectively.

3. Legal Framework in Force

Rules on foreign direct investments

The Danish Act No. 842 of 10 May 2021 on screening of certain foreign direct investments etc. in Denmark (the Investment Screening Act) entered into force on 1 July 2021. The Act applies to certain investments and agreements completed on or after 1 September 2021. The Danish rules on foreign direct investment (FDI) screening and authorisation (approval) also comprise three executive orders set under the Investment Screening Act:

1. The executive order on the delimitation of the scope of application of the Act on screening of certain foreign direct investments etc. in Denmark (the Executive Order on Application).
2. The executive order on procedures etc. when applying for authorisation for or notification of certain foreign direct investments or special financial agreements in Denmark (the Executive Order on Procedures).
3. The Executive Order on the transfer of confidential information about certain foreign direct investments etc. in Denmark to other authorities (the Executive Order on Confidential Information).

The Investment Screening Act and the associated executive orders provide the regulatory framework for screening and authorisation of foreign direct investments in Denmark (the FDI rules).

Sector-specific screening mechanisms

The FDI rules do not apply to investments comprised by other Danish rules on any sector-specific screening and authorisation mechanism for foreign direct investments. Such other sector-specific screening rules include rules thereon in the following acts and regulations:

• The War Material Act under the Ministry of Justice. This Act applies to material designed for military use (and which cannot be used for civilian purposes) and ammunition which can be used for military purposes.
• The Continental Shelf Act under the Ministry of Climate, Energy and Utilities. This Act applies to Danish and foreign companies that want to lay power cables or pipelines to transport foreign-produced hydrocarbons on Danish maritime territory.
• For the telecommunications industry, there is sector-specific regulation concerning suppliers in critical telecommunication infrastructure under which suppliers must notify the Danish Centre for Cyber Security prior to negotiating agreements concerning the infrastructure.

4. Last revision of the Legal Framework

The FDI rules have not been revised since entering into force on 1 July 2021. However, on 3 May 2023 the Danish government has introduced a bill to amend the Investment Screening Act. The Danish government has also announced an intention to amend the associated executive orders.

5. Contextualization of the Legal Framework (Historical or other)

Denmark is dependent on foreign markets and global trade as a small and open economy. Thus, among others, investments by foreign investors are essential for Denmark's growth, productivity and competitiveness. However, in recent years, there has been a tendency in the European Union (EU) for foreign investors who are under the influence of foreign governments to make investments in strategic assets and emerging markets. Such investments may be made by foreign governments and powers to strengthen their security policy position globally. Consequently, certain foreign investments in Danish companies may have underlying non-commercial and strategic intentions and political aims.

On this basis, the Danish government has identified a need to be able to protect national security interests in connection with certain foreign investments and other economic activities. In order to screen foreign investor’s activities in Denmark, the Danish parliament adopted the Investment Screening Act. Many of Denmark’s partners and allies in the EU and the North Atlantic Treaty Organization (NATO) have introduced similar screening mechanisms in recent years. The Investment Screening Act must also be seen in the light of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (the EU FDI Regulation), which entered into force in October 2020.

The main objective of the FDI rules is to prevent foreign direct investments and certain agreements from posing a threat to national security or public order in Denmark. The Danish Business Authority (the DBA) has the competence to screen foreign direct investments in Denmark.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The FDI rules entail two screening mechanisms: (1) A mandatory authorisation scheme for investments in particularly sensitive sectors and activities. (2) A voluntary notification scheme for other sectors. Both schemes apply to foreign investors who intend to undertake a foreign direct investment or conclude a special financial agreement (together transactions) with a Danish company or entity.

Foreign investors covered by the mandatory authorisation scheme

The mandatory authorisation scheme covers foreign direct investments and special financial agreements undertaken by a foreign investor in or with a Danish company or entity operating within a particularly sensitive sector. Both intra-EU and extra-EU transactions are covered by the mandatory authorisation scheme depending on whether the intended transaction is a foreign direct investment or a special financial agreement.

If a foreign investor intends to undertake a foreign direct investment in a Danish company or entity, the following foreign investors are covered by the mandatory authorisation scheme:

• Foreign (non-Danish) citizens.
• Companies not domiciled in Denmark, even if the foreign company has a permanent establishment in Denmark.
• Companies domiciled in Denmark if the company is a subsidiary or a branch of a company not domiciled in Denmark.
• Companies domiciled in Denmark if a foreign citizen or a company, which is not domiciled in Denmark, has control over or significant influence in the company.
• National authorities and public bodies in countries which are not EU countries or European Free Trade Association (EFTA) countries, including public institutions and publicly owned investment funds.
• Certain associations, non-commercial foundations and similar legal persons established in countries which are not EU countries or EFTA countries.

If a foreign investor intends to enter into a special financial agreement with a Danish company or entity, the following investors are covered by the mandatory authorization scheme:

• Citizens from countries which are not EU countries or EFTA countries.
• Companies domiciled in countries which are not EU countries or EFTA countries.
• Companies domiciled in Denmark or other EU countries or EFTA countries if the company is controlled by a person or a company domiciled in a country which is not an EU country or an EFTA country.
• National authorities and public bodies in countries which are not EU countries or EFTA countries, including public institutions and publicly owned investment funds.
• Certain associations, non-commercial foundations and similar legal persons established in countries which are not EU countries or EFTA countries.

On 3 May 2023, the Danish government proposed a bill amending the Investment Screening Act. If passed in its current form, certain public procurement contracts will be subject to intensified screening after 1 July 2023. The bill provides for an intensified control with companies which establish (construct), own, operate, service or provide products or services in relation to critical infrastructure in Denmark, in particular a planned new energy island in the North Sea. A special authorisation scheme is introduced. It comprises companies which intend to make a public procurement contract regarding critical infrastructure with a public contracting authority. The authorisation scheme will apply to all foreign contracting parties, including companies from EU and EFTA countries. Under specific circumstances, subcontractors to a contracting party may also be subject to screening. Under the bill, the minister has authority to decide that all bidders in a public tender are subject to screening prior to the announcement of the winning bid. Initially, the new authorisation scheme will only apply to public procurement contracts related to the planned new energy island in the North Sea. However, the scope of application of the scheme may later be expanded to cover all critical infrastructure.

Foreign investors covered by the voluntary notification scheme

Foreign investors covered by the voluntary notification scheme are identical to the foreign investors covered by the rules on special financial agreements under the mandatory authorisation scheme. Thus, the voluntary notification scheme applies to investors domiciled in countries which are not EU or EFTA countries, and to investors controlled by companies or persons domiciled in countries which are not EU or EFTA countries, who intend to undertake a foreign direct investment or conclude a special financial agreement with a Danish company or entity with activities not considered particularly sensitive.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Thresholds of the mandatory authorisation scheme

The mandatory authorisation scheme covers foreign direct investments, including greenfield investments, and special financial agreements.

With regards to foreign direct investments, the mandatory authorisation scheme applies to a foreign investor who intends to acquire at least 10% of the ownership interests or voting rights or equivalent control by other means in a Danish company operating within a particularly sensitive sector. The foreign investor must apply for an authorisation of the investment granted by the DBA prior to completion. The scheme also covers cases where an investor obtains similar control in a Danish company or entity by other means. Similar control by other means may for example be obtained by agreement-based control or influence; including by the right to appoint board members; by the right to make significant managerial, operational, financial or development decisions in the company; by purchasing assets in the Danish company or entity; or by providing a long-term loan to the Danish company or entity.

For investors who own an existing shareholding or voting rights in a Danish company operating within a particularly sensitive sector, an increase in shareholding or voting rights may be comprised by the mandatory authorisation scheme. This is the case if the foreign investor’s shareholding or voting rights in the Danish company will amount to 20%, 1/3rd, 50%, 2/3rds or 100% after the acquisition.

Foreign investors who intend to establish a new Danish company or invest in part of the establishment of a company, that is to conduct a greenfield investment, fall within the mandatory authorisation scheme provided that the total capital injection by the foreign investor in the Danish company within the first three financial years from its establishment amounts to DKK75 million or more. Capital injection is defined as the inflow of equity and long-term irrevocable loan financing.

Foreign investors who intend to conclude a special financial agreement, that is a joint venture, supplier, operating or service agreement, with a Danish company or entity operating within a particularly sensitive sector are covered by the mandatory authorisation scheme provided that the agreements entails that the investor achieves control of or significant influence through the agreement in a Danish company or entity or business-critical areas of the company or entity, for example development activities. On 3 May 2023, the Danish government proposed a bill amending the Investment Screening Act. If passed in its current form, a foreign investor, that is a contracting party, who intend to make a special financial agreement, which is a public procurement contract related to a planned energy island in the North Sea, may be subject to screening even in the event that the agreement does not confer control to the foreign investor.

Thresholds of the voluntary notification scheme

The foreign investor may submit a voluntary notification to the DBA if the investment constitutes or may constitute a threat to national security or public order in Denmark, and the foreign investor directly or indirectly acquires at least 25% of the ownership interests or voting rights or equivalent control by other means in the company or entity in Denmark.

8. Scope - sectors covered

Sector-specific mandatory authorisation scheme

The authorisation requirement within particularly sensitive areas includes foreign direct investments in the following companies and entities in Denmark:

• All commercial companies in Denmark regardless of organisational form.
• Public authorities and institutions in the field of critical infrastructure, which constitutes one of the particularly sensitive sectors.

The mandatory authorisation scheme only applies if the Danish target company or entity concerned is doing business in one of the particularly sensitive sectors or with one of the particularly sensitive activities. The sectors and activities generally include activities within the national defence, IT security functions, processing of classified information, production of dual-use products, other critical technology and critical infrastructure.

Critical infrastructure includes companies and entities which are performing activities which are necessary to maintain or restore certain functions which are important for society within certain sectors. The determination of the sectors, activities and functions which are comprised by the rules on critical infrastructure may give, and in practice often gives, rise to difficulties when it is assessed whether a company is comprised by the rules, that is to say whether the goods or services provided by the company are necessary in order to maintain or restore a specific function in a specific sector. In our current experience, the Danish authorities interpret the scope of application of the rules on critical infrastructure rather broad. For example, companies producing equipment or components used in critical sectors may be captured by the definition.

General voluntary notification scheme

The voluntary notification scheme applies to foreign direct investments in, and special financial agreements concluded with, Danish companies and entities which are not comprised by the particularly sensitive sectors of the mandatory authorisation scheme.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Under the FDI rules, a mandatory approval requirement applies to foreign investors who directly or indirectly acquire no less than 10% of the shares or voting rights or similar control by other means in a company based in Denmark operating within certain particularly sensitive sectors. Transactions covered by the scope of the mandatory authorisation scheme must be approved by the DBA prior to completion.

Transactions which are notified under the voluntary notification scheme may be submitted before or after completion. However, if the transaction has already been completed, the DBA can launch a detailed investigation of the transaction if the transaction could pose a threat to national security or public order for up to 5 years from completion of the transaction.

10. Design – reciprocity?

The issue of reciprocity is generally not addressed in the FDI rules.

However, when the DBA assesses whether an intended transaction may constitute a threat to national security and public order in Denmark, the DBA bases its decision on certain criteria. One of the criteria is whether the foreign investor is or has been involved in activities affecting national security or public order in another EU member state or another allied country. These criteria are similar to the criteria set forth in the EU FDI Regulation.

11. Design – Procedures and Deadlines

Upon receipt of a complete filing, the DBA examines whether the investment or the financial agreement constitutes a threat to national security or public order in Denmark. This applies to all investments or agreements no matter whether they are subject to the mandatory authorisation scheme or the voluntary notification scheme.

The DBA bases the assessment on information regarding the target company or entity, the immediate foreign investor and the ultimate foreign investor. In relation to the foreign investor, the DBA will, among other matters, base its assessment and decision on whether the investor is directly or indirectly controlled by a foreign government, body or armed forces, through ownership, financing or other means of control, or is involved or has been involved in activities affecting the national security or public order in another EU member state or allied country of Denmark.

If a transaction does not constitute a threat to national security or public order, the DBA grants an authorisation. In our experience, the DBA will very often grant an authorisation of the investments. An authorisation may be granted subject to certain commitments proposed by the foreign investor.

If the DBA finds that an investment or agreement may pose a threat, the application is then submitted to the Minister for Industry, Business and Financial Affairs (the Minister). After any relevant consultations with other ministers, the Minister makes a decision on whether the minister grants or does not grant an authorisation for the investment or agreement.

The DBA shall provide its decision within 60 working days from the day a complete application is received. This time limit may be extended by an additional 30 working days if further investigations are required or commitments are proposed by the investor. Under the mandatory authorisation scheme, there are no implications if the case handling of the DBA exceeds the deadline of 90 working days. Under the voluntary notification scheme, the transaction is automatically approved if the deadline is exceeded. The Danish government has proposed a bill on amendment of the Investment Screening Act. If passed in its current form, the time limit for the DBA’s case processing process will be changed from 1 July 2023. A two-phase system will be introduced. The time limit for the phase 1 investigation will be 45 working days from the receipt of a certification of completeness. If the phase 1 investigation gives rise to an assumption that the investment or agreement may constitute a threat to the national security or public order, a phase 2 investigation will be performed. The time limit for the phase 2 investigation is 125 working days.

In addition to a full application, the mandatory authorisation scheme entails a formal pre-screening option. It gives an investor the opportunity to obtain a decision from the DBA on whether the investment relates to critical technology or critical infrastructure, which are two of the five particularly sensitive sectors and activities. There is no formal time limit for a the making of a pre-screening decision. The DBA is not required to make a decision on the matter comprised the application for the pre-screening decision.

12. Design – Transparency and Information requirements (Filing Forms?)

In order to assess the case at hand, the DBA requires information about the target company, the direct foreign investor and the ultimate foreign investor.

Cases processed under the FDI rules are exempt from the Danish rules on public access to documents of authorities. This means that Danish authorities cannot grant access to case documents to any third party in a case processed under the FDI rules. The exemption from public access applies to all documents in the case, including an application for an FDI authorisation, an FDI authorisation and any agreed terms for such authorisation.

An FDI application is submitted and processed in confidentiality by the Danish authorities. The decision on whether to grant or not grant a FDI authorisation will not be published. The Minister and the employees of the authorities who process the application and make the decision are subject to confidentiality obligations.

An investor may apply for and will generally be granted access to case documents in the investor's own case. However, the DBA and the Minister may decide that the investor shall not be granted access to case documents in the investor's own case if this is necessary for reasons of national security or public order.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Provided that the DBA finds that the transaction does not constitute a threat to national security or public order in Denmark, the DBA grants an authorisation of the investment. If the transaction constitutes an actual or potential threat to national security and public order in Denmark, the foreign investor may undertake certain commitments to mitigate the threat. The DBA may grant an authorisation subject to the commitments undertaken by the investor.

If the transaction poses a threat to national security and public order in Denmark, the DBA may forward the transaction to be handled by the Minister. The Minister may grant an authorisation, including an authorisation on further agreed terms with the investor. The Minister may also grant an authorisation subject to terms set forth by the Minister. Provided that the transaction constitutes a threat to national security or public order, the Minister may block the transaction.

Under the voluntary notification scheme, the Minister may order a transaction to be rolled back if the investment constitutes a threat to national security or public order in Denmark.

Effects of non-compliance with the FDI rules

If an investment has been made without the necessary authorisation, the DBA may order the non-compliance to be brought to an end, that is to say that the investor must apply for an authorisation within a specified period. In addition, the DBA may order the termination and winding up (liquidation or dissolution) of the investment or the agreement.

If an investor does not comply with an order to terminate and wind up an investment or agreement, the DBA may revoke any voting rights which the investor may have in the Danish company or entity. An agreement which is comprised by an order to terminate the agreement is without legal effect (invalid) between the parties. In addition, the DBA may inform the authorities of the other EU Member States that the investor has not complied with the Danish FDI rules.

The DBA may investigate whether an investment or agreement has been completed without the necessary prior authorisation. The DBA may publish information that it has commenced such an investigation.

14. Interaction with other legal frameworks (ex: merger control)

Transactions may be subject to the Danish merger control under the Danish Competition Act if the thresholds are met. The applicability of the FDI rules to the transaction does not have any relation to the merger control requirements.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The Minister may block the transaction provided that the transaction constitutes a threat to the national security or public order, and that it has not been possible to mitigate the threat by either agreeing on specific terms with the foreign investor or ordering the foreign investor to comply with certain terms.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Certain decisions made by the DBA and the Minister under the FDI rules may be brought before the Copenhagen City Court. Due to the confidentiality and sensitivity of the cases at hand, the FDI rules set forth certain procedures for the court proceedings.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

The EU FDI Regulation introduces minimum requirements for countries that choose to adopt an FDI mechanism. If an EU Member State chooses to adopt an act specifically addressing foreign investments, the act must meet the minimum requirements set out in the EU FDI Regulation. The Danish Investment Screening Act has been adopted and entered into force on 1 July 2021. The Act meets the minimum requirements set out in the EU FDI Regulation. Existing national legislation is generally in compliance with EU legislation.

21. Other relevant information

N/A

Contacts: Per Vestergaard and Josefine Høy Bendtsen

Last updated June 2023

1. Country: Finland

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

The five biggest FDI countries of origin in Finland are:*

1. Sweden (22.8%)
2. United States (USA) (18.2%) 
3. Germany (10%) 
4. Norway (6.6%)
5. Luxembourg (6.5%)

Top five total 64.0%

*According to data from Statistics Finland from 2021.

3. Legal Framework in Force

The Act on the Monitoring of Foreign Corporate Acquisitions in Finland (172/2012, as amended) (the Act). The Act on Transfers of Real Estate Requiring Special Permission (470/2019, as amended), which entered into force on 1 January 2020, is also relevant but will not be addressed below, except as expressly mentioned.

4. Last revision of the Legal Framework

11 October 2020 (682/2020)

The Act on Transfers of Real Estate Requiring Special Permission: 1 January 2023 (1098/2022)

The Act repealed the previous act on monitoring of foreign corporate acquisitions in Finland (1612/1992), which entered into force on 1 January 1993. The 1992 act repealed three acts: 1) the act on the right of foreigners and certain entities to own and manage immovable property and shares (219/39, as amended); 2) the act on intermediary relations concerning shares (224/39, as amended); and 3) the act on the right of foreigners and certain entities to become a partner in a partnership (322/73, as amended).

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The authorities exercise control over the ownership of companies considered essential for the security of supply and national security and, if necessary, restrict foreign ownership in such companies by rejection of confirmation, which is needed for certain corporate acquisitions defined in the Act. It is also possible that conditions will be set in the confirmation of a corporate acquisition, if they are necessary to safeguard a key national interest. Depending on the grounds that an object of corporate acquisition is subject to screening, a foreign owner may mean any owner outside Finland or a foreign owner outside EU and EFTA. The Act does not cover green field investments.

In practice, key national interests mainly refer to military national defence, functions vital to society (including safeguarding critical infrastructure and security of supply), national security, and public order.

The procedure concerning the monitoring and confirmation of corporate acquisitions is led by the Finnish Ministry of Economic Affairs and Employment, which also requests opinions from other authorities to the extent necessary. The monitoring of corporate acquisitions is supported by a network of authorities, led by the Ministry, which screens foreign acquisitions and participates in the verification processes related to them. As of 11 October 2020, other EU Member States and the Commission must as a rule also be notified of cases in the process of confirmation under the Act. The Ministry must approve the corporate acquisition, unless it could endanger a key national interest. In that case, the Ministry must refer the matter for consideration to the government plenary session.

The Act on Transfers of Real Estate Requiring Special Permission applies to transfers of real estate in the territory of Finland, if the transferee is:

1) an entity with a seat in a state other than a EU Member State or a member country of the EEA [or a citizen of a state other than a EU Member State or a member country of the EEA; 

2) an entity with a seat in a EU Member State or a member country of the EEA when such natural person or entity holds a minimum of one tenth of the aggregate number of votes carried by theshares of a limited liability company or exercises equivalent actual control in the company. The referred natural person or entity may only acquire a piece of real estate in the territory of Finland subject to special permission issued by the Finnish Ministry of Defence.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Under the Act, corporate acquisition refers to activities as a result of which a foreign owner gains control of: 

• at least 1/10;
• at least 1/3; or
• at least 1/2 of the aggregate number of votes conferred by all shares in the company, or a holding that otherwise corresponds to decision-making authority in a limited liability company or other monitored entity.

The Act includes more detailed provisions related to taking into account of shares owned / to be owned by the companies in the same group of companies or by a family member or of shares that contractually entitle the foreign owner to use voting rights.

For a specific reason, the Ministry of Economic Affairs and Employment or the Government may also require the buyer to file an application or a notification concerning a measure that will increase the buyer’s influence after the consideration of the initial acquisition that will not result in exceeding these limits.

A corporate acquisition means an acquisition and any other similar measure (which may refer e.g. to a share issue), as a result of which a foreign owner acquires control of votes in a monitored entity as determined in the Act. The Act covers purchase of shares (incl. shares in a listed company) and business of a legal entity. 

8. Scope - sectors covered

The so-called defence materiel industry enterprise, which is one of the three main definitions of a monitored entity in the Act, means an organisation or business undertaking that: 

a) produces or supplies defence materiel referred to in the Act on the Export of Defence Materiel (282/2012) or other products or services important for military national defence; or

b) whose export of products produced in Finland that are considered as dual-use items referred to in Council Regulation (EC) No 428/2009 (‘EC Regulation’) setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items, or in the Act on the Control of Exports of Dual-Use Goods (562/1996), is subject to authorisation under the EC Regulation or the said Act, or whose export of technology referred to in the EC Regulation or the said Act and used in its operations in Finland is subject to authorisation under the EC Regulation or the said Act.

This means supply of products or provision of services either to the Ministry of Defense, the Defense Forces or the Border Guard. The importance of the products or services is practically assessed on a case-by-case basis, for example based on existing commitments towards the Defense Forces; key software applications, cyber applications, cloud services or the delivery of other similar products and services may be considered as such products and services. In terms of the country's security, relevant activities may include maintenance or support of some critical infrastructure or, production of some key equipment for the Defense Forces. Other examples of the key products or services include encryption products, protective materials, protection against the threat caused by chemical and biological substances, radiation or explosives, i.e. the so-called CBRNE products and space technology products. In addition, products and services which ensure infrastructure related to military defence, such as fuel supply of the Defense Forces can be such important products or services. Further, a private company operating in the civil sector is considered a defense materiel industry enterprise if it exports products which require a license of dual-use product to third countries, transfers sensitive products within the EU or is otherwise granted an export license related to its export of dual-use products or a notification or a decision by authority. Further, a company operating in the civil sector that uses, develops or otherwise deals with monitored dual-use technology, for example know-how or other technical knowledge, in its operations such as in production or in product development, is considered a defence materiel industry company is considered.

Secondly, a monitored entity is also a company that produces or supplies critical products or services related to the statutory duties of Finnish authorities essential to the security of society. These authorities include but are not limited to the Defense Forces, the Border Guard, the police, the customs control, National Emergency Supply Agency, the Finnish National Security Authority (NSA) and the Finnish Transport and Communications Agency (Traficom). Examples of such products or services that can be considered critical are software applications (including encryption software), cyber security applications, certificate services, cloud services, data center services and other products and services that are related to their maintenance. In addition, for example, personal protective equipment produced or supplied to these authorities may be a critical product or service.

Thirdly, an organisation or business undertaking that is considered, when assessed as a whole, critical in terms of securing functions vital to society on the basis of their field, business or commitments is considered a monitored entity in the Act. Criticality to the vital functions of society may vary according to the prevailing security policy. Ensuring security of supply is considered critical. The Act does not specify private and public sectors or activities of the companies, which are included in the scope of the Act. Further, operations in terms of security of supply or other vital functions in an important field of business does not necessarily mean that the company is a monitored entity. For example, there are numerous companies operative in food supply or logistics sectors that are not of critical importance in terms of security of supply. Based on instructions of the Ministry, information on the scope of the Act can be obtained from the guidance documents issued by the Government regarding security of supply and national security.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

In accordance with section 4 of the Act, acquisitions in the defence and dual-use products sector (= defence materiel industry) and in the security sector always require prior confirmation by the authority (i.e. an application). In the non-military sector, Finnish companies considered critical for securing vital functions of society are being monitored. Regards these other corporate acquisitions that fall under the scope of application of the Act, namely under section 5 of the Act, the foreign owner may (but is not obliged to) submit the acquisition for advanced approval to the Ministry of Economic Affairs and Employment (i.e. a notification) before the implementation of the acquisition, which in practice usually means after signing but before closing. The Ministry may also, in cases that fall under the scope of the Act, require that the matter be submitted to the Ministry for examination in the formal confirmation process. 

As regards the defence materiel industry, monitoring covers all foreign owners. In other sectors, monitoring only applies to foreign owners residing or domiciled outside the EU or EFTA.

Pursuant to the Act on Transfers of Real Estate Requiring Special Permission, the transferee must apply to the Ministry of Defence for permission for the transfer of a given piece of real estate before the transfer or within two months of the confirmation of the transfer or the date of entry of the transaction in the electronic trading system referred to in chapter 9a of the Code of Real Estate (540/1995, as amended). If the transferee fails to file an application for permission for the transfer within the specified period of time, the Ministry of Defence must notify the transferor of the obligation to apply for permission and impose a time limit for the application of a maximum of two months. Additionally, the Ministry of Defence may require an application for permission, if it is evident that the piece of real estate has been acquired for the account of the persons referred to in the act in order to avoid the duty to apply for permission.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

The application must be submitted by the foreign owner (buyer), not the legal entity being acquired.

In case of a corporate acquisition, other than an acquisition of an entity in the defence or security sector (as defined in the Act), the Ministry of Economic Affairs and Employment must undertake further investigations within  6 weeks and make a decision on the possible transfer of the matter to the government plenary session within 3 months. These deadlines will begin to run from the date on which the Ministry considers that all the necessary information for handling the case has been received from the applicant. 

In case of a corporate acquisition of an entity in the defense or security sector, there are no defined timelines in the Act. However, the applications/notifications will always be handled as urgent by the Ministry of Economic Affairs and Employment.

The procedure will always include a request for statements by the Ministry from the relevant national authorities. This phase usually takes approximately three weeks.

As a national contact point under the EU Regulation, the Ministry will generally notify the Commission and the other EU Member States of any ongoing FDI screening. After being notified of the FDI, other EU Member States and the Commission have 15 calendar days to notify the Member State conducting the screening of their intent to provide comments or an opinion, and to request additional information. Other Member States may provide comments to the Member State conducting the screening, if they consider that the FDI is likely to affect their security or public order, or if they have information relevant to the screening. The Commission may issue an opinion addressed to the Member State conducting the screening, if it considers that the FDI is likely to affect security or public order in more than one Member State, or if it has relevant information in relation to that FDI. Comments and opinions are to be addressed and sent to the Member State conducting the screening no later than 35 calendar days following the receipt of the information conveyed with the notification of the FDI. If additional information is requested, such comments or opinions are to be issued no later than 20 calendar days following receipt of the additional information or the notification that such additional information cannot be obtained. Moreover, the Commission – irrespective of having notified its intention to issue an opinion – may issue an opinion following comments from other Member States where possible within the aforementioned deadline(s), but not later than five calendar days after those deadlines have expired. The Member State conducting the screening needs to give due consideration to the comments of the other Member States and to the opinion of the Commission.

In practice, the entire procedure generally takes a couple of months. The parties to an acquisition should take this into account when planning the overall timeline of an acquisition.

12. Design – Transparency and Information requirements (Filing Forms?)

In Finland, a general principle of transparency in the administration applies. This includes a general right of access to documents in public files under the Act on the Openness of Government Activities (621/1999, as amended). The Act includes certain exemptions, including but not limited to, in relation to trade secrets and information relevant to national security and military defence. If an exemption applies, entire documents or relevant parts thereof will be kept confidential and will not be disclosed to any third parties.

As a rule, the Ministry processes applications/notifications and their appendices as confidential. The Ministry will not provide any information on the corporate acquisition to any third parties during the procedure or prior to the acquisition being finalised.

The application/notification is free-form but it must include key information on the corporate acquisition, the entity subject to screening, and the foreign owner (including the price/value of the FDI information on its funding and possible financier, as well as information of the ultimate owner of the foreign owner and related shareholding/contractual arrangements in order the Ministry to be able to assesses the actual influence after the transaction).

Further, the Ministry has drawn up instructions for preparing the application/notification and these are set out in a document on the website of the Ministry. In addition, the application and notification must also be accompanied by a form containing the information required by the EU Regulation, also available on the website.

At the request of the Ministry of Economic Affairs and Employment, the foreign owner is obliged to provide the Ministry with all information regarding the entity subject to screening, the foreign owner and the corporate acquisition for examining the matter.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

In most of the cases acquisitions referred to in the applications and notifications are confirmed.

Not confirming an acquisition has so far been rare or none, and such a decision can only be made by the government plenary session.

The Ministry may also set conditions, which are seen as necessary mitigating measures with which, in exceptional situations, a security-critical part can be excluded from the foreign acquisition, instead of rejection of the confirmation by the government plenary session. Such conditions can only be set if the parties to the acquisition undertake to comply with them and the conditions would be agreed in negotiations between the contracting parties and the competent authorities. The type of conditions can vary depending on the case. For example, a carve-out of a certain function or part of the acquisition, or an obligation to continue providing services in accordance with existing production and supply contracts.

The Ministry may also leave the application or notification unexamined, if it considers that the acquisition does not fall within the scope of the Act.

The Act does not provide any deadlines within which the Ministry can intervene in an acquisition of a defence materiel company or a company in the security sector, if the application has not been submitted to the Ministry. 

If a confirmation of a corporate acquisition, which would transfer influence in an entity subject to screening, is denied after the acquisition is executed, the foreign owner must dispose of its shares in the corporation. The owner must dispose of its shares within the time specified by the decision, and to a degree that diminishes the number of votes to which the shares entitle the owner to less than one tenth, or some other share approved in a previous confirmation decision, of the aggregate number of votes of all shares in the company. After denial of confirmation, the foreign owner may only use shares that, at a maximum, entitle the holder to the aforementioned number of votes when voting at the general meeting, with no account taken of the foreign owner’s other shares whenever the consent or backing of shareholders holding a certain share of company shares is required in order to reach a valid decision. The same applies to the shares of a foreign owner in a cooperative and the number of votes at general meetings of cooperatives. Upon denial of confirmation of a corporate acquisition, where said confirmation concerns the transfer of actual influence to a foreign owner in an enterprise other than a limited liability company, or concerns a business acquisition, agreements on the acquisition of influence or of a business undertaking will be dissolved at the time specified in the decision. Should anyone who has been denied confirmation cease to be a foreign owner before the expiry of the time period, the aforementioned consequences will expire correspondingly.

