Multi-jurisdiction guide for screening foreign investments

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