14. Interaction with other legal frameworks (ex: merger control)

N/A

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The Ministry shall confirm a corporate acquisition under the Act, unless it could endanger a key national interest. The Ministry may confirm the acquisition, and the government plenary session may deny the confirmation of a corporate acquisition based on its own discretion. In addition, if the applicant does not approve the proposed terms of a conditional confirmation, this will result in a denial to grant confirmation to the acquisition.

Under the Act on Transfers of Real Estate Requiring Special Permission, a permission for the transfer of a piece of real estate cannot be granted, if the transfer is deemed a threat national security, complicate the organisation of defence, the surveillance and safeguarding of territorial integrity or the assurance of border control, border security or of the security of supply. The application can also be rejected if the acquisition of real estate could jeopardize the benefits referred to above and the real estate under application is not fit for the intended use stated in the application, or a transferee is a person who is subject to a legally binding deportation decision pursuant to Section 149 of the Aliens Act (301/2004, as amended) and who is staying in the country illegally. In addition, the application can be rejected, if the transferee, on the reminder of the Ministry of Defence, repeatedly neglects the necessary clarification, or intentionally gives incorrect essential information relevant to the matter.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

The decision by the Ministry may be appealed to the Helsinki Administrative Court (though usually there is no need/interest to appeal, as the decision may only concern confirmation of acquisition or confirmation with conditions approved by the applicant). A rejection decision by the government plenary session may be appealed to the Supreme Administrative Court within 30 days calculated from the day when the decision was received.

17. Publication in Official Gazette or other

The final decisions are available to the public (they can be requested from the Ministry) to the extent they do not include confidential information, but currently the decisions are not published in the official gazette or on the website of the Ministry.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

Based on publicly available information (included in the Government Proposal (103/2020)), the Ministry has issued a total of 65 confirmations by 8 June 2020 and no confirmation had been denied (therefore no decisions had been appealed to the administrative court).

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

On 19 March 2019, the EU adopted a new regulation for the screening of FDI in EU (Regulation 2019/452/EU). The regulation establishes a regulatory framework for Member States’ FDI screening in the EU for reasons of security or law and order. The regulation does not seek to harmonize national FDI screening rules but introduces minimum requirements for countries which have or are willing to adopt an FDI mechanism and has introduced a mechanism for the exchange of information between the Member States and the Commission (see above the question on Design – Procedures and Deadlines). The regulation entered into force on 11 October 2020. The Act was amended as of 11 October 2022 to implement the EU Regulation.

21. Other relevant information

Under the Act, anyone who intentionally or through gross negligence fails to apply for confirmation under section 4 of the Act, neglects the obligation to disclose information, or submits false information to an authority or withholds information deemed significant in terms of considering the matter, shall, unless the act or omission in question is considered minor or a more severe punishment for the act or omission is provided elsewhere by law, be subject to a fine for a corporate acquisition violation. 

Contacts: Tuija Kaijalainen, Salla Tuominen and Mika Oinonen

Last updated June 2023

1. Country: France

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

In 2021, the five biggest FDI countries of origin were:

• Germany (18%)
• US (15%)
• UK (9%)
• Belgium (7%)
• Netherlands (6%)

Source: Business France – Annual Report 2021

3. Legal Framework in Force

3 Legal framework in force Articles L. 151-3 to L. 151-7 and R. 151-1 to R. 151-17 of the French Monetary and Financial Code (MFC)

4. Last revision of the Legal Framework

8 September 2022: following a public consultation in March 2022, guidelines were adopted to provide an educational overview of the scope of the foreign investment control rules.

10 September 2021: Ministry order concerning foreign investments in France now includes technologies involved in the production of renewable energy in the list of critical technologies.

29 April 2020: in the context of the COVID-19 pandemic, the French Minister of Economy has announced two key measures regarding FDI rules, (i) a new Ministry Order entered into force on 27 April 2020 which extended the list of sensitive sector permanently, and (ii) temporary lowering of applicable threshold for non-EU investors to 10%, initially expected to be implemented only until 31 December 2020 but finally extended until 31 December 2023. 

31 December 2019: Ministry Order on foreign investments specifies the list of information and documentation required for a FDI filing and provides details the list of the critical technologies.

31 December 2019: Decree n°2019-1590 extends control to new sectors, provides new definitions of foreign investments and investors (with notably new thresholds), and modifies the authorization procedure.

22 May 2019: law n°2019-486 (PACTE law) extends the powers of sanctions of the Minister for Economy and provides for an annual report to the Parliament on government action regarding FDI. 

29 November 2018: Decree n°2018-1057 extends the control of foreign investments to new sectors and authorizes the target company to submit a request for prior ruling to the Minister of Economy.

10 May 2017: Decree n° 2017-932 removes the obligation to file an administrative declaration for investments which do not fall within the scope of the prior authorization procedure.

14 May 2014: Decree n° 2014-479 (Montebourg Decree) extends the list of foreign investments requiring prior authorization in strategic sectors.

5. Contextualization of the Legal Framework (Historical or other)

Originally, a French law of 1966 on foreign exchange provided for a general principle of freedom regarding the financial relations between France and other states, subject to the safeguarding of national interests. This regime was replaced by Law No. 2004-1343, adopted on December 9, 2004, which empowered the French government to police foreign investments. A major evolution on the regulatory framework was the adoption of Decree No. 2014-479 by the former French Minister for the Economy, Arnaud Montebourg, on 14 May 2014, by which the scope of the French prior authorization regime was substantially extended in the context of the contemplated acquisition by General Electric of the energy business of Alstom, a flagship of the French industry. The reform of the French regulation in November 2018 further amends and expands the scope of the control to digital technologies, notably artificial intelligence, digital data storage, nanotechnologies, cybersecurity, computer data capture and space operations. Then, the adoption of the so-called PACTE law by the French Parliament in May 2019 strengthened the French government’s investigative powers and choices of sanctions in case of non-compliance with foreign investment regulation. Finally, the last piece of the French FDI regulation reform, notably implementing the legislative changes introduced by the PACTE law, has been adopted in December 2019 with a Decree and an Order. The Decree amends and expands the scope of FDI control to new sectors including food safety, press, and research and development activities relating to energy storage and quantum technology, but also reforms the authorization procedure and the concept of foreign investment and investor, notably by removing the distinction between EU and non-EU investors, introducing the concept of chain of control, lowering the threshold to 25% and reducing the response time of the Ministry to thirty days. The latest reform results in the addition of the technologies involved in the production of renewable energy to sensitive.  The exceptional features adopted by the French government in the context of the COVID-19 pandemic, including the extension of sensitive activities to “research and development activities relating to biotechnologies”, and temporary lowering the applicable threshold to 10%, extended until December 2023. 

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

As of April 1, 2020, the following individuals and entities are each deemed a foreign investor under the new French FDI regulation:

• (i) any individual of foreign nationality;
• (ii) any French individual who is not a French tax resident;
• (iii) any foreign law entity; and
• (iv) any French entity controlled by one or more individuals or entities mentioned in (i), (ii), (iii).

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Foreign investors are required to seek prior authorization for any of the following:

• direct or indirect acquisition of a controlling stake in a French company (share deal);
• the acquisition of all or part of a line of business of a French company (asset deal); or
• the acquisition of more than 25% of the stock or voting rights of a French company (threshold test).

Please note that this last threshold should be lowered to 10% in the case of an acquisition of voting rights in a French listed company, for non-EU/EEA investor, until 31 December 2023 due to current economic context. 

8. Scope - sectors covered

The sensitive sectors requiring approval are listed under article R. 151-3 of the MFC and article 6 of the December 31, 2019 order, and are as follows: 

 Activities relating to security and defence sectors in the broadest meaning

• research, development and sales of weapons, munitions, powder or explosive substances to be used for military ends or war;
• certain dual-use items and technology; 
• companies privy to classified information;
• goods or services related to the security of the information systems of public or private sector companies managing critical infrastructures;
• the supply of research or equipment to the Ministry of Defence;
• cryptology systems;
• the interception of communications and computer data equipment;
• audit and certification of information technology systems and products;
• the gambling industry, except for casinos;
• research and development or manufacture of means of fighting the illegal use of pathogens or toxic substances or to prevent the sanitary consequences of such use;
• data processing, transmission, storage; 

Activities relating to the supply, security and continuity of: 

• water, electricity or other energy sources, transport services and networks, space operations, electronical telecommunications, vitally important establishments, protection of public health and missions of the national police, gendarmerie, civil security and public safety;
• production, processing or distribution of agricultural products, and the editing, printing or distribution of political and general information press publications; 

R&D activities relating to: 

• cybersecurity, artificial intelligence, robotics, additive manufacturing, semi-conductors, quantum technologies, energy storage, renewable energy (i.e. the critical technologies as defined in the Order of December 31, 2019) and certain dual-use items and technologies; and
• biotechnologies. 

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Pursuant to article L. 151-3 of the MFC, any foreign investment made in France in sectors that are essentials to guarantee French national interests in terms of public policy, public security or national defence are subject to a prior authorization by the MINEFI. This prior authorization is mandatory for every investment falling within the scope of the regulation. A wide range of sanctions may be imposed by the MINEFI for failure to respect the authorization regime.

The investor also has the option of filing a screening request for an activity (Article R. 151-4 of the Monetary and Financial code).

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

As of 1 April 2020, the French FDI review process has been modified with the introduction of a new “two step process”. According to this new process, the Ministry has: 

• Phase 1: 30 working days from the date of receipt to indicate whether the transaction (i) falls outside the scope of the review, (ii) is cleared unconditionally or (iii) requires further analysis. If no response is received by the applicant within this time frame, the request is deemed rejected;
• Phase 2: where further analysis is required, the Ministry have an additional period of 45 working days to provide the investor with its final decision, i.e. either (i) the refusal of the investment or (ii) the clearance with commitments. If no response is received by the applicant within this time frame, the request is deemed rejected. In the event that the Minister for the Economy denies the authorization, he must provide the investor with the reasons for such denial.

It should be noted that it is the investor which is responsible for obtaining the clearance in due time.

12. Design – Transparency and Information requirements (Filing Forms?)

In essence, the prior authorization request must include:

• Information regarding the investor: presentation of the direct investor (certificate of incorporation etc.), description of the chain of control if applicable (including ultimate investor), its activities with information related to markets, market shares, competitors etc., and mention of any capital/financial links with a State or public entity other than the European Union over the last 5 years;
• Information regarding the target: presentation of the sellers, the target company, description of the target’s activities, customers, markets and market shares, competitors and its involvement in programmes of Union interest or any financial support with European Union funds;
• Information regarding the investment: copy of any document attesting that the investment project is “sufficiently advanced”; possible option on the capital balance; amount of the investment in France and for the global transaction, rationale for the transaction in connection with the investor's global strategy and the financial terms of the transaction. 

Prior authorization requests must be sent in one original copy to the MINEFI at the following address: Direction générale du Trésor, 139, rue de Bercy, 75572 Paris Cedex 12 and in one electronic version at the following address: IEFautorisations@dgtresor.gouv.fr.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

In practice, the Minister’s decisional power is not limited to granting or denying authorization of an investment but the Minister may also make the authorization subject to a number of commitments by the investors if it is likely to jeopardize national interests. Such conditions typically concern the continuity of the company’s business and the sustainability of its activities, the safety of its supply chain, its industrial capabilities etc.

14. Interaction with other legal frameworks (ex: merger control)

N/A

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The substantive test for clearance is to verify that a contemplated transaction or investment may not harm national interests and that there is no risk under business ethical rules. Nonetheless, as for the scope of the regulation, given the fact that French law does not define the concept of national interest, the Minister for the Economy has a rather high degree of discretion concerning the decision whether to grant the authorization to invest.

However, the series of factors listed by the EU Regulation n°2019/452 to be taken into account in determining whether a foreign investment is likely to affect security or public order should normally also apply in the French context. 

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

MINEFI decisions are subject to full review (recours de plein contentieux) by administrative law courts. Under this procedure, French administrative law judges are given broad powers to substitute their appreciation for those of MINEFI and to overrule MINEFI authorizations or rejections.

Additionally, an investor can challenge a MINEFI decision under European Community law in French courts if it can demonstrate that the French regulatory framework restricts the free movement of capital and is not narrowly tailored to the protection of the public interest at issue.

17. Publication in Official Gazette or other

No. However, since PACTE law, aggregated statistics on the number of applications received, the origin of investors and the sectors concerned are published annually on the website of the DGT.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

There is no publicly available source of information regarding MINEFI’s approval or rejection of foreign investments. Therefore, the only examples of FDI decisions are cases with significant political impact and related press coverage. In two of these publicly known sensitive cases concerning foreign investments, i.e. the acquisition by General Electric of the energy business of Alstom in 2014 and the takeover of Alcatel lucent by Nokia in 2015, the clearance was finally granted by the authorities subject, in the case of Alstom, to a certain number of commitments. However, the MINEFI seemed to have harden its position recently with the veto opposed by the Ministry to the acquisition of Carrefour by the Canadian Group “Couche-Tard” in January 2021.

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

The existing French foreign legislation has been amended to take into account Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 (OJ L 791, 21.3.2019, p. 1-4) which entered into force on 11 October 2020.

21. Other relevant information

N/A

Contacts: Edouard Sarrazin and Clara Deveau

Last updated June 2023

1. Country: Germany

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

Based on the information of the Federal Ministry for Economic Affairs and Climate Action, in 2021, out of 306 total screening cases the biggest FDI countries were:

1. USA (139 screening cases);
2. UK with Channel Islands (45 screening cases);
3. China (37 screening cases);
4. EU/EFTA (22 screening cases);
5. Canada (13 screening cases).

3. Legal Framework in Force

AWG (Foreign Trade and Payment Act), specifically sections 1,4,5,14a, 15, 18; AWV (Foreign Trade and Payment Ordinance), specifically sections 55-62.

4. Last revision of the Legal Framework

28 December 2022.

5. Contextualization of the Legal Framework (Historical or other)

The German regulation is generally based on the fundamental principle of free trade, allowing all economic transactions with foreign firms or countries as long as they are not explicitly forbidden or otherwise regulated. The latest larger revisions in 2020 and 2021 broadly extended and specified the scope of application with regards to the area of the critical infrastructure and critical industries (extended to certain state communication measures, pharma, medical devices, personal protective equipment) as well as the military/state secrets area examinations of corporate acquisitions. Asset deals, while concluded to be within the scope in the past, have explicitly been included in the scope. While intra-group transactions generally are within the scope of the FDI regime, such transactions fall out of the scope if the purchaser and seller are fully owned by an identical owner and both have their management within the same jurisdiction. The scrutiny threshold for taking up a transaction has been lowered considerably from “danger to security and order” to the “potential impairment of security and order,” but not only of Germany but also of the other Member States with regard to important EU projects, thus reflecting the EU FDI Regulation. A major change to the framework is that transactions in the area of critical infrastructures and industries are now conditional on clearing by the competent Federal Ministry for Economic Affairs and Climate Protection (BMWK). Certain acts of closing (transferring voting rights and critical information – the latter even in due diligence) can now be prosecuted as criminal acts if transactions in the critical areas have not been cleared by BMWK (which is in charge of FDI examination) in advance. In addition, the amended rules now explicitly refer to critical investors with a special attention to investors that are controlled by the state or public entities. Thus, the assessment by BMWK whether a potential impairment of security and order may be in place can also be based on the actual purchaser, especially if the latter is state controlled or has acted illegally in the past.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

FDI in Germany occurs in three different sectors:

• Sector A: Military/classified state information sector (see point 7 below);
• Sector B1: Critical infrastructure sector (see point 7 below);
• Sector B2: Critical industries sector (see point 7 below); and
• Sector C: Other potentially critical entities (see point 7 below).

The framework does not establish a standard procedure for the authorities to actively screen the market for relevant FDIs although screenings, which will not capture all cases, occur.

If BMWK comes across relevant information (e.g. in the media), it has the competence to start aprocedure. Notification to BMWK by the immediate purchaser is required:

• in Sector A in case of the direct or indirect acquisition of a minimum of 10% of the voting rights in a German entity by a non-German entity;
• in Sector B1 in case of the direct or indirect acquisition of a minimum of 10% of the voting rights in a German entity by a non-EU entity;
• in Sector B2 in case of the direct or indirect acquisition of a minimum of 20% of the voting rights in a German entity by a non-EU entity; but
• no notification is required in Sector C. However, notification is recommendable in critical cases.

While non-compliance with notification requirements itself in Sectors A and B does not lead to any immediate penalties, transferring voting rights, providing dividends and certain critical information without prior clearing by BMWK are pending void and even criminal acts.

BMWK may order investigations of transactions even years after closing. Since closing is under the conditions subsequent of clearing by BMWK, BMWK generally has the power to invalidate any actions taken by the target/ shareholder after a closing that is later ordered to be ineffective by BMWK. Of course, BMWK as an alternative may order a reverse transaction or certain conditions (e.g. reporting obligations, sale of certain business parts).

Please note that the German regulation aims to close loopholes by extending rules to cases where domestic or intra-EU corporations seem to act as scarecrow acquirers or to asset deals that lead to situations of purchase of voting rights/shares. Even if the immediate purchaser is a German entity, review shall occur with regard to all direct and indirect owners of this German entity.

The same applies to asset deals, where definable parts of the business of a domestic company or all of the equipment of a domestic company or of a definable part of the business of a domestic company that is necessary to maintain the business is aquired.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

For each of the sectors, different thresholds apply. Please see below.

Calculation of voting rights is identical for all sectors. Please note that for calculation not only the actual voting rights are taken into consideration but also the assurance of additional seats or majorities on supervisory bodies or in management, the granting of veto rights in strategic business or personnel decisions, or the granting of rights concerning critical information. The same applies in the case of voting rights agreements. If purchasing/holding companies together cross any thresholds and both are indirectly or directly controlled by the same state or public bodies of the same state, the individual percentage of voting rights is added to each other’s voting rights.

Please also note that calculation of voting rights is not proportional in the case of indirect acquisitions.

Thus, if a shareholder holds 10% in a company that acquires 10% of a German entity in Sector A or Sector B1, this is considered not as an acquisition of 1% of the voting rights but of 10% of the voting rights in the target by the shareholder.

Sector A:

Direct or indirect acquisition of 10% or more of the voting rights of entities that:

• currently develop, manufacture, modify or have effective control over any goods listed in the German export list (military goods) or have done so in the past and still have knowledge or other access to the technologies;
• develop, manufacture, modify or have actual control over goods in the field of defence technology which are covered by classified patents or have done so in the past and still have knowledge or other access to the technologies;
• currently manufacture or have manufactured in the past products with IT security functions to process classified state information or components essential to the IT security function of such products if the overall product was licensed with the knowledge of the company by the Federal IT Security Agency;
• are legally defined defence-related facilities.

Please note that the notification requirement also applies to additional investments, even if an earlier investment was cleared by BMWK, if such investment crosses the 20%, the 25%, the 40%, the 50% or the 75% threshold.

Sector B1:

Direct or indirect acquisition of 10% or more of the voting rights of an operator of critical infrastructure or comparable areas (see below) by a non-EU/non-EFTA person/entity. This applies to:

• operators of critical infrastructure (with certain thresholds defined by law) in the following sectors:
  • Energy sector: power plants, power storage plants, transmission networks, pipelines, etc;
  • Water sector: water works, water processing installations, distribution or sewer systems, purification plants, etc;
  • Food sector: Food production, treatment, processing, distribution, etc;
  • Telecommunications sector: networks, transmission networks, IXP, DNS-Resolvers, DNS-Server, data housing and hosting, content delivery networks, trusted services operations;
  • Health sector: hospitals, life-saving medical device production, pharmaceutical manufacturing plant, pharmacy, communications system, lab, etc;
  • Finance and insurance sector: authorizing system, clearing systems, etc;
  • Transport and traffic sector: airports, train stations, system for operation of water ways, traffic control systems, public transport, etc;
• entities specifically developing or specifically modifying software that is industry-specific for the operation of aforementioned critical infrastructures;
• entities entrusted with surveillance measures or establishment of technical facilities for the implementation of legally prescribed measures for monitoring telecommunications and knowledge of that technology;
• entities offering cloud computing services (certain thresholds apply);
• entities holding an authorization for components or services of the telematics infrastructure regarding patients’ cards for the public health insurance system;
• media enterprises (broadcasting, telemedia, print) that take part in building public opinion and have special current and broad effect; and
• enterprises providing services which are needed to ensure the trouble-free operation and functioning of certain state communication infrastructures.

Please note that the notification requirement also applies to additional investments, even if an earlier investment was cleared by BMWK, if such investment crosses the 20%, the 25%, the 40%, the 50% or the 75% threshold.

Sector B2:

Direct or indirect acquisition of 20% or more of the voting rights of an operator of critical industries or comparable areas (see below) by a non-EU/non-EFTA person/entity. This applies to:

• entities developing and/or manufacturing personal protective equipment;
• entities developing and/or manufacturing and/or marketing essential medicines, including their precursors and active ingredients to ensure the provision of healthcare to the population, or possessing a corresponding license under pharmaceuticals law;
• entities developing or manufacturing medical devices products which are intended for diagnosis, prevention, monitoring, predicting, forecasting, treating or alleviating of life-threatening and highly infectious diseases or
• entities developing or manufacturing in-vitro-diagnostics which serve to supply information about physiological or pathological processes or conditions or stipulate or monitor therapeutic measures relating to life-threatening and highly infectious diseases;
• operators of high-quality remote sensing systems under the Satellite Data Security Act;
• air carriers with an operating license;
• employers of employees working at security-sensitive posts in vital facilities;
• raw materials extractors, processors and refiners;
• entities of fundamental importance for food safety and directly or indirectly covering or culturing an agricultural area of more than 10,000 hectares;
• developers or manufacturers of:
  • goods which are capable of independently optimizing their algorithms by means of artificial intelligence procedures for cyber-attacks, identity fraud, surveillance and repression;
  • autonomous motor vehicles or unmanned aerial vehicles and components;
  • robots specially designed for handling explosive agents, specially designed or rated as radiation-hardened to withstand, without loss of function, a radiation dose exceeding 5 x 103 Gy (silicon), specially designed to operate at altitudes exceeding 30,000 meters, or specially designed to operate in water depths of 200 meters or greater;
  • semiconductors;
  • IT products and components for the protection of IT systems, defense against cyber-attacks or IT technology for the investigation of criminal offences and the preservation of evidence by law enforcement authorities;
  • certain dual-use goods in the aviation and space industry area;
  • dual-use nuclear technology;
  • quantum technologies;
  • industrial 3D printers;
  • goods specifically designed for the operation of wireless or wireline data networks;
  • smart-meter gateways and security modules for these goods; and
  • goods which are protected by classified patents by law.

Please note that the notification requirement also applies to additional investments, even if an earlier investment was cleared by BMWK, if such investment crosses the 25%, the 40%, the 50% or the 75% threshold.

Sector C:

Sector C is a catch-all sector and covers any acquisition of 25% or more of the voting rights of any German entity by a non-EU purchaser that may endanger national security or public order. While there is no notification requirement, notification may be recommendable if the target may be critical (e.g. mainly active for public entities), as otherwise BMWK may ex officio investigate the transaction for five years from signing. Please note that even if an earlier investment was cleared by BMWK or if the five-year period for an ex officio investigation has passed, in case additional investments cross the 40%, the 50% or the 75% threshold, the ex officio competence applies, again. Thus, a notification may be recommendable in such cases as well.

As mentioned above, asset deals with an effect identical to acquiring the aforementioned entities are also covered by FDI screening. Loopholes are closed by circumvention regulation

8. Scope - sectors covered

Please see question 7, above.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

a) In general, the conclusion of a contract needs to be reported to BMWK without delay.

However, while for Sector C it is generally recommendable to only close after the end of the FDI procedure, for sectors A, B1 and B2, a transfer of voting rights is invalid until clearance by BMWK has occurred. An exemption applies when the shares are acquired on the stocks and securities market. In the latter case, the acquisition of stocks and securities is valid if the purchaser immediately notifies BMWK. The purchaser is still prohibited from executing his voting rights until the acquisition is cleared by BMWK.

b) Depending on the area of a target’s activities:

• Sector A: 10 %, 20%, 25%, 40%, 50% 75% of the voting rights;
• Sector B1: 10%, 20%, 40%, 50%, 75% of the voting rights;
• Sector B2: 20%, 25% 40%, 50%, 75% of the voting rights;
• Sector C: 25%, 40%, 50%, 75% of the voting rights.

c) Notification is mandatory in sectors A, B1 and B2 but investigation procedures by BMWK are not.

BMWK may simply review and give clearance or order an in-depth review. A certificate of non-objection may be applied for voluntarily after signing in Sector C. Also, in cases in which the purchaser assumes that no notification requirement exists, a precautionary notification (formal application) or an informal enquiry can be submitted to BMWK via e-mail.

10. Design – reciprocity?

The relevant regulation does not mention reciprocity.

However, reciprocity was discussed in earlier legislative processes and may in reality play a role in the decision. For example, the blocking of the acquisition of Aixtron in 2016 by a Chinese investor has been interpreted as an attempt to negotiate better access for German investors to the Chinese market.

11. Design – Procedures and Deadlines

After notification or after finding out about the transaction, BMWK provides existing information to other stakeholders (other ministries and authorities, member states, Commission) for comments.

Only after receiving the comments, will BMWK decide on ordering an in-depth review. BMWK needs to take this decision within two months of learning about the transaction.

If BMWK does not decide within this two months period, this is under law considered to be a clearance of transaction.

If BMWK decides to order an in-depth review of the acquisition, it orders such review within the aforementioned timeframe. Such order requires the immediate purchaser to submit a defined set of information (including percentage of shares before and after transaction, description of the business objective of purchaser and acquired entity, business strategy of purchaser, annual financial statements and business reports of the past three years, acquisition agreement, etc).

In addition, BMWK raises questions individually designed for each transaction. The investigation needs to be finalized within four months. However, the expiry of the deadline is suspended during periods in which questions have not been answered by the purchaser. Please note that BMWK may issue several rounds of questions.

If during the aforementioned time period BMWK finds expectable impairment to public order and security, it has the competence to:

• order invalidity of closing (if closing has occurred);
• order a reverse transaction (if closing has occurred);
• prohibit the acquisition before closing (also if closing has occurred but was pending void); and
• instruct the purchaser and target entity to take mitigating measures (e.g. report obligations, limit the acquiring party’s right to use its voting rights for certain decisions, sell critical assets).

12. Design – Transparency and Information requirements (Filing Forms?)

BMWK provides an Excel form on its homepage that serves as the basis for a binding data transfer in the FDI screening process. The form provides for several options e.g. the notification of a transaction or the application for a certificate of non-objection. The completed form should be submitted to BMWK via e-mail. It is possible to refer to additional annexes or briefs within the form. In addition, BMWK has issued a decree listing further information required, depending on the specific action. Any additional documents and information should be submitted to BMWK via e-mail together with the Excel form.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

German law provides for:

• blocking, i.e. prohibiting the closing (Untersagung); and
• ordering the invalidity of closing as a way of implementing the prohibition;
• unwinding as a way of implementing the prohibition: BMWK can appoint an escrow for this purpose, at the acquirer’s cost; and
• instructions, in the form of administrative orders, e.g. unbundling of critical business parts from the purchased entity, measures to make sure that technology is not shared, limited voting rights; reporting requirements.

Another means often employed by BMWK is the conclusion of a public law contract between BMWK and the purchaser (and potentially the target) in which BMWK clears the transaction in exchange for the purchaser (and target) agreeing to certain conditions (reporting obligations, sale of business parts, etc.)

14. Interaction with other legal frameworks (ex: merger control)

Not under law.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Blocking, as well as other instructions, may be ordered if an acquisition potentially impairs public order or safety of the Federal Republic of Germany, other EU Member States, or certain defined EU projects. This is not based on WTO definitions. However, BMWK interprets it as defined in the new EU FDI regulation.

BMWK has discretion regarding the application of the criteria.

No court decisions have occurred on the reach of the discretion so far.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Judicial review is available within one month from the order of blocking or instructions with the competent administrative court (usually the administrative court of Berlin).

The competent court may review if public order and safety are indeed potentially impaired and whether the order in question is adequate (i.e. appropriate – able to cure the situation; required – the least intrusive way of dealing with the issue in question; and equivalent - not completely out of range).

So far, there has been one (unsuccessful) judicial proceeding for interim measures regarding suspension periods during the FDI review process ordered by BMWK and the legal fiction of the clearance of the transaction if BMWK does not decide within a two month time frame (see question 11 above).

17. Publication in Official Gazette or other

No.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

From 2016 to 2017, in four cases, stipulations (not restricting the acquisition) were decided by BMWK, and in seven cases, the certificates of non-objection were only issued after public law contracts assuring public order and security were concluded. In 2021, in only 2% of the FDI screening cases (6 out of 306 cases) measures were taken (this includes prohibitions, side conditions, public-law contracts and administrative orders). While the number of cases increased compared to the years before, the cases with measures taken significantly dropped from 12 % in 2018 (10 out of 78 cases), 11 % in 2019 (12 out of 106 cases) and 7.5 % in 2020 (12 out of 160 cases).

Since 2016, the German government vetoed six acquisitions, each time with regards to Chinese investors.

• In October 2016, a Chinese investor was banned from acquiring a manufacturer of semiconductors and nano materials (Aixtron) based on an intervention from the US. While 51% of the investment should have come from a private investor, 49% of the investment would have come from an entity indirectly held by the local government of Xiamen, China.
• With regards to investment in Leifeld Metal Spinning AG, the investor Yantai Tahai was vetoed because of safety interests, in part because the investor does business in the nuclear area.
• Even though not in the scope of the German foreign investment screening, the German government in March and July 2018 made sure that the Chinese state-owned SGCC could not acquire 20% of the shares of German grid operator 50hertz. In March, the purchase was avoided by Belgian Elia’s acquisition, and in July by acquisition of the shares by the government's public bank KfW.
• In December 2020, the Federal Government prohibited the acquisition of IMST GmbH, a 5G, satellite and radar expert company by a Chinese buyer.
• In September 2022 the Federal Government prohibited the acquisition of Elmos Semiconductors SE, a producer of semiconductors, by a Chinese buyer through a Swedish subsidiary as intermediary.
• Another case that drew attention in 2022 was the participation of the company Cosco Shipping, a state owned Chinese company, in the port of Hamburg. Cosco Shipping originally intended to acquire 35% of the shares of the port terminal operator HHLA Container Terminal Tollerort GmbH. The Federal government partially prohibited the acquisition and limited the number of shares that can be acquired to 25%. Each acquisition of additional shares by Cosco Shipping, that exceeds the 25% threshold, will cause another FDI screening. Further, the atypical acquisition of control, i.e. through contractual veto rights by Cosco Shipping, has been prohibited.

In April 2022, according to media reports, the Federal Government set an example for ordering a reverse transaction in the case of the acquisition of Heyer Medical, a producer of medical products i.e. ventilators, by the Chinese company Aemond. In 2020, Aemond had concluded a purchase agreement regarding Heyer Medical after the latter filed for insolvency in 2018.

In April 2022, BMWK stopped the purchase of Gazprom Germany by an investor and held the latter’s decision to liquidate Gazprom Germany invalid. The transaction had not been notified to BMWK. As Gazprom Germany operated critical infrastructure, its sale to a Russian investor required pre-approval by BMWK. Since the sellers were not willing to re-accept the shares in Gazprom Germany the latter has been set under a trusteeship of the Federal Network Agency (Bundesnetzagentur) and has since been nationalized.

Please note that no information is available on transactions that may have been aborted because of concerns of BMWK

19. Stakeholders views on the Legal Framework

The latest amendments have drawn some criticism from industrial organizations, especially the Federation of the German Industry (BDI).

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

The updated German regulation makes full reference to the EU Regulation. While the existing procedures already conformed with notification and answering periods, the broadened scope explicitly allows other Member States and the Commission to provide their input and to also base actions by BMWK on their interests.

21. Other relevant information

N/A

Contacts: Ludger Giesberts and Thilo Streit

Last updated June 2023

1. Country: Hungary

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

Based on data published by the Hungarian National Bank, during Q4 of 2021 the five biggest sources of FDI into Hungary were: 

• The Netherlands
• Switzerland
• South Korea
• Ireland
• Luxemburg

3. Legal Framework in Force

Regime enacted in 2018 (2018 FDI Regime):

• Act on the Control of Foreign Investments Offending the National Security of Hungary (Act LVII of 2018) (2018 FDI Act)
• Government Decree 246/2018 (XII.17.) on the Implementation of Act LVII of 2018 on Control of Foreign Investments Offending the National Security of Hungary 

Regime enacted in 2020 (2020 FDI Regime):

• Act LVIII of 2020 on intermediary measures and pandemic preparedness in connection with the termination of the state of emergency (2020 FDI Act)
• Government Decree 289/2020 (VI.17.) on the definition of specific fields of operation of corporations having their headquarter in Hungary
• Government Decree 561/2022 (XII. 23.) on special rules applicable during the state of emergency related to the protection from an economic perspective of companies having their headquarter in Hungary

Other notable sources:

• Act on the Investments of Foreigners in Hungary (Act XXIV of 1988) 
• Act on the Acceleration and Simplification of the Implementation of Investments of Strategic Importance from the Perspective of the National Economy (Act LIII of 2006)
• Bilateral Investment Treaties concluded by Hungary
• Agreements on Strategic Partnership concluded by Hungary
• Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)
• Convention on the Settlement of Investment Disputes between States and Nationals of other States (Washington Convention)

4. Last revision of the Legal Framework

23 December 2022

5. Contextualization of the Legal Framework (Historical or other)

The Act on the Investments of Foreigners in Hungary (Act XXIV of 1988) was introduced shortly before the 1989 collapse of the communist regime in Hungary. Its introductory provisions declare that its aim is “facilitating the direct participation of foreign operating capital in the Hungarian economy”. Hungary has gone through many significant positive developments since the introduction of the Act, such as becoming a Member State of the EU in 2004. Although the Act remained effective to date, about two-third of its early provisions, containing various administrative restrictions on foreign direct investment, have been abolished.

Much like an investment treaty, the current version of the act grants substantive protections to investors such as full protection and security or protection against expropriatory measures (or measures having an equivalent effect). It stipulates that any expropriatory measures may only be taken upon the payment of prompt compensation for the actual value of the assets of the foreign investor. Compensation is granted through the competent administrative agencies of the state in the same currency in which the investment was made. In the event of a violation of the law, a competent domestic court can be made to review the decision of the administrative agency on the issue of compensation.

To facilitate the projects financed by EU subsidies by providing a faster, simpler and more unified procedural framework and to use the available resources more efficiently, the Hungarian Parliament adopted Act LIII of 2006 on the Acceleration and Simplification of the Implementation of Investments of Strategic Importance from the Perspective of the National Economy. The aim of the Act is to promote the forming of a regulatory environment which corresponds to the special needs raised by investments of high importance from the perspective of the national economy, by accelerating authority approval procedures and reducing public administration deadlines. The scope of the Act does not only extend to FDI but also to domestic investments of strategic importance.

As of 1 October 2022, Hungary has signed bilateral investment treaties (BITS) with the following countries: the Republic of Albania; Argentina; Australia; the Republic of Austria; the Republic of Azerbaijan; the Kingdom of Belgium and the Grand Duchy of Luxembourg BLEU (terminated 2022); the Republic of Belarus; Bosnia and Herzegovina; the Republic of Bulgaria (terminated 2020); the Republic of Cabo Verde; the Kingdom of Cambodia; Canada; the Republic of Chile (signed but not yet in force); the People’s Republic of China; the Republic of Croatia (terminated 2020); the Republic of Cuba; the Republic of Cyprus (terminated 2020); the Czech Republic (now Czechia - terminated 2021); the Kingdom of Denmark (terminated 2020); the Arab Republic of Egypt; the Republic of Finland (terminated 2021); the French Republic (terminated 2021); the Federal Republic of Germany (terminated 2021); the Hellenic Republic (terminated 2021); the Republic of India (terminated in 2017); the Republic of Indonesia (terminated in 2016); the Islamic Republic of Iran (2022); the State of Israel (terminated in 2007); the Republic of Italy (terminated in 2008); the Hashemite Kingdom of Jordan; the Republic of Kazakhstan; the Republic of Korea; the Republic of Kosovo (2020); the State of Kuwait; the Kyrgyz Republic (2022); the Republic of Latvia (terminated 2021); the Lebanese Republic; the Republic of Lithuania (terminated 2021); the former Yugoslav Republic of Macedonia; Malaysia; the Republic of Moldova; Mongolia; the Kingdom of Morocco; the Kingdom of the Netherlands (terminated 2021); the Kingdom of Norway; the Republic of Paraguay; the Republic of Poland (terminated 2021); the Portuguese Republic; Romania (terminated 2022); the Russian Federation; the Republic of Serbia; the Republic of Singapore; the Slovak Republic (terminated 2020); the Republic of Slovenia (terminated 2021); the Kingdom of Spain (terminated 2021); the Kingdom of Sweden (terminated 2021); the Swiss Confederation; the Republic of Tajikistan (2022); the Kingdom of Thailand; Tunisia (signed but not yet in force); the Republic of Turkey; Ukraine; the United Kingdom of Great Britain and Northern Ireland (including the territories of Bermuda, Gibraltar, Guernsey, the Isle of Man, Jersey, and the Turks and Caicos Islands) (terminated in 2022); the United Arab Emirates (2021); the Eastern Republic of Uruguay; the Republic of Uzbekistan; the Socialist Republic of Vietnam; and the Republic of Yemen.

Hungary is also party to the Energy Charter Treaty.

In the past decade, the Hungarian government has also facilitated the conclusion of agreements on strategic partnership to strengthen cooperation with foreign investors in Hungary and with their Hungarian subsidiaries. A system of criteria has been set up for the conclusion of such agreements. The aim is that only companies which are likely to contribute to the country’s economic and social development in the long run can be included in the scope of companies concluding such agreements. In turn, strategic agreements ensure that the particular investor will receive an instant and comprehensive insight into the legislative changes affecting its industry.

Hungary acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on March 5, 1962, and its provisions entered into force on June 3, 1962 for Hungary. Hungary also signed the Washington Convention on the Settlement of Investment Disputes between States and Nationals of other States on 1 October 1986, and its provisions entered into force on 6 March 1987 for Hungary.

From a purely FDI regulatory perspective, we note that in addition to the above, to ensure compliance with EU law, the 2018 FDI Regime entered into effect in 2018 that has been amended during the pandemic, in November 2020, so as to cover also investments made by EU/ EEA investors during the state of emergency period in Hungary.

During the course of 2020, with regard to the pandemic, the Hungarian FDI regime was further supplemented with a new leg - the 2020 FDI Regime, which establishes a much wider scope of screening (from the point of view of strategic industries) compared to the 2018 FDI Regime.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

As a Member State of the EU, generally, Hungary has a favorable attitude towards foreign investments. Below are the summaries of the mechanisms under the 2018 FDI Regime, 2020 FDI Regime, and the extraordinary measures taken during the pandemic and in respect of the state of emergency in Hungary.

According to the 2018 FDI Act and the 2020 FDI Act, a pre-screening procedure is based on a notification obligation. The notification is to be completed for the Minister of Interior under the 2018 FDI Regime, and for the Minister of Innovation and Technology under the 2020 FDI Regime) regarding the establishment, change in ownership or majority influence in enterprises related to specifically defined activities that are considered strategic (See questions 7 and 8). The respective notification obligations apply to foreign investors (which have been extended to encompass both extra EU and EEA, as well as EU/ EEA investors under both regimes during the state of emergency in Hungary). It must be assessed on a case-by-case basis whether, according to the wording of the Regimes, the scope extends cover a specific transaction and a specific investor (effective at the time of the contemplated signing of the transaction documents).

A mandatory pre-screening procedure is carried out when a foreign investor seeks to establish an enterprise or acquire ownership or possession of any other right in enterprises important to national security in case the rights are higher than the threshold limits (See section 7).

Foreign investors and investments are required to operate in compliance with prevailing Hungarian laws (e.g. company law, tax law, criminal law) in the same way as Hungarian investors and investments.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The 2018 FDI Regime

The mandatory notification obligation under the 2018 FDI Regime falls on a foreign investor who seeks to establish an enterprise or acquire ownership or possession of any other rights in enterprises important from the perspective of national security:

• in case these rights are higher than 25% and the acquisition means that the foreign investor’s ownership collectively would exceed this threshold limit; or
• exceeding 10% in the case of a public limited liability company; or
• in case of acquiring dominant influence.

The 2020 FDI Regime:

The mandatory notification obligation falls on a foreign investor, who seeks to:

• acquire majority influence (within the meaning of the Civil Code) in a strategic company, through the following transactions, if the aggregate value of the transaction reaches or exceeds HUF350 million (EUR1 million) and provided that the foreign investor is a person that is a citizen of/incorporated in a member of the EU/EEA/Switzerland (or if, in any foregoing person a citizen of/incorporated in a member of the EU/EEA/Switzerland has majority influence): acquisition of ownership stake, of bonds, or usufruct; 
• acquire an ownership stake exceeding 10% (according to the lex specialis rules applicable only until 31 May 2023, 3% in a public company limited by shares, or 5% in other companies) in a strategic company, as a result of the acquisition of ownership, bond or usufruct, if the investor does not have a thoroughly EU/EEA/Swiss background (i.e. it is either incorporated outside of the EU/EEA/Switzerland, or incorporated in the EU/EEA/Switzerland, but is under the majority influence of a person that is a citizen of or incorporated in a country outside of the EU/EEA/Switzerland) and the overall value of the transaction reaches or exceeds HUF350 million (EUR1 million);
• acquire an ownership stake of 15% (according to the lex specialis rules applicable only until 31 May 2023, 10%), 20%, 50% in a strategic company, or as a result of the acquisition of an ownership stake/bond/usufruct, the overall stake of foreign stakeholders will exceed 25% in a strategic company, provided that the foreign investor is not an investor of thoroughly EU ownership background;
• acquire the ownership or operation right or the right to use strategic infrastructure and equipment in strategic industries, or the encumbering of such infrastructure or equipment, if the investor qualifies as a foreign investor under the 2020 FDI Act (or is an entity in which a foreign investor has majority influence pursuant to the Civil Code).

The notification obligation under the 2020 FDI Regime does not pertain to transactions (i) executed in respect of a mother company incorporated outside of Hungary (even if such transactions result in the above changes in control/ownership in respect of the foreign target’s Hungarian subsidiary, that is a strategic company), (ii) among associated businesses (kapcsolt vállalkozás) within the meaning of Act C of 2000 on accounting, that are executed in respect of an entity incorporated in a country outside of Hungary.

8. Scope - sectors covered

The 2018 FDI Regime

The pre-screening procedure according to the 2018 FDI Act is applicable only for the activities in the economic sectors important to national security as follows:

• weapon and ammunition production, production of military technology, equipment subject to authorization; 
• dual-use product production; 
• production of intelligence tools; 
• provision of financial services and functioning of payment systems;
• services in the field of electricity, supply of natural gas, water utility services and electronic communications; and
• set-up, development, and operation of electronic information systems subject to the Act on Electronic Information Security of Central and Local Government Agencies.

It is important to note that the scope of relevant activities is further narrowed down by the government decree executing the act (during the state of emergency, government decree no. 532/2020, and apart from the state of emergency, government decree no. 246/2018. (XII.17.).

The 2020 FDI Regime

A strategic company (the acquisition of which may trigger a notification obligation) is defined as a limited liability company, public company limited by shares, private company limited by shares incorporated in Hungary, which engage in “strategic activities” in “strategic sectors” as defined in the regime. Government Decree no. 289/2020 (VI.17.) completes the regime by setting out the exact list of sectors and activities (within such sectors) that are of strategic importance. These include communication, trade (retail, wholesale, vehicle), energy, agriculture, food industry, IT, construction industry, production of medical equipment, tourism, labor hire (note that this list is supplemented, according to the lex specialis rules applicable only until 31 May 2023, with certain bank and insurance sector activities).

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

According to the 2018 FDI Act and the 2020 FDI Act, in case of a new establishment, or taking up a new strategic activity, the screening procedure starts with a mandatory notification after establishment of a new enterprise or acquiring ownership in enterprises engaged in the specified activities (see section 8). In other cases, under both Regimes, the screening may be started with the submission of the notification on the transaction, after the conclusion of the relevant transaction document.

As a general rule, both regimes are silent on as to whether a preliminary opinion may be obtained from the authorities, before the conclusion of the transaction documents, and performing the filing obligation.

The foreign investor may acquire the right of use or operation of infrastructure, facilities and assets for the relevant activities after the ministers’ acknowledgment.

The notification obligation under the regimes is mandatory, if a transaction falls under the scope of the Regimes, respectively.

10. Design – reciprocity?

There are no express reciprocity provisions in Hungarian law. However, bilateral investment treaties concluded by Hungary operate on a reciprocal basis. Such agreements contain clauses designed to protect investments made by investors of either contracting party in the territory of the other contracting party.

11. Design – Procedures and Deadlines

The foreign investor shall notify the relevant minister (see section 6) within ten days from signing the contract or pre-contract targeting the acquisition of ownership or the right of operation. In the case of newly adopted activity in the company registry, the minister shall be notified within ten days of its registration.

The minister informs the investor about the receipt of the notification within a maximum of eight days. After receiving the notification the Minister shall check that the notification complies with the requirements and examine whether the activities carried out by the investor may pose a real threat to national security interests. 

Under the 2018 Regime the minister notifies the investor within 60 days following the receipt of the notification and sends the acknowledgement of the acquisition of ownership, or the prohibition. In especially justified cases the term can be prolonged with 60 days.

Under the 2020 Regime the minister has 30 business days to assess the file and adjudicate whether it grants its acknowledgment or prohibits the transaction. In special cases of high complexity the minister may prolong the procedure for an additional 15 days.

12. Design – Transparency and Information requirements (Filing Forms?)

Filing forms are not available. The statutes set out the content and disclosure requirements regarding the notification. 

The notification (under both regimes) shall include (in case a legal person or other organization) the name, seat and seat of branch in Hungary, specification of the state performing the duties related to the official registration, contact details for written communication, the data of the legal entity or other organization acting behalf of the foreign investor.

In the notification the foreign investor shall (i) outline the business activity and enclose all documents on the basis of the ownership structure of the investor and the beneficial owner (as specified in the Act 53 of 2017 on the prevention and combating of money laundering and terrorist financing) can be established, and (ii) describe the transaction at hand.

In the notification, all the documents arising out of the legal transaction targeting the ownership acquisition or the right of operation or registration of the newly adopted activity shall be enclosed.

Both regimes underline that disclosure of the ownership structure of the foreign investor, especially documents based on which the beneficial owner (within the meaning of the Hungarian Anti-Money Laundering Act) may be established, is of key importance.

The language of the notification shall be Hungarian. If a document submitted is not issued in the Hungarian language, an official Hungarian translation must be annexed to the notification.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Under the FDI Regimes the respective notification processes may end with the ministers’ confirmation of the acknowledgement of the notification or with the prohibition of the acquisition of ownership, the right of operation or company registry. In addition, the authority may establish that the 2018 Regime, or the 2020 Regime is not applicable to a certain transaction (this decisional outcome is not expressly set out in the regimes but have occurred in our experience).

In the case of prohibition, the acquiring party shall not be entered in the share register or the membership rights cannot be exercised.

14. Interaction with other legal frameworks (ex: merger control)

Pursuant to the 2018 FDI Act, acknowledgment obtained thereunder is a pre-condition to any further authorization procedures necessary for the acquisition of ownership (in connection with the same strategic activities).

The 2020 FDI Regime does not interfere with other notification/authorization procedures set out in other regulations, which concern the acquisition of ownership, acquisition of usufruct, bonds, and operation rights.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The 2018 FDI Regime:

The minister may prohibit the acquisition of ownership, the right of operation by the foreign investor or the conduct of newly adopted activities on the basis that the investment violates Hungary’s security interest, or the legal entity was established for or serves the purpose of making the control difficult and circumventing the procedure. 

The minister has a wide scope of discretion in evaluating the circumstances.

The 2020 FDI Regime:

The minister may prohibit a transaction if its assessment establishes that:

• the notification is not line with the requirements set out in the act;
• the acquisition by the acquirer of the ownership interest impairs or endangers the national interest, public order or public safety of Hungary, with a view especially of the safety of satisfying basic necessities of the society;
• directly or indirectly the acquirer is under the control of a public administration organ/governmental body (közigazgatási szerv) (including armed authorities and public organs) of a state outside of, or belonging to the EU, via its ownership structure or material financing;
• the acquirer has already been involved in any activity that impairs the safety and public order in any EU member state; or
• there is a risk that the acquirer will conduct illegal or criminal activities.

Based on the strict interpretation of the wording of the 2020 FDI Act, if a circumstance listed above is present, the minister automatically prohibits a transaction. Nevertheless, in an informal guidance the ministry referred to the fact that prohibition is not automatic and the minister has discretion to decide. 

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Hungarian law provides the investors with the opportunity to seek judicial review in cases related to FDI. 

Under the FDI Regimes, the prohibiting decision may be contested for the violation of essential procedural rules or in relation to the qualification. The Budapest Capital Regional Court has exclusive jurisdiction in respect of these cases. If the court finds that the law was violated, they shall repeal the decision and the Minister shall be obliged to launch a new procedure. There is no room to amend the decision.

If the foreign investor or the FDI suffers damages owing to a regulatory measure imputable to the Hungarian state, a suit for damages may be brought before the competent Hungarian courts, usually within the general limitation period of five years. If the dispute is based on a contractual relationship between the foreign investor or the FDI and the Hungarian state, usually the dispute resolution clause of the contract specifies the procedure to be followed.

Furthermore, disputes concerning FDI that fall under the scope of a bilateral investment treaty concluded by Hungary may usually be referred to arbitration depending on the specific dispute resolution clause contained in the relevant treaty. 

17. Publication in Official Gazette or other

The 2018 and 2020 Regimes do not expressly contain provisions on any publication requirement but provide that the minsters in charge keep a register of the acknowledgments and prohibitions they issue. 

Data registered under the 2018 Regime will be deleted from the respective register (i) five years from the submission of the notification, in the case of a refusal issued by the minister, (ii) five years from the final and binding closure of a judicial review procedure, (iii) upon the deletion from the company register of the relevant transaction, in the case of an acknowledgment issued by the minister.

Data registered under the 2020 Regime will be deleted from the respective register after (i) six months from the moment when the minister gained knowledge of the relevant transaction, but at the latest, (ii) five years from the occurrence of the relevant circumstances. 

The regimes do not specify whether these registers are available for inspection. 

Certain judicial decisions of Hungarian courts are published in the Official Gazette by redaction of the name and confidential data of the parties.

Arbitral awards are either confidential or public, depending on the parties’ agreement and the relevant Rules of Arbitration.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

Ministerial decisions are not publicly available.

We are aware from judicial reviews made public of 2 prohibitions under the 2020 FDI Regime.

We are also aware of 1 prohibition under the 2018 FDI Regime (the Vienna Insurance/ AEGON case, in connection with which the European Commission.

19. Stakeholders views on the Legal Framework

The notification processes place considerable administrative burden on the investor, given the cost and time implication of these processes, which, therefore, must be taken into consideration upon the planning of the transactions. In our experience, FDI screening is becoming more widely accepted among experienced investors, especially in multijurisdictional deals.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

The existing Hungarian legislation ensures the prevalence of the principles of freedom of establishment and free movement of capital, and provides sufficient guarantees for investment protection in accordance with EU law.

The 2018 Regime was meant to implement the Regulation. Due to the pandemic, the (i) scope of the 2018 Regime was modified in November 2020, and (ii) 2020 Regime was introduced. Currently, each regime applies to investors with a purely EU ownership background, as well.

Currently there is one case pending as a request for preliminary ruling before the European Court of Justice (Case C-106/22) in which the court’s assessment was requested on the question whether certain provisions of the 2020 FDI Regime is in line with EU law.

It has to be noted, however, that on March 6, 2018, the Court of Justice of the EU in Slovak Republic v. Achmea BV (C-284/16) (Achmea Decision) determined in a preliminary ruling that investor-state arbitration provisions contained in intra-EU bilateral investment treaties are contrary to the Treaty on the Functioning of the EU and are thus precluded.

Given that Member States of the EU were bound to draw the necessary consequences from the Achmea Decision, in January 2019 Hungary joined 27 EU Member States in committing to terminate all intra-EU bilateral investment treaties and on 5 May 2020 signed the agreement for the termination of intra-EU BITs (the Termination Treaty). The Termination Treaty became effective on 29 August 2020 vis-à-vis Hungary.

21. Other relevant information

N/A

Contacts: Blanka Börzsönyi, David Kohegyi and Andras Nemescsoi

Last updated June 2023

1. Country: Ireland

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the Central Statistics Office (CSO)¹, the five biggest ultimate investor FDI countries of origin in Ireland in 2021 were: 

1. United States (EUR913.34 billion)
2. Other (EUR152.16 billion)
3. Offshore Centres (EUR44.41 billion)
4. France (EUR19.45 billion)
5. United Kingdom (EUR16.66 billion)

¹Foreign Direct Investment Annual 2021 - CSO - Central Statistics Office

3. Legal Framework in Force

Ireland does not currently have an FDI screening framework. On 2 August 2022, the Irish Government published a draft of the Screening of Third Countries Transactions Bill 2022 (Screening Bill). The Screening Bill provides for the introduction of the first ever screening regime for FDI into Ireland. On 23 January 2023, the Screening Bill passed Committee Stage in the Irish Parliament – and although some minor modifications may be expected, the Screening Bill will likely be adopted in Q2 or Q3 of 2023. 

4. Last revision of the Legal Framework

N/A

5. Contextualization of the Legal Framework (Historical or other)

Ireland is a predominantly open, free-market economy. Outside of the specific frameworks discussed at Question 14 below, Ireland has not (yet) enacted a specific FDI screening framework to assess investments that are likely to affect security or public order (e.g., investments in critical infrastructure, technologies or other sensitive industries). 

On 19 March 2019, the EU adopted Regulation 2019/452 (EU FDI Regulation). In broad terms, the EU FDI Regulation establishes a common framework to allow EU Member States to monitor FDI flows by investors from outside of the EU which might adversely affect security or public order, and if necessary, to oppose or unwind such investments. The definition of an FDI is broad and includes investments of “any kind.” Explanatory guidance to the original proposal suggested that this may cover acquisitions, mergers, real estate investments, securities investments, loans, etc. The EU FDI Regulation entered into force on 11 October 2020. 

Even though Ireland is not obliged to adopt national screening measures, the EU FDI Regulation requires Ireland to (i) set up a national contact point to enable sharing of information relevant to screening investments which may affect security or public order, and (ii) submit an annual report to the European Commission with aggregated information on foreign direct investments that took place in Ireland. At national level, the Department for Enterprise, Trade and Employment (DETE) is responsible for trade matters within the Irish government. In the run-up to the passage of the EU FDI Regulation, the Trade Policy Unit of the DETE noted that the rules were a "high priority" and actively monitored its legislative progress. A key aim disclosed by the Trade Policy Unit was to ensure that Ireland was not obliged to enact FDI screening rules. While Ireland ultimately succeeded on ensuring that the EU FDI Regulation did not provide for mandatory FDI screening, the EU FDI Regulation envisages that EU counterparts in another Member State may request Ireland to comment on an investment in Ireland by a third-country investor.

As discussed at Question 3, on 2 August 2022, the Irish Government published a draft of the Screening Bill. The Screening Bill provides for the introduction of the first ever screening regime for FDI into Ireland. The Screening Bill is intended to give effect to the EU FDI Regulation and ensure that Ireland fulfils its obligations as set out in the EU FDI Regulation. Although Ireland is following a well-worn path, there is concern that the Screening Bill, as drafted, opts for a maximalist approach that is out of step with Ireland’s long-standing investor-friendly environment, with the potential to adversely impact a range of ordinary course transactions across multiple sectors in the Irish FDI landscape.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

In its current draft, the Screening Bill provides that a transaction is notifiable if, amongst other listed criteria, a third country undertaking, or a person connected with such an undertaking, is an acquiring party to the transaction. A third party country is considered a state or territory other than the Republic of Ireland, another EU Member State, a member of the EEA, and Switzerland. This reflects the intention expressed during the parliamentary debates that the attention would be on the acquiring party as opposed to the target.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The draft Screening Bill currently requires transactions to be notified where: 

1. the ‘value of the transaction’ (not yet defined) is EUR2 million or higher;
2. it involves a ‘third country’ firm or person or connected person acquiring an Irish entity (i.e., any country outside of the EU, EEA and Switzerland) (as discussed in Question 6);
3. the transation falls within the sectors described in Question 8;
4. either:
   • the acquiring party acquires control of an asset in the State, OR
   • the transaction involves shares or voting rights in a firm in Ireland moving from 25% or less to more than 25% of shares or voting rights in that firm, or from 50% or less to more than 50% of shares or voting rights in that firm.²

In addition, the Minister for Enterprise, Trade and Employment (Minister) will have broad powers to review non-notifiable transactions where there are reasonable grounds for believing that the transaction may affect security or public order in Ireland.³ The Screening Bill also provides the Minister with retrospective powers to review non-notifiable transactions for a period of 15 months post completion, and non-notified transactions for a period of up to 5 years, where there are security and public order concerns. 

²Section 9, Screening Bill
³Section 15, Screening Bill.

8. Scope - sectors covered

In its current draft, the Screening Bill refers to the matters listed in Article 4(1) of the EU FDI Regulation, namely:

1. critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure; 
2. critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 ( 15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies; 
3. supply of critical inputs, including energy or raw materials, as well as food security;
4. access to sensitive information, including personal data, or the ability to control such information; or
5. the freedom and pluralism of the media.⁴

⁴Section 9 Screening Bill.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

The current draft Screening Bill provides for a suspensory prior notification regime that is mandatory in nature. 

The assessment of "control" is the same as the concept used in the EU and Irish merger control regime. A person is regarded as exercising control of:

1. an asset, where that person has ownership of, or the right to use, all or part of the asset, and 
2. an undertaking, where that person can exercise decisive influence over the activities of the undertaking by any means, including as a consequence of:
   1. the existence of rights or contracts conferring decisive influence on the composition, voting or other commercial decisions of the undertaking, or
   2. ownership of, or the right to use, all or part of the assets of the undertaking.

Control of an asset or of an undertaking shall be regarded as being acquired by a person who gains an ability to exercise control of the asset or of the undertaking for the first time or to a greater extent. 

The threshold to notify a transaction is met if, in addition to the other criteria discussed at Question 7, shares or voting rights in a firm in Ireland moving from 25% or less to more than 25% of shares or voting rights in that firm, or from 50% or less to more than 50% of shares or voting rights in that firm. 

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

The current draft Screening Bill provides for the procedure set out below:

• Parties to a notifiable transaction shall, not less than 10 days before the date on which the transaction is completed notify the Minister of the transaction.⁵
• When notifying the Minister, the parties must provide the information set out in Question 12. 
• After commencing a review of a transaction, the Minister, as soon as practicable, will provide all parties to the transaction, and any other person the Minister considers appropriate, with a “screening notice”. A screening notice will be in writing and contain a statement (a) summarising the reasons for which the transaction is being reviewed, (b) that the person to whom it is addressed may make written submissions to the Minister regarding the transaction, and (c) regarding any other matter that the Minister considers to be appropriate in the circumstances.⁶
• Where a screening notice is issued in relation to a transaction, the transaction shall not be completed, and the parties to the transaction shall not take any action for the purpose of completing or furthering the transaction, from the date on which the screening notice until a decision is made by the Minister.⁷
• As referred to in the screening notice, parties to a transaction that is being screened by the Minister have a the right to make written submissions to the Minister.⁸
• The Minister is required to make a screening decision on or before the later of (a) 90 days from the date on which the screening notice in relation to the transaction is issued, or (b) such date, not being more than 135 days from the date on which the screening notice in relation to the transaction is issued, as the Minister may specify in a notice in writing to the parties to the transaction within the 90 day period. The failure to make such a decision within the time period provided results in the transaction automatically being allowed to proceed.⁹
• The timeline is stopped and restarted if an additional request for information is issued by the Minister.¹⁰ A request for additional information is discussed in Question 12.

⁵Section 10, Screening Bill.
⁶Section 14, Screening Bill.
⁷Section 17, Screening Bill.
⁸Section 21, Screening Bill.
⁹Section 16, Screening Bill.
¹⁰Section 20, Screening Bill.

12. Design – Transparency and Information requirements (Filing Forms?)

The procedure for filing has not yet been determined. 

However, the current draft Screening Bill provides that parties to a notifiable transaction must provide the Minister with the following information in relation to the transaction:

1. the identities of the parties (including, where applicable, name, trading name, registered address, domicile, NACE classification code, registered office and registration number);
2. the ownership structure of the parties to the transaction, including information on persons participating in the capital of the undertaking and persons exercising control over the parties;
3. the approximate value of the transaction;
4. information on the products, services and business operations of the parties to the transaction;
5. the nature of the economic activities carried out in the State by the parties to the transaction;
6. the funding of the transaction and its source;
7. the date on which the transaction is proposed to be completed;
8. the state or territory under whose laws the parties are constituted, registered, or otherwise organised;
9. the Member States in which the parties carry out economic activities;
10. the annual turnover and total number of employees of each party;
11. details of any sanctions or restrictive financial measures imposed on the parties by the European Union; and
12. any other information that is necessary for the Minister to review the transaction.

If the Minister determines that additional information is required from any of the parties to the transaction in order to inform the screening process. The Minster may request this information by issuing a “notice of information” to a relevant party. The notice will detail the information required and the period within which the notice must be complied with.¹¹

¹¹Section 19, Screening Bill.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Where the Minister makes a screening decision that a transaction affects, or would be likely to affect, the security or public order of the State, and does not make a direction in relation to the transaction, the parties cannot complete the transaction, or take any action for the purpose of completing or furthering the transaction. 

Where the Minister makes a screening decision that a transaction affects, or would be likely to affect, the security or public order of the State, the minister may make a direction in relation to the transaction. The parties cannot complete the transaction or take any action for the purpose of completing or furthering the transaction, other than in accordance with the direction. 

Where there is a finding that a transaction poses a threat to security or public order, the Minister may allow the transaction to proceed subject to a direction that certain conditions or actions are met, such as:

• Not to complete the transaction, or parts of it specified by the Minister. 
• Not to complete the transaction, or parts of it, before or after dates specified by the Minister.
• To sell or divest itself or divest itself of any matter.
• To modify or constrain its conduct in specified ways. 
• To cease a specified conduct. 
• To prevent the flow of sensitive information within an undertaking. 
• To report to the Minister on parties’ compliance with the conditions imposed. 
• To pay the reasonable costs associated with monitoring compliance with condition.¹²

¹¹Section 18, Screening Bill.

14. Interaction with other legal frameworks (ex: merger control)

Mergers, acquisitions and full function joint ventures that meet the financial thresholds in the Competition Acts 2002 to 2022 must be notified to the Competition and Consumer Protection Commission (CCPC) before they are put into effect. The current financial threshold is met where two undertakings generate a combined turnover of more than EUR60 million in Ireland, and each undertaking generates a turnover of more than EUR10 million in Ireland. The CCPC investigates and determines whether a merger may be approved, approved with conditions or prohibited. 

Once commenced, the Competition (Amendment) Act 2022 will allow the CCPC to 'call in' or require notification of transactions that do not meet the current financial thresholds and are therefore not subject to mandatory notification.

In addition, media mergers are subject to a mandatory notification obligation and are reviewed separately by the CCPC and the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media.

In certain sectors, other forms of regulatory scrutiny may apply. For example: 

• Financial services may require authorization and may be subject to regulation by the Central Bank of Ireland. 
• Broadcasting activities may require notification and authorization from the BAI. 
• Telecommunication services may require licensing from the Commission for Communications Regulation (ComReg). 
• Medical products are subject to regulation by the Health Products Regulatory Authority (HPRA).

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Where the Minister makes a screening decision that a transaction affects, or would be likely to affect, the security or public order of the State, and does not make a direction in relation to the transaction, the parties cannot complete the transaction, or take any action for the purpose of completing or furthering the transaction.¹³

The Minister, when reviewing a transaction, will consider whether or not the transaction affects, or would be likely to affect, the security or public order of the State. The current draft text of the Screening Bill provides that when doing so, the Minister shall have regard to:

• whether an investor is controlled by a third country government and, where relevant, the extent to which such control is inconsistent with the policies and objectives of the State; 
• the extent to which parties to the transaction are involved in activities related to security or public order; 
• whether or not a party to the transaction has previously taken actions affecting the security or public order of the State;
• any evidence of criminality among the parties to a transaction; 
• the likelihood of the transaction resulting in actions that are disruptive to people, assets or undertakings in the State; 
• whether or not the transaction is likely to have a negative impact in the State on the stability, reliability, continuity or safety of one or more of the matters referred to in points (a) to (e) of Article 4(1) of the Regulation;
• whether or not the transaction would result in persons acquiring access to information, data, systems, technologies or assets that are of general importance to the security or public order of the State;
• the views of the European Commission and other EU Member States;
• the extent to which the transaction affects, or would be likely to affect, the security or public order of a Member State other than the State or of the European Union; and
• the extent to which the transaction affects, or would be likely to affect, projects or programmes of Union interest within the meaning of Article 8 of the EU FDI Regulation.¹⁴

Where the Minister believes that providing reasons for a screening decision would create a risk to the security or public order of the State, the Minister has the discretion to decide not to provide the parties with such reasons, to the extent necessary in order to avoid or minimise such risk.¹⁵

¹³Section 18, Screening Bill.
¹⁴Section 13, Screening Bill.
¹⁵Section 16, Screening Bill.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

The current draft of the Screening Bill provides the parties with a right to appeal:

1. a screening decision; or
2. a decision of the Minister not to provide reasons for a screening decision where the Minister believes that providing reasons for a screening decision would create a risk to the security or public order of the State. 

An appeal must be made by a party no later than 30 days after being notified of the decision.

After receiving a notification of an appeal, the Minister is required to designate an adjudicator or adjudicators from a panel of appointed adjudicators to hear the appeal. 

In an appeal, a party may raise any of the grounds of challenge that could be raised in judicial review proceedings against the decision. 

The decision of the adjudicator is final except that an appeal from the decision of an adjudicator may be made to the Irish High Court on a point of law not later than 30 days from the date on which a party was notified of the decision.¹⁶

The procedure for appealling a screening decision is set out in the Screening Bill.¹⁷

¹⁶Section 34, Screening Bill.
¹⁷Section 27, Screening Bill.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

The Irish government actively promotes foreign investment and the Industrial Development Agency (IDA) is an autonomous state funded body which promotes FDI into Ireland. The IDA provides support to investors and offers a grant aid system to incentivize companies who are investing and meet certain criteria.¹⁸

¹⁸Ireland's Foreign Direct Investment (FDI) Agency | IDA Ireland

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

As discussed in Question 5, the Screening Bill is intended to give effect to the EU FDI Regulation. The Screening Bill is currently in draft form and the final text of the Screening Bill has yet to be finalised.

21. Other relevant information

During the legislative process, we made submissions to the Department of Enterprise, Trade and Employment on the scope of the current draft text of the Screening Bill. The submissions were reviewed and considered. An updated draft of the Screening Bill was published on 25 January 2023 in conjunction with a debate in the Irish Parliament. The Bill will continue to be debated in both chambers of Parliament and is likely to face further scrutiny and possibly further amendments. The expectation is that the Screening Bill will be adopted in Ireland in Q2 or Q3 of 2023, with enforcement in Q3 or Q4 of 2023. We are continuing to monitor this closely. 

Contacts: Darach Connolly and Emer McEntaggart

Last updated June 2023

1. Country: Italy

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the latest statistics provided by the Bank of Italy (inward FDI stocks by Ultimate Investing
Company/Ultimate Investing Country), in 2021 the five biggest FDI countries of origin were:

• France (approx. 22.2%)
• US (approx. 10.4%)
• Germany (approx. 8.3%)
• UK (approx. 7.3%)
• Switzerland (approx. 5.3%)

3. Legal Framework in Force

Decree No. 21 of 15 March 2012, ratified by Law No. 56 of 11 May 2012 (Decree 21/2012), as subsequently amended, grants special powers to the Italian government in relation to transactions involving national strategic activities/assets in various sectors (defense and national security, energy, transport, communications, 5G technologies and other sectors).

The applicable national legislation also comprises the following implementing measures:

• Prime Ministerial Decree No. 108 of June 6, 2014, which identifies the activities of strategic relevance in the defense and national security sectors, as defined by Article 1, paragraph 1, of Decree 21/2012;
• Decree of the President of the Republic No. 35 of February 19, 2014, governing the review process in the defense and national security sectors, pursuant to Article 1, paragraph 8, of Decree 21/2012;
• Decree of the President of the Republic No. 86 of March 25, 2014, governing the review process in the energy, transport and communications sectors, pursuant to Article 2, paragraph 9, of Decree 21/2012;
• Decree of the Secretary General of the Presidency of the Council of Ministers adopted on February 18, 2015, providing ad hoc notification forms.
• Decree of the Presidency of the Council of Ministers No. 179 of December 18, 2020, which identifies the goods and the relationships (strategic assets and activities) of national interest in the sectors provided by Article 4, paragraph 1, of the Regulation (EU) No. 2019/452, as per Article 2, paragraph 1-ter, of Decree 21/2012;
• Decree of the Presidency of the Council of Ministers No. 180 of December 23, 2020, which identifies the strategic assets in the energy, transport and communications sectors, as per Article 2, paragraph 1, of Decree 21/2012 (DPCM 180/2020). This Decree replaced the Decree of the President of the Republic No. 85 of March 25, 2014;
• Decree of the Council of Ministers No. 133 of August 1, 2022, regulating the activities of the Presidency of the Council of Ministers for the exercise of the special powers and introducing the pre-notification system and measures which simplify the proceedings. 

4. Last revision of the Legal Framework

The latest revisions of the applicable legal framework have been introduced by the following acts:

• Decree No. 22 of March 25, 2019, ratified by Law No. 41 of May 20, 2019, providing for a screening mechanism in relation to broadband electronic communication services based on 5G technologies;
• Decree No. 21 of March 21, 2022, ratified by Law No. 51 of May 20, 2022, amending the screening mechanism in relation to broadband electronic communication services based on 5G technologies;
• Decree No. 64 of July 11, 2019, representing a first attempt to review the whole FDI legislation, not ratified;
• Decree No. 105 of September 21, 2019, ratified by Law No. 133 of November 18, 2019, significantly amending the screening mechanism applicable to all the relevant sectors and implementing the provisions of Regulation (EU) No. 2019/452 (Decree 105/2019);
• Decree No. 23 of April 8, 2020, ratified by Law No. 40 of June 5, 2020 laying down urgent measure to mitigate the effects of the COVID-19 outbreak, which has further extended the scope of FDI legislation and introduced the power of the Italian government to initiate ex officio an investment screening procedure even in cases of breach of the notification obligation (Decree 23/2020);
• Decree of the Council of Ministers No. 133 of August 1, 2022, regulating the activities of the Presidency of the Council of Ministers for the exercise of the special powers and introducing the pre-notification system and measures, which simplify the proceedings.

Before the adoption of Decree 105/2019 the following sectors were subject to the FDI screening mechanism:

• defense and national security;
• electronic broadband telecommunications networks in 5G technology;
• energy, transport and communications sectors.

Decree 105/2019, amending Decree 21/2012, extended the scope of the FDI regime to the assets falling within the sectors under Article 4(1), of Regulation (EU) No. 2019/452 (FDI Regulation), entrusting the Decree of the President of the Council of Ministers No. 179 of December 18, 2020 (DPCM No. 179/2020) the task to identify in detail such additional assets. The DPCM No. 179/2020 identifies the relevant strategic assets and activities, pursuant to Article 4(1) of the FDI Regulation, within the following sectors to which the FDI screening mechanism applies: 

1. energy sector; 
2. water sector; 
3. health sector; 
4. sector for processing, storage and accessing and controlling sensitive data and information; 
5. electoral infrastructures sector; 
6. financial sector, including credit and insurance sectors, and the sector for financial market infrastructures;
7. sector for artificial intelligence, robotics, semiconductors, cybersecurity, nanotechnologies and biotechnologies;
8. sector for non-military aerospace infrastructure and technologies; 
9. sector for inputs supply and agricultural;
10. dual use items sector; and
11. freedom and pluralism of the media sector.

5. Contextualization of the Legal Framework (Historical or other)

Decree 21/2012 repealed Article 2 of Law Decree No. 334 of May 31, 1994, which established the right of the Italian government to hold a certain amount of shares in companies operating in strategic sectors, on the basis of which the government was able to influence the decisions of the undertakings concerned (so‐called golden shares).

The provisions of Law Decree No. 334 of 1994 were found to be incompatible with the EU principle of free movement of capital, as they were likely to discourage foreign investments.

In order to comply with the principles developed by the EU Court of Justice in its case law, the government decided to intervene by adopting Decree 21/ 2012, which sets out an exhaustive list of special powers to be exercised by the government on the occurrence of specific events concerning undertakings active in certain strategic sectors, subject to compliance with objective and non-discriminatory criteria (so‐called “golden powers”).

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

As a general rule, investments covered by Decree 21/2012 must be notified to the Italian government within a certain time-limit to enable the government to exercise its special powers, subject to the conditions prescribed thereby.

The review procedure set out in Decree 21/2012 is applicable to acts, resolutions, transactions and acquisitions of equity interests involving companies carrying out strategic activities in the defense and national security sectors, or companies holding strategic assets or carrying out strategic activities in the energy, transport, communications (as better identified by DPCM 180/2020) and sectors envisaged by Article 4(1) of the FDI Regulation (as better identified by DPCM No. 179/2020).

Defense and National Security

The review process applies to investments made by any person, other than the Italian state, national public entities and state-controlled entities, irrespective of nationality.

Energy, Transport, Communications Sectors and Health, Agricultural and Financial sector, including Credit and Insurance Sectors

The investment control regime in principle applies both to investments made by non-EU persons and by EU persons, including those resident in Italy. 

Other Sectors under Article 4(1) of the FDI Regulation (as identified by Decree 179/2020)

The investment control regime in principle applies only to investments made by non-EU persons.

For the purposes of Decree 21/2012, a non-EU person is defined as:

1. any individual who does not hold citizenship of one of the EU member States;
2. any individual who holds citizenship of one of the EU member States and who does not have the legal or the usual residence or the main center of business in a EU or EEA member State and is not established therein;
3. any entity whose registered office, headquarters or main place of business is not located in a EU or EEA member State and is not established therein;
4. any entity whose registered office, headquarters or main place of business is located within a EU or EEA member States, or which is established therein, and that is controlled, directly or indirectly, by any individual or entity as per letter a), b) and c) above;
5. any individual or entity having the citizenship of one of the EU or EEA member States, whose legal or usual residence, registered office, headquarters or principal place of business is located within the EU, or which is established therein, for the purpose of circumventing the provisions of Decree 21/2012.

5G technologies

The screening mechanism applies in the event of acquisitions, including by means of contracts or agreements, by Italian companies of (i) assets or services regarding the design, realization, maintenance and management of 5G-based broadband ECS (i.e. electronic communication services) or cybersecurity related services, assets, relationships, activities and technologies, or (ii) technology-intensive equipment aimed at such realization or management, from both non-EU and EU suppliers and/or providers.

Please note that FDI notification is required for intra-group transactions as well, although they are not in principle subject to the special powers of the government. This exemption does not apply if well-founded information shows that the intra-group transaction at stake is likely to pose a serious harm to the national interests regarding, among others, the national security and defense system, public order, the safeguarding and operation of networks and facilities.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Defense and National Security
Notification is mandatory for any kind of investment involving companies operating in the defense and national security sectors if it leads to the acquisition of any interest exceeding 3%, 5%, 10%, 15%, 20%, 25% and 50% of the share capital.

Energy, Transport, Communications Sectors and Health, Agricultural and Financial sector, including Credit and Insurance Sectors
Notification is mandatory for the following transactions:

• resolutions, acts and transactions adopted by any company that owns strategic assets and/or carries out strategic activities whenever such resolutions, acts or transactions have the effect of changing the ownership, control or availability of the same assets in favour of any EU and non-EU subject. It is expressly set forth that such acts, resolutions or transactions include the mergers, de-mergers, transfer of the registered office out of Italy, the assignment as guarantee, amendments of the by-laws, transfer of business and going concerns as well as the transfer of subsidiaries owning the strategic assets;
• acquisitions of participations in companies that own strategic assets and/or carry out strategic activities, by any EU and non-EU subject whenever such acquisition determines the acquisition of control over the relevant company by such subject;
• acquisition of participations in companies that own strategic assets and/or carry out strategic activities, by any non-EU subject, if the overall amount of the investment is at least equal to EUR 1,000,000.00 and the acquired participation in the target is at least equal to 10%, taking into consideration the interests already directly or indirectly held; or, regardless of the amount of the investment, any subsequent acquisition exceeding 15%, 20%, 25% or 50% thresholds;
• the set-up of a company that carries out strategic activities or holds one or more of the assets of strategic relevance if one or more non-EU shareholders hold participations of at least 10%.

Other Sectors under Article 4(1) of the FDI Regulation (as identified by Decree 179/2020)

• resolutions, acts and transactions adopted by any company that owns strategic assets and/or carries out strategic activities whenever such resolutions, acts or transactions have the effects of changing the ownership, control or availability of the same assets in favour of any non-EU subject. It is expressly set forth that such acts, resolutions or transactions include the mergers, de-mergers, transfer of the registered office out of Italy, the assignment as guarantee, amendments of the by-laws, transfer of business and going concerns as well as the transfer of subsidiaries owning the strategic assets;
• acquisition of participations in companies that own strategic assets and/or carry out strategic activities by any non-EU subject whenever such acquisition determines the acquisition of control over the relevant company by such subject;
• acquisition of participations in companies owning strategic assets and/or carries out strategic activities by a non-EU subject, if the overall amount of the investment is at least equal to EUR 1,000,000.00 and the acquired participation in the target is at least equal to 10%, taking into consideration the interests already directly or indirectly held; or, regardless of the amount of the investment, any subsequent acquisition exceeding 15%, 20%, 25% or 50% thresholds;
• the set-up of a company that carries out strategic activities or holds one or more of the assets of strategic relevance if one or more non-EU shareholders hold participations of at least 10%.

5G technologies

Notification is mandatory in relation to acquisition, including by means of contracts or agreements, for any reason, of:

• assets or services regarding the design, realization, maintenance and management of 5G-based broadband electronic communication services or cybersecurity related services, assets, relationships, activities and technologies; and
• technology-intensive equipment aimed at such realization or management from both non-EU and EU suppliers and/or providers.

Any undertaking aiming to carry out the above acquisition is required to notify to the Italian government, before such acquisition, with an annual plan (Plan).

8. Scope - sectors covered

1. Prior notification and review procedure.
2. Please refer to question 7.
3. Mandatory.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

10. Design – reciprocity?

According to Article 3 of Decree 21/2012, the acquisition, in any form, by a non-EU person of equity interests in companies having strategic assets and/or carrying out strategic activities within the sectors deemed to be of strategic relevance according to the Italian FDI regime, is subject to the reciprocity principle, as enshrined in the international agreements entered into by Italy or by the EU.

11. Design – Procedures and Deadlines

Relevant acquisitions of equity interests in companies having strategic assets and/or carrying out strategic activities within the sectors deemed to be of strategic relevance according to the Italian FDI regime must be notified to the competent office of the Presidency of the Council of Ministers within ten days from the signing of the transaction and, in any case, prior to its implementation, by the purchaser together with, where possible, the target company.

Upon receipt of the notification, the government has a 45 days period to exercise its special powers, after which the transaction can be completed. This period may be suspended once if additional information/documents are required by the government to the notifying party and/or other third parties; additional information/documents must be provided by the investor or the target within 10 days and by other third parties within 20 days.

Decree 23/2020 has introduced the power for the government to start the screening mechanism ex officio, even in cases of failure to notify. In such cases, the term for the exercise of the special powers runs from the conclusion of the proceeding which ascertains the breach of the obligation to notify.

Until the expiration of the above mentioned 45 day period (or until clearance by the Italian government, if earlier), the effects of the notified resolutions, acts or transactions, as well as voting rights and any other non-property rights attached to the acquired interests, are suspended.

Specific rules apply with reference to the relevant transaction within the 5G sector. The Plan is required to be notified to the Italian government before the relevant acquisition is completed. Subsequent to the notification, the Italian government has a 30-day period for the screening of the Plan. The 30-day term can be extended for up to 20 days if in-depth technical analysis is required. This can be extended once for a further period of up to 20 days, if the analysis is particularly complex. If the government finds that it is necessary to request information from the notifying party, or third parties, the above term could be suspended once, until receipt of the requested information (to be provided within ten days when requested from the notifying party or within 20 days when required from third parties). If the government finds that the notification is not complete, the 30-day term starts afresh from the receipt of the information, which completes the notification.

Subsequent to the notification, pending the government screening, the Plan cannot be implemented (and therefore the relevant acquisitions cannot be completed), but it may be updated on a quarterly basis.

12. Design – Transparency and Information requirements (Filing Forms?)

Filing forms are available on the government’s website. The notification must include all the documents and information that may be necessary for the government to carry out its assessment (e.g., minutes of the resolutions, a detailed description of the investor, etc).

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

If, at the end of the screening procedure of the transaction, subsequent to the notification, or opened by the government upon its own initiative, the Italian government believes that the transaction may pose a risk to national interests, security or the public order, it may exercise its “golden powers”, i.e. the power to veto the transaction or impose conditions for the implementation of the transaction.

The applicable provisions do not expressly prescribe the type of conditions that the government may impose upon the parties to the transaction for the implementation of the notified transaction. Furthermore, the decisions with which the Italian government exercises the “golden powers” are not publicly available.

The conditions are imposed by the government – on a proportional and reasonable basis – with the purpose of protecting national interests, when the imposition of conditions suffices for such purpose instead of vetoing the transaction.

According to the yearly reports prepared by the Italian government, which describes the notified transactions and includes a brief summary of the decisions adopted as the outcome of the screening procedure, it appears that the conditions imposed by the government are usually intended to: (i) protect the know-how and strategic assets of the Italian company being acquired; (ii) ensure that the corporate governance of the Italian company being acquired, resulting from the transaction, does not prevent the target from participating in projects and/or carrying out activities of strategic relevance for the national interests subsequent to the transaction; (iii) ensuring that the target continues performing activities of strategic relevance for the national interest subsequent to the acquisition.

As for the 5G sector, at the end of the screening the government may: (i) approve the Plan unconditionally; (ii) approve, in whole or in part, the Plan for a certain timeframe, providing a term for the replacement of certain assets or services; (iii) approve the Plan conditionally, i.e., imposing conditions and prescriptions aimed at ensuring the protection of the national defence and security interests; or (iv) veto the Plan.

14. Interaction with other legal frameworks (ex: merger control)

Transactions covered by the Decree 21/2012 may fall within the scope of merger control under Italian Antitrust Law (Law No. 287 of 1990) or under the EU Merger Regulation (Regulation No. 139/2004), provided that they meet the requirements set out therein.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The special powers described above must be exercised on the basis of the objective and non-discriminatory criteria envisaged by the Decree 21/2012.

In particular, the government may intervene only in the event of a threat of serious harm to certain fundamental national interests, such as national security and defense, public order, the safeguarding and operation of networks and facilities.

In this regard, the criteria the government is required to take into consideration include the following:

• with particular reference to the defence and national security sectors, whether the economic, financial, technical and organizational capacity of the investor, as well as the proposed business plan, is likely to guarantee the regular continuance of the company’s activities, the security and continuity of supplies and the proper and timely execution of the existing contractual obligations towards the public administration;
• with particular reference to the defence and national security sectors, whether the future corporate structure is likely to ensure: (i) the safeguarding of the national defense and security system; (ii) the security of information relating to military defense; (iii) the international interests of the State; (iv) the protection of the national territory, of critical strategic infrastructures and the national borders; (v) the safeguarding and operation of networks and facilities; and
• with particular reference to the sectors under Article 4(1) of the FDI Regulation, whether the future corporate structure, also taking into consideration the financing modalities of the transaction and the economic, financial, technical and organizational capacity of the investor, is likely to ensure: (i) the security and the continuity of supplies; (ii) the maintenance, security and operability of the networks and the plants;
• the existence of potential links between the investor and third countries that do not recognize democracy and the rule of law, do not observe international law or have adopted dangerous behaviors towards the international community and/or maintain relationships with criminal or terrorist organizations.

In carrying out this assessment, the government must also take into account the principles of proportionality and reasonableness.

In assessing acquisition by non-EU subject, the government is required to also take into consideration:

1. whether the purchaser is directly or indirectly controlled by the public administration, including state bodies or the armed forces, of an extra-EU country, or, in addition, by virtue of its ownership structure or of substantial financing;
2. whether the purchaser has already been involved in activities affecting security or public order in a EU member State;
3. whether there is a serious risk that the buyer engages in illegal or criminal activities.

In assessing transactions in the 5G technology sector the government is required to take into account elements indicating the presence of vulnerability factors that could compromise the integrity and security of the networks and data transiting through them, including those identified on the basis of the principles and guidelines developed at international level and by the European Union.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Decisions adopted by the President of the Council of Ministers following the investment control procedure may be appealed before the Administrative Court of Rome (Tribunale Amministrativo Regionale del Lazio) within 60 days from the date of the notification or publication of the decision. The judicial review carried out by the Administrative Court of Rome does not extend to the substance of the matter, but it is limited to the legitimacy of the government’s decision.¹

Against the government’s decisions it is also possible to lodge an extraordinary appeal to the President of the Republic (Ricorso Straordinario al Presidente della Repubblica) within 120 days from the date of the notification or publication of the decision.

Foreign investors may also challenge the government’s decision before national courts if it is deemed to be contrary to EU law (with particular reference to the EU fundamental freedoms), in order to obtain the annulment of the infringing measure and/or compensation for the damages suffered in connection therewith.

¹The judgment of the Administrative Court of Rome may be challenged before the Consiglio di Stato (ie the administrative court of last instance).

17. Publication in Official Gazette or other

Annual Report by the Italian government to the Parliament on the golden power activities.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

On the basis of publicly available information, it appears that 

• in 2020, the Italian government received 342 notifications. The Italian government exercised the power to veto transactions in two cases (one regarding the national defense and security sectors and one regarding the energy, transport, communications and FDI Regulation sectors) and the power to impose specific conditions in 40 cases (15 cases concerned the national defense and security sectors; 17 concerned the 5G sector and eight concerned the energy, transport, communications and FDI Regulation sectors);
• in 2019, the Italian government received 83 notifications. The Italian government did not exercise the power to veto a transaction for any of the transactions notified in 2019; the Italian government imposed specific conditions in 14 cases;
• in 2018, the Italian government received 46 notifications. The Italian government did not exercise the power to veto the transaction for any of the transactions notified in 2018; the Italian government imposed specific conditions in four cases;
• in 2017, the Italian government has received 30 notifications. The Italian government has exercised the power to veto the transaction in one case and the power to impose specific conditions in 4 cases.

Please note that information concerning the screening procedures carried out in 2021 and 2022 has yet to be published

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

As mentioned above, DPCM 179/2020 identifies the goods and the relationships (strategic assets and activities) of national interest in the sectors provided for under Article 4, paragraph 1, of the Regulation (EU) No. 2019/452.

According to publicly available information, no further amendments to the Italian legal framework, so as to comply with the EU, are expected at this time.

21. Other relevant information

It should be mentioned that if the government vetoes the purchase of relevant equity interests, the purchaser is prevented from exercising voting rights and any other non-property rights attached to the acquired interests, and they must dispose of within one year.
 
In the event of non-compliance with the government’s decision, the related transactions are deemed null and void.

In case of breach of the notification duty, an administrative fine may be applied of an amount up to twice the value of the transaction and, in any case, not less than one per cent of the cumulative turnover achieved by the companies involved in the transaction in the last financial year for which financial statements have been approved. Furthermore, the government may undertake the process to exercise special powers, upon its own initiative (i.e. ex officio). 

The Decree of the Council of Ministers No. 133 of August 1, 2022 has recently adopted a pre-notification system, according to which it is possible to ask the Presidency of the Council of Ministries for a preliminary decision on the applicability of the FDI regime to the proposed transaction. 

As for the 5G sector, should the agreements and contracts subject to the notification duty be implemented before the term for the governmental review of Plan expires, the government may order the undertaking to – at its own expenses and within a precise term – reverse the implementation of the agreements or contracts concerned. An administrative fine may be applied if there is a delay in the performance of the order, up to one-twelfth of the 3% of the turnover achieved by the subject upon which the notification duty subsists for each month of delay. Upon the breach of the notification duty, the government may apply an administrative fine of an amount up to 3% of the turnover achieved by the subject upon which the notification duty subsists. The same administrative fine can be applied in case of breach of the conditions and prescriptions or the veto imposed by government. Any contracts signed in violation of the conditions imposed or the veto by the government, or in breach of the notification duty, are null and void. Furthermore, the government may order the undertaking to restore – at its own expense – the situation prior to the violation, within a precise term. An administrative fine may be applied in case of delay in the performance of such order (up to one-twelfth of the 3% the turnover achieved by the subject upon which the notification duty subsists for each month of delay).

Decree of the Council of Ministers No. 133 of August 1, 2022 introduced the pre-notification system. Based on the pre-notification system, prior to proceeding with the formal notification, the undertaking aiming to implement a transaction may submit to the Italian government a communication concerning the proposed transaction (the pre-notification communication) to receive a response from the Italian government stating that: (a) the proposed transaction does not fall within the scope of the FDI regime so it does not need to be notified; (b) the proposed transaction is likely to fall within the scope of the FDI regime so notification is required; or (c) the proposed transaction falls within the scope of the FDI regime but the conditions for the exercise of the “golden powers” are clearly not met.

It is also provided that in cases (b) and (c) above, at the end of the preliminary assessment on the authorization of the pre-notified transaction, the Italian government may issue recommendations to the undertaking. 

With the pre-notification communication it is requested to provide all information and documents, insofar as they are available, required for the formal notification.

The Italian government is required to provided its response, resulting in one of the outcomes described above (outcomes (a), (b) or (c)), within 30 days from the pre-notification. If the Italian government does not issue a decision within the 30-day period starting from the pre-notification, the undertaking that has pre-notified the transaction must proceed with the formal notification within the ordinary terms set for the FDI notification.

Contacts: Alessandro Boso Caretta, Domenico Gullo and Massimo D'Andrea

Last updated June 2023

1. Country: Netherlands

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

1. United States
2. United Kingdom
3. Germany
4. Luxembourg
5. France 

3. Legal Framework in Force

Electricity Act, Gas Act, Dutch Telecommunications (Undesirable Control) Act (DTA), Act on security screening of investments, mergers and acquisitions (Act Vifo).

4. Last revision of the Legal Framework

Electricity Act – 1 October 2022

Gas Act - 1 October 2022

DTA – 5 March 2021

Act Vifo – 1 June 2023.

5. Contextualization of the Legal Framework (Historical or other)

Electricity & Gas Acts 

Both the Electricity and Gas Act include a review option by the Bureau Toetsing Investeringen (BTI), a division of the Ministry of Economic Affairs, Agriculture and Innovation (the Minister) in case of proposed takeovers in the energy sector. Any change of control in an electricity production facility with a nominal electrical capacity of more than 250 MW as well as in a company managing such a production facility must be reported to the BTI by one of the parties involved. A similar provision is included in the Gas Act for a change of control in an LNG facility or an LNG company. The Minister can then, based on considerations of public safety, security of supply or security of delivery, prohibit the change in control, or attach regulations to it. The explanatory memoranda to the Acts shows that the review option by the Minister is included in the Acts to prevent undesired acquisitions. 

DTA

The rationale behind the DTA is concern about the availability and confidentiality of telecommunications services. Specifically, the concern is that parties might acquire Dutch telecommunication companies with the intention of disabling, spying, bugging, or blackmailing telecoms networks or applications important to the Netherlands. The DTA gives the Minister the power to prevent such parties from acquiring Dutch telecom facilities. 

Act Vifo

The Act Vifo aims to manage risks to national security arising from investments, mergers and acquisitions with respect to vital providers and companies that possess sensitive technology, if the transaction may pose a risk to national security.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Electricity & Gas Act

Under the Electricity Act, any change of control in a Dutch production facility with a nominal electrical capacity of more than 250 MW, or in a Dutch company managing such a production facility, must be notified to the BTI by one of the parties involved. A similar provision is included in the Gas Act for a change of control in an LNG facility or an LNG company. Under both the Electricity and the Gas Act the notification needs to be made in writing and no later than four months prior to the date of the change of control. This deadline is necessary because if the BTI/Minister deems it necessary to take measures, they must be submitted to the European Commission for approval. It should be noted that the notification obligation applies irrespective of the identity/origin of the party acquiring control and therefore also applies if it concerns a Dutch or a EU/EEA party.

DTA

Chapter 14a DTA stipulates that if a party wishes to acquire “predominant control” over a Dutch “telecommunications party” which gives rise to “relevant influence” in the telecommunications sector, this must be notified to the BTI at least 8 weeks before the acquisition takes place. The nationality of the acquirer of predominant control is not relevant for the applicability of the notification obligation and therefore also applies if it concerns a Dutch or a EU/EEA party. 

Act Vifo

Under the Act Vifo, the acquisition of control over a Dutch “vital supplier” or a provider of “sensitive technology”, as well as to the acquisition of “significant influence” (i.e. a shareholding exceeding 10%, 20%, 25% or 33%) over certain providers of “highly sensitive technology” needs to be notified to the Minister of Economic Affairs. Any intention to carry out an acquisition that is caught by the Act shall be reported by one of the transaction parties to the BTI before closing of the transaction. The BTI then has eight weeks to issue a decision. This period can be extended by up to six months, reduced by the time used for the earlier part of the investigation. The total extension can never exceed six months. Notifiable transactions may only be closed after having obtained approval. It should be noted that the notification obligation applies irrespective of the identity/origin of the party acquiring “control” or “significant influence” and therefore also applies if it concerns a Dutch or a EU/EEA party. 

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Electricity & Gas Act

Based on Section 86f of the Electricity Act 1998 and Section 66e of the Gas Act, notification is only required in case of a change of control in an electricity generating facility with a capacity of more than 250 MW or in a company operating such a generating facility, or in LNG facilities or companies operating such an LNG facility. The definition of control is aligned with Article 26 of the Dutch Competition Act (“DCA”). Control is the ability to exercise decisive influence over an undertaking based on rights (i.e. shares), contracts or other means, separately or in combination, taking into account the factual and legal circumstances. Even in the case of a minority/portfolio shareholding, control may occur on a legal basis in situations where specific rights are attached to this shareholding. These may be preferential shares to which special rights are attached enabling the minority shareholder to determine the strategic commercial behaviour of the target company, such as the power to appoint more than half of the members of the supervisory board or the administrative board. 

DTA

Chapter 14a DTA stipulates that for the purposes of the Act, “predominant control” exists in the event of:

1. the acquisition of > 30% of the voting rights;
2. the ability to appoint or dismiss more than half of the directors or supervisory directors; or
3. the acquisition of shares to which special rights under the articles of association are attached. 

Thus, the concept of control under the DTA is not synchronous with that under the Dutch Competition Act; there may be an acquisition of “predominant control” within the meaning of the DTA without there being a concentration under the DCA. 

Notification is only mandatory if it leads to “relevant influence” in the telecommunications sector. Chapter 14a DTA further specifies that this is the case if the telecommunications party over which control is acquired, and any other telecommunications parties in which the holder or acquirer or the group of which the holder or acquirer is a member holds or acquires control, alone or together:

1. is/are a provider of an internet access service or telephone service to more than 100,000 end users;
2. is/are a provider of an electronic communications network over which internet access services or telephone services are provided to more than 100,000 end users;
3. is/are a provider of an internet node to which more than 300 autonomous systems are connected;
4. is/are a provider of data centre services with a power capacity exceeding 50 MW;
5. is/are a provider of hosting services (Internet connectivity, IP addresses, servers, storage, backup, geographic distribution, caching) for more than 400,000 .nl domain names;
6. is/are a provider of a qualified trust service (electronic signatures, seals, time stamps, registered electronic delivery services and website authentication certificates);
7. is/are a provider of an electronic communications service or network, data centre, or trust service to the General Intelligence and Security Service, the Ministry of Defence, the Military Intelligence and Security Service, the National Coordinator for Counterterrorism and Security, or the National Police; or
8. is/are a provider of a combination of the above services, which do not reach the above thresholds, but through a calculation formula do exceed another threshold.

Act Vifo 

Under the Act Vifo the acquisition of control over a Dutch “vital supplier” or a provider of “sensitive technology”, as well as to the acquisition of “significant influence” (i.e. a shareholding exceeding 10%, 20%, 25% or 33%) over certain providers of “highly sensitive technology” needs to be notified to the Minister of Economic Affairs. 

“Vital” suppliers under the Vifo Act are:

• Heating suppliers;
• Nuclear power companies;
• Certain companies engaged in exploration, transportation and/or storage of natural gas;
• Ground handling service providers;
• Schiphol Airport;
• KLM;
• The Port of Rotterdam;
• Banks with a registered office in the Netherlands; and
• Certain financial market infrastructure providers such as trading platforms.

The Act Vifo also applies when acquiring control over a Dutch provider of “sensitive technology”. A provider of sensitive technologies is a provider of:

• Dual-use products. These are products suitable for both civilian and military purposes, such as certain software requiring an export authorisation under Regulation (EC) No 2021/821 controlling the export, transfer, brokering and transit of dual-use items; and/or
• Military goods included in the EU Common Military List.

In addition, the Act Vifo applies when acquiring or increasing “significant influence” or control over companies operating in the field of highly sensitive technology. The (draft) Decree Scope of Application of Sensitive Technology (Draft Decree) introduced on 19 July 2022, designated certain technologies as highly sensitive. These are technologies in which very rapid innovation is occurring with potential effects on national security. They include: artificial intelligence, biotechnology, photonics, quantum technology, robotics and semiconductor technology.

8. Scope - sectors covered

Electricity & Gas Act – electricity and gas sector

DTA – telecom sector

Act Vifo – no specific sector. The Act Vifo applies to investment activities in companies providing certain designated critical activities (vital providers) or that possess or provide sensitive technology. 

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Electricity & Gas Act

• Pre-authorisation is required. The transaction must be notified a minimum of four months before the transaction’s envisaged closing date.
• Covers both controlling investments and portfolio investments.
• Mandatory filing.

DTA

• There is no mandatory standstill period under the DTA.  Provided the notification is made at least 8 weeks before closing, it is not prohibited to close before a decision has been taken. However, if the Minister judges that the acquisition may lead to a threat to the public interest, the Minister may, depending on whether the transaction has already taken place, impose a prohibition on holding or acquiring control in the telecommunications party. 
• Covers both controlling investments and portfolio investments.
• Mandatory filing.

Act Vifo

• Pre-authorisation is required. If a review decision is required, an application must be made. The BTI has eight weeks to issue a decision. This period can be extended by up to six months, reduced by the time used for the earlier part of the investigation. The total extension can never exceed six months in total. 
• Covers both controlling investments and portfolio investments (the acquisition of “significant influence” (i.e. a shareholding exceeding 10%, 20%, 25% or 33%)). 
• Mandatory filing. 

10. Design – reciprocity?

The Energy Act, Gas Act, DTA and Act Vifo do not mention reciprocity.

11. Design – Procedures and Deadlines

Transactions that are within the scope of the Dutch FDI regulations must be notified to the BTI within the deadline specified in the applicable screening legislation:

• Electricity Act and Gas Act: a minimum of four months before the transaction’s envisaged closing date;
• DTA: a minimum of eight weeks before the transaction’s envisaged closing date;
• Act Vifo: before the closing of the transaction.

An exception to the above applies to certain transactions within the scope of the DTA: an investor who for a previous transaction already notified the acquisition of “relevant influence” in the telecommunications sector, is no longer required under the DTA to notify further acquisitions of “predominant control” in subsequent transactions.

For notifications pursuant to the Electricity Act and the Gas Act, the Minister will decide before the end of the notification period whether the transaction may proceed. Similarly, under the DTA the Minister will in principle indicate within the notification period whether the acquisition or the holding of “predominant control” will be prohibited. However, if the Minister deems further investigation necessary, the period can be extended by a maximum of 6 months. For transactions that are subject to the Act Vifo, the Minister will decide within eight weeks after notification whether the transaction may proceed, or whether a further investigation is required. In the latter case, the further investigation will in principle be completed within eight weeks from the Minister’s decision (i.e. sixteen weeks after notification). However, this review period may, if the Minister considers this necessary, be extended with an additional term up to six months.

The Electricity Act, Gas Act and DTA do not provide for a mandatory standstill period. Provided the notification is made at least four months or eight weeks, respectively, before closing, it is not forbidden to close the transaction before the Minister has decided on the notification. If, however, the Minister considers that the acquisition may lead to a (potential) threat to public order or public safety, the Minister may prohibit the transaction and potentially order it to be unwound. In that sense closing before a decision is at the parties’ own risk. Conversely, the Act Vifo does include a mandatory standstill period and consequently transactions notified pursuant to the Act Vifo may not be closed before clearance is received.

The Act Vifo includes the possibility for the Minister to retroactively order notification of certain transactions within the scope of this act that were closed before its entry into force, but after 8 September 2020. Article 58 Act Vifo specifies that if the Minister considers that a qualifying transaction that was closed after this date could potentially pose a threat to national security, the parties involved can be requested to submit a notification. The Minister is authorized to call in previously closed transactions only during the first eight months after the entry into force of the Act Vifo.

12. Design – Transparency and Information requirements (Filing Forms?)

The Ministry of Economic Affairs / BTI has published notification forms for notifications pursuant to the Electricity Act, the Gas Act and the DTA and is expected to publish a form for notifications pursuant to the Act Vifo before its entry into force. There are certain variations between the respective forms, but generally they require the notifying parties to provide the following information:

• Information relating to the parties;
• Structure of the transaction;
• Information relating to public interests (e.g. source of financing and whether the parties were convicted in the past for certain violations of the law);
• Documentation (e.g. transaction documentation, annual accounts); and
• EU information (e.g. will the transaction be notified in other EU countries or does the transaction impact EU projects).

In principle, all information included in a notification that is (justifiably) marked as confidential will remain confidential. Notifications are not published and neither are decisions allowing a transaction. Decisions prohibiting a transaction or imposing conditions will be published, but without confidential information. The Dutch public access to information act (Wet open overheid) provides for exceptions to protect the confidential nature of any confidential information included in notifications. These safeguards also apply if the Dutch government shares information with the European Commission or with other EU governments.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

The Gas Act and Electricity Act apply to acquisitions of “control”, whereas the DTA applies to acquisitions of “predominant control”. If the Minister decides that the transaction as notified poses a threat to national security or public interest, the acquirer is not allowed to gain “control” or “predominant control”. However, the acquisition of a non-controlling minority shareholding (without special statutory rights and without the right to appoint or dismiss more than half of the members of the management board or supervisory board) would still be possible after such decision.

The DTA further provides that if a prohibition on exercising “predominant control” is imposed, the pre-existing control rights of the party concerned are suspended. A subsequent acquisition of additional control rights is invalid, except in the case of acquisition via a stock exchange. The prohibition creates an obligation for the party concerned to reduce its control rights to below the thresholds set for “predominant control”.

The Act Vifo applies to the acquisition of “control” over a “vital supplier” or a provider of “sensitive technology”, as well as to the acquisition of “significant influence” (i.e. a shareholding exceeding 10%, 20%, 25% or 33%) over certain providers of “sensitive technology”. If such acquisition is considered a threat to national security, it may not be implemented. However, the acquisition of a non-controlling minority interest, or a shareholding below the thresholds for “significant influence”, cannot be prohibited pursuant to the Act Vifo. In relation to transactions that have already been completed (i.e. transactions called in pursuant to the retroactive application of the Act Vifo during the first eight months after its entry into force), the Minister may order the parties involved to unwind the transaction or, at least, the acquirer to reduce its shareholding to a level that does not confer “control” or that is below the threshold for “significant influence”.

In addition, the Act Vifo provides that the Minister may, instead of a decision prohibiting or blocking a transaction, provide a conditional clearance decision. In such case, the parties are allowed to proceed with the transaction, provided that the conditions imposed in the Minister’s decision are complied with. Conditions that can be imposed under the Act Vivo include the following:

• Implementation of additional safeguards to maintain the secrecy of sensitive information possessed by the acquired undertaking;
• Implementation of a security and integrity policy for the appointment of directors and key employees that will have access to sensitive information and processes;
• Appointment of a security committee or security officer to control access to and security of sensitive information and processes;
• Transferring the sensitive part of the acquired undertaking’s business to a separate legal entity incorporated in the Netherlands;
• A prohibition for the acquired undertaking to sell certain products or provide certain services to specified customers or  specified countries;
• Setting up a separate Supervisory Board for a Dutch subsidiary of the acquired undertaking;
• A prohibition for the transaction to include particular assets or activities of the acquired undertaking (i.e. such assets or activities to remain with the seller);
• Laying down a maximum percentage of shares to be held by the acquirer (below the intended shareholding as notified);
• Restriction on the exercise of voting rights or on public trading of shares;
• An obligation to deposit certain technology, source codes, genetic codes or knowledge with the State or with a third party trustee, with permission for it to be used for non-commercial purposes in case of an imminent risk for vital processes or national security interests;
• An obligation to notify the Minister before any intended termination or transfer abroad of business activities, and to accept either the imposition by the Minister of additional safety measures, or an offer from the Ministry to acquire the business activities for a fair market price;
• An obligation to enter into a license agreement with a party established in the EU on fair, reasonable and non-discriminatory conditions with respect to knowledge protected by patents or other intellectual property rights, in order to keep such knowledge available for the Netherlands or the EU. 

Pursuant to the Act Vifo, transactions that are concluded after the Minister has issued a prohibition decision are legally null and void. Other transactions that violate a Ministerial decision (e.g. transactions that closed before the Act’s entry into force that are caught by its retroactive effect) can be voided upon application to the civil courts.

A violation of the Act Vifo can be punished with a fine up to 10% of the (global) annual turnover of the undertaking responsible for the violation.   

14. Interaction with other legal frameworks (ex: merger control)

The Act Vifo specifies that if a notifiable transaction has already been notified to the Dutch Competition Authority (Authority for Consumers and Markets or ACM) pursuant to Dutch merger control provisions, the notification may refer to information included in the ACM notification, so the same information does not need to be provided twice.

Other than this, the investment screening mechanisms of the Energy Act, Gas Act, DTA and Act Vifo do not interact with merger control legislation or other legal frameworks and do not mention reciprocity.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The Minister can prohibit a transaction if they consider it a threat to national security or public order. These terms are not defined with reference to WTO definitions.

The Act Vifo provides that national security covers the maintenance of the democratic legal order and social stability, the safety and other significant interests of the State, including the continuity of vital processes, maintaining the integrity and controlling access to knowledge or information that is of critical or strategic interest to the Netherlands, and preventing undesired strategic dependency on foreign countries. 

The explanatory memoranda to the Act Vifo and the DTA state that it is not objectively possible to determine exactly beforehand when there may be a threat to national security or public order. As such, Dutch investment screening legislation seems to provide the Minister with a fairly wide margin of discretion.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

The Minister's powers under investment screening legislation must be exercised in accordance with the principles of Dutch administrative law. In particular, the Minister's decisions prohibiting a transaction or imposing conditions must state clear reasons why the acquisition of “control”, “predominant control” or “significant influence” is considered a risk to national security or public order in the particular case at hand. 

The Minister’s decisions pursuant to investment screening legislation are subject to administrative and judicial appeal. An administrative appeal can be lodged with the Minister within six weeks from the decision and essentially is a request to reconsider the decision in the light of the applicant’s interests. If the applicant still objects to the revised decision, a judicial appeal can be lodged with the competent administrative court. The court will review whether public order and national security are indeed endangered an whether the decision in question is appropriate (i.e. able to cure the situation) and proportional (i.e. the least restrictive way to deal with the issue at hand).

Public sources do not identify that any administrative or judicial appeals have, so far, been brought in the Netherlands with respect to investment screening decisions.  

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

As decisions taken pursuant to the Electricity Act, the Gas Act and the DTA are not published and the Act Vifo has not yet entered into force, no examples are available. 

19. Stakeholders views on the Legal Framework

Both the introduction of investment screening in the DTA and the draft implementing decrees of the Act Vifo have been published on the internet for public consultation. As follows from the published reactions, several stakeholders expressed concerns that the proposals could be detrimental to investments in new technology and could have a negative effect on the Dutch economy. Certain modifications have been suggested, including drafting a “white list” of pre-approved investors or narrowing the scope of the Act Vifo by excluding transactions below a certain threshold value. In addition, the Council of State advised negatively on the retroactive application of the Act Vifo to transactions closed before its entry into force (see para. 11). According to public sources, the Dutch government has not incorporated these suggestions. 

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

Following the entry into force of Regulation (EU) 2019/452, the Dutch government adopted an act implementing the screening regulation of foreign direct investments (Uitvoeringswet screeningsverordening buitenlandse directe Investeringen) to give effect to the obligations under the Regulation. This act does not introduce any screening mechanisms, but rather appoints the competent ministries and agencies and provides them with the powers required under the Regulation.

The investment screening mechanisms implemented under the Electricity Act, the Gas Act, the DTA and the future Act Vifo take into account the Regulation and do not require amendments to comply with it. 

21. Other relevant information

The Ministry of Economic Affairs / BTI has published general information with respect to investment screening mechanisms in force in the Netherlands on its website. The website has an FAQ section and contains links to applicable legislation and notification forms. 

The BTI can be approached with questions on investment screening legislation in the Netherlands and is available for informal consultations on jurisdictional matters and the information to be included in notifications.

Contacts: Leon Korsten, Martijn van Wanroij and Maarten Groot

Last updated June 2023

1. Country: Norway

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

1. Sweden (20,40%)
2. US (10,33%)
3. Netherland (9,23%)
4. Luxemburg (8,84%)
5. Denmark (7,05%)¹

¹Source: Statistics Norway (2020).

3. Legal Framework in Force

The National Security Act (Security Act), LOV-2018-06-01-24, (Nw. Sikkerhetsloven).

Under the Security Act, Chapter 10, ownership control of certain Norwegian companies of national security interest is regulated. Certain Norwegian companies are subject to the law according to specific decisions by the Norwegian government, cf. Section 1-3 of the Security Act.

4. Last revision of the Legal Framework

The national security regime, including FDI, and regulations were subject to revision in 2016-18, accumulating in the current Security Act of 1 June 2018 that entered into force 1 January 2019. Currently (May 2023), there is an ongoing review of the Security Act, where the review and consultation process relates to i.a. the following proposed changes expected to be adopted by parliament in Q3 2023:²

• Extension of the obligation to notify in case of transactions to also apply to the transferor and the acquired business.
• Lowering the threshold for reporting obligations from one-third to a lowest cut-off point of 10 percent with subsequent cut-off points at one-third, 50 percent, two-thirds, and 100 percent.
• Automatic implementation ban (stand-still) for acquisitions that are registered, until the acquisition has been examined and approved.
• Criminal liability for non-compliance with the obligation to report and decisions pursuant to Sections 2-5 and 10-3 of the Security Act.
• Obligation for the object owner to identify property of security importance and lack of opportunity for risk-reducing measures.

5. Contextualization of the Legal Framework (Historical or other)

The current Security Act encompasses all sectors. 

Under the previous national security and screening regime, there was no holistic approach relating to FDI in Norway, and no specific, single piece of legislation that regulated FDI.

In addition to the Security Act, there are still in practice national restrictions in relation to concessions, that apply in addition and in parallel to the Security Act, i.a. in the following sectors:

• acquisition of waterfalls, rights for power supply and mines;
• acquisition of land, real estate and leases in the long term;
• acquisition of cultivable land and forests;
• acquisition of more than a qualified holding in a Norwegian financial institution; and
• direct investments in exploration and petroleum operations that are licensed by the government.

Further, within financial services, investors that intend to acquire a qualified holding in a financial institution and/or part of a portfolio, must notify competent authorities and get a prior authorisation (or a no-objection) in advance before the acquisition can be implemented. A fit and proper test applies. The establishment and operation of Norwegian financial institutions require a regulatory license from the Norwegian Financial Supervisory Authority. Special regulations apply for European Economic Area (EEA) Member States.

Within fisheries and aquaculture – i.e., an area in principle outside the scope of the EEA Agreement – restrictions on ownership apply; the right to acquire a fishing vessel or share in a company which owns vessels is only granted to Norwegian citizens or bodies defined as a Norwegian citizen. There are also certain requirement entailing restrictions under relevant company and tax regulations. For instance, the general manager in a limited liability company or a public limited liability company, and at least half of the members of the board of directors, must be residents of Norway.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The Norwegian Security Act screening regime applies to EU-based investors and non-EU investors alike. The Security Act grants Norwegian authorities far-reaching powers to screen and block FDIs in Norwegian companies. The Act sets out a broad definition of what “national security interest” includes, inter alia, national financial stability and autonomy.

The Security Act and screening regime is not confined to companies in specific sectors (although sectors such as media, communication, oil and gas and natural resources (such as mining) and energy in general would be deemed as such and have already been highlighted as physical assets which might be categorized as essential to national security). However, the Security Act, as a starting point, only applies to investments in target companies that have been brought within the scope of the law by way of an individual decision addressed to the company.

The Norwegian authorities will have the power to issue such individual decision in respect of any company that, according to Section 1-3 of the Security Act:

• is processing classified information;
• has access to information or information systems deemed essential to national security interests;
• owns physical assets or infrastructure deemed essential to national security interests; or
• is involved in activities deemed essential to national security interests.

The government ministries have been granted the power to take decisions that bring new companies within the scope of the Security Act. The company shall receive prior notice, but no minimum notice period has been set. The ministry does not need to consult any expert bodies prior making its decision.

The Security Act also entitles Norwegian authorities to review investments and transactions relating to companies that are engaged in activities of crucial importance for national security, regardless of the nationality of the investor.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

Under the Security Act, the Norwegian government may oppose an acquisition of a qualified part of a Norwegian company, which is made subject to the scope of the Security Act. 

According to Section 10-1, approval from the government is necessary to acquire a qualified part of a company, which is subject to the Security Act. A qualified part of a company means, according to Section 10-1, obtaining or have the right to obtain one-third of the share capital or the interests or of the voting rights. In addition, approval from the government is necessary when the investor accomplishes significant influence within the company through the acquisition.

When assessing what is a “qualified part” shares or other equity interests that are owned or procured by parties that are regarded as “close associates” to the acquirer within the meaning of the Norwegian Securities Trading Act shall also be considered. The definition “close associate” i.e. encompasses underage children, the spouse or a person with whom the shareholder cohabits in a relationship akin to marriage and such person’s underage; an undertaking within the same group as the shareholder or where the shareholder or the shareholder’s close associate(s) exercise influence under the companies’ regulations in Norway. 

Internal reorganisation would normally be out of scope, but may be encompassed by the Security Act, if they confer control of an entity outside the original group structure.

Further, if the acquisition turns out to be a not insignificant threat to national security interests, the government may intervene without prior decision against the company in question and may block the transaction or decide that the investment may only be implemented subject to conditions irrespective of the thresholds. 

8. Scope - sectors covered

All sectors are covered, but in general some sectors are focused on, see Item 6 above. 

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

a) As of today, the approval of the acquisition may be obtained prior to or after closing. The filing or the review process currently does not have a suspensory effect on the closing of the transaction. However, as a negative decision may involve an order to reverse the transaction, it is generally advisable to obtain approval prior to closing. Referring to the expected changes mentioned above, it may be expected that this will change to a pre-authorisation requirement.

b) If the target company is subject to the screening regime, the regime applies to any investor that wishes to acquire a “qualified” stake. A stake is considered “qualified” if it results in the acquirer holding, directly or indirectly, at least 1/3 of the share capital, assets or voting rights. The same applies to options to acquire ownership of at least 1/3 of the share capital or assets. Additionally, a stake will be regarded as “qualified” if it enables the buyer to exercise significant influence over the company’s business.

c) An investment falling within the scope of the Act triggers a mandatory filing obligation.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

There is no filing deadline under the Security Act. However, if a transaction is already closed and is subsequently refused approval, the transaction may have to be reversed.

The filing shall be submitted by the one who wants to acquire a qualified stake to the responsible authority for the sector in which the target company is active (i.e., the relevant sector ministry or the National Security Authority, Nw. Nasjonal Sikkerhetsmyndighet). 

Within 60 working days after having received a notification regarding an acquisition, the responsible authority shall either (i) inform the acquirer that the acquisition is approved, or (ii) inform the acquirer that the decision will be made by the King in Council. However, this deadline may be extended, namely when the authority has requested further information from the acquirer within 50 working days from the notification being received, the 60 working days deadline is suspended, which will “stop the clock” until the required information is provided, cf. Section 10-2 of the Security Act.

12. Design – Transparency and Information requirements (Filing Forms?)

No formal requirements have been laid down for the contents of the filing. However, the acquirer must provide the following information: 

• The acquirer’s name, address, company register number, birth number or similar number. 
• The company register number of the company to which the acquisition relates. 
• The acquirer’s ownership share after the concerned acquisition is completed. 
• The ownership structure of the acquirer.
• The names of the persons that are members of the acquirer’s Board of Directors.
• The names of the persons that are members of the acquirer’s management. 
• Possible relations between the acquirer and other existing owners of the company to which the acquisition relates. 
• The acquirer’s ownership interests in other companies that are covered by the Security Act.
• The acquirer's ownership interests in other businesses within the relevant sector.
• The acquirer's annual turnover and annual accounts for the last five years, as far as this is available.
• Other conditions that may be important for the assessment of whether the acquisition can be approved.

Please note that the individual decisions are not publicly available and only the company who has received a decision to be within the scope of the Security Act will know this.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

So far only one transaction has been blocked in Norway, cf. Item 18 below. However, according to Section 10-3 of the Security Act, the transaction may also be conditionally approved.

14. Interaction with other legal frameworks (ex: merger control)

 Both foreign and domestic investments may be subject to review under the merger control rules of the Norwegian Competition Act. 

The Norwegian Competition Act (Nw. Konkurranseloven) provides for mandatory prior notification of concentrations that exceed certain turnover thresholds and empowers the Competition Authority to order notification of concentrations below the thresholds and minority acquisitions on a case-by-case basis. 

Additionally, the Norwegian Finance Undertakings Act (Nw. Finansforetaksloven) contains provisions and restrictions on ownership control, without distinguishing between foreign and domestic acquirors.

Please also see Item 5 above, with specific sectorial requirements e.g., concessions.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Under the Security Act, once it applies, the Government (formally the King in Council) may deny acquisitions which turn out to be a threat to national security interests, in a way which is not insignificant. According to the preparatory works, King in Council must consider the importance of continuity of supply, strategic production of goods and services of national importance and the protection of classified information.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

The ordinary courts would have jurisdiction. There is no procedure for administrative review available. The Government’s refusal to approve an acquisition can be brought before the ordinary courts pursuant to the general rules regarding review of administrative decisions. The court’s re-examination is limited to whether the authorities have committed procedural errors that may have affected the outcome of the decision, whether the refusal constitutes an abuse of authority and/or whether the refusal is based on an erroneous factual basis. If the court finds that such circumstances exist, the court shall invalidate the refusal. The authorities may, however, issue a new refusal after a new review of the case provided the grounds for invalidation are repaired in this new review. 
An appeal against a refusal may be brought before the courts by either the acquirer or the seller of shares or other ownership interests, as both will have the necessary legal standing. In principle, the acquirer and/or the seller may also present a damage claim against the State for the loss incurred because of the acquisition not being implemented or being reversed because of an invalid administrative decision.

17. Publication in Official Gazette or other

 See here.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

According to publicly available information to date, only one transaction has been blocked under the current Security Act, namely in March 2021. The Norwegian Government blocked a transaction based on concerns for national security, namely the sale of Bergen Engines, an engine manufacturing company owned by Rolls Royce, to TMH International. Bergen Engines manufactures engines for civil and military applications. Interestingly, in blocking the transaction, the government did not apply the new rules on ownership control, but relied on Section 2-5 of the Security Act, pursuant to which planned or ongoing activities which may represent a “not insignificant risk” to national security interests can be blocked.

Details of the strategic considerations made by the government in their assessment of the case is classified information, and not publicly available. However, statements made by the government shed light on what types of considerations the authorities might emphasise during foreign direct investment reviews: 

• The government held that TMH International was partly owned by individuals with ties to the Russian government and that Bergen Engines produced and applied technology which would strengthen Russia’s military capabilities.
• The acquisition of Bergen Engines by TMH International would accordingly conflict with Norwegian security policy interests. 
• The government stressed that Russia has difficulties accessing such technology since sanctions were imposed in 2014. Consequently, allowing the sale of Bergen Engines to TMH International could indirectly provide intelligence to Russia in conflict with the intention of the current sanctions policy.
• The sale of Bergen Engines to TMH International might have led to efforts to circumvent regulations on export to Russia. 
• The location of Bergen Engines at the entry to a major Norwegian port was held to be of strategic importance. Accordingly, the sale of the company to TMH International could potentially constitute a national security risk.

The Bergen Engines case demonstrates that strong national security and military strategy concerns may lead to the authorities blocking the implementation of a transaction without using the provisions of Chapter 10 contained in the Security Act.

19. Stakeholders views on the Legal Framework

According to the last hearing, most of the respondents to the public consultation proposal was generally positive to the suggested amendments to the Security Act. According to information on the website of the Norwegian Parliament, the Act with the amendments is pending the final approval but this is likely to occur early 2023.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

Norway continues to adjust its foreign direct investment legislation. The proposed changes in the Security Act may be seen as harmonising with similar legislation in the EU jurisdictions. Please note that Norwegian sanction rules are fully harmonised. 

21. Other relevant information

There are currently no corresponding formal sanctions/administrative fines or criminal liability for failure to notify an acquisition that requires review in terms of ownership control under the Security Act (but please see the current review in Item 4 above). 

Contacts: Line Voldstad, Kjetil Johansen and Katrine Lillerud

Last updated June 2023

1. Country: Poland

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

• the Netherlands (approximately 20%)
• Germany (approximately 17%)
• Luxembourg (approximately 12.5%)
• France (approximately 8.5%)¹

¹Narodowy Bank Polski (National Bank of Poland) (available only in Polish) – only four countries are mentioned in the report.

3. Legal Framework in Force

Act of 24 July 2015, on Control over Certain Investments (the Act);

Ordinance of the Council of Ministers of 25 December 2016, on documents attached to notifications of  intention to acquire or achieve significant participation or acquisition of dominance in an entity subject to protection;

Ordinance of the Council of Ministers of 8 October 2020, on a contact point for the implementation and  application of the Regulation establishing a framework for monitoring foreign direct investment in the  Union;

Ordinance of the Council of Ministers of 16 December 2022, on the list of entities to be protected and the  authority competent for screening mechanism;

4. Last revision of the Legal Framework

Act of 19 June 2020 – on Interest Subsidies for Bank Loans Granted to Businesses Affected by  COVID‐19 and on Simplified Proceedings for the Approval of a Composition Agreement in Connection  with COVID-19 – introducing to the Act new regime screening mechanism due to the COVID-19 pandemic  in Poland (COVID-19 Rules);

Ordinance of the Council of Ministers of 16 December 2022 on the list of entities to be protected and the  counter authorities competent for them – introducing an additional four companies to the list of companies  covered by the existing general protection against the COVID-19 pandemic (Company Specific Rules). 

5. Contextualization of the Legal Framework (Historical or other)

The purpose of the Act is to protect the interests of the Polish state and to control investments in strategic sectors of the Polish economy to protect public security and order.

Company Specific Rules 

The Act was initially introduced in 2015. The Polish Council of Ministers identified certain threats, which could destabilize the Polish economy. It was decided that the Polish authorities should have appropriate instruments (including legal ones) to enable them to interfere and oppose proposed transactions when necessary. Every year the Council of Ministers publishes a list of protected entities from the sectors specified in the Act, taking into account factors such as real and serious threats to the fundamental interests of Society related to the activities of those entities (see more information in question 9 below). Currently, there are 15 companies protected by the Company Specific Rules.

Depending on the sector in which the protected entity is active, the Minister of State Assets, Minister of Defence or Minister competent for maritime affairs is responsible for FDI notifications based on the Company Specific Rules. 

COVID-19 Rules

On 24 July 2020, an amendment to the Act entered into force, introducing a new screening mechanism affecting foreign investors (i.e., investors from countries other than EU, EEA or OECD members) that wish to invest in a Polish entity covered by special protection (the COVID-19 Rules). 

The amendment was adopted as a result of the COVID-19 pandemic and Polish authorities’ concerns regarding the risk of takeover of Polish companies that are crucial for public order, safety or health. Initially it was assumed that these rules would be in force for two years, i.e. until 24 July, but because of the amendment this deadline has been extended to 24 July 2025. The purpose of the amendment is to prevent the international situation surrounding COVID-19 from distorting a market or distorting competition. 

The amendment also implemented Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019, establishing a framework for the screening of foreign direct investments into the European Union. 

The Polish competition authority (the President of the Office of Competition and Consumer Protection UOKiK) is responsible for FDI notifications that are subject to the COVID-19 Rules.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Company Specific Rules

The Act is applicable to all investors, regardless of the nature of their operations or country of registration – it also applies to Polish investors.

COVID-19 Rules 

The screening mechanism applies only to foreign investors i.e., (i) a physical person who does not have citizenship of the EU, EEA or OECD (Member State), or (ii) a person other than a physical person that was not established/registered in one of the Member States for at least two years prior to the day before the notification.

The subsidiaries and branches of foreign investors will also be classified as foreign, even if they are registered in one of the Member States.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The screening mechanism applies to situations which may result in the acquisition of dominant control or significant participation in the protected entity. Moreover, the Act applies not only to direct (e.g., the acquisition of shares) but also indirect transactions (e.g., an acquisition via subsidiaries, including transactions subject to foreign law).

As the language of the Act is quite specific, it is advisable to assess the applicability of the FDI mechanism on a case-by-case basis.

Company Specific Rules 

The Act concerns investments involving the acquisition:

• of shares (or stock); rights and obligations of a partner authorized to manage or represent the protected company (or partnership), enterprise or an organized part thereof,
• resulting in the acquisition or achievement of a significant participation in or the acquisition of a dominant position over a company that is subject to protection.

Within the meaning of the Act, "significant participation" means the ability to influence another entity's operations, in particular due to: 

1. holding, within the last two years, at least 20% of the total number of votes in its governing body; or 
2. having an interest in a partnership with a value of at least 20% of the total value of all contributions made thereto.

Moreover, the following factors may indicate that the entity is a dominant entity:

1. holding (directly or indirectly) the majority of votes in another entity's governing bodies (also if acting in  concert); 
2. being authorized to appoint or dismiss the majority of members of another entity's management or supervisory bodies; 
3. where it has (directly or indirectly) more than half of the members of another entity's management board, registered proxies or managers; 
4. holding at least 50% of another entity's share capital; or 
5. otherwise being able to take decisions on another entity's operations.

Moreover, in the case of subsequent acquisitions, a notification obligation is triggered by reaching or exceeding (directly or indirectly) the following thresholds: 20%, 25%, 33% and 50% of the total number of votes at the protected company's general meeting or in its share capital.

COVID-19 Rules 

Acquisition of: 

a) “significant participation” in the protected entity is defined as the acquisition of 20% or 40% of the shares (separate thresholds) or of the total votes, capital or profits, or the lease of (i) an entire enterprise or (ii) part of an enterprise which is sufficiently separated;

b) a dominant position over a target entity (in particular within the meaning of the Company Specific Rules described above) is achieved by taking one of the following actions towards the protected entity: (i) the acquisition of shares or rights attached to shares or the subscription for shares, or (ii) the conclusion of an agreement providing for the management of that entity or the transfer of profits by that entity.

The acquisition or achievement of a significant participation or the acquisition of a dominant position may also occur indirectly, in particular via subsidiaries or any other entity with whom another entity has concluded an agreement providing for the delegation of voting or other rights over or in relation to the shares, stocks or other equity rights of the protected entity.

The acquisition, achievement of a significant participation or the acquisition of a dominant position also means cases in which an entity acquires or achieves a significant participation or the acquisition of a dominant position over a protected entity, or achieves or exceeds, respectively, 20% or 40% of the total number of votes in the protected entity, or a share in its profits, or a capital share in a partnership with respect to the value of all contributions made to that partnership, as a result of so-called subsequent acquisition (nabycie następcze). This could be a result of one the following:

1. the redemption of shares or stock of a protected entity or the acquisition of the protected entity's own shares or stock, 
2. a division of the protected entity or its merger with another entity, or 
3. an amendment to the articles of association or statutes of the protected entity regarding preferential rights to shares, participation in profits, or the establishment or modification or cancellation of the rights vested in particular partners, shareholders or participants of the entity

8. Scope - sectors covered

Company Specific Rules 

Every year the Council of Ministers publishes a list of protected entities from the sectors specified in the Act (e.g., energy, chemical, telecommunications, transshipment in seaports, mining, military, etc). The factors taken into account when drawing up the list include: significant share in the market, scale of operations, and real and sufficiently serious threats to fundamental interests of society related to the activities of the entity to be protected. The Council of Ministers should also consider whether other less restrictive measures could be implemented. 

There are currently 15 companies covered by protection on these bases, i.e.:  

1. Centrum Rozwojowo‐Wdrożeniowe "Telesystem-Mesko," 
2. Emitel S.A., 
3. Gaspol S.A.
4. Grupa Azoty S.A., 
5. HAWE TELEKOM sp. z o.o. w restrukturyzacji, 
6. KGHM Polska Miedź S.A., 
7. Orange Polska S.A., 
8. PKP Energetyka S.A.
9. Polkomtel sp. z o.o., 
10. Polski Koncern Naftowy ORLEN S.A., 
11. Rafineria Gdańska Sp. z o.o.
12. Stoen Operator Sp. z o.o.
13. Tauron Polska Energia S.A., 
14. Telekom sp. z o.o.
15. UNIMOT S.A.

COVID-19 Rules 

The COVID-19 Rules define a protected entity as an entity that generated turnover exceeding EUR10 million in Poland in either of the two financial years preceding the submission of the notification, which meets one of the following conditions:

1. is a public company; 
2. holds assets considered as critical infrastructure (e.g., communication and information systems, healthcare systems, energy supply systems); 
3. develops software dedicated to specific sectors (e.g., energy, water supply, voice/data transmission or storage, finance/payments, insurance, healthcare, transport, food supply) or provides cloud computing services for them; or
4. conducts business activity in one of the specified sectors:

• energy (e.g., production of energy, pipeline transport/storage of crude oil, motor fuel or diesel oil, underground storage of crude oil or natural gas);
• heating (e.g., generation or transmission or distribution of heat);
• chemical (production of chemicals, fertilizers and chemical products, regasification or liquefaction of natural gas, distribution of natural gas or electricity);
• production of rhenium; 
• mining and processing of metal ores used for the production of explosives, weapons and ammunition, as well as products and technologies for military or police purposes; healthcare (e.g., manufacture of medical equipment, instruments and supplies, or manufacture of medicines and other pharmaceutical products);
• military (e.g., manufacture and trade in explosives, weapons and ammunition, as well as products and technology for military or police purposes);
• transshipment (e.g., transshipment in ports that are of fundamental importance to the national economy, transshipment of crude oil and its products in seaports, transshipment in inland ports);
• telecommunications;
• food production (processing of meat, milk, cereals and fruit and vegetables).

Considering the objectives of the screening mechanism introduced by the COVID-19 Rules, the Council of Ministers may (after consultation with UOKiK) introduce certain exemptions from the protection.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Both type of Rules (i.e., Company Specific and COVID-19) provides for ex-ante screening mechanisms only. 

The notification is mandatory and the investor has to notify its intention to execute a given transaction before taking any actions.

In some ambiguous cases, informal and formal preliminary consultations with the competent authority may be possible.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

An entity that intends to acquire or achieve a significant participation or to acquire a dominant position is obliged to notify the relevant authority of such an intention. In the case of an indirect acquisition, the notification is submitted by the entity that entered into the transaction.

In the case of an indirect acquisition that took place because of an act carried out under the provisions of the law of a country other than Poland, the notification is submitted by the subsidiary through which the indirect acquisition was made.

In the case of acquisition or substantial participation, the relevant authority must be notified. The notification must be submitted by the entity that has acquired or achieved significant participation (directly or indirectly).

In the case of an indirect acquisition resulting from a transaction executed under laws other than in Poland, in particular a merger of companies whose registered offices are outside Poland, or an acquisition of shares in a company with a registered office outside Poland that is a parent entity of a protected company, the notification must be submitted by the company that has obtained the status of a parent entity of an entity holding at least 20% of the votes at the general meeting or of the share capital of (i) the protected company, (ii) its parent entity (or an entity having significant participation therein), or (iii) an entity having a legal title to the protected company’s enterprise (or a part thereof).

The Act also provides for one situation in which the notification is submitted by the protected entity, i.e., in the case of consequential acquisitions, such as due to a result of the cancellation of shares or share certificates in a company which is a protected entity. In that case, the notification must be made before holding a meeting of the governing body of the protected entity, before adopting a resolution of the shareholders or participants, or before any other act that would result in consequential acquisitions (or acquisitions of dominance or significant participation) over the protected entity. 

Company Specific Rules

Depending on the sector in which the protected entity is active, the notification based on the Company Specific Rules should be submitted to one of the following: the Minister of State Assets, the Minister of Defence or the Minister competent for maritime affairs. 

The Act does not set forth more specific rules of the proceedings, such as the procedures that would be applicable where a notification obligation arises. The Act covers all types of transactions, regardless of their purpose. Notification is mandatory and there are no exceptions of any kind (it concerns all investors, both national and foreign).

COVID-19 Rules

The FDI notifications based on COVID-19 Rules should be submitted to UOKiK. UOKiK has published special guidelines on this subject (Investment Control – procedural guidelines on submitting notifications to the President of UOKiK and conducting proceedings under the Investment Control Act – available only in Polish).

In general, notification must be made before:

• concluding any agreement generating an obligation to acquire or executing any transaction leading to  the acquisition of a dominant position over a protected company (or significant participation); or
• announcing a tender offer to subscribe for shares in a protected company that is a public company  whose shares are admitted to trading on a regulated market.

Where a significant participation or the acquisition of a dominant position is achieved through the conclusion of  more than one agreement or other legal action, notification must be given prior to the conclusion of the last  agreement, or any other legal action leading to the acquisition or achievement of a significant participation, or the  acquisition of a dominant position over a company that is subject to protection.

In the case of an indirect acquisition resulting from a transaction executed under laws other than Polish, as referred to above, notifications must be made within seven days of the date on which the acquisition of a  dominant position or a significant participation becomes effective or, if such a moment cannot be determined, within 30 days of the date of the transaction (or other action) leading to such an acquisition.

The timing for the required notifications is as follows:

1. For the Company Specific Rules: 90 days from receipt of the written notification (with two additional working 
   days for the delivery);
2. For the COVID-19 Rules:
   • Phase I: 30 working days for preliminary screening proceedings from receipt of the written notification
   • Phase II: 120 working days from the initiation of the phase II proceedings (with seven additional working  days for the delivery).

Note: all the proceedings are subject to the “stop-the-clock” rule for an unlimited number of additional questions  or requests from the competent authority. In the case of requiring additional information/documents, the  notifying party will be given at least seven days for the submission of the reply.

12. Design – Transparency and Information requirements (Filing Forms?)

The Act indicates information that needs to be disclosed by the notifying party as well as documents (both official,  e.g., articles of association, and private, e.g., a graphic organization chart of the capital group) that need to be  submitted together with the notification. In contrast to the merger rules, neither the Act nor its implementing  regulations provide for any form or any sample notification to be used by the notifying party. 

The list of information and documents that should be provided in the notification is quite extensive. It includes:

1. the intended acquisition (e.g., participation in a protected entity, the source of financing of the purchase etc);
2. the investor and its capital group (business operations, members of its administrative and supervisory bodies,  completed and pending proceedings);
3. the investor’s plans in connection with the transaction (e.g., long-term business plans, anticipated changes in the organization of the protected entity, the method of financing).

The notification and the accompanying documents must be drawn up in Polish – or in a foreign language together with an official translation into Polish made by a certified (sworn) translator or by a consul (e.g., documents translated from a rare language into a language known to the consul and then translated by the consul into Polish). 

Official foreign documents should be legalized by a Polish consul before being translated (unless an international agreement to which Poland is a party provides otherwise).

In justified cases, where the applicable law does not require the provision of documents be attached to the notification, the notifying party or the person concerned may, instead of those documents, make a declaration to that effect containing the required information. At the same time, that person must also submit the documents which, in accordance with applicable law, constitute confirmation of those other documents, accompanied by an appropriate explanation.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Company Specific Rules

The competent minister may issue a decision blocking a given transaction (see question 15). On the other hand, if the notified transaction does not fall within the scope of the Act, the competent minister will issue a decision refusing to initiate proceedings.

Before issuing the decision on the merits of a case, the competent minister must consult the Consultative Committee appointed by the Prime Minister (consisting of other ministers and public authorities important from the perspective of public security). According to a recent ruling issued by the Supreme Administrative Court (case no. II GSK 594/18), recommendations given by the Consultative Committee are binding. 

COVID-19 Rules

After conducting proceedings in Phase I, UOKiK may issue:

• an ordinance refusing to initiate the proceedings, if the notified transaction does not fall within the scope of the Act;
• a decision that the notified transaction does not fall within the scope of the Act and refuse to initiate the control proceedings and not oppose the proposed transaction, or 
• an ordinance initiating Phase II – if, (i) the notifying party did not provide the required documents/information or; (ii) it is necessary to conduct further investigations from the perspective of the public order or security.

After conducting an in-depth investigation of the proposed transaction in Phase II, UOKiK issues a decision on the merits of the proposed transaction (i.e., not opposing or blocking the proposed transaction (see question 15)).

Failure to submit a notification and refrain from taking any action covered  by the notification until obtaining a positive clearance decision from the competent authority, or the expiry  of the period within which the decision should have been issued, may result in certain civil and penal  sanctions.

Company Specific Rules

Sanctions include:

• Invalidity of all investments carried out without notification or after having received a refusal from the competent minister.
• Penal sanctions including a fine of up to PLN100 million and/or imprisonment ranging from six months to five years with respect to natural persons acting in their own name, as well as representing a legal entity.
• With respect to natural persons obliged by law or contract to manage the affairs of a subsidiary, who are aware of an acquisition made in breach of the notification obligation and who fail to notify the relevant authority, possible penal sanctions include a fine of up to PLN10 million and/or imprisonment ranging from six months to five years.

There is no specific timeline or statute of limitations for imposing the abovementioned sanctions. In certain circumstances set out in the Act, the competent minister may initiate proceedings ex officio.

COVID-19 Rules

The sanctions include:

• Invalidity of all investments carried out without notification or after having received a refusal from UOKiK. In the case of an indirect acquisition carried out on the basis of foreign law, the sanction is the inability to exercise the rights attached to the shares of the protected entity.
• UOKiK is entitled to bring an action to annul actions taken pursuant to the investor's exercise of rights acquired in violation of the Act.
• Penal sanctions including a fine of up to PLN50 million and/or imprisonment ranging from six months to five years with respect to natural persons acting in their own name, as well as representing a legal entity.
• With respect to natural persons obliged by law or contract to manage the affairs of a subsidiary, who are aware of an acquisition made in breach of the notification obligation and fail to notify the relevant authority, possible penal sanctions include a fine of up to PLN5 million and/or imprisonment ranging from six months to five years.

The time limit for imposing the abovementioned potential sanctions is five years from the investment. 

During that time UOKiK may initiate proceedings ex officio.

14. Interaction with other legal frameworks (ex: merger control)

None. The Act provides for a separate procedure that does not depend on or affect any other legal framework, in particular merger control rules.

At the same time, in the case of notifications based on the COVID-19 Rules submitted to UOKiK, the authority announced that it will speed up the procedure (and potential clearance)..

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Company Specific Rules

Blocking is justified for the purpose of:

• ensuring the fulfilment of obligations incumbent on Poland to safeguard its independence and the inviolability of its territories, ensuring freedom and human and civil rights, safety of its citizens and protection of the environment;
• preventing social or political actions or events impeding or precluding Poland from performing its obligations under the North Atlantic Treaty or its participation therein;
• preventing actions, or social or political events that may disturb Poland’s foreign relations; and
• ensuring security and public order in Poland, meeting the necessary needs of the population and protecting their life and health.

COVID-19 Rules

Blocking by UOKiK may be justified in the following situations:

• there exists at least a potential threat to public order, public security, or public health in Poland; or
• the acquisition or achievement of a substantial participation or the acquisition of a dominant position would adversely affect projects and programs of interest to the EU; or
• it is not possible to establish whether the acquirer is from one of the Member States or should be classified as a foreign investor. 

In both regimes, the competent authority would block the transaction if:

• the notifying party did not supplement formal defects in the notification or documents or information attached to the notification within the prescribed time limit or the summoned entity did not submit the information or documents as requested by the competent authority, or
• the notifying party did not provide additional written explanations within the time limit set by the competent authority.

If one of the above factors for blocking a transaction is met in both regimes, i.e., Company Specific and COVID‐19 Rules, but the transaction is an indirect acquisition executed under foreign law, instead of opposing the transaction, UOKiK or the competent minister will disallow the exercise of rights attached to the shares of the target entity (except for the right to sell the shares).

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Company Specific Rules

In relation to an issued decision, the notifying party may request that the case be reconsidered by the competent minister that issued the decision (i.e., the Minister of State Assets, Minister of Defence or Minister competent for maritime affairs). The notifying party may also file an appeal with an administrative court. 

If the administrative court revokes the competent minister’s decision, the 90-day time limit for the issuance of the decision starts to run again from the date on which the final judgment of the administrative court is delivered to the minister.

COVID-19 Rules

The notifying party may file an appeal with an administrative court within 30 days of receiving the decision.

If the administrative court revokes UOKiK’s decision issued in Phase II or Phase I, the 120-day time limit for the issuance of the decision starts to run again from the date on which the final judgment of the administrative court is delivered to UOKiK.

17. Publication in Official Gazette or other

 The notifying party is not subject to any special publication obligations concerning FDI screening, apart from those resulting from general rules (e.g., publication in the National Court Register or MAR notification). The decisions in cases analyzed by UOKiK are published on its official website. 

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

There are examples of recent decisions issued by UOKiK based on recent amendments to the Act (COVID-19 Rules). In October 2020, decision No. DKK-179/2020 was issued in a case resolved via the simplified procedure. According to the decision, H&F Fund, whose registered office is in the Cayman Islands, took over a Polish company active in the financial sector — Centrum Rozliczeń Elektronicznych Polskie ePłatności.

Decision No. DKK- 248 /2021 concerned the acquisition of a significant participation in Makarony Polskie S.A. (a public company from the grocery sector) by Raya Holding For Financial Investments S.A.E. (Giza, Egypt) via its Polish subsidiary, i a company with its registered office in Warsaw (Madova sp. z o.o.). 

In August 2022, decision No. DKK-201/2022 was issued in which UOKiK refused to initiate proceedings and did not oppose the proposed acquisition of indirect dominance by Saudi Arabian Oil Company (Dhahran, Kingdom of Saudi Arabia) via Aramco Overseas Company B.V. (Hague, the Netherlands) over LOTOS SPV 1 sp. z o.o. and LOTOS-Air BP Polska sp. z o.o. and a significant participation in Lotos Asfalt sp. z o.o. via Aramco Overseas Company B.V. (Hague, the Netherlands) in Lotos Asfalt sp. z o.o. 

19. Stakeholders views on the Legal Framework

According to the common viewpoint, the Act is far from ideal, in particular due to the multiplicity of  references and terminological inaccuracies, which partially result from the rapid pace of parliamentary  work. The Act was prepared in less than five months. Moreover, restrictions and obligations resulting from  the Act are very broad and burdensome, which may discourage or even prevent investors, both Polish and foreign, from executing relevant transactions.

COVID-19 Rules

The COVID-19 Rules were also implemented via a sped-up procedure. Luckily, one of the propositions  made during public consultations was included, and therefore investors from OECD countries will not be  regarded as foreign entities. The UOKiK has issued special guidelines, but they mainly repeat the  contents of the Act and do not provide any additional know-how.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

The amendment to the Act introduced in 2020 implements EU Regulation 2019/452, and in particular  establishes a contact point. This should enhance the cooperation between Polish authorities and the  equivalent bodies from other European countries. As indicated in EU Regulation 2019/452, establishing  contact points should support direct cooperation and the exchange of information between the contact  points from different EU countries.

At the same time, full compliance of the provisions of the Act with EU legislation has  raised concerns from the beginning. The powers given to authorities seem to be too broad and too discretionary when  compared to the EU's principles of freedom of establishment and freedom of movement of capital – as  well as the proportionality principle. Statutory prerequisites for both granting protection to a given entity, as  well as blocking a transaction or prohibiting the exercise of voting rights from the acquired shares, are  determined too vaguely – the assessment of whether they are met may be based on political or economic  grounds, and not legal.

21. Other relevant information

Potential amendments and new UOKiK guidelines are possible in the coming years.

Contacts: Michał Orzechowski and Agnieszka Staszek

Last updated June 2023

1. Country: Romania

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

The five biggest FDI countries are:

1. The Netherlands (22.1%)
2. Germany (12.5%)
3. Austria (12.2%)
4. Italy (7.5%)
5. Cyprus (6.2%).

The percentages were calculated based on the country of residence of the direct shareholder of at least 10% of the share capital of Romanian companies, according to a report prepared by the National Romanian Bank in 2022.

3. Legal Framework in Force

1. Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (EU FDI Regulation);
2. Competition Law 21/1996;
3. Emergency Government Ordinance 46/2022 implementing the EU FDI Regulation, published on 18 April 2022 (FDI EGO), as approved and amended by Law 164/2023, published on 7 June 2023 (FDI Law);
4. Regulation on the organization and functioning of the Commission for the Examination of Foreign Direct Investments (FDI Commission), published on 28 October 2022;
5. Supreme National Defence Council Decision 73 of 2012 on the application of article 46(9) of the Competition Law.

4. Last revision of the Legal Framework

The legal framework was last amended in 2023.

5. Contextualization of the Legal Framework (Historical or other)

Foreign Investment Law 35/1991, the first law that liberalized foreign investments in Romania, contained some form of screening for all foreign investments. Foreign investors were required to make a request with the Romanian Agency for Development, which had 30 days to analyze the creditworthiness of the investor, the field, the way in which the investment was to be made, as well as the amount of capital invested. The 1991 Foreign Investment Law specifically required that foreign investments not affect national security and defence interests. Further, foreign investments were not permitted to harm public order, public health or ethics. The law was repealed in 1997.

Until the amendment of the Competition Law in 2011 through Government Emergency Ordinance 75/2010, there was no real form of screening of foreign investments. GEO 75/2010 has introduced a mechanism for the screening of investments, which may present a threat to national security. The procedure was further detailed by the Competition Council Merger Control Regulation and by the Supreme National Defence Council Decision 73 of 2012 on the application of article 46(9) of the Competition Law.

The FDI EGO implementing the EU FDI Regulation was officially published on April 18, 2022 and it puts forward a new approval mechanism as well as additional obligations, conditions and sanctions for foreign investors looking to invest in Romania.

The FDI EGO was approved and further amended by the FDI Law, published on 7 June 2023. One of the main changes brough by the FDI Law consists in expanding the scope of the filing obligation to "EU investors" (EU citizens, EU-based companies including trustees and EU-based companies controlled by EU citizens and/or EU legal entities that either made an investment or intend to make an investment in Romania).

6. Scope - Screening Mechanism - origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Foreign investors intending to implement “foreign direct investments” or “new investments” are required to submit a request for authorization of the proposed investment to the FDI Commission, provided that such investments satisfy the following two criteria:

1. the investment has as its object any of the fields of activity provided for in the Decision no. 73/2012 of the Supreme Council for National Defence as being strategic for the national security; and
2. the amount of the investment exceeds the threshold of EUR2,000,000. However, the FDI Commission may also ex officio assess FDIs which do not exceed the EUR2,000,000 threshold, if, through their nature or potential effects, and by reference to the criteria included in article 4 of EU FDI Regulation, such FDIs may impact security or public order, or pose risks related to security or public order.

Following the enactment of the FDI Law, the filing obligation was extended to EU investors. However, there is no general consensus in the market on whether EU investors need to notify only "foreign direct investments" or whether the obligation extends to "new investments" as well.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The FDI EGO provides for two alternative types of investments, which qualify as “foreign direct investments”:

• A "foreign direct investments"

1. an investment of any nature performed by the foreign investor, (i) for the purpose of establishing or maintaining a long-lasting and direct relationship between the foreign investor and the target, to which funds are made available or are going to be made available for the purpose of performing an economic activity in Romania, and (ii) which allows the foreign investor to exert control over the management of the company; or
2. a change in the ownership structure of a foreign investor – legal entity, if such change in respect of the legal entity makes possible the exercise of control, directly or indirectly, by: (a) a natural person who is not a citizen of an EU Member State; (b) a legal entity whose headquarters are not located in an EU Member State; or (iii) another legal entity, without legal personality, organized in accordance with the laws of a non-EU Member State.

• B "new investments" defined as an initial investment in tangible and intangible assets located in the same territory, connected to, (a) the commencement of the activity of a new legal entity, (b) the expansion of the capacity of an existing legal entity, (c) the diversification of production of a legal entity through products that have not been previously manufactured, or (d) a fundamental change of the general production process of an existing legal entity. Incorporating a new legal entity represents the creation of a new establishment for carrying out the activity for which the financing is requested, independent from a technological perspective of other existing business units. Expansion of the existing legal entity’s capacity represents the expansion of the production capacity within the current establishment due to the existence of an unfulfilled demand. Diversification of an existing legal entity’s production represents the obtaining of products or services that have not been previously manufactured in the respective business unit.

The screening does not apply to portfolio investments (defined as the acquisition of securities on organized and regulated capital markets that do not allow direct participation in the management of the company).

The screening applies to controlling investments as well as "new investments", as detailed above.

8. Scope - sectors covered

The full list of sectors covered is set out in the Supreme National Defense Council's Decision No. 73 of 2012, available at csat.presidency.ro/files/documente/Hotararea_CSAT_73_(2012).pdf and refers to:

• the security of the citizen and of the communities;
• border security;
• energy security;
• transport security;
• security of supply systems with vital resources;
• security of critical infrastructure;
• security of information systems and communications systems;
• security of financial, fiscal, banking and insurance activity;
• security of the production and circulation of armament, ammunition, explosives, toxic substances;
• industrial security;
• protection against disasters;
• protection of agriculture and the environment;
• the protection of the privatization operations of state-owned enterprises or of their management.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

pre-authorisation vs. ex-post screening of FDI? Other?

Covers solely controlling investments or also portfolio investments?

Mandatory or voluntary nature?

Screening Mechanism design:

• pre-authorisation: investments which meet the notification conditions (as detailed at point 6 above) may not be implemented before being authorized; only controlling investments are reviewed. The screening does not apply to portfolio investments;
• mandatory nature: the filing of an FDI authorization request (in the required format imposed by the applicable regulation) is mandatory in case of investments which meet the conditions under point 6 above.

10. Design - reciprocity?

N/A

11. Design - Procedures and Deadlines

A. Who will have to notify?

Any individuals or entities that intend to make an investment meeting the filing requirements indicated above in Romania will have to submit an FDI filing (bilingual – English and Romanian language, in the format prescribed by the applicable regulation).

B. Process

While FDI filings will be submitted to the Romanian Competition Council, the actual screening of the investment will be performed by the dedicated FDI Commission (in Romanian "Comisia pentru examinarea investițiilor străine directe").

The FDI Commission carries out the assessment of the foreign direct investment. However, considering the specifics and complexity of an authorisation request or its impact on security or public order, as well as on projects and programs of interest for the European Union, the FDI Commission may decide that the consultation of the Supreme National Defence Council is required.

The FDI Commission will propose to: (a) clear the FDI (followed formally by a decision issued by the Competition Council to this effect), or (b) decide that there is a potential risk and will issue, (i) a conditional clearance, or (ii) a prohibition (in both cases followed formally by a decision issued by the Government).

C. Timing

The timeline (which is relevant, as a standstill obligation is in place until the FDI is authorized) is as follows:

• within 7 days since the notification is filed, the FDI Commission will confirm whether the notification is deemed complete or whether there is any other necessary information;
• within 60 days since the notification is deemed complete, the FDI Commission must issue an endorsement deciding whether the FDI is authorized/conditionally authorized/rejected from authorization;
• within 5 days since the issuance of the endorsement (if the endorsement refers to an unconditional authorization), the FDI Commission communicates such endorsement to the Romanian Competition Council;
• within 30 days since the receipt of the endorsement, the Romanian Competition Council issues the authorization decision;
• within 45 days since the issuance of the authorization decision, this is communicated by the Romanian Competition Council to the foreign investor.

As the FDI Commission has relatively recently been established, the legal deadlines are likely to be exceeded and there is no tacit authorization triggered if the deadlines are exceeded.

If the FDI Commission determines, based on the criteria provided by Article 4 of the EU FDI Regulation, that the investment may affect the public security and order of Romania, the FDI Commission will initiate a detailed assessment procedure and consult with the Supreme National Defence Council. The latter will issue a mandatory resolution within 90 days of the request.

D. Standstill obligation and fines

It is very important to note that investors are prohibited from implementing any part of the investment, if that investment is subject to FDI approval, until such approval is obtained. Failure to obtain the FDI approval and implementation of an investment with lack thereof may subject the investor to a fine of up to 10% of the annual turnover achieved in the year prior to the sanctioning. In addition, the FDI Commission may recommend that the Romanian Government issue a decision to unwind the investment.

12. Design - Transparency and Information requirements (Filing Forms?)

There are special transparency rules for investments in media companies. These include companies: (i) with audio-visual licences, or (ii) that issue publications with an average of at least 5,000 printed copies/day in the last calendar year, or (iii) that have a web portal with a minimum of 10,000 views/month. Such investments will be subject to a public consultation process lasting 30 calendar days.

13. Design - Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

At the end of the examination procedure, the FDI Commission shall issue an endorsement deciding, as the case may be:

1. the authorisation of the FDI, where it is of the opinion that the FDI will not affect the security or public order of Romania and it will noy affect projects or programs of interest for the European Union;
2. the conditional authorisation of the FDI, where it is of the opinion that the FDI can be implemented with the observance of behavioural or structural commitments by the foreign investor. In this situation, the FDI can be implemented and can operate in accordance with the provisions and conditions specified in the conditional authorisation decision;
3. the rejection of FDI authorisation (or the annulment, in case of an FDI which has been implemented without filing a request for authorisation), where it is of the opinion that the FDI will affect the security or public order of Romania or may affect projects or programs of interest for the European Union.

Under the recently adopted FDI Law, the FDI Screening Commission is granted the competence to cancel a foreign direct investment in case of national security concerns, based on a procedure to be adopted by way of Government Decision.

14. Interaction with other legal frameworks (ex: merger control)

Foreign direct investments are broadly defined under the FDI EGO. Apart from changes in control in the ownership structure of a company, FDI can also consist of an investment of any kind made by a foreign investor for the purpose of establishing or maintaining long-lasting and direct links between the investor and an undertaking and/or a separate unit of an undertaking, via funds made available for carrying out an economic activity in Romania, and which allow the foreign investor to exercise control over the management of the business.

If an FDI represents, at the same time, an economic concentration falling under the provisions of Competition Law no. 21/1996, the foreign investor must file both an FDI authorisation request, as well as a merger notification. In such case, the merger clearance procedure shall be finalised depending on the decision regarding the FDI authorisation request.

15. Design - Grounds for blocking, if applicable (such as "public security", "vital interests"). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

At the end of the examination procedure, the FDI Commission may refuse to authorize the FDI (or issue an annulment, in the case of an FDI which has been implemented without filing a request for authorisation) if it considers that the FDI affects the security or public order of Romania or may affect projects or programs of interest for the European Union.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

The Competition Council’s decision regarding requests for the authorization of foreign investments are communicated to the investor, within no more than 45 days after adoption.

The decisions may be appealed to the Bucharest Court of Appeal within 30 days of receipt of communication. The decision of the Bucharest Court of Appeal may be further appealed at the High Court of Cassation and Justice within 30 days since communication.

17. Publication in Official Gazette or other

The decisions are not confidential and are published on the Competition Council website.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last five years.

Since the legislation presented in this chapter was adopted in 2022, there are few examples of application of the new regime – 2 FDI authorization decisions were published on the Competition Council website in sectors such as security of critical infrastructure (the target provided IT services) and energy security (the targets were developing wind farms).

19. Stakeholders views on the Legal Framework

The practitioners' view is that the number of FDI filings is expected to significantly increase under the newly adopted legislation.

The Competition Council also appears to have adopted a cautious approach in considering a broad range of potential investments as falling under the FDI legislation.

20. Interplay with the EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

The FDI Ordinance was adopted in order to establish a framework for the screening of foreign direct investments in line with the EU FDI Regulation.

21. Other relevant information

As tackled under 6 above, there is no general consensus on the extent of the obligation to notify purely intra-EU (including domestic) transactions. Among others, it is not clear if internal restructurings would be caught under the filling obligation in case of such transactions.

Another aspect requiring further clarifications is the determination of the investment value for the purpose of assessing whether the EUR2,000,000 threshold has been reached. This subject will hopefully be addressed by way of secondary legislation to be adopted by the Competition Council.

We are continuously monitoring the legislation in the field and will provide an update once new legislation is enacted.

Contacts: Alina Lacatus and Livia Zamfiropol

Last updated July 2023

1. Country: Slovak Republic

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

Currently not applicable. Please note that the Ministry of Economy of the Slovak Republic (MoE) will publish annual summary information concerning the application of the FDI Act (as defined below) on its website by the end of June. This includes information on the geographic origin of foreign investments, the sectors to which these foreign investments have been directed and the total value of these foreign investments.

The FDI Act (as defined below) entered into force as of 1 March 2023, meaning the MoE will publish the summary information for the first time, by the end of June 2024 for the calendar year 2023.

3. Legal Framework in Force

Act No. 497/2022 Coll. on Screening of Foreign Investments, as amended (FDI Act)
Act No. 45/2011 Coll. on Critical Infrastructure, as amended (Critical Infrastructure Act)

In addition, the following secondary legislation to the FDI Act was adopted (and entered into force as of 1 March 2023 as well):

• Regulation of the Government of the Slovak Republic No. 61/2023 Coll., that includes the list of critical foreign investments (Government Regulation),
• Decree of the MoE No. 64/2023 Coll., that includes the respective forms (Decree of the MoE).

4. Last revision of the Legal Framework

The FDI Act entered into force as of 1 March 2023 and the respective secondary legislation to the FDI Act also entered into force as of 1 March 2023 (the FDI Act does not apply to transactions closed prior to 1 March 2023).

The FDI Act also amended the Critical Infrastructure Act (the amendment also entered into force as of 1 March 2023).

5. Contextualization of the Legal Framework (Historical or other)

Prior to March 1, 2023, only a limited and sector-specific screening regime existed under the Critical Infrastructure Act. As of March 1, 2023, this regime was (almost completely) replaced by the general screening regime under the FDI Act.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The FDI Act applies to foreign investors. A foreign investor is generally defined as a non-EU citizen or a non-EU entity.

However, an EU-citizen can also be considered a foreign investor, such as, for example, cases where the financing of a foreign investment is secured via sources provided by a public authority of a third country or entity with an ownership interest of a third country.

Further, an EU-seated entity may also qualify as a foreign investor: (i) if it is controlled by a non-EU citizen or non-EU entity, by a public authority of a third country or entity with an ownership interest of a third country, (ii) if its ultimate beneficial owner (UBO) is a non-EU citizen or non-EU entity, public authority of a third country or entity with an ownership interest of a third country, or (iii) the financing of a foreign investment is secured via sources provided by a public authority of a third country or entity with an ownership interest of a third country.

The full definition of a foreign investor is included in Section 4 of the FDI Act.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The FDI Act applies to investments planned or implemented by a foreign investor that will enable the foreign investor to directly or indirectly:

• acquire the target's business or its part (i.e., asset deal);
• carry out effective participation in the target (i.e., share deal), meaning at least 25 % shares of registered capital or voting rights of the target (10 % in case of critical foreign investments);
• increase the effective participation in the target, meaning an increase in the already acquired effective participation to at least 50 % (in case of critical foreign investments, an increase in the already acquired effective participation to at least 20 % and always when reaching at least 33 % or 50 %);
• acquire control over the target by other means (e.g., by controlling the composition of corporate bodies);
• acquire ownership right to or right to use or dispose of the substantial assets of the target (this applies only to critical foreign investments).

For the purposes of determining the effective participation or its increase, the shares of persons or entities controlling and controlled by the foreign investor shall be also considered.

The full definition (including exemptions) of a foreign investment is included in Section 2 and 3 of the FDI Act.

8. Scope - sectors covered

Generally, the FDI Act does not distinguish between sectors.

However, critical foreign investments are treated differently compared to other foreign investments. Critical foreign investments are foreign investments in connection with which, due to the importance of the target or its activity from the point of view of maintaining the basic functions of the state, there is an increased risk of a negative impact on the security or public order of the Slovak Republic.

As already mentioned, the full list of critical foreign investments is included in the Government Regulation. Based on the Government Regulation, a critical foreign investment includes a foreign investment, where the target:

• is a manufacturer of a specifically designed product,
• is a manufacturer of a defence industry product or is engaged in research, development or innovation of a defence industry product,
• manufactures dual-use items or is engaged in research, development or innovation of dual-use items,
• is engaged in the production, research, development or innovation of biotechnology in the health sector,
• is an operator of an element of critical infrastructure,
• is an operator of an essential service,
• is a provider of a digital service in cloud computing,
• is engaged in the production, research, development or innovation of national information encryption devices or components essential for their security function, where such products are subject to certification by the National Security Authority, or is a holder of such products,
• is a holder of an authorisation under a separate regulation, if the authorisation has not been granted for local programming broadcast or for broadcast and operation of a community medium,
• is a provider of a content-sharing platform with an annual turnover exceeding two million euros,
• is a publisher of a periodic publication which is not a community periodical, if it communicates news to the general public,
• is an operator of a news web portal, which is not a community periodical,
• is a news agency.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

In case of critical foreign investments, foreign investors must file a request for screening with the MoE in advance of implementation. Critical foreign investment cannot be implemented prior to the issuance of a decision permitting the foreign investment or conditionally permitting the foreign investment.

In the case of foreign investments that are not critical foreign investments, foreign investors have the right to file a request for screening with the MoE in advance, however, this is not required. Foreign investments other than critical foreign investments can be implemented without a decision authorising the foreign investment or conditionally authorising the foreign investment.

However, the MoE can also initiate proceeding ex officio. This can occur for example where it can be reasonably assumed that the risk of negative impact from the foreign investment already existed at the time of its implementation, or where  there are justified comments from another EU Member State or the opinion of the European Commission on foreign investment (for example, in case of foreign investments other than critical foreign investments, where the foreign investor decides not to file a request for screening and therefore implements the foreign investment without the respective decision of the MoE, the MoE may initiate proceedings ex officio in relation to such a foreign investment). In general, the MoE can initiate proceeding ex officio within two years as of implementation of the foreign investment at the latest.

With respect to investments covered by the FDI Act, please see questions No. 6 to 8 above.

10. Design – reciprocity?

N/A.

11. Design – Procedures and Deadlines

Pre-screening stage

The pre-screening procedure applies in case a request for screening of a foreign investment other than a critical foreign investment is filed. In this stage, the MoE assesses the risk of negative impact of the foreign investment.

The MoE shall inform, without delay, the target, the consulting authorities, police and intelligence services that the request has been filed. The consulting authorities shall provide the MoE with their standpoint within 30 days of being notified by the MoE. Information delivered by the police or intelligence services within 35 days of being notified shall also be considered within the assessment of the risk of negative impact of the foreign investment.

In the event the MoE identifies a risk of negative impact of the foreign investment, the MoE will commence the screening stage and notify the foreign investor and target. In case the risk was not identified, the MoE shall, without delay, send a confirmation to the foreign investor and target. In case the MoE does not send to the foreign investor notification on commencement of the screening stage within 45 days as of delivery of the request for screening, it is assumed that a risk of negative impact of the foreign investment was not identified (in such case, the MoE shall send, without delay, confirmation of such to the foreign investor and target).

Screening stage

The screening stage applies in the event that:

• a request for screening of a critical foreign investment is filed,
• risk of negative impact of the foreign investment was identified within the pre-screening stage,
• there is an ex officio proceeding.

The MoE shall notify the foreign investor and target on commencement of the screening stage. In case of ex officio proceeding, the MoE will also ask the foreign investor to file a foreign investment screening form within 30 days. Without delay, after commencement of the screening stage, the MoE shall notify consulting authorities, police, intelligence services and Ministry of Finance of the Slovak Republic (MoF).

The consulting authorities shall provide the MoE with their standpoint within 40 days of being notified by the MoE (this period can be extended by a maximum of 20 days).

The MoF shall provide the MoE with its standpoint in relation to obligations of the Slovak Republic from international treaties on investment support. In case the MoF does not provide its standpoint within 40 days as of being notified, it is assumed that there is no impact on obligations of the Slovak Republic following from the international treaties on investment support.

Police and intelligence services shall provide information to the MoE within 40 days as of being notified by the MoE.

Subsequently, the MoE shall prepare a draft standpoint indicating that:

• the foreign investment does not have a negative impact,
• the foreign investment has a negative impact that can be eliminated by way of mitigation measures, or
• the foreign investment has a negative impact.

The draft standpoint shall be sent to the foreign investor and target. The foreign investor and target may comment on the draft standpoint within 15 days. Subsequently, the respective standpoint is finalized.

The MoE shall decide within 10 days as of the end of the consultation process (for more details, please see question No. 13).

12. Design – Transparency and Information requirements (Filing Forms?)

The Decree of the MoE, among other things, includes the following forms:

• request for screening of a foreign investment,
• foreign investment screening form (to be filed in case of ex officio proceeding).

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Authorization of the foreign investment

The MoE shall issue a decision within 10 days of the end of the consultation process.

Conditional authorization of the foreign investment

The MoE shall issue a decision within 10 days of the end of the consultation process. The decision shall, in this case, include mitigation measures, obligations of the foreign investor to comply with the mitigation measures and the period for adoption of the mitigation measures.

The MoE can also determine that an independent third party (administrator) must be appointed to assist the MoE with supervising compliance with the conditional authorising decision.

Prohibition of the foreign investment

Within 10 days of the end of the consultation process, the MoE shall submit to the Government of the Slovak Republic (Government) standpoints that indicate that a foreign investment has a negative impact.

Where the Government agrees, the MoE shall issue a decision on the prohibition of the foreign investment within 10 days as of the Government´s agreement.

In the case of a foreign investment that was already implemented, the decision to prohibit the investment also requires the foreign investor to comply with certain obligations (e.g., the obligation to reverse the implemented foreign investment or the restriction or prohibition of performance of rights acquired on the basis of the implemented foreign investment).

Where the Government does not agree with the standpoint, it is assumed that the foreign investment does not have a negative impact and the MoE issued a decision authorizing the investment (the MoE shall notify the foreign investor and the target in this respect).

Where the MoE does not issue an authorising decision or a conditional authorising decision, or does not submit to the Government a standpoint on negative impact of the foreign investment within 130 days of the commencement of the screening stage, it is assumed that the foreign investment does not have negative impact and the MoE issued a decision authorizing the investment (the MoE shall notify the foreign investor and the target in this respect).

Authorizing decisions, conditional authorizing decisions and prohibitions may be appealed by the foreign investor or target within 15 days. The appeal is decided by the Minister of Economy of the Slovak Republic based on the proposal of a special commission.

14. Interaction with other legal frameworks (ex: merger control)

As already mentioned above, prior to 1 March 2023, only a limited and sector specific screening regime under the Critical Infrastructure Act applied. As of 1 March 2023, this regime was (almost completely) replaced by the general screening regime under the FDI Act.

However, based on the amended Critical Infrastructure Act (amendment carried out by virtue of the FDI Act that also entered into force as of 1 March 2023), certain investments can still be screened. This applies only to the critical infrastructure sectors Energy and Industry.

The transactions covered are: transfer of a critical infrastructure element, transfer of business or its part (i.e., asset deals) or share deal (specifically a change in the persons with direct or indirect participation on the critical infrastructure element operator exceeding 10 %).

Following the above, certain transactions carried out by EU investors can also be screened.

Regarding the screening process, the Critical Infrastructure Act only requires filing of a notification in advance. In all other aspects, it refers to the FDI Act. Under the FDI Act, in case of application of the Critical Infrastructure Act, only an ex officio proceeding (screening process) initiated by the MoE is possible. With respect to an ex officio proceeding under the FDI Act, please see questions No. 9, 11 and 12 above.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Negative impact of a foreign investment occurs where the foreign investment threatens or disrupts the security or public order of the Slovak Republic, or the security or public order of the European Union. In assessing the negative impact of a foreign investment, the respective factors specified in Section 10 of the FDI Act shall be considered (Section 10 of the FDI Act refers also to Article 4 of the Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (FDI EU Regulation)).

The risk of a negative impact of a foreign investment occurs where there is a reasonable expectation that the foreign investment may threaten or disrupt the security or public order of the Slovak Republic or the security or public order of the European Union. In assessing the risk of a negative impact of a foreign investment, the respective factors specified in Section 10 of the FDI Act shall be considered.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

An administrative action for review of the decision on permission, conditional permission or prohibition of a foreign investment may be filed by the foreign investor and the target to the Supreme Administrative Court of the Slovak Republic within 30 days from the date of delivery of the respective decision.

17. Publication in Official Gazette or other

N/A.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A (the FDI Act entered into force as of 1 March 2023).

As already mentioned above, the MoE will publish on its website by the end of June each year, summary information on application of the FDI Act. The summary information will include information about the number of requests for screening, number of requests for screening of critical foreign investments, number of proceedings initiated ex officio, number of authorising decisions, conditional authorising decisions and prohibitions of a foreign investment or geographical origin of foreign investments, the sectors to which these foreign investments have been directed and the total value of these foreign investments.

The summary information on application of the FDI Act will be published for the first time by the end of June 2024 for the calendar year 2023.

19. Stakeholders views on the Legal Framework

In general, adoption of a new general FDI screening regime is perceived positively (it is yet to be seen what the views on its practical application will be).

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

The FDI Act complies with the FDI EU Regulation.

In Sections 54 and 55, the FDI Act regulates cooperation with other EU Member States and European Commission with respect to the foreign direct investments under the FDI EU Regulation.

21. Other relevant information

In case of a planned foreign investment, the foreign investor is obliged to file with the MoE the report on the implementation of the foreign investment within 60 days from the date of implementation.

Where there is an authorizing decision or conditional authorizing decision, the foreign investor is obliged to file with the MoE a monitoring report every year for three years as of the date of implementation of the foreign investment (by the end of June of the respective year, at the latest).

The forms of the report on implementation and monitoring report are included in the secondary legislation (specifically in the Decree of the MoE).

Further, the foreign investor must be registered in the special Slovak Register of Public Sector Partners and disclose its UBOs in this register within 3 months. The start of this period differs depending on whether a planned foreign investment or already implemented foreign investment was subject of the proceeding. The foreign investor must be registered for at least 3 years.

Contacts: Michaela Stessl and Andrej Liska

Last updated June 2023

1. Country: Spain

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

• USA (27.7%)
• United Kingdom (17.8%)
• Germany (14%)
• France (10%)
• Australia (4%)
• Netherlands (3%)
• Italy (2.9%)
• Canada (2.2%)
• Austria (2%).¹

¹As published periodically by the Spanish Ministry of Industry, Trade and Tourism. Estimates based on the "immediate country" concept (i.e., the country from where the investment directly enters in Spain, which may not always be the true origin of the investment).

3. Legal Framework in Force

Law 19/2003, of 4 July, on the legal regime of capital movements and economic transactions abroad and on certain measures to prevent money laundering.

Royal Decree 571/2023, on foreign investments.

As a result of the Coronavirus outbreak, the war in Ukraine, the reconstruction of La Palma Island, and other situations of vulnerability over the last few years, the Spanish Government adopted additional legislation which includes amendments of the general Spanish FDI regime: Royal Decree 8/2020, Royal Decree 11/2020, Royal Decree 34/2020, and Royal Decree 20/2022.

4. Last revision of the Legal Framework

September 2023.

5. Contextualization of the Legal Framework (Historical or other)

Spain has traditionally honored the EU principle of freedom of capital movements and economic transactions and Spain is consequently a very friendly country for foreign investment.

Law 19/2003 was enacted to control a limited proportion of investments that could affect national defense, public security or public health. But the Coronavirus crisis, the economic and social consequences of the war in Ukraine, the reconstruction of La Palma (Canary Islands) and other situations of vulnerability have fostered several regulatory updates of the FDI regime.²

²Foreign investments coming from tax havens will generally have to be declared before the investment is made and may sometimes require a second declaration once the investment is completed. But this is based on other principles and out of scope from this publication.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

An FDI review is only triggered when two items are present: the first is participating in a “foreign investment” and the second is meeting the required relevance thresholds (see question 7).

The Spanish FDI control mechanism focuses on non-EU/EFTA residents’ investments into Spain but, despite that general rule, some foreign investments undertaken by EU/EFTA residents can also be subject to FDI control (see EU/EFTA investment´s thresholds in question 7).

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

To qualify as a foreign investment into Spain, the investments have to result in:

• the investor acquiring at least 10% of a Spanish company, or
• the investor gaining control of a Spanish company (applying the usual antitrust concept of control).

This implies that portfolio investments could be caught even if they do not amount to a controlling investment. However, internal restructurings and increases of stake by investors already holding at least 10% in the Spanish company are not subject to FDI control as long as such transactions do not trigger changes in control over the company.

Even though a foreign investment into Spain may exist, a filing is only triggered when the relevance thresholds are met. These have two separate triggers:

• Certain personal circumstances of the investor:
  • Direct or indirect government control over the foreign investor.
  • Strategic investments carried out by the foreign investor that required FDI filings in other EU Member States.
  • Sanctions in relation to AML, tax, environmental or data protection infringements imposed to the foreign investor.
• The impact of the investment in strategic sectors (see question 8).

Foreign direct investments in Spain undertaken by EU/EFTA residents are subject to authorization temporarily (until December 2024) if the investment is targeted to listed companies in Spain or the investment value is over EUR500,000,000.

8. Scope - sectors covered

Foreign direct investments that could have an impact on strategic sectors affecting public order, public security or public health in Spain are subject to FDI control. Strategic sectors include:

• Essential strategic infrastructure.
• Essential technology and dual-use technology including software and technology (e.g., telecommunications, artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage or quantum, nuclear and biotechnologies).
• Key technologies for industrial leadership including advanced materials and nanotechnology, photonics, microelectronics and nanoelectronics, life science technologies, advanced manufacturing and transformation systems, artificial intelligence, digital security, and connectivity.
• Technologies developed under programmes and projects of particular interest to Spain including those which imply EU or state funding.
• Supply of essential inputs of strategic sectors which are indispensable for the provision of essential services relating to the maintenance of basic social functions, health, safety, social and economic well-being of citizens (energy, water, telecommunications, financial and insurance, health, transport, food supply).
• Companies with direct access to sensitive information (specifically personal data).

Certain sectors have specific regulation:

• Gambling.
• Television.
• Radio.
• Air transportation.
• Manufacture, distribution and trade in weapons and explosives for civil use.
• Minerals and raw materials with a strategic interest.
• Private security.
• Activities in connection with National Defence.
• Banking, financial and insurance sectors.

Spanish legislation foresees certain exemptions, applicable essentially to energy investments, small investments (below EUR5 million), transitional/short term investments (only if the investor does not have the ability to influence the strategic decisions of the acquired company) or to certain investments in real estate assets.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

Although the general rule is that foreign investments in Spain are liberalized, but require compulsory declarations after completion, the updates introduced in 2020 in relation to the FDI control mechanisms require mandatory pre-authorisation for those investments which meet the relevant thresholds.

Transactions will be unenforceable until approval and thus foreign investors will not be able to exercise economic or political rights on the Spanish target company. Fines may reach the amount of the investment’s value.

10. Design – reciprocity?

Reciprocal Investment Promotion and Protection Agreements are regulated by bilateral treaties that contain measures and clauses designed to protect investments made by investors of each State Party in the territory of the other State Party.

11. Design – Procedures and Deadlines

Foreign direct investments subject to pre-authorization must be filed before closing of the transaction.  The legal deadline for authorization is 3 months. The authorized investments must be carried out within the period specified in the authorization or, in any case, within six months.

After the completion of the investment, a mandatory declaration of the foreign investment in Spain must be submitted to the Ministry of Industry, Trade and Tourism through the Investments Registry. When the transaction has been intervened by a Spanish notary, the notary shall send to the Registry information on the transaction.

12. Design – Transparency and Information requirements (Filing Forms?)

If the foreign direct investment is subject to pre-authorisation in Spain because it hits the stipulated thresholds explained throughout this Guide, it requires a mandatory FDI filing prior to the closing of the transaction (as specified in question 11). Filing must be completed by submitting the Screening Procedure of Foreign Direct Investments form, which  can be found in the investment control section of the Ministry´s website (Ministerio de Industria, Comercio y Turismo – Control de inversiones).

The FDI filing form consists of a scrutiny requesting information on:

• The investor's characteristics (activity, shareholding structure, government control, strategic investments made),
• The acquired business in Spain (sector of activity),
• The details of the transaction (investor´s rights and control over the target),
• The investor's business plan for the acquired business.

Note that when two or more foreign investments take place within a period of two years between the same purchaser and seller, these shall be considered as a single investment carried out on the date of the last investment.

The concurrence of co-investors (from an FDI standpoint) in the transaction requires a joint FDI filing if the pooled investment hits the stipulated thresholds explained in question.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Range of decisional outcomes:

• Approvals of unconditional authorizations.
• Denials of authorizations.
• Approvals of authorizations subject to conditions imposed by the resolution organism or commitments submitted by the investor and accepted by the resolution organism.
• Withdrawals attributable to resignation of the investor or for considering that the operation is not subject to the FDI pre-authorization regime.

14. Interaction with other legal frameworks (ex: merger control)

In general, FDI does not exonerate the parties from meeting other legislative requirements, such as obtaining clearance for their investments from competition authorities (merger control), approvals from stock market regulators or review from other bodies (e.g., money laundering).

While FDI control regime is focused on the monitoring of certain foreign investments in Spain that affect or may affect security, public order or public health, merger control regime scrutinizes transactions which may cause anti-competitive effects in a given market.

With the amendments introduced in 2020, in relation to the definition of control from the investor over the acquired Spanish company, the concept of foreign direct investment been aligned with the Spanish competition and merger control rules.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

Public order definition varies depending on the country but in Spain it generally refers to observing the country’s laws and not breaching the fundamental values of the legal system (i.e. the alteration of any situation that allows the peaceful exercise of rights and the fulfillment of obligations, ensuring peaceful coexistence) and the Spanish authority has a relatively wide margin for appreciation, although its decisions can be judicially challenged.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Very serious infringements can be appealed before the Spanish Supreme Court, within two months of notification of the decision.

Serious infringements and minor infringements can be directly appealed to the Spanish High Court within two months of notification of the decision.

Denied FDI authorizations can be appealed before the Spanish High Court (if the Directorate-General for International Trade and Investment has decided on the denial of the FDI) or the Spanish Supreme Court (if the Council of Ministers has decided on the denial of the FDI) within two months.

17. Publication in Official Gazette or other

FDI resolutions are published on the Council of Ministers References of the Official Government website.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

The general opinion is that the Spanish framework is aligned with other EU countries, although it could still be updated to reflect financial innovation and the way in which foreign investment transactions are structured in order to reduce unnecessary administrative burdens and to liberalise transactions for which seeking authorisation does not seem justified.

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

The transitory regime approved by the Spanish Government in response to the Coronavirus crisis and which implies the suspension of the liberalization of certain investments coming from the EU and EFTA, may imply a contradiction with European principles of free movement of capitals. This is why, for the moment, this suspension is only planned until December 2024.

21. Other relevant information

N/A

Contact: Joaquín Hervada

Last updated October 2023

1. Country: Sweden

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

The five biggest FDI countries of origin in Sweden are:*

1. The Netherlands
2. Norway
3. Luxembourg
4. Ireland
5. France

*According to data from Statistics Sweden for 2022.

3. Legal Framework in Force

The Swedish FDI Act to review foreign direct investments (Sw: Utländska direktinvesteringar) entered into force on 1 December 2023. The introduction of the FDI Act means that Sweden now has a screening system for foreign direct investments to protect Sweden from antagonistic attacks that could pose a risk to Sweden’s security interests. Investments in businesses engaged in protected activities must be notified to the Swedish screening authority, the Inspectorate of Strategic Products (Sw: Inspektionen för strategiska produkter, "ISP").

4. Last revision of the Legal Framework

The FDI Act entered into force on 1 December 2023.

5. Contextualization of the Legal Framework (Historical or other)

Foreign direct investments can pose risks for activities of importance for Sweden’s national security, as well as for activities that are important for assuring essential societal functions in Sweden. There has previously only been limited possibilities to regulate and prohibit foreign direct investments that could entail risks to Sweden’s national security interests.

6. Scope - Screening Mechanism – origin of FDI
(review of intra- or extra-EU FDI)
Are there any loopholes?

The purpose of the FDI Act is to screen buyouts and strategic acquisitions of undertakings active in Sweden, whose activities or technology are essential for Sweden's national security or public order. The screening authority, ISP, assess the risk based on the target's activities in Sweden and the investor's characteristics in relation to national security and public order. When assessing an investment, the screening authority considers e.g., (i) whether the investor has previously been involved in activities that have or could have adversely affected Sweden’s national security, public order or public security, and (ii) if there are other circumstances surrounding the investor that could pose a risk to Sweden’s national security, public order or public security. The FDI Act aims to prevent circumvention, which has resulted in intra-group reorganisations and transactions with only Swedish and EU-based investors being subject to the notification requirements.

7. Scope - screening thresholds
Please indicate notably whether it covers solely controlling investments or also portfolio investments.

The notification obligation is triggered, inter alia, when an investor acquires influence in a business engaged in protected activities that exceeds 10%, 20%, 30%, 50%, 65% or 90% of the votes. The notification obligation can also be triggered by asset acquisitions or when the investor is given the right to appoint e.g. a board member. There are no turnover or deal value thresholds.

The act also covers greenfield investments (e.g. the incorporation or acquisition of a shelf company) that will, but does not at the moment, carry out protected activities.

The act also covers purely internal transactions, i.e. when the ultimate owner of the entity that carries out protected activities remains the same.

8. Scope - sectors covered

The FDI Act covers all sectors engaged in the following:

• essential services, e.g. activities, services or infrastructure that maintains or ensures societal functions necessary for the basic needs, values or security of society;
• security-sensitive activities as defined in the Swedish Protective Security Act (2018:585);
• activities related to critical raw materials, e.g. investments in companies that prospect for, extract, enrich, or sell critical raw materials, metals or minerals that are strategically important to Sweden;
• processing large amounts of sensitive personal data or location data;
• manufacturing, developing, researching or supplying military equipment or providing technical support for military equipment;
• manufacturing, developing, researching into or supply of, or technical assistance for, dual-use products; and
• emerging technologies and other strategic protected technologies.

9. Design of FDI Screening Mechanism
Please indicate notably the following:
(a) pre-authorisation vs. ex-post screening of FDI? Other?
(b) Covers solely controlling investments or also portfolio investments?
(c) Mandatory or voluntary nature?

(a) According to the FDI Act, clearance is necessary before an investment in a company engaged in protected activities in Sweden can be closed. The screening authority can also initiate an ex officio screening of an investment.

(b) The FDI Act covers direct and indirect investments which exceeds the thresholds, even if there is no change of control. The law aims to prevent circumvention and has a broad scope, e.g. it covers purely intra-group reorganisations, greenfield investments, and investments by Swedish and EU-based investors.

(c) Provided that the FDI Act is applicable, notification to the screening authority is mandatory.

10. Design – reciprocity?

There are no express reciprocity provisions in Sweden.

11. Design – Procedures and Deadlines

The screening process is a two-stage procedure in the FDI Act. In the first stage, within 25 working days of a complete notification, the screening authority must decide either to take no further action on the notification or to initiate an investigation. In the case of a decision to investigate the investment, the authority must make a final decision within three months. Where there are special grounds, the deadline may be extended up to six months.

12. Design – Transparency and Information requirements (Filing Forms?)

The investor is responsible for notifying an investment to the screening authority before it is completed. The filing form is provided by the ISP and can be completed in either Swedish or English. The notification form also includes appendices such as organisational charts and details of ownership which must be completed.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

If an investment has been made and the conditions for a prohibition are met under the FDI Act, the screening authority may impose a prohibition. However, this does not apply to legal transactions that comprise an investment made in a regulated market within the meaning of Chapter 1 Section 4b of the Securities Market Act (2007:528), an equivalent market outside the EEA, or a multilateral trading facility. In such cases, the screening authority may instead require the investor to sell what has been acquired.

14. Interaction with other legal frameworks (ex: merger control)

The FDI Act is applied in parallel with the existing Protective Security Act (2018:585) and the Swedish Competition Act (2008:579). An investment can be subject to parallel notification requirements under several Swedish and European regimes.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

In the FDI Act, the screening authority may, if necessary with regards to Sweden's national security, public order or public security, prohibit an investment before it is implemented.

16. Judicial Review
Please specify timeline, competent courts and standard of judicial review.

In the FDI Act, final decisions may be appealed to the Swedish Government. Decisions concerning issues such as sanctions may be appealed to the Administrative Court in Stockholm.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application
If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation
Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contacts: Erik Brändt Öfverholm and Linnea Wernheim

Last updated March 2024

1. Country: Ukraine

2. Indicate five biggest FDI countries of origin (indicate percentage if available)

According to the National Bank of Ukraine (for 2021):

• Cyprus (21.33%)
• Netherlands (21.07%)
• Germany (10.62%)
• Switzerland (10.25%)
• United Kingdom (5.69%)

3. Legal Framework in Force

• Law of Ukraine "On Investment Activity" dated September 18, 1991
• Law of Ukraine "On the Regime of Foreign Investment" dated March 19, 1996
• Commercial Code of Ukraine dated January 16, 2003
• Law of Ukraine "On State Support of Investment Projects with Significant Investments into Ukraine" dated December 17, 2020

4. Last revision of the Legal Framework

• Law of Ukraine "On Investment Activity" last revised on October 10, 2022
• Law of Ukraine "On the Regime of Foreign Investment" last revised on August 17, 2022
• Law of Ukraine "On State Support of Investment Projects with Significant Investments into Ukraine" adopted on December 17, 2020

5. Contextualization of the Legal Framework (Historical or other)

Before June 25, 2016, it was mandatory to register FDI with the Ukrainian government regardless of the FDI amount and sector. Registration was intended for information purposes and the only ground to reject FDI registration was noncompliance with the registration procedure. From June 25, 2016, all FDIs are equally entitled to the privileges and guarantees provided for by the Law of Ukraine "On the Regime of Foreign Investment", for example protection against changes in legislation, protection against nationalization and guarantee of repatriation of profit.

From late 2019, the Ministry of Economy has been developing versions of the draft law that would introduce FDI control mechanisms in Ukraine. On February 3, 2021 the draft law "On Performance of Foreign Investments Into Enterprises of Strategic Importance to the National Security of Ukraine" was submitted to the Ukrainian parliament. The draft law required potential foreign investors operating in one of 38 strategic sectors to undergo an assessment and obtain permission for their investment from the state authorities. On 7 September 2021, the draft law was withdrawn from consideration.

The Law of Ukraine "On State Support of Investment Projects with Significant Investments into Ukraine" entered into force on February 13, 2021. The legislation grants foreign and domestic “significant” investments certain privileges, such as tax exemptions.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

N/A

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

N/A

8. Scope - sectors covered

N/A

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

N/A

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

N/A

12. Design – Transparency and Information requirements (Filing Forms?)

N/A

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

N/A

14. Interaction with other legal frameworks (ex: merger control)

Under the Law of Ukraine "On Protection of Economic Competition", the following actions are considered mergers and require merger clearance:

• The merger of two or more companies into one company or the takeover of one or more companies to another company;
• The acquisition of direct or indirect control by one or more companies over another company or companies as determined by a law;
• Incorporation of a company (joint venture) by two or more companies;
• Direct or indirect acquisition of shares by one company (either by ownership or management) in another company, resulting in achieving or exceeding 25% or 50% voting rights in the highest governing body of both companies.

The definition of a merger subject to control in Ukraine generally corresponds with the definition in the EU Merger Regulation. If a transaction classifies as a merger or "concentration" according to the EU Merger Regulation, it is therefore likely to also be treated as a merger in Ukraine.

Merger control applies if the transaction exceeds the following thresholds:

• At least two parties to concentration are active in Ukraine; and
• The combined worldwide turnover or value of assets of all parties exceeds EUR 30 million; and
• The turnover or value of assets in Ukraine of each of at least two parties exceeds EUR 4 million.
• Target or a founder has operations in Ukraine; and
• The target in an acquisition, seller of assets or one of the joint venture founders have turnover or value of assets in Ukraine exceeding EUR 8 million; and
• The turnover of at least one other party exceeds EUR 150 million worldwide.

15. Design – Grounds for blocking, if applicable (such as "public security", "vital interests"). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

N/A

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

N/A

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

N/A

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

Ukraine is currently not a member of the EU but was granted the status of a candidate for accession on June 23, 2022. In 2014, Ukraine and the EU signed an Association Agreement which came into force in 2017. The Association Agreement stipulates that Ukraine shall take steps to harmonize and approximate its national legislation with the EU regulation in fields such as customs, sea transport, public procurement and competition. The Association Agreement is silent on harmonising the FDI legal framework with EU regulation. The EU uses a decentralised process where the competence for FDI screening lies within each Member State. As such, EU Regulation 2019/452 does not require Member States to introduce FDI screening mechanisms.

Given the political course of Ukraine, it is likely that if Ukraine introduces FDI screening mechanism, it will be based on the EU legal framework in material respects.

21. Other relevant information

Ukrainian companies submit standard form reports on FDI they received to the State Statistics Service of Ukraine on a quarterly and annual basis. Such reports are used by the National Bank of Ukraine for data collection purposes, rather than for screening and/or blocking FDI.

There are some specific restrictions to FDI in Ukraine, for example restrictions on:

• Foreign investors investing in agricultural land;
• Investment in mass media and electronic communication by investors originating from zones that are designated as offshore by the Ukrainian government (e.g. BVI, Belize);
• Investment in mass media, electronic communications, privatization, and gambling by Russian investors.

Ukrainian law also provides that foreign investors may enter into joint investment activity agreements without incorporating them as legal entities, provided they register such agreements with the Ministry of Economy of Ukraine. Following registration foreign investors may gain custom duty exemptions on imports. A 2012 change in customs legislation contradicts this requirement, and rendered registration an inexpedient formality. As a result, in November 2019 the Ukrainian government proposed to abolish the requirement to register such joint investment activity agreement and submitted a draft law to the Ukrainian parliament which is still being considered.

Following Russian aggression in the East of Ukraine and Crimea, the National Security and Defence Council of Ukraine ("NSDC”) (with the approval of the President of Ukraine) imposed sanctions on multiple companies and individuals according to the Law of Ukraine "On Sanctions" in order to ensure the protection of national interest and rights of Ukrainian citizens. These sanctions include the freezing of assets, prohibition of commercial operations in Ukraine, prohibition of settlements, prohibition of capital outflow out of Ukraine, and prohibition of participation in privatization.

Following the Russian invasion of Ukraine that started on 24 February 2022, Ukraine adopted the Law of Ukraine “On the Basic Principles of Forced Expropriation in Ukraine of Property of the Russian Federation and Its Residents”. This law is aimed at enabling Ukrainian authorities to expropriate property owned by the Russian Federation and its residents-entities for reasons of public necessity without any compensation. In May 2022 Ukraine adopted a new law introducing a mechanism for expropriation of property blocked by Ukrainian sanctions (the Law of Ukraine “On Amendments to Some Legislative Acts of Ukraine to Increase the Effectiveness of Sanctions Related to the Assets of Individuals”). During martial law, the Ukrainian courts are allowed to expropriate without compensation assets of a sanctioned person whose property is blocked in Ukraine by the NSDC, if such person is engaged in organizing, participating, financing or informational supporting of the armed aggression against Ukraine.

Contacts: Galyna Zagorodniuk

Last updated June 2023

1. Country: United Kingdom

2. Five biggest FDI countries of origin (indicate percentage if available)

The top source markets for FDI projects (by number of projects) into the UK for 2021-2022 were:

• United States (23.9%)
• India (6.7%)
• Germany (6.3%)
• France (5.3%)
• Netherlands (4.7%)¹

_{[1] Report available from: https://www.gov.uk/government/statistics/department-for-international-trade-inward-investment-results-2021-to-2022/department-for-international-trade-inward-investment-results-2021-to-2022-html-version (underlying data at: https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fassets.publishing.service.gov.uk%2Fgovernment%2Fuploads%2Fsystem%2Fuploads%2Fattachment_data%2Ffile%2F1085946%2Fdit-inward-investment-results-tables-2021-to-2022.ods&wdOrigin=BROWSELINK).}

3. Legal Framework in Force

The UK foreign direct investment screening regime is established by the National Security and Investment Act 2021 (the “NSIA”). The regime enables the UK Government to investigate all transactions which may have an impact on national security in the UK. The NSIA regime has been in force since 4 January 2022.

The ultimate responsibility for enforcing the NSIA sits with the Secretary of State for Business, Energy and Industrial Strategy (“BEIS”), but the day-to-day responsibility is with an entity within BEIS called the Investment Security Unit (“ISU”), which consults with other relevant government departments during its review.

The NSIA applies to transactions involving target entities and/or assets. It is not limited to full acquisitions but covers a number of different levels of control (e.g. acquisition of certain minority interests, material influence and certain other commercial arrangements such as benefiting from IP licences).

The NSIA establishes a “hybrid” notification regime, as follows:

• Mandatory: transactions which involve the acquisition of shares, voting rights or control over entities whose UK activities fall within at least one of 17 sectors² which the UK Government considers to be particularly sensitive will require a mandatory notification to BEIS. Transactions which trigger a mandatory notification may not complete before they receive clearance.
• Voluntary: transactions which fall outside the 17 mandatory sectors can be notified to the ISU on a voluntary basis. This is typically the case where the parties believe that the transaction has the potential to give rise to national security risks, for example where the target’s activity is closely related to the 17 sectors, and the parties would like the legal certainty offered by an ISU review.

Only the voluntary notification regime applies to acquisition of assets – the mandatory regime does not apply.

The ISU also has the power to call-in qualifying transactions for a national security review on its own initiative where it has formed a reasonable belief that the transaction may give rise to national security concerns. Where a transaction has not been notified, the ISU is able to call the transaction in for review within six months of the date on which the ISU becomes aware of the transaction, provided that this occurs within five years of completion of the transaction³.

Breaches of the NSIA, including completing a transaction within the mandatory regime before receiving clearance, can result in civil and criminal penalties, and the transaction itself would be void under English law.

_{[2] The relevant sectors are (1) Advanced Materials, (2) Advanced Robotics, (3) Artificial Intelligence, (4) Civil Nuclear, (5) Communications, (6) Computing hardware, (7) Critical Suppliers to Government, (8) Cryptographic Authentication, (9) Data Infrastructure, (10) Defence, (11) Energy, (12) Military and Dual-Use, (13) Quantum Technologies, (14) Satellite and Space Technology, (15) Suppliers to the Emergency Services, (16) Synthetic Biology and (17) Transport.}

_{[3] NB the five year backstop does not apply where an acquirer has failed to notify a transaction that falls within the mandatory notification regime.}

4. Last revision of the Legal Framework

Since becoming fully operational in January 2022, there have been few revisions to the legal framework itself (with the exception of minor amendments to supporting legislation).

However, BEIS has issued a number of guidance documents covering areas such as:

• The information needed to complete a notification form
• General market guidance notes

In June 2022, BEIS also issued its first annual report on the first three months of the NSIA.

5. Contextualization of the Legal Framework (Historical or other)

The NSIA was implemented to provide a new, standalone system for the UK Government to screen acquisitions for national security risks and introduced mandatory notification. The UK Government’s previous powers to intervene on national security grounds primarily stemmed from the Enterprise Act 2002 and were closely intertwined with the UK’s merger control regime, under which notification is voluntary. As discussed above, the NSIA has established a specialist department within BEIS (the ISU) which is charged with the operation and enforcement of the NSIA, relieving the UK’s merger control regulator (the Competition and Markets Authority) of national security responsibilities.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The rules are as set out below. The NSIA does not distinguish between investments from EU member states and ex-EU investments. While the substantive national security risks may be thought to be lower in cases involving a UK investor as compared to a non-UK investor, the NSIA applies equally to UK and non-UK investors.

The NSIA applies irrespective of whether either of the parties have a legal presence in the UK. For the target’s activities to be caught, it is sufficient for it to have sales in the UK.

7. Scope - screening thresholds

Please indicate notably whether it covers solely controlling investments or also portfolio investments.

For a transaction to fall within the scope of the NSIA, it must involve a so-called “trigger event”. The trigger events differ depending on whether a legal entity or assets are being acquired.

The trigger events for transactions involving legal entities include the acquisition of a right or interest which result in one of the following:

• The percentage of shares in the qualifying entity held by the acquirer increasing to more than 25%, more than 50% or at least 75%;
• The percentage of voting rights in the qualifying entity held by the acquirer increasing to more than 25%, more than 50% or at least 75%;
• The acquisition of voting rights in the qualifying entity enabling the acquirer (whether alone or together with other voting rights it holds) to secure or prevent the passage of any class of resolution governing the affairs of the entity; or
• The acquirer being able to exercise material influence over the qualifying entity's policy.
• The trigger events for transactions involving assets include the acquisition of rights or interests in an asset that result in the acquirer being able to:
• Use the asset, or use it to a greater extent than before the acquisition.
• Direct or control how the asset is used, or do so to a greater extent than before the acquisition.

The NSIA is not confined to the acquisition of entities which are incorporated in the UK or assets which are located in the UK. The NSIA also apply to entities incorporated outside of the UK as long as the relevant entity carries on activities in the UK or supplies goods or services to individuals in the UK. Assets located outside of the UK will fall within the NSIA if they are used in connection with activities carried on in the UK, or in connection to the supply of goods or services to individuals in the UK.

8. Scope - sectors covered

The mandatory regime under the NSIA covers transactions where the acquired entity is active in one of the following sectors: (1) Advanced Materials, (2) Advanced Robotics, (3) Artificial Intelligence, (4) Civil Nuclear, (5) Communications, (6) Computing hardware, (7) Critical Suppliers to Government, (8) Cryptographic Authentication, (9) Data Infrastructure, (10) Defence, (11) Energy, (12) Military and Dual-Use, (13) Quantum Technologies, (14) Satellite and Space Technology, (15) Suppliers to the Emergency Services, (16) Synthetic Biology and (17) Transport_⁴.

The voluntary regime under the NSIA applies to all sectors of the UK economy. BEIS has however stated that it is more likely to use its call-in power (as described above) for transactions where the activities of the acquired entity or asset are closely linked to the 17 mandatory sectors. By contrast, transactions which take place outside of and are unrelated to the mandatory sectors are unlikely to be called-in, as national security risks are expected to be less prevalent outside of the 17 sensitive areas⁵.

_{[4] The 17 mandatory sectors are defined in The National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (available here: https://www.legislation.gov.uk/uksi/2021/1264/contents/made). High-level guidance on the mandatory sectors can be found here: https://www.gov.uk/government/publications/national-security-and-investment-act-guidance-on-notifiable-acquisitions/national-security-and-investment-act-guidance-on-notifiable-acquisitions.}

_{[5] Please see: https://www.gov.uk/government/publications/national-security-and-investment-statement-about-exercise-of-the-call-in-power/national-security-and-investment-act-2021-statement-for-the-purposes-of-section-3#areas-of-the-economy-in-which-qualifying-acquisitions-are-more-likely-to-give-rise-to-a-risk-to-national-security-and-more-likely-to-be-called-in.}

9. Design of FDI Screening Mechanism

Please indicate notably the following:

(a) pre-authorisation vs. ex-post screening of FDI? Other?

(b) Covers solely controlling investments or also portfolio investments?

(c) Mandatory or voluntary nature?

A) For transactions which fall within the mandatory regime, the acquirer must seek pre-authorisation and obtain clearance from BEIS before the transaction can be implemented.

B) Transactions which fall within the voluntary regime can be implemented without making a filing to BEIS or, if a voluntary filing is made, can be completed prior to receiving clearance from BEIS. In addition, BEIS also has the power to call-in transactions on its own initiative and screen for national security concerns on an ex-post basis.

B) Please see response to point 7.

C) For asset acquisitions, the regime is voluntary irrespective of the sector in which the asset is used. For acquisitions of interests in legal entities, the regime is voluntary unless the activities of the target fall within one of the 17 sectors discussed above (in which case a mandatory filing is triggered).

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

For notified transactions, whether mandatory or voluntary, the acquirer will begin the process by preparing and submitting a notification form to the ISU using an online portal. There is a different form depending on whether the transaction falls within the mandatory or the voluntary regime.

Once the NSIA application has been submitted, the review process is broadly as follows:

• Short period for BEIS to confirm the notification is complete. There is no formal deadline for BEIS to confirm that a filing is complete, but in our experience this normally takes 1-5 days.
• Once accepted as complete, the following timetable applies:
  1. Initial review up to 30 working days for BEIS to either clear the transaction (in which case the process ends) or issue a call-in notice for a full national security assessment.
  2. If called-in, BEIS has up to a further 30 working days to carry out its full national security assessment. At the end of this period, BEIS will either: (a) clear the transaction (in which case the process ends); or (b) issue a final order imposing remedies (e.g. conditions to protect sensitive information, restrict access to certain sites / assets or block the transaction outright). Please note the period for a full assessment can also be extended by an additional 45 working days if BEIS believes there is a national security risk and it needs more time to assess the risks.
• The total maximum review period for notified transaction is therefore 105 working days and the earliest clearance date is 30 working days from acceptance of the notification.

Where a transaction is not proactively notified by the acquirer but is called-in by BEIS on its own initiative, the timetable will not include the initial 30 working day period in which BEIS determines whether to call-in the transaction. The maximum review period for non-notified transactions is therefore 75 working days (30 working days national security assessment, plus a potential additional 45 working day extension).

The following points should also be noted:

• It is possible for the review to be extended beyond the maximum periods noted above, if BEIS and the acquirer agree to such an extension in writing; and
• The ISU has the power to issue information notices to the parties (as well as to third parties), requesting information necessary to carry out its assessment. If an information notice is issued, the review period will pause until the relevant party has responded to the information notice and the ISU has confirmed that the response is complete / satisfactory.

12. Design – Transparency and Information requirements (Filing Forms?)

For notified transactions, the acquirer is required to provide the information set out in the applicable NSIA notification form. As mentioned above, the ISU is also able to issue information notices to the parties and request further information.

In terms of transparency, our general experience with the regime to date suggests that the ISU is highly unlikely to engage in an iterative dialogue with the parties. It is also unlikely to provide much, if any, information on its assessment and the potential national security risks it is examining. The ISU is more likely to engage in discussions with the parties where it has determined that a transaction will, or is likely to, require remedies.

The IUS does not publish which transactions are notified to it, only the Final Order which either clears, imposes remedies or prohibits a transaction is published. The Order provides a brief summary of the parties, the transaction and the national security risk identified.

13. Design – Range of decisional outcomes (such as blocking, unwinding, notably), so as to distinguish between the purely screening from the mechanisms aimed at interfering with FDI.

Ultimately, a transaction can be cleared in its entirety, cleared subject to undertakings (e.g., information sharing protocols or other ring-fencing provisions) or prohibited. If prohibited, BEIS can order that the transaction, or part thereof, is unwound if it has already completed.

Transactions falling within the mandatory regime will be deemed void under UK law if they are completed without clearance from BEIS.

14. Interaction with other legal frameworks (ex: merger control)

As mentioned above, the NSIA has established a standalone regime for national security scrutiny in the UK and is entirely separate from the UK merger control regime.

15. Design – Grounds for blocking, if applicable (such as “public security”, “vital interests”). Please indicate whether those grounds are based on WTO definitions or not. Also, please indicate what is the degree of discretion of the authority to apply the legal criteria in question.

The Secretary of State may issue a final order and impose remedies (including blocking a transaction) if he/she:

a) is satisfied on a balance of probabilities that:

• a trigger event (as discussed in point 5) has taken place, or arrangements are in process which would result in a trigger event if carried into effect; and
• a risk to national security has arisen from the trigger event, or would arise if carried into effect; and

(b) reasonably considers that the remedies are necessary and proportionate to prevent, remedy or mitigate the risk to national security.

The NSIA does not contain a definition of “national security”, giving the ISU significant discretion in applying the NSIA and in deciding whether a transaction has given rise to national security risks.

16. Judicial Review

Please specify timeline, competent courts and standard of judicial review.

Decisions taken by BEIS pursuant to the NSIA are subject to standard judicial review, with the exception of decisions to impose civil penalties for breaches of the NSIA which are subject to a full merits review. Judicial review in the UK is relatively limited and would not involve the court assessing the merits of the decision itself but rather a review of the process by which the decision was reached.

In the absence of exceptional circumstances, a claim for judicial review must be brought within 28 days from the day after which the grounds for the appeal arose.

17. Publication in Official Gazette or other

Under the NSIA, BEIS is not legally required to publish either decisions to call-in transactions for detailed national security reviews or clearance decisions. The BEIS may nevertheless decide to voluntarily publish such information (e.g. if the Secretary of State considers publication to be in the public’s interest).

The NSIA does require BEIS to publish Final Orders which impose remedies as a condition for clearance. BEIS can exclude from such publication any information which is either likely to prejudice the commercial interest of a person or which would be contrary to national security. Published decisions are typically very brief, without any detailed discussion on the national security risks involved and will only provide a high-level description of the remedies imposed.

18. Relevant Examples of application

If applicable and publicly available, please indicate the number of vetoes in the overall number of reviews and also the number of successful appeals for the last 5 years.

At the time of writing, BEIS has blocked the following three transactions:

• Vision-sensing technology: on 20 July 2022, BEIS prohibited a licensing agreement that would have enabled Beijing Infinite Vision Technology Company Ltd. to use and develop intellectual property relating to vision-sensing technology that had originally been developed by the University of Manchester. BEIS concluded that the technology had potential military applications and could be used to build defence or technological capabilities that could present national security risks to the UK.
• Electronic Design Automation: on 17 August 2022, BEIS prohibited the proposed acquisition of Pulsic Limited (a UK company specialising in electronic design automation (“EDA”) products) by Super Orange HK Holding Limited (a Chinese chip manufacturer). BEIS concluded that Pulsic’s EDA products could be exploited to introduce (automatically and/or without the knowledge of the user) features that could be used to build defence or technological capabilities in civilian or military supply chains.
• Semiconductors: on 16 November 2022, BEIS prohibited Nexperia’s acquisition of Newport (a UK manufacturer of chips and the silicon wafers that microchips are etched onto). Prohibiting the transaction, BEIS noted (amongst other things) that national security risks arose from the location of the Newport site as it could facilitate access to technology and expertise of other major industrial companies situated in the region. The final order required Nexperia to divest itself of at least 86% of its holding in Newport.

All three of the above transactions involved Chinese or Hong Kong acquirers.

Aside from the above prohibition decisions, a number of transactions have which have been cleared subject to remedies. Such remedies included, for example, restrictions on the sharing of information between the acquired entity and the acquirer, removal of acquirer representatives from the board of the acquired entity and the appointment of a Government representative as an observer on the board of the acquired entity.

We are not aware of any judicial review proceedings against a decision by BEIS under the NSIA. However, Nexperia indicated that it intends to commence such proceedings against BEIS’ decision to prohibit its acquisition of Newport⁶.

_{[6] See: https://www.nexperia.com/about/news-events/press-releases/Nexperia-is-shocked-by-the-Secretary-of-State-s-order-to-divest-Newport-Wafer-Fab.html}

19. Stakeholders views on the Legal Framework

With the NSIA having been fully operational for almost one year at the time of writing, the following themes in terms of shareholder views should be noted:

• Wide application of NSIA: by design, the NSIA is very widely drafted and will require a filing to be made whenever the acquired entity is active in one of the 17 mandatory sectors. There are no de minimis rules or other thresholds which must be met in order for the NSIA to apply. It covers investments by both UK and non-UK acquirers and also covers internal re-organisations where the ultimate beneficial owner remains the same.
• Limited engagement from BEIS: a consistent complaint from stakeholders is the limited engagement with BEIS during the course of a review process (especially during the initial 30 working day review period). Parties will typically not have any direct access to a case handler or a named individual with responsibility for the assessment. This makes it very difficult for acquirers to: (1) identify what national security risks BEIS is considering during its review and (2) determine whether to proactively suggest remedial measures to BEIS (and the form and scope of such remedies).

20. Interplay with the future EU Regulation

Please indicate notably whether the existing national legislation will have to be amended so as to comply with the EU one.

N/A

21. Other relevant information

N/A

Contacts: Alexandra Kamerling and Martin Strom

Last updated June 2